<PAGE> 1
[LOGO] GENESCO
(Mark One) FORM 10-Q
[X] Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
October 31, 1996
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Securities and Exchanges Commission
Washington, D.C. 20549
Commission File No. 1-3083
GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340 Genesco
Park 1415 Murfreesboro Road
Nashville, Tennessee
37217-2895 Telephone
615/367-7000
Indicate by check mark whether the
registrant (1) has filed all reports
required to be filed by Section 13
or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12
months (or such shorter period that
the registrant was required to file
such reports with the commission)
and (2) has has been subject to such
filing requirements for the past 90
days. Yes X No
----- -----
- -------------------------------------------------------
Common Shares Outstanding December 6, 1996 - 24,700,793
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
- --------------------------------------------------------------------------------------------------------------------------
PAGE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 1 - Financial Information 3
- --------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet - October 31, 1996, January 31, 1996 and
October 31, 1995 3
- --------------------------------------------------------------------------------------------------------------------------
Consolidated Earnings - Three Months Ended and Nine Months Ended
October 31, 1996 and 1995 4
- --------------------------------------------------------------------------------------------------------------------------
Consolidated Cash Flows - Three Months Ended and Nine Months Ended
October 31, 1996 and 1995 5
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Consolidated Shareholders' Equity - Year Ended
January 31, 1996 and Nine Months Ended October 31, 1996 6
- --------------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 7
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Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
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Part II - Other Information 26
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Signature 27
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</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, OCTOBER 31,
1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and short-term investments $ 25,182 $ 35,550 $ 22,575
Accounts receivable 40,635 32,135 41,091
Inventories 103,620 84,930 91,974
Other current assets 4,130 4,317 4,140
Current assets of operations to be divested -0- -0- 3,236
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 173,567 156,932 163,016
- -----------------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, net 31,909 28,552 28,190
Other noncurrent assets 11,988 12,322 13,412
Noncurrent assets of operations to be
divested -0- -0- -0-
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 217,464 $ 197,806 $ 204,618
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current payments on capital leases $ 839 $ 1,212 $ 1,338
Accounts payable and accrued liabilities 57,004 43,686 53,052
Provision for discontinued operations 3,696 3,899 3,190
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 61,539 48,797 57,580
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt 75,000 75,000 75,000
Capital leases 899 1,485 1,749
Other long-term liabilities 23,931 25,265 22,588
Provision for discontinued operations 12,084 13,354 14,194
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,963 7,958 7,945
Common shareholders' equity:
Par value of issued shares 25,167 24,844 24,838
Additional paid-in capital 122,551 121,715 121,709
Accumulated deficit (85,569) (94,511) (100,515)
Minimum pension liability adjustment (8,244) (8,244) (2,613)
Treasury shares, at cost (17,857) (17,857) (17,857)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 44,011 33,905 33,507
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 217,464 $ 197,806 $ 204,618
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
3
<PAGE> 4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- ------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $124,109 $111,994 $327,283 $314,819
Cost of sales 72,921 66,702 194,694 191,491
Selling and administrative expenses 41,120 39,391 115,315 113,580
Restructuring and other charges 1,693 (192) 1,693 16,137
- -----------------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations before
other income and expenses 8,375 6,093 15,581 (6,389)
Other expenses (income):
Interest expense 2,556 2,656 7,729 7,586
Interest income (264) (155) (1,126) (308)
Other expense (income) 90 (646) 383 (3,404)
- -----------------------------------------------------------------------------------------------------------------------
Total other (income) expenses, net 2,382 1,855 6,986 3,874
- -----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes
and discontinued operations 5,993 4,238 8,595 (10,263)
Income taxes (benefit) 90 7 (347) 22
- -----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations 5,903 4,231 8,942 (10,285)
Discontinued operations:
Excess provision for future losses -0- -0- -0- 14,352
- -----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 5,903 $ 4,231 $ 8,942 $ 4,067
=======================================================================================================================
Earnings (loss) per common share:
Before discontinued operations $ .23 $ .17 $ .34 $ (.43)
Discontinued operations $ .00 $ .00 $ .00 $ .59
Net earnings $ .23 $ .17 $ .34 $ .16
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
4
<PAGE> 5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------------- ------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net earnings $ 5,903 $ 4,231 $ 8,942 $ 4,067
Noncash charges to earnings:
Depreciation and amortization 1,946 1,868 5,703 5,455
Impairment of long-lived assets -0- 978 -0- 978
Restructuring charge 1,693 (1,170) 1,693 15,159
Provision for loss on discontinued operations (excess) -0- -0- -0- (14,352)
Provision for losses on accounts receivable 373 515 1,974 1,238
Other 214 117 799 378
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operations before
working capital and other changes 10,129 6,539 19,111 12,923
Effect on cash of changes in working
capital and other assets and liabilities:
Accounts receivable (5,619) 300 (10,474) 3,834
Inventories (9,163) (4,130) (18,690) (764)
Other current assets (433) (62) 187 342
Accounts payable and accrued liabilities 6,926 2,080 11,765 (6,402)
Other assets and liabilities (3,320) (1,013) (2,561) (3,340)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations (1,480) 3,714 (662) 6,593
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (4,174) (2,655) (9,912) (6,183)
Proceeds from businesses divested and asset sales (1) 17,207 39 18,697
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (4,175) 14,552 (9,873) 12,514
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net change in short-term borrowings -0- (510) -0- 2,523
Payments on capital leases (293) (593) (968) (9,313)
Exercise of options and warrants 570 -0- 1,139 -0-
Other -0- 24 (4) 23
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 277 (1,079) 167 (6,767)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH FLOW (5,378) 17,187 (10,368) 12,340
Cash and short-term investments at
beginning of period 30,560 5,388 35,550 10,235
- -----------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 25,182 $ 22,575 $ 25,182 $ 22,575
=======================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 324 $ 4,266 $ 9,176 $ 8,786
Income taxes 4 6 (467) (761)
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
5
<PAGE> 6
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TOTAL MINIMUM TOTAL
NON-REDEEMABLE PENSION SHARE-
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY LIABILITY HOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK ADJUSTMENT EQUITY
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1995 $ 7,943 $ 24,832 $ 121,670 $(104,582) $ (17,857) $ (2,613) $ 29,393
- -----------------------------------------------------------------------------------------------------------------------
Exercise of options -0- 8 15 -0- -0- -0- 23
Net earnings -0- -0- -0- 10,071 -0- -0- 10,071
Minimum pension liability adjustment -0- -0- -0- -0- -0- (5,631) (5,631)
Other 15 4 30 -0- -0- -0- 49
- -----------------------------------------------------------------------------------------------------------------------
Balance January 31, 1996 $ 7,958 $ 24,844 $ 121,715 $ (94,511) $ (17,857) $ (8,244) $ 33,905
=======================================================================================================================
Net earnings -0- -0- -0- 8,942 -0- -0- 8,942
Exercise of options -0- 160 419 -0- -0- -0- 579
Issue shares-Employee Stock Purchase Plan -0- 161 399 -0- -0- -0- 560
Other 5 2 18 -0- -0- -0- 25
- -----------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1996 $ 7,963 $ 25,167 $ 122,551 $ (85,569) $ (17,857) $ (8,244) $ 44,011
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
6
<PAGE> 7
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
INTERIM STATEMENTS
The consolidated financial statements contained in this report are unaudited
but reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods of the
fiscal year ending February 1, 1997 ("Fiscal 1997") and of the fiscal year
ended January 31, 1996 ("Fiscal 1996"). The results of operations for any
interim period are not necessarily indicative of results for the full year.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the annual report on Form 10-K.
BASIS OF CONSOLIDATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NATURE OF OPERATIONS
The Company's businesses include the manufacture or sourcing, marketing and
distribution of footwear under the Johnston & Murphy, Laredo, Code West, Larry
Mahan, Dockers and Nautica brands, the tanning and distribution of leather by
the Volunteer Leather division and the operation of Jarman, Journeys, Johnston
& Murphy, Boot Factory and Factory To You retail footwear stores.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at January 31, 1996 and October 31,
1996, are short-term investments of $32.0 million and $21.5 million,
respectively. Short-term investments are highly-liquid debt instruments having
an original maturity of three months or less.
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, with cost determined principally by the first-in, first-out
method. Retail inventories are determined by the retail method.
PLANT, EQUIPMENT AND CAPITAL LEASES
Plant, equipment and capital leases are recorded at cost and depreciated or
amortized over the estimated useful life of related assets. Depreciation and
amortization expense is computed principally by the straight-line method.
7
<PAGE> 8
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- --------------------------------------------------------------------------------
The Company implemented Statement of Financial Accounting Standards (SFAS) 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" in the third quarter of Fiscal 1996. This statement
establishes accounting standards for determining impairment of long-lived
assets. The Company periodically assesses the realizability of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than carrying
amount. During the third quarter of Fiscal 1996, the Company identified certain
retail stores that were impaired because of a history of and current period
cash flow losses in these specific stores. An impairment loss of $978,000 was
recognized for these retail stores.
HEDGING CONTRACTS
In order to reduce exposure to foreign currency exchange rate fluctuations in
connection with inventory purchase commitments, the Company enters into foreign
currency forward exchange contracts for Italian Lira. At January 31, 1996 and
October 31,1996, the Company had approximately $4.9 million and $6.2 million,
respectively, of such contracts outstanding. Forward exchange contracts have
an average term of approximately four months. Gains and losses arising from
these contracts offset gains and losses from the underlying hedged
transactions. The Company monitors the credit quality of the major national
and regional financial institutions with whom it enters into such contracts.
POSTRETIREMENT BENEFITS
Substantially all full-time employees are covered by a defined benefit pension
plan. The Company funds at least the minimum amount required by the Employee
Retirement Income Security Act.
In accordance with SFAS 106, postretirement benefits such as life insurance and
health care are accrued over the period the employee provides services to the
Company.
ENVIRONMENTAL COSTS
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated and are evaluated independently of any future claims for
recovery. Generally, the timing of these accruals coincides with completion of
a feasibility study or the Company's commitment to a formal plan of action.
INCOME TAXES
Deferred income taxes are provided for all temporary differences and operating
loss and tax credit carryforwards limited, in the case of deferred tax assets,
to the amount of taxes recoverable from taxes paid in the current or prior
years.
8
<PAGE> 9
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
MANUFACTURING RESTRUCTURING
- --------------------------------------------------------------------------------
In response to the continued weakening of the western boot market, the Company
approved a plan, ("the Manufacturing Restructuring"), in the third quarter
ended October 31, 1996 to realign its manufacturing operations as part of an
overall strategy to focus on marketing and global sourcing. The plan includes
closing the Company's Hohenwald, Tennessee western boot plant by July 1997 with
the elimination of approximately 190 jobs. In connection with the adoption of
the plan, the Company recorded a charge to earnings of $1.7 million including
$0.5 million in asset write-downs of the plant and excess equipment to
estimated market value and $1.2 million of other costs. Included in other
costs is employee severance, facility shutdown and lease costs.
<TABLE>
<CAPTION>
NOTE 3
ACCOUNTS RECEIVABLE
- ------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
IN THOUSANDS 1996 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts receivable $ 43,768 $ 33,068
Miscellaneous receivables 3,722 3,263
- ------------------------------------------------------------------------------------------------------
Total receivables 47,490 36,331
Allowance for bad debts (3,983) (2,065)
Other allowances (2,872) (2,131)
- ------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 40,635 $ 32,135
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NOTE 4
INVENTORIES
- ------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
IN THOUSANDS 1996 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 8,588 $ 9,229
Work in process 3,837 3,792
Finished goods 26,373 22,935
Retail merchandise 64,822 48,974
- ------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $103,620 $ 84,930
======================================================================================================
</TABLE>
9
<PAGE> 10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 5
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
- ------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
IN THOUSANDS 1996 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land $ 240 $ 75
Buildings and building equipment 2,570 2,799
Machinery, furniture and fixtures 35,674 32,927
Construction in progress 3,455 1,114
Improvements to leased property 40,239 39,195
Capital leases:
Land 60 60
Buildings 2,195 2,195
Machinery, furniture and fixtures 7,372 7,392
- ------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 91,805 85,757
Accumulated depreciation and amortization:
Plant and equipment (51,998) (50,355)
Capital leases (7,898) (6,850)
- ------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 31,909 $ 28,552
======================================================================================================
</TABLE>
10
<PAGE> 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 6
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
- ------------------------------------------------------------------------------------------------------------------------
PROVISION FOR DISCONTINUED OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1996 $15,222 $ 10 $ 2,021 $17,253
Charges and adjustments, net (1,015) (10) (448) (1,473)
- ------------------------------------------------------------------------------------------------------------------------
Balance October 31, 1996 14,207 -0- 1,573 15,780
Current portion 2,171 -0- 1,525 3,696
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $12,036 $ -0- $ 48 $12,084
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
RESTRUCTURING RESERVES
- ------------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1996 $ 956 $ 1,666 $ 382 $ 3,004
Manufacturing restructuring 748 451 -0- 1,199
Charges and adjustments, net (558) (281) 66 (773)
- ------------------------------------------------------------------------------------------------------------------------
Balance October 31, 1996 1,146 1,836 448 3,430
Current portion (included in accounts
payable and accrued liabilities) 1,146 1,631 448 3,225
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 205 $ -0- $ 205
=======================================================================================================================
</TABLE>
11
<PAGE> 12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
New York State Environmental Proceedings
The Company is a defendant in two separate civil actions filed by the State of
New York; one against the City of Gloversville, New York, and 33 other private
defendants and the other against the City of Johnstown, New York, and 14 other
private defendants. In addition, third party complaints and cross claims have
been filed against numerous other entities, including the Company, in both
actions. These actions arise out of the alleged disposal of certain hazardous
material directly or indirectly in municipal landfills. The complaints in both
cases allege the defendants, together with other contributors to the municipal
landfills, are liable under a federal environmental statute and certain common
law theories for the costs of investigating and performing remedial actions
required to be taken with respect to the landfills and damages to the natural
resources.
The environmental authorities have issued decisions selecting plans of
remediation with respect to the Johnstown and Gloversville sites which have
total estimated costs of $8.8 million and $12.2 million, respectively.
The Company has filed answers to the complaints in both the Johnstown and
Gloversville cases denying liability and asserting numerous defenses. Because
of uncertainties related to the ability or willingness of the other defendants,
including the municipalities involved, to pay a portion of future remediation
costs, the availability of State funding to pay a portion of future remediation
costs, the insurance coverage available to the various defendants, the
applicability of joint and several liability and the basis for contribution
claims among the defendants, management is presently unable to predict the
outcome or to estimate the extent of liability the Company may incur with
respect to either of the Johnstown or Gloversville actions.
The Company has received notice from the New York State Department of
Environmental Conservation (the "Department") that it deems remedial action to
be necessary with respect to certain contaminants in the vicinity of a knitting
mill operated by the Company or a former subsidiary from 1965 to 1969, and that
it considers the Company a potentially responsible party. The Department has
also proposed a form of consent order whereby the Company would assume
responsibility for an interim remediation measure with regard to the site. The
owner of the site has advised the Company that it intends to hold the Company
responsible for any required remediation or other damages incident to the
contamination. The Company has not ascertained what responsibility, if any, it
has for any contamination in connection with the facility or what other parties
may be liable in that connection, has not entered into the consent order with
the Department, and is unable to predict whether its own liability, if any,
will have a material effect on its financial condition or results of
operations.
12
<PAGE> 13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
LEGAL PROCEEDINGS, CONTINUED
- --------------------------------------------------------------------------------
Whitehall Environmental Sampling
The Michigan Department of Environmental Quality ("MDEQ") has performed
sampling and analysis of soil, sediments, surface water, groundwater, and waste
management areas at the Company's Volunteer Leather Company facility in
Whitehall, Michigan. MDEQ advised the Company that it would review the results
of the analysis for possible referral to the EPA for action under the
Comprehensive Environmental Response Compensation and Liability Act. However,
the Company is cooperating with MDEQ and has been advised by MDEQ that no EPA
referral is presently contemplated. Neither MDEQ nor the EPA has threatened or
commenced any enforcement action. In response to the testing data, the Company
submitted and MDEQ approved a work plan, pursuant to which a hydrogeological
study was completed and submitted to MDEQ in March 1996. Additional studies
regarding wastes on-site and groundwater have been performed and MDEQ has
approved the work plan for an additional study of adjoining lake sediments to
serve as a basis for the Company's remedial action plan for the site. The
Company is presently unable to determine whether the implementation of the plan
will have a material effect on its financial condition or results of
operations.
Preferred Shareholder Action
On January 7, 1993, 23 former holders of the Company's series 2, 3 and 4
subordinated serial preferred stock filed a civil action against the Company
and certain officers in the United States District Court for the Southern
District of New York. The plaintiffs allege that the defendants misrepresented
and failed to disclose material facts to representatives of the plaintiffs in
connection with exchange offers which were made by the Company to the
plaintiffs and other holders of the Company's series 1, 2, 3 and 4 subordinated
serial preferred stock from June 23, 1988 to August 1, 1988. The plaintiffs
contend that had they been aware of the misrepresentations and omissions, they
would not have agreed to exchange their shares pursuant to the exchange offers.
The plaintiffs allege breach of fiduciary duty and fraudulent and negligent
misrepresentations and seek damages in excess of $10 million, costs, attorneys'
fees, interest and punitive damages in an unspecified amount. By order dated
December 2, 1993, the U.S. District Court denied a motion for judgement on the
pleadings filed on behalf of all defendants. On July 6, 1994, the court denied
a motion for partial summary judgement filed on behalf of the plaintiffs. On
September 6, 1996, the court granted the defendants' motion for summary
judgment regarding certain alleged misrepresentations by one of the Company's
officers and the plaintiffs' motion regarding the existence and breach of
fiduciary duties owed by the Company to the plaintiffs. The court's order
stated that the plaintiffs must show that the breach caused damages to be
entitled to a recovery on that count. It denied the defendants' and
plaintiffs' motions for summary judgment in other respects. The Company and
the individual defendants intend to continue to defend the action vigorously.
The Company is unable to predict if the action will have a material adverse
effect on the Company's results of operations or financial condition.
13
<PAGE> 14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
LEGAL PROCEEDINGS, CONTINUED
- --------------------------------------------------------------------------------
Texas Interference Action
On October 6, 1995, a prior holder of a license to manufacture and market
western boots and other products under a trademark now licensed to the Company
filed an action in the District Court of Dallas County, Texas against the
Company and a contract manufacturer alleging tortious interference with a
business relationship, breach of contract, tortious interference with a
contract, breach of a confidential relationship and civil conspiracy based on
the Company's entry into the license. The Company filed an answer denying all
the material allegations of the plaintiff's complaint. The Company is unable
to predict whether the outcome of the litigation will have a material effect on
its financial condition or results of operations.
14
<PAGE> 15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The following discussion includes certain forward-looking statements. Actual
results could differ materially from those reflected by the forward-looking
statements in the discussion and a number of factors may adversely affect
future results, liquidity and capital resources. These factors include
softness in the general retail environment, the timing and acceptance of
products being introduced to the market, international trade developments
affecting Chinese and other foreign sourcing of products, as discussed in
greater detail below, the outcome of various litigation and environmental
contingencies, including those discussed in Note 7 to the Consolidated
Financial Statements, the solvency of the retail customers of the Company, the
level of margins achievable in the marketplace and the ability to minimize
operating expenses. They also include possible continued weakening of the
western boot market, which has experienced a somewhat prolonged down cycle.
Many western boot retailers are thinly capitalized. Continued weakness in
demand for western boots could result in the failure of those retailers and,
consequently, the erosion of the Company's customer base. Although the Company
believes it has the business strategy and resources needed for improved
operations, future revenue and margin trends cannot be reliably predicted and
the Company may alter its business strategies during Fiscal 1997.
SIGNIFICANT DEVELOPMENTS
Manufacturing Restructuring Charge
In response to the continued weakening of the western boot market, the Company
approved a plan, ("the Manufacturing Restructuring"), in the third quarter
ended October 31, 1996 to realign its manufacturing operations as part of an
overall strategy to focus on marketing and global sourcing. The plan includes
closing the Company's Hohenwald, Tennessee western boot plant by July 1997 with
the elimination of approximately 190 jobs. In connection with the adoption of
the plan, the Company recorded a charge to earnings of $1.7 million including
$0.5 million in asset write-downs of the plant and excess equipment to
estimated market value and $1.2 million of other costs. Included in other costs
is employee severance, facility shutdown and lease costs.
Revolving Credit Agreement
On January 5, 1996, the Company entered into a revolving credit agreement with
two banks providing for loans or letters of credit of up to $35 million. The
agreement expires January 5, 1999. This agreement replaced a $50 million
revolving credit agreement providing for loans or letters of credit. See
"Liquidity and Capital Resources."
International Trade Developments
Manufacturers in China have become major suppliers to Genesco and other
footwear companies in the United States. In Fiscal 1997 the Company expects to
import approximately 18% of purchases from China. In addition to the products
the Company imports, many of the Company's suppliers import a significant
amount of their products from China. China's most favored nation trading
status was renewed for an additional year in June 1996, and a congressional
effort to reverse the renewal failed in July. Additionally, the U.S. did not
impose threatened trade sanctions against China in connection with a dispute
over inadequate protection of intellectual property in China. Thus, while
disruptions of supply from China related to trade disputes does not appear to
constitute
15
<PAGE> 16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
a substantial threat to the Company's business and prospects in the immediate
future, there can be no assurance that a subsequent failure by the U.S. to
grant the annual extension of most favored nation status to China or other
disruptions in the Company's ability to import shoes from China will not occur,
or that any such disruption would not have a material adverse effect on the
Company's operations.
Fiscal 1995 Restructuring Substantially Completed
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, the Company's board
of directors, on November 3, 1994, approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constituted its entire men's apparel
segment.
The 1995 Restructuring provided for the following:
1995 Restructuring Charge
- Liquidation of the University Brands children's shoe business,
- Sale of the Mitre Sports soccer business, and
- Facility consolidation costs and permanent work force
reductions.
1995 Restructuring Provision
- Liquidation of The Greif Companies men's tailored clothing
business, and
- Sale of the GCO Apparel Corporation tailored clothing
manufacturing business.
The transactions provided for in the 1995 Restructuring were substantially
complete as of January 31, 1996 and the Company does not expect any material
future adjustments arising from the completion of the 1995 Restructuring. The
divestiture of the University Brands business was completed in February 1995.
The operations of The Greif Companies have ceased, its inventories and
equipment have been liquidated and its last major remaining long-term lease
liability was resolved in June 1995. The Company's GCO Apparel Corporation was
sold in June 1995. The Company's Mitre Sports soccer business was sold in
August 1995.
RESULTS OF OPERATIONS - THIRD QUARTER FISCAL 1997 COMPARED TO FISCAL 1996
The Company's net sales from ongoing operations in the third quarter ended
October 31, 1996 increased 12.3% from the previous year. The Company's total
net sales (including both ongoing operations and, for the third quarter ended
October 31, 1995, $1,502,000 of sales from the operations divested as part of
the 1995 Restructuring) increased 10.8%. Total gross margin for the quarter
increased 13.0% and increased as a percentage of net sales from 40.4% to 41.2%.
Selling and administrative expenses increased 4.4% but decreased as a
percentage of net sales from 35.2% to 33.1%. Pretax earnings in the third
quarter ended October 31, 1996 were $5,993,000, compared to $4,238,000 for the
quarter ended October 31, 1995. Pretax earnings for the third quarter ended
October 31, 1996 included the $1.7 million Manufacturing Restructuring charge.
Pretax earnings for the third quarter ended October 31, 1995 included a
positive adjustment of $1.2 million to the
16
<PAGE> 17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
1995 Restructuring Charge and a $1.0 million charge for impaired assets due to
the implementation of SFAS No. 121. The Company reported net earnings of
$5,903,000 ($0.23 per share) for the third quarter ended October 31, 1996
compared to net earnings of $4,231,000 ($0.17 per share) in the third quarter
ended October 31, 1995.
Footwear Retail
<TABLE>
<CAPTION>
Three Months
Ended October 31,
------------------- %
1996 1995 Change
---- ---- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales ..................................... $71,143 $61,553 15.6%
Operating Income before
Restructuring and Other Charges ............. $ 7,055 $ 5,038 40.0%
Restructuring and Other Charges ............... $ -0- $ (978) 100.0%
Operating Income ............................... $ 7,055 $ 4,060 73.8%
Operating Margin ............................... 9.9% 6.6%
</TABLE>
Primarily due to an increase in comparable store sales of approximately 12%,
net sales from footwear retail operations increased 15.6% in the quarter ended
October 31, 1996 compared to the previous year. The average price per pair
increased 6% and unit sales increased 10% for the third quarter.
The Company's third quarter comparable store sales were as follows:
<TABLE>
<S> <C>
Jarman Retail +9%
Jarman Lease +8%
Journeys +27%
Johnston & Murphy (including factory stores) +9%
Other Outlet Stores -4%
Total Retail +12%
</TABLE>
The Jarman Lease comparable store increase was aided by a 4% increase in the
average square footage due to remodeling while the other outlet store decline
was due to the continued weakness in demand for western boot products.
Gross margin as a percentage of net sales decreased from 50.0% to 49.9%,
primarily from changes in product mix to more branded products. Operating
expenses increased 10.2%, primarily due to
17
<PAGE> 18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
increased selling salaries, advertising, rent expense and increased divisional
management expenses to support the new store growth, but decreased as a
percentage of net sales from 41.8% to 39.9%.
Operating income before restructuring and other charges in the third quarter
ended October 31, 1996 was up 40.0% compared to the same period last year due
to increased sales and the lower expenses as a percentage of sales. During the
third quarter ended October 31, 1995 the Company implemented SFAS No. 121
resulting in a $1.0 million charge to retail earnings.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Three Months
Ended October 31,
---------------------- %
1996 1995 Change
---- ---- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales ..................................... $52,966 $50,441 5.0%
Net Sales - Ongoing ........................... $52,966 $48,939 8.2%
Operating Income before
Restructuring and Other Charges ............. $ 5,359 $ 4,367 22.7%
Restructuring and Other Charges ............... $(1,693) $ 1,170 NA
Operating Income ............................... $ 3,666 $ 5,537 (33.8)%
Operating Margin ............................... 6.9% 11.0%
</TABLE>
Net sales from footwear wholesale and manufacturing operations were $2.5
million (5%) higher in the third quarter ended October 31, 1996 than in the
same period last year. Sales from ongoing operations were up 8.2%, reflecting
primarily increased men's branded footwear sales due to the introduction of new
product lines combined with an increase in product assortment by key retailers.
Gross margin in the third quarter ended October 31, 1996 increased 8% compared
to the same period last year and gross margin as a percentage of net sales also
increased from 28.8% to 29.6%, primarily from changes to a higher margin sales
mix. Gross margin for ongoing operations increased 11.2% and increased as a
percentage of sales from 28.8% to 29.6%.
Operating expenses decreased 4.3% and decreased as a percentage of net sales
from 21.4% to 19.5%, reflecting primarily the absence of the expenses
attributable to the operations divested in the 1995 Restructuring. Ongoing
operations expenses increased 3.7%, primarily due to higher advertising
expenses including advertising associated with the introduction of the Larry
Mahan boot brand but decreased as a percentage of sales from 20.3% to 19.5%.
The increase in operating income before restructuring and other charges is due
primarily to increased sales and the lower expenses as a percentage of sales.
During the third quarter ended
18
<PAGE> 19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
October 31, 1996 the Company recorded a charge to earnings of $1.7 million
related to the Manufacturing Restructuring.
Corporate and Interest Expenses
Corporate and other expenses in the third quarter ended October 31, 1996 were
$2.4 million compared to $2.9 million the previous year, a decrease of 15%.
The decrease in corporate expenses is attributable primarily to decreased bonus
accruals due to changes in the structure of the Company's bonus plan.
Interest expense decreased $100,000, or 4%, while interest income increased
$109,000 from last year due to increased short-term investments related to the
cash generated from the 1995 Restructuring. There were no borrowings under the
Company's revolving credit facility during the three months ended October 31,
1996 while borrowings averaged $681,000 during the three months ended October
31, 1995.
Other Income
Operating results of businesses divested pursuant to the 1995 Restructuring are
included in the Company's sales, gross margin and selling and administrative
expenses for the three months ended October 31, 1995. The net operating losses
incurred by these operations subsequent to the decision to divest were charged
against the restructuring reserves established to provide for such losses. The
elimination of these losses from the Company's results of operations for the
three months ended October 31, 1995 is presented as other income in the
Consolidated Earnings Statement. Such operating losses totalled $0.5 million
for the three months ended October 31, 1995.
RESULTS OF OPERATIONS - NINE MONTHS ENDED OCTOBER 31 FISCAL 1997 COMPARED TO
FISCAL 1996
The Company's net sales from ongoing operations for the nine months ended
October 31, 1996, which included an additional week versus a year ago,
increased 15.2% from the previous year. The Company's total net sales
(including both ongoing operations and, for the nine months ended October 31,
1995, $30,741,000 of sales from the operations divested as part of the 1995
Restructuring) increased 4.0%. Total gross margin for the nine months
increased 7.5% and increased as a percentage of net sales from 39.2% to 40.5%.
Selling and administrative expenses increased 1.5% from the previous year but
decreased as a percentage of net sales from 36.1% to 35.2%. Pretax earnings
for the nine months ended October 31, 1996 were $8,595,000, compared to a
pretax loss of $10,263,000 for the nine months ended October 31, 1995. Pretax
earnings for the nine months ended October 31, 1996 included the $1.7 million
Manufacturing Restructuring charge. The pretax loss for the nine months ended
October 31, 1995 included a $15.2 million increase in the 1995 Restructuring
Charge, a $1.0 million charge for impaired assets due to the implementation of
SFAS No. 121 and recognition of a $1.8 million gain from the favorable
resolution of a claim relating to import duties. The Company reported net
earnings of $8,942,000 ($0.34 per share) for the nine months ended October 31,
1996 compared to net earnings of $4,067,000 ($0.16 per share) for the nine
months ended October 31, 1995. The nine months ended October 31, 1995 net
earnings included, in addition to the 1995 Restructuring Charge adjustment
19
<PAGE> 20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
and the charge for impaired assets, a positive adjustment of $14.4 million to
the 1995 Restructuring Provision.
Footwear Retail
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
------------------------- %
1996 1995 Change
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Net Sales ..................................... $192,025 $163,892 17.2%
Operating Income before
Restructuring and Other Charges ............. $ 14,483 $ 9,238 56.8%
Restructuring and Other Charges ............... $ -0- $ (978) 100.0%
Operating Income ............................... $ 14,483 $ 8,260 75.3%
Operating Margin ............................... 7.5% 5.0%
</TABLE>
Primarily due to an increase in comparable store sales of approximately 12% and
seven additional selling days in the nine months, net sales from footwear
retail operations increased 17.2% for the nine months ended October 31, 1996
compared to the previous year. The average price per pair increased 6% and
unit sales increased 12% for the nine months ended October 31, 1996.
The Company's nine month comparable store sales and store count at the end of
the period were as follows:
<TABLE>
<CAPTION>
Store Count
October 31,
------------
Comp Sales 1996 1995
---------- ---- ----
<S> <C> <C> <C>
Jarman Retail +10% 143 140
Jarman Lease +12% 84 82
Journeys +23% 109 93
Johnston & Murphy (including factory stores) +10% 116 116
Other Outlet Stores -7% 40 41
Total Retail +12% 492 472
</TABLE>
The Jarman Lease comparable store increase was aided by a 5% increase in the
average square footage due to remodeling while the other outlet store decline
was due to the continued weakness in demand for western boot products.
20
<PAGE> 21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Gross margin as a percentage of net sales decreased from 49.7% to 49.3%,
primarily from increased markdowns to stimulate sales in the Company's boot
outlets and changes in product mix to more branded products. Operating
expenses increased 10.4%, primarily due to increased selling salaries,
advertising and rent expense and increased divisional management expenses to
support new store growth, but decreased as a percentage of net sales from 44.2%
to 41.6%.
Operating income before restructuring and other charges for the nine months
ended October 31, 1996 was up 56.8% compared to the same period last year due
to increased sales (including the additional week) and the lower expenses as a
percentage of sales.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
----------------------- %
1996 1995 Change
-------- --------- -------
(In Thousands)
<S> <C> <C> <C>
Net Sales ..................................... $135,258 $150,927 (10.4)%
Net Sales - Ongoing ........................... $135,258 $120,282 12.5%
Operating Income before
Restructuring and Other Charges ............. $ 9,150 $ 10,874 (15.9)%
Restructuring and Other Charges ............... $ (1,693) $(15,159) 88.8%
Operating Income (Loss) ....................... $ 7,457 $ (4,285) NA
Operating Margin ............................... 5.5% (2.8)%
</TABLE>
Net sales from footwear wholesale and manufacturing operations were $15.7
million (10.4%) lower for the nine months ended October 31, 1996 than in the
same period last year, reflecting primarily the absence of sales in the nine
months ended October 31, 1996 from the operations divested as part of the 1995
Restructuring. Sales from ongoing operations were up 12.5%, reflecting
primarily increased men's branded footwear and tanned leather sales, which more
than offset the continuing trend of decreased sales of western boots, primarily
attributable to lower unit sales. The increase in branded sales was aided by
an increase in product assortment by key retailers.
Gross margin for the nine months ended October 31, 1996 decreased 9.5%,
primarily from the absence of the gross margins of the divested operations,
but increased as a percentage of net sales from 27.8% to 28.1%. Gross margin
for ongoing operations increased 14.8% and increased as a percentage of sales
from 27.5% to 28.1% primarily from changes to a higher margin sales mix.
Operating expenses decreased 15.8% and decreased as a percentage of net sales
from 22.7% to 21.3%, reflecting primarily the absence of the expenses
attributable to the operations divested in the 1995 Restructuring. Ongoing
operations expenses increased as a percentage of sales from 20.1% to
21
<PAGE> 22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
21.3%, primarily due to higher advertising expenses including advertising
associated with the introduction of the Larry Mahan boot brand and higher
divisional administrative expenses to support the growth in the branded
businesses as well as the Larry Mahan boot brand and higher royalty expenses.
Included in the operating income before restructuring and other charges for the
nine months ended October 31, 1995 is a one-time gain of $1.8 million from the
favorable resolution of a claim relating to import duties. Operating income
before restructuring and other charges and the import duty claim was flat with
the increase in earnings of men's branded footwear from increased sales being
offset by lower earnings in the Company's boot business reflecting higher bad
debt expense and higher than normal returns related to the continued weakness
of the western boot market and costs associated with the introduction of the
Larry Mahan brand.
Corporate and Interest Expenses
Corporate and other expenses for the nine months ended October 31, 1996 were
$6.7 million compared to $7.0 million the previous year, a decrease of 3%.
Included in this year's corporate and other expenses is a $150,000 provision
for environmental litigation. The decrease in corporate expenses, excluding
the provision for environmental litigation, is attributable primarily to
decreased bonus accruals due to changes in the structure of the Company's bonus
plan.
Interest expense increased $143,000, or 2%, from last year due to interest
expense incurred for the union pension liability as a result of the 1995
Restructuring Provision, while interest income increased $818,000 from last
year due to increased short-term investments related to the cash generated from
the 1995 Restructuring. There were no borrowings under the Company's revolving
credit facility during the nine months ended October 31, 1996 while borrowings
averaged $245,000 during the nine months ended October 31, 1995.
Other Income
Operating results of businesses divested pursuant to the 1995 Restructuring are
included in the Company's sales, gross margin and selling and administrative
expenses for the nine months ended October 31, 1995. The net operating losses
incurred by these operations subsequent to the decision to divest were charged
against the restructuring reserves established to provide for such losses. The
elimination of these losses from the Company's results of operations for the
nine months ended October 31, 1995 is presented as other income in the
Consolidated Earnings Statement. Such operating losses totalled $1.4 million
for the nine months ended October 31, 1995. Also included in other income for
the nine months ended October 31, 1995 is a $1.8 million gain from the
favorable resolution of a claim relating to import duties.
22
<PAGE> 23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
<TABLE>
<CAPTION>
October 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash and short-term investments ..................... $ 25.2 $ 22.6
Working capital ..................................... $ 112.0 $ 105.4
Long-term debt (includes current
maturities) ..................................... $ 75.0 $ 75.0
Current ratio ....................................... 2.8x 2.8x
</TABLE>
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and
fall of each year. Cash flow from operations is ordinarily generated
principally in the fourth quarter of each fiscal year.
Cash used by operating activities was $662,000 in the first nine months of
Fiscal 1997 compared to cash provided of $6,593,000 for the same period last
year. The $7.3 million reduction in cash flow from operating activities
between the first nine months of Fiscal 1997 and the first nine months of
Fiscal 1996 reflects primarily changes in accrued liabilities from bonus
payments earned in Fiscal 1996, seasonal increases in working capital and the
additional working capital needed to support new store growth. The Company has
added a net of 29 stores in the nine months ended October 31, 1996 while there
was a net reduction of 26 stores in the nine months ended October 31, 1995.
An $18.7 million increase in inventories from January 31, 1996 levels reflected
in the Consolidated Cash Flows Statement reflects planned seasonal increases as
well as the introduction of the Larry Mahan boot brand and increases in retail
inventory to support the net increase of 29 stores from January 31, 1996. The
$11.6 million increase in inventories compared with October 31, 1995 reflects
the buildup of inventory to support the increased level of sales and the
additional inventory associated with the introduction of the Larry Mahan brand
and a buildup of inventory in its core western business. The Company has
addressed the core western boot increase in inventory through the Manufacturing
Restructuring and cutting back in production levels.
As reflected in the Consolidated Cash Flows Statement, accounts receivable at
October 31, 1996 increased $10.5 million compared to January 31, 1996 primarily
due to increased sales of men's branded footwear and the introduction of the
Larry Mahan boot brand. Accounts receivable at October 31, 1996 were $456,000
less than at October 31, 1995 primarily due to changes in sales mix and sales
patterns within the quarter and increased provisions for bad debts relating to
western boot customers.
23
<PAGE> 24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Cash Flows Statement at October 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
(In Thousands) 1996 1995
-------- --------
<S> <C> <C>
Accounts payable ..................... $14,181 $ 1,558
Accrued liabilities ................. (2,416) (7,960)
-------- --------
$11,765 $(6,402)
======== ========
</TABLE>
The fluctuations in accounts payable are due to changes in buying patterns,
payment terms negotiated with individual vendors and changes in inventory
levels.
The change in accrued liabilities was due primarily to payment of bonuses and
to payment of severance costs and liabilities related to the Restructurings.
There were no revolving credit borrowings during the nine months ended October
31, 1996, as cash generated from operations and cash on hand funded capital
expenditures. There were only minimal revolving credit borrowings during the
nine months ended October 31, 1995 as cash generated from the 1995
Restructuring more than offset seasonal working capital increases in the
remaining operations. The revolving credit agreement was amended as of October
31, 1996 to increase the annual capital expenditure limit to $16,000,000 for
Fiscal 1997 and $25,000,000 thereafter subject to possible carryforwards from
the previous year of up to $2,000,000 if less is spent in the current year.
Capital Expenditures
Total capital expenditures in Fiscal 1997 are expected to be approximately
$14.6 million. These include expected retail expenditures of $11.4 million to
open approximately 55 new retail stores (38 were opened by October 31, 1996)
and to complete 53 major store renovations. Capital expenditures for wholesale
and manufacturing operations and other purposes are expected to be
approximately $3.2 million.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be
sufficient to fund all of its capital expenditures through Fiscal 1997. The
approximately $6.9 million of costs associated with the 1994 Restructuring,
1995 Restructuring and the Manufacturing Restructuring that are expected to be
incurred during the next twelve months are also expected to be funded from cash
on hand and from cash generated from operations.
There were $7.7 million of letters of credit outstanding under the revolving
credit agreement at October 31, 1996.
The restricted payments covenant contained in the indenture under which the
Company's 10 3/8% senior notes were issued prohibits the Company from declaring
dividends on the Company's capital
24
<PAGE> 25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
stock, except from a pool of available net earnings and the proceeds of stock
sales. At October 31, 1996, that pool was in a $99.6 million deficit position.
The aggregate of annual dividend requirements on the Company's Subordinated
Serial Preferred Stock, $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and
on its $1.50 Subordinated Cumulative Preferred Stock is $302,000. The Company
currently has dividend arrearages in the amount of $906,000 and is unable to
predict when dividends may be reinstated.
25
<PAGE> 26
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At October 31, 1996 Genesco was in arrears with respect to dividends payable on
the following classes of preferred stock:
<TABLE>
<CAPTION>
ARREARAGE
-------------------------------------------
DATE DIVIDENDS BEGINNING THIS END OF
CLASS OF STOCK PAID TO OF QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2.30 Series 1 October 31, 1993 $235,499 $ 21,409 $256,908
$4.75 Series 3 October 31, 1993 256,443 23,313 279,756
$4.75 Series 4 October 31, 1993 214,382 19,489 233,871
$1.50 Subordinated Cumulative
Preferred October 31, 1993 123,820 11,256 135,076
- ------------------------------------------------------------------------------------------------------
TOTALS $830,144 $ 75,467 $905,611
======================================================================================================
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(10) k. First Amendment to Loan Agreement dated as of October 31, 1996
among the Company and NationsBank of North Carolina, N.A. and
First National Bank of Chicago.
(11) Computation of earnings per common and common share equivalent.
(27) Financial Data Schedule (for SEC use only)
- ---------------
REPORTS ON FORM 8-K
None
26
<PAGE> 27
SIGNATURE
- ------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
James S. Gulmi
Chief Financial Officer
December 16, 1996
27
<PAGE> 1
EXHIBIT (10)K.
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (the "Amendment") is dated as
of October 31, 1996, and is entered into by and among Genesco Inc. (the
"Borrower") and NationsBank, N.A. as agent for the Banks and individually (the
"Agent") and The First National Bank of Chicago, as co-agent for the Banks and
individually (the "Co-Agent"). The Agent and the Co-Agent are sometimes
collectively referred to as the "Banks."
R E C I T A L S
1. The Borrower, the Banks, the Co-Agent and the Agent are
parties to a Loan Agreement dated as of January 5, 1996 (the "Loan Agreement").
Capitalized terms used but not otherwise defined herein shall have the same
meanings as in the Loan Agreement.
2. The parties hereto desire to amend the Loan Agreement in the
particular respects hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, the Banks and the Borrower hereby agree as follows:
1. AMENDMENT TO SECTION 7.5.4. Section 7.5.4 is hereby deleted
in its entirety and the following is substituted in lieu thereof:
7.5.4 CAPITAL EXPENDITURES. The Borrower will not, and will not
permit any of its Subsidiaries to, purchase or otherwise acquire, or
commit to purchase or otherwise acquire, any fixed or capital asset or
otherwise make or incur obligations for Capital Expenditures by the
expenditure of cash or the incurrence of Indebtedness, the cost of
which (or, in the case of any acquisition not in the nature of an
ordinary purchase, the book value of the consideration given for
which), when aggregated with the costs of all other such assets
purchased or otherwise acquired by the Borrower and its Subsidiaries
taken as a whole during the Fiscal Year, would exceed $16,000,000
during the Fiscal Year ending January31, 1997 or $25,000,000 during
any Fiscal Year ending thereafter; provided, that, if during any
Fiscal Year Capital Expenditures are less than any of the applicable
amounts set forth above, the lesser of (i)the difference between the
applicable amount and the actual Capital Expenditures for such Fiscal
Year, or (ii)$2,000,000 (such lesser amount being referred to as the
"Excess Capital Expenditures Allowance") shall be carried forward so
as to increase the maximum Capital Expenditures which may be made in
accordance with this Subsection 7.5.4 for the immediately succeeding
Fiscal Year, but not for any other subsequent Fiscal Year, except to
the extent permitted by the next succeeding sentence. Capital
Expenditures made in any such succeeding Fiscal Year shall be applied
first to the Excess Capital
<PAGE> 2
Expenditures Allowance carried forward until such Allowance is
exhausted and shall then be applied to the maximum Capital
Expenditures specified above for such Fiscal Year in determining
whether an Excess Capital Expenditure Allowance is available to be
carried forward to the next succeeding Fiscal Year in the manner
described in this Subsection 7.5.4.
2. HEADINGS. Article and section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.
3. APPLICABLE LAW. This Amendment shall be governed by, and
shall be construed and enforced in accordance with, the laws of the State of
Tennessee.
4. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
the parties hereto and their respective successors and assigns and shall inure
to the benefit of the parties hereto and the successors and assigns of the
Banks.
5. COUNTERPARTS; EFFECTIVENESS. This Amendment and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
6. ENTIRE AGREEMENT. The Loan Agreement, as amended by this
Amendment, represents the entire understanding among the parties with respect
to the matters set forth herein and supersedes all prior understandings among
the parties hereto with respect to such matters.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed effective as of the date
first above written.
ATTEST: GENESCO INC.
By: /s/ Roger Sisson By /s/ Matthew N. Johnson
------------------- ----------------------
Roger Sisson Matthew N. Johnson
Corporate Secretary Title Treasurer
(Corporate Seal)
[signatures continued on page 3]
-2-
<PAGE> 3
NATIONSBANK, N.A.
Individually and as Agent
By /s/ Jeb E. Ball
---------------------------------
Jeb E. Ball
Title Senior Vice President
---------------------------------
[signatures continued on page 4]
-3-
<PAGE> 4
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Barry P. Litwin
--------------------------------
Barry P. Litwin
Title Senior Vice President
-----------------------------
-4-
<PAGE> 1
EXHIBIT 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and Common Share Equivalent
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
----------------------------------- ----------------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- -------------------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations $5,903 $4,231 $8,942 $(10,285)
Preferred dividend requirements $ 75 $ 75 $ 226 $ 226
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $5,828 24,570 $4,156 24,346 $8,716 24,485 $(10,511) 24,344
Employees preferred and stock options
deemed to be a common stock equivalent 1,235 509 1,015 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $5,828 25,805 $4,156 24,855 $8,716 25,500 $(10,511) 24,344
PER SHARE $ .23 $ .17 $ .34 $ (.43)
====================================================================================================================================
Net earnings $5,903 $4,231 $8,942 $ 4,067
Preferred dividend requirements $ 75 $ 75 $ 226 $ 226
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock
and average common shares outstanding $5,828 24,570 $4,156 24,346 $8,716 24,485 $ 3,841 24,344
Employees preferred and stock options
deemed to be a common stock equivalent 1,235 509 1,015 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Total net earnings $5,828 25,805 $4,156 24,855 $8,716 25,500 $ 3,841 24,344
PER SHARE $ .23 $ .17 $ .34 $ .16
====================================================================================================================================
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $5,828 25,805 $4,156 24,855 $8,716 25,500 $(10,511) 24,344
Senior securities the conversion of which
would dilute earnings per share 131 -0- 137 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $5,828 25,936 $4,156 24,855 $8,716 25,637 $(10,511) 24,344
PER SHARE $ .23 $ .17 $ .34 $ (.43)
====================================================================================================================================
Net earnings applicable to common stock
and average common shares outstanding $5,828 25,805 $4,156 24,855 $8,716 25,500 $ 3,841 24,344
Senior securities the conversion of which
would dilute earnings per share 131 -0- 137 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET EARNINGS $5,828 25,936 $4,156 24,855 $8,716 25,637 $ 3,841 24,344
PER SHARE $ .23 $ .17 $ .34 $ .16
====================================================================================================================================
</TABLE>
All figures in thousands except amount per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S THIRD QUARTER FISCAL 1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,644
<SECURITIES> 21,538
<RECEIVABLES> 40,896
<ALLOWANCES> 3,983
<INVENTORY> 103,620
<CURRENT-ASSETS> 173,567
<PP&E> 91,805
<DEPRECIATION> 59,896
<TOTAL-ASSETS> 217,464
<CURRENT-LIABILITIES> 61,539
<BONDS> 75,899
0
7,963
<COMMON> 25,167
<OTHER-SE> 10,881
<TOTAL-LIABILITY-AND-EQUITY> 217,464
<SALES> 327,283
<TOTAL-REVENUES> 327,283
<CGS> 194,694
<TOTAL-COSTS> 194,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,470
<INTEREST-EXPENSE> 7,729
<INCOME-PRETAX> 8,595
<INCOME-TAX> (347)
<INCOME-CONTINUING> 8,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,942
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
