<PAGE> 1
[GENESCO LOGO]
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(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
August 2, 1997
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
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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
--- ---
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Common Shares Outstanding September 5, 1997 - 25,666,437
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
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Page
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<S> <C>
Part 1 - Financial Information 3
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Consolidated Balance Sheet - August 2, 1997, February 1, 1997 and
August 3, 1996 3
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Consolidated Earnings - Three Months Ended and Six Months Ended August 2, 1997
and Three Months Ended and Six Months Ended August 3, 1996 4
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Consolidated Cash Flows - Three Months Ended and Six Months Ended August 2, 1997
and Three Months Ended and Six Months Ended August 3, 1996 5
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Consolidated Shareholders' Equity - Year Ended
February 1, 1997 and Six Months Ended August 2, 1997 6
- ---------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 7
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Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
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Part II - Other Information 26
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Signature 28
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</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AUGUST 2, FEBRUARY 1, AUGUST 3,
1997 1997 1996
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<S> <C> <C> <C>
ASSETS
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CURRENT ASSETS
Cash and short-term investments $ 17,624 $ 43,375 $ 30,560
Accounts receivable 31,738 30,389 35,389
Inventories 123,466 95,884 94,456
Other current assets 3,817 4,509 3,697
- ---------------------------------------------------------------------------------------------------------------
Total current assets 176,645 174,157 164,102
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Plant, equipment and capital leases, net 41,378 34,471 30,285
Other noncurrent assets 9,483 9,026 12,102
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TOTAL ASSETS $ 227,506 $ 217,654 $ 206,489
===============================================================================================================
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 54,767 $ 54,631 $ 48,679
Current payments on capital leases 479 768 968
Provision for discontinued operations 3,580 3,263 3,894
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Total current liabilities 58,826 58,662 53,541
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Long-term debt 75,000 75,000 75,000
Capital leases 82 717 1,063
Other long-term liabilities 12,239 11,172 26,887
Provision for discontinued operations 10,784 11,613 12,470
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Total liabilities 156,931 157,164 168,961
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Contingent liabilities (see Note 7) - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,938 7,944 7,962
Common shareholders' equity:
Par value of issued shares 26,141 25,195 25,000
Additional paid-in capital 125,445 122,615 122,139
Accumulated deficit (71,092) (77,407) (91,472)
Minimum pension liability adjustment -0- -0- (8,244)
Treasury shares, at cost (17,857) (17,857) (17,857)
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Total shareholders' equity 70,575 60,490 37,528
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 227,506 $ 217,654 $ 206,489
===============================================================================================================
</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 SIX MONTHS ENDED
---------------------- ----------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $ 120,024 $ 102,955 $ 234,209 $ 203,174
Cost of sales 70,896 62,142 137,209 121,773
Selling and administrative expenses 43,108 36,389 86,539 74,195
Restructuring income and other charges, net (275) -0- (275) -0-
- ----------------------------------------------------------------------------------------------
Earnings from operations before
other income and expenses 6,295 4,424 10,736 7,206
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Other expenses (income):
Interest expense 2,528 2,541 5,073 5,173
Interest income (361) (432) (777) (862)
Other expense (income) (49) 64 64 143
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Total other (income) expenses, net 2,118 2,173 4,360 4,454
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Earnings before income taxes
and discontinued operations 4,177 2,251 6,376 2,752
Income taxes (benefit) 44 28 61 (437)
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Earnings before discontinued operations 4,133 2,223 6,315 3,189
Discontinued operations -0- (150) -0- (150)
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NET EARNINGS $ 4,133 $ 2,073 $ 6,315 $ 3,039
==============================================================================================
Earnings per share:
Earnings before discontinued operations $ .15 $ .08 $ .23 $ .12
Discontinued operations $ .00 $ .00 $ .00 $ (.01)
Net earnings $ .15 $ .08 $ .23 $ .11
==============================================================================================
</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 SIX MONTHS ENDED
----------------------- -----------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
OPERATIONS:
Net earnings $ 4,133 $ 2,073 $ 6,315 $ 3,039
Noncash charges to earnings:
Depreciation and amortization 2,279 1,909 4,430 3,757
Provision for deferred income taxes (687) -0- (687) -0-
Provision for losses on accounts receivable 46 607 1,051 1,601
Inpairment of long-lived assets and other charges 831 -0- 831 -0-
Restructuring charge (credit) (1,106) -0- (1,106) -0-
Provision for discontinued operations -0- 150 -0- 150
Other 416 166 638 435
Effect on cash of changes in working capital and other assets
and liabilities:
Accounts receivable (973) (3,276) (2,400) (4,855)
Inventories (15,275) (7,838) (27,582) (9,527)
Other current assets 509 91 692 620
Accounts payable and accrued liabilities 7,057 5,877 1,515 4,839
Other assets and liabilities (134) 284 97 759
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Net cash provided by (used in) operations (2,904) 43 (16,206) 818
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INVESTING ACTIVITIES:
Capital expenditures (6,853) (3,554) (12,537) (5,738)
Proceeds from asset sales 114 8 192 40
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Net cash used in investing activities (6,739) (3,546) (12,345) (5,698)
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FINANCING ACTIVITIES:
Payments on capital leases (164) (320) (924) (675)
Exercise of stock options and related income tax benefits 1,010 380 3,724 569
Other -0- -0- -0- (4)
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Net cash provided by (used in) financing activities 846 60 2,800 (110)
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NET CASH FLOW (8,797) (3,443) (25,751) (4,990)
Cash and short-term investments at
beginning of period 26,421 34,003 43,375 35,550
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 17,624 $ 30,560 $ 17,624 $ 30,560
==================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 4,123 $ 4,646 $ 8,560 $ 8,852
Income taxes 75 8 83 (471)
==================================================================================================================
</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
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1996 $ 7,958 $ 24,844 $ 21,715 $ (94,511) $ (17,857) $ (8,244) $33,905
===================================================================================================================================
Exercise of options -0- 187 455 -0- -0- -0- 642
Issue shares - Employee Stock Purchase Plan -0- 161 399 -0- -0- -0- 560
Net earnings -0- -0- -0- 17,104 -0- -0- 17,104
Minimum pension liability adjustment -0- -0- -0- -0- -0- 8,244 8,244
Other (14) 3 46 -0- -0- -0- 35
- -----------------------------------------------------------------------------------------------------------------------------------
Balance February 1, 1997 $ 7,944 $ 25,195 $ 122,615 $ (77,407) $ (17,857) $ -0- $60,490
===================================================================================================================================
Net earnings -0- -0- -0- 6,315 -0- -0- 6,315
Exercise of options -0- 405 2,632 -0- -0- -0- 3,037
Issue shares - litigation settlement -0- 525 (525) -0- -0- -0- -0-
Tax effect of exercise of stock options -0- -0- 687 -0- -0- -0- 687
Other (6) 16 36 -0- -0- -0- 46
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AUGUST 2, 1997 $ 7,938 $ 26,141 $ 125,445 $ (71,092) $ (17,857) $ -0- $70,575
===================================================================================================================================
</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 January 31, 1998 ("Fiscal 1998") and of the fiscal year ended
February 1, 1997 ("Fiscal 1997"). 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.
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 General Shoe Warehouse retail footwear stores.
BASIS OF PRESENTATION
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.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at February 1, 1997 and August 2,
1997, are short-term investments of $38.1 million and $ 8.5 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 are 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 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.
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 February 1, 1997 and
August 2, 1997, the Company had approximately $18.8 million and $13.6 million,
respectively, of such contracts outstanding. Forward exchange contracts have an
average term of approximately five 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 also provides certain former employees with limited medical
and life insurance benefits. 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. Costs
of future expenditures for environmental remediation obligations are not
discounted to their present value.
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
RESTRUCTURING GAIN, ASSET IMPAIRMENT AND OTHER CHARGES
During the second quarter of Fiscal 1998 the Company recorded a restructuring
gain of $1.1 million and losses from an asset impairment and other charges of
$0.8 million resulting in a net gain of $0.3 million reported in the income
statement. The restructuring gain relates to both the Manufacturing
Restructuring and a restructuring plan adopted in the third quarter of Fiscal
1995 (the "1995 Restructuring") and relates primarily to the selling of one
facility and cancellation of leases on two facilities (including one facility
included in the 1995 Restructuring) more quickly and on more favorable terms
than contemplated when the reserves were established.
The asset impairment and other charges arose from the decrease in production in
one of the Company's western boot plants in response to the continued weakness
in the western boot market. The asset impairment and other charges related to
excess equipment, including $0.1 million of equipment covered by operating
leases. The Company expects only negligible recovery on the sale of the excess
equipment.
NOTE 3
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AUGUST 2, FEBRUARY 1,
IN THOUSANDS 1997 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts receivable $ 34,008 $ 32,721
Miscellaneous receivables 4,065 2,960
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Total receivables 38,073 35,681
Allowance for bad debts (3,899) (3,353)
Other allowances (2,436) (1,939)
- ------------------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 31,738 $ 30,389
==================================================================================================================
</TABLE>
The Company's footwear wholesaling business sells primarily to independent
retailers and department stores across the United States. Receivables arising
from these sales are not collateralized. Credit risk is affected by conditions
or occurrences within the economy and the retail industry. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
No single customer accounted for more than 6% of the Company's trade receivables
balance as of August 2, 1997.
9
<PAGE> 10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4
INVENTORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AUGUST 2, FEBRUARY 1,
IN THOUSANDS 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 8,506 $ 8,870
Work in process 3,480 3,333
Finished goods 36,044 29,270
Retail merchandise 75,436 54,411
- --------------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $ 123,466 $ 95,884
==============================================================================================================
</TABLE>
NOTE 5
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AUGUST 2, FEBRUARY 1,
IN THOUSANDS 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land $ 272 $ 241
Buildings and building equipment 2,516 2,552
Machinery, furniture and fixtures 39,162 37,522
Construction in progress 5,198 3,130
Improvements to leased property 46,706 42,734
Capital leases:
Land -0- 60
Buildings 1,191 1,904
Machinery, furniture and fixtures 6,856 7,285
- --------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 101,901 95,428
Accumulated depreciation and amortization:
Plant and equipment (53,415) (53,241)
Capital leases (7,108) (7,716)
- --------------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 41,378 $ 34,471
==============================================================================================================
</TABLE>
10
<PAGE> 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
PROVISION FOR DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance February 1, 1997 $13,356 $ -0- $ 1,520 $14,876
Charges and adjustments, net (438) -0- (74) (512)
- ------------------------------------------------------------------------------------------------------------------------------
Balance August 2, 1997 12,918 -0- 1,446 14,364
Current portion 2,134 -0- 1,446 3,580
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $10,784 $ -0- $ -0- $10,784
==============================================================================================================================
<CAPTION>
RESTRUCTURING RESERVES
- ------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance February 1, 1997 $ 672 $ 1,637 $ 369 $ 2,678
Charges and adjustments, net (487) (732) (349) (1,568)
- ------------------------------------------------------------------------------------------------------------------------------
Balance August 2, 1997 185 905 20 1,110
Current portion (included in accounts
payable and accrued liabilities) 185 815 20 1,020
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 90 $ -0- $ 90
==============================================================================================================================
</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 allege
that 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.
In March 1997, the Company accepted an offer to settle the Johnstown action for
a payment of $31,000 and is now awaiting entry of an acceptable consent order
and dismissal of that action. The Company remains a defendant in the
Gloversville action. The environmental authorities have issued decisions
selecting plans of remediation with respect to the Gloversville site with a
total estimated cost of approximately $10.0 million.
The Company has filed answers to the complaint in the Gloversville case 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 the Gloversville action.
12
<PAGE> 13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
LEGAL PROCEEDINGS, CONTINUED
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 a former subsidiary of the Company from 1965 to 1969, and that
it considers the Company a potentially responsible party. In August 1997, the
Department and the Company entered into a consent order whereby the Company
assumed responsibility for conducting a remedial investigation and feasibility
study ("RIFS") and implementing an interim remediation measure with regard to
the site, without admitting liability or accepting responsibility for any future
remediation of the site. The Company believes that it has adequately reserved
for the costs of conducting the RIFS and implementing the interim remedial
measure contemplated by the consent order, but there is no assurance that the
consent order will ultimately resolve the matter. In conjunction with the
consent order, the Company entered into an agreement with the owner of the site
providing for necessary access to the site. 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 and is unable to
predict whether its liability, if any, beyond that voluntarily assumed by the
consent order will have a material effect on its financial condition or results
of operations.
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, groundwater and adjoining lake sediments have been performed and
will serve as a basis for the Company's remedial action plan for the site.
Although there can be no assurance that MDEQ will not require a more costly
remediation than the Company anticipates, the Company does not presently expect
that implementation of the plan will have a material effect on its financial
condition or results of operations.
13
<PAGE> 14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7
Legal Proceedings, Continued
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 alleged breach of
fiduciary duty and fraudulent and negligent misrepresentations and sought
damages in excess of $10 million, costs, attorneys' fees, interest and punitive
damages in an unspecified amount.
In April 1997, the parties to the litigation entered into a settlement agreement
providing for the issuance of shares of the Company's common stock to the
plaintiffs in exchange for dismissal of the lawsuit and the execution of mutual
general releases by the parties. The settlement, pursuant to which the Company
issued 525,495 shares of stock and the directors and officers liability
insurance carrier paid an amount of cash on behalf of the individual officer
defendants to the plaintiffs' nominee, was consummated on June 13, 1997.
The Company accounted for the issuance of shares in the settlement, which had a
market value of $6.7 million, as a capital transaction in the second quarter, in
the same manner that it accounted for the shares originally issued to the
plaintiffs in the 1988 exchange and for an award to dissenting shareholders made
in 1993 in a Tennessee dissenter's rights proceeding that arose in connection
with the 1988 exchange transaction. These shares of stock were issued in the
settlement agreement to recognize the additional value of the preferred stock
exchanged by the shareholders resulting from negotiations with the Company and
the precedent set by the Tennessee dissenters proceeding. The staff of the
Securities and Exchange Commission and the Company are involved in discussions
regarding this accounting treatment and the staff is currently expressing the
view that the $6.7 million market value of the shares issued in the settlement
should have been expensed. There is a possibility the Company may ultimately
revise its financial statements for the appropriate period to reflect a $6.7
million charge to earnings. Such a revision would have no effect on
shareholders equity at August 2, 1997, or on cash flows for any period.
14
<PAGE> 15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7
Legal Proceedings, Continued
Other Legal Proceedings
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 presently
unable to predict whether the outcome of the litigation will have a material
effect on its financial condition or results of operations.
On August 8, 1997, the trustee in bankruptcy of a Texas boot retailer filed an
action in Texas state court against the Company and an unrelated boot wholesaler
and retail chain alleging violations of a Texas antitrust statute and breach of
contract by the Company. The trustee's allegations against the Company involve
its decision not to consign additional boot inventories to the bankrupt retailer
for its liquidation sale. The complaint seeks damages in an unspecified amount.
The Company is presently unable to predict whether the action will have a
material effect on its financial condition or results of operations.
15
<PAGE> 16
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, particularly as it may result in changing buying
patterns by customers of the Company's wholesale divisions, the timing and
acceptance of products being introduced to the market, international trade
developments affecting foreign sourcing of products, 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 and to deal with changes in markets for
the Company's products, including the market for tanned leather used in military
footwear. They also include the continuing weakening of the western boot market,
which has resulted in declining sales and erosion of the boot division's retail
customer base. This weakness has resulted in the Manufacturing Restructuring and
the asset impairment and other charges discussed below and, unless reversed, may
require further adjustments to manufacturing capacity and other steps designed
to reduce costs to a level consistent with lower expected sales. Although the
Company believes it has an appropriate business strategy and the resources
necessary for its operations, future revenue and margin trends cannot be
reliably predicted and the Company may further alter its business strategies
during Fiscal 1998.
SIGNIFICANT DEVELOPMENTS
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 of
Fiscal 1997 to realign its manufacturing operations as part of an overall
strategy to focus on marketing and global sourcing. The plan included closing
the Company's Hohenwald, Tennessee, western boot plant by July 1997, with the
elimination of approximately 190 jobs. The plant was closed in April 1997. In
connection with the adoption of the plan, the Company recorded a charge to
earnings in the third quarter of Fiscal 1997 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 of which the Company has
spent $0.6 million through August 2, 1997. After adjustment for the
restructuring gain described below, $0.1 million of other costs remains to be
spent.
Restructuring Gain, Asset Impairment and Other Charges
During the second quarter of Fiscal 1998 the Company recorded a restructuring
gain of $1.1 million and losses from an asset impairment and other charges of
$0.8 million resulting in a net gain of $0.3 million reported in the income
statement. The restructuring gain relates to both the Manufacturing
Restructuring and a restructuring plan adopted in the third quarter of Fiscal
1995 (the "1995 Restructuring") and relates primarily to the selling of one
facility and cancellation of leases on two facilities (including one facility
included in the 1995 Restructuring) more quickly and on more favorable terms
than contemplated when the reserves were established.
16
<PAGE> 17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The asset impairment and other charges arose from the decrease in production in
one of the Company's western boot plants in response to the continued weakness
in the western boot market. The asset impairment and other charges related to
excess equipment, including $0.1 million of equipment covered by operating
leases. The Company expects only negligible recovery on the sale of the excess
equipment.
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1998 COMPARED TO FISCAL 1997
The Company's net sales in the second quarter ended August 2, 1997, increased
16.6% from the previous year. Total gross margin for the quarter increased 20.4%
and increased as a percentage of net sales from 39.6% to 40.9%. Selling and
administrative expenses increased 18.5% and increased as a percentage of net
sales from 35.3% to 35.9%. Pretax earnings in the second quarter ended August 2,
1997 were $4.2 million, compared to pretax earnings of $2.3 million for the
quarter ended August 3, 1996. Pretax earnings for the second quarter ended
August 2, 1997 included a net restructuring gain of $0.3 million. The Company
reported net earnings of $4.1 million ($0.15 per share) for the second quarter
ended August 2, 1997 compared to net earnings of $2.1 million ($0.08 per share)
in the second quarter ended August 3, 1996.
Footwear Retail
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
Aug. 2, Aug. 3, %
1997 1996 Change
----------- ----------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales...............................................$ 79,918 $ 61,847 29.2%
Operating Income........................................$ 7,498 $ 4,244 76.7%
Operating Margin........................................ 9.4% 6.9%
</TABLE>
Primarily due to increases in comparable store sales of approximately 13% and a
17% increase in average retail stores operated, net sales from footwear retail
operations increased 29.2% in the quarter ended August 2, 1997 compared to the
previous year. The average price per pair decreased 2% while unit sales
increased 32% for the second quarter of Fiscal 1998.
17
<PAGE> 18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The Company's comparable store sales and store count at the end of the second
quarter were as follows:
<TABLE>
<CAPTION>
Store Count
--------------------
Aug. 2, Aug. 3,
Comp Sales 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Jarman Retail +3% 147 139
Jarman Lease +9% 85 81
Journeys +21% 160 100
Johnston & Murphy (including factory stores) +15% 123 115
Other Outlet Stores +14% 41 40
--- ---
Total Retail +13% 556 475
=== ===
</TABLE>
The Jarman Lease comparable store increase was aided by a 4% increase in
the average square footage due to remodeling.
Gross margin as a percentage of net sales increased from 48.2% to 48.6%,
primarily from changes in product mix. The change in product mix to more
branded non-western boots in the Company's boot outlets created less markdowns
as a percentage of sales compared to last year. Operating expenses increased
22.9%, primarily due to the 17% increase in average stores operated, which
caused increased rent expense, selling salaries and advertising expense. In
addition, divisional management expenses increased to support new store growth.
Overall operating expenses decreased as a percentage of net sales from 41.2% to
39.2%.
Operating income for the second quarter ended August 2, 1997 was up 76.7%
compared to the same period last year due to increased sales, increased margins
and the lower expenses as a percentage of sales.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
Aug. 2, Aug. 3, %
1997 1996 Change
------------ ------------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales...............................................$ 40,106 $ 41,108 (2.4)%
Operating Income........................................$ 1,428 $ 2,299 (37.9)%
Operating Margin....................................... 3.6% 5.6%
</TABLE>
18
<PAGE> 19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net sales from footwear wholesale and manufacturing operations were $1.0
million (2.4%) lower, in the second quarter ended August 2, 1997 than in the
same period last year, reflecting primarily the continuing trend of decreased
sales of western boots, primarily attributable to lower unit sales and lower
tanned leather sales. Tanned leather sales were down due to lower orders from
military footwear suppliers, which have been impacted by the continuing
decrease in demand for leather military footwear, which makes up the bulk of
the Company's tanned leather business.
Gross margin in the second quarter ended August 2, 1997 decreased 6.2%, and
decreased as a percentage of net sales from 26.8% to 25.7%, primarily from
increased markdowns to stimulate sales principally in the Company's boot
division.
Operating expenses increased 5.0% and increased as a percentage of net sales
from 21.2% to 22.8%, primarily due to higher divisional administrative expenses
to support the expected growth in the branded businesses.
Operating income decreased 37.9%, primarily due to decreased sales of tanned
leather and western boots, decreased margins and the higher expenses as a
percentage of sales. Operating income for the quarter ended August 2, 1997,
includes the $0.3 million net restructuring gain.
Corporate and Interest Expenses
Corporate and other expenses in the second quarter ended August 2, 1997 were
$2.6 million compared to $2.2 million for the same period last year, an increase
of 18%. The increase in corporate expenses is attributable primarily to
increased compensation expense, including performance-related stock based
compensation and increased bonus accruals based on the Company's increased
earnings.
Interest expense was flat with last year and interest income decreased $71,000
from last year due to decreased short-term investments. There were no borrowings
under the Company's revolving credit facility during the three months ended
August 2, 1997 or August 3, 1996.
RESULTS OF OPERATIONS - SIX MONTHS FISCAL 1998 COMPARED TO FISCAL 1997
The Company's net sales for the six months ended August 2, 1997 increased 15.3%
from the previous year. Total gross margin for the six months increased 19.2%
and increased as a percentage of net sales from 40.1% to 41.4%. Selling and
administrative expenses increased 16.6% and increased as a percentage of net
sales from 36.5% to 36.9%. Pretax earnings for the six months ended August 2,
1997 were $6.4 million, compared to pretax earnings of $2.8 million for the six
months ended August 3, 1996. Pretax earnings for the six months ended August 2,
1997 included a net restructuring gain of $0.3 million. The Company reported net
earnings of $6.3 million ($0.23
19
<PAGE> 20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
per share) for the six months ended August 2, 1997 compared to net earnings of
$3.0 million ($0.11 per share) for the six months ended August 3, 1996, which
included a tax credit of $437,000.
Footwear Retail
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
Aug. 2, Aug. 3, %
1997 1996 Change
---------- ----------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales............................................... $ 149,942 $ 120,882 24.0%
Operating Income........................................ $ 13,256 $ 7,428 78.5%
Operating Margin........................................ 8.8% 6.1%
</TABLE>
Primarily due to increases in comparable store sales of approximately 11% and a
14% increase in average retail stores operated, net sales from footwear retail
operations increased 24.0% for the six months ended August 2, 1997 compared to
the previous year. The average price per pair decreased 1% while unit sales
increased 24% for the six months ended August 2, 1997.
The Company's comparable store sales and store count at the end of the six
months were as follows:
<TABLE>
<CAPTION>
Store Count
-----------
Aug. 2, Aug. 3,
Comp Sales 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Jarman Retail +3% 147 139
Jarman Lease +7% 85 81
Journeys +21% 160 100
Johnston & Murphy (including factory stores) +13% 123 115
Other Outlet Stores +10% 41 40
---- ----
Total Retail +11% 556 475
==== ====
</TABLE>
The Jarman Lease comparable store increase was aided by a 4% increase in the
average square footage due to remodeling.
Gross margin as a percentage of net sales increased from 48.9% to 49.4%,
primarily from changes in product mix. The change in product mix to more
branded non-western boots in the Company's boot outlets created less markdowns
as a percentage of sales compared to last year. Operating expenses increased
17.8%, primarily due to the 14% increase in average stores operated, which
caused increased rent expense, selling salaries and advertising expense. In
addition,
20
<PAGE> 21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
divisional management expenses increased to support new store growth. Overall
operating expenses decreased as a percentage of net sales from 42.6% to 40.5%.
Operating income for the six months ended August 2, 1997 was up 78.5% compared
to the same period last year due to increased sales, increased margins and the
lower expenses as a percentage of sales.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
Aug. 2, Aug. 3, %
1997 1996 Change
------------ ------------ ------
(In Thousands)
<S> <C> <C> <C>
Net Sales............................................... $ 84,267 $ 82,292 2.4%
Operating Income........................................ $ 2,581 $ 3,791 (31.9)%
Operating Margin........................................ 3.1% 4.6%
</TABLE>
Net sales from footwear wholesale and manufacturing operations were $2.0 million
(2.4%) higher, for the six months ended August 2, 1997 than in the same period
last year, reflecting primarily increased men's branded footwear sales, which
more than offset lower tanned leather sales and the continuing trend of
decreased sales of western boots, primarily attributable to lower unit sales.
Tanned leather sales were down due to Department of Defense delays in awarding
military footwear contracts and lower orders from military footwear suppliers,
which have been impacted by the continuing decrease in demand for leather
military footwear, which makes up the bulk of the Company's tanned leather
business. The increase in branded sales included sales of new products
introduced by the Company's Nautica division.
Gross margin for the six months ended August 2, 1997 increased 3.0%, and
increased as a percentage of net sales from 27.1% to 27.2%, primarily from
changes in sales mix.
Operating expenses increased 11.4% and increased as a percentage of net sales
from 22.5% to 24.5%, primarily due to higher divisional administrative expenses
to support the expected growth in the branded businesses and increased royalty
expenses, from increased sales and higher royalty rates.
Operating income decreased 31.9%, primarily due to lower earnings in the
Company's tanned leather business due to Department of Defense delays in
awarding military boot contracts, resulting in delays in orders and lower orders
from the division's customers and the impact of lower sales of western boots,
and the increase in operating expenses.
21
<PAGE> 22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Corporate and Interest Expenses
Corporate and other expenses for the six months ended August 2, 1997 were $5.2
million compared to $4.2 million for the same period last year, an increase of
24%. The increase in corporate expenses is attributable primarily to increased
compensation expense, including performance-related stock based compensation and
increased bonus accruals based on the Company's increased earnings.
Interest expense decreased $100,000, or 2% from last year, and interest income
decreased $85,000 from last year due to decreased short-term investments. There
were no borrowings under the Company's revolving credit facility during the six
months ended August 2, 1997 or August 3, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
<TABLE>
<CAPTION>
Aug. 2, Aug. 3,
1997 1996
------- --------
<S> <C> <C>
Cash and short-term investments............................... $ 17.6 $ 30.6
Working capital............................................... $117.8 $ 110.6
Long-term debt................................................ $ 75.0 $ 75.0
Current ratio................................................. 3.0x 3.1x
</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 $16.2 million in the first six months of
Fiscal 1998 compared to $818,000 provided by operating activities last year. The
$17.0 million reduction in cash flow from operating activities between the first
six months of Fiscal 1998 and the first six months of Fiscal 1997 reflects
primarily the additional working capital needed to support new store growth. The
Company has added a net of 52 stores for the first six months ended August 2,
1997 compared to a net of 12 stores for the same period last year.
A $27.6 million increase in inventories from February 1, 1997 levels reflected
in the Consolidated Cash Flows Statement reflects planned seasonal increases and
increases in retail inventory to support the net increase of 52 stores from
February 1, 1997. In addition, there were increases in men's branded wholesale
inventory to support growth in certain of the wholesale businesses and
reflecting the slowdown of reorders by certain key customers in the second
quarter. The $29.0 million increase in inventories compared with August 3, 1996
reflects a 37% increase in retail inventories and a 22% increase in wholesale
inventories. The retail inventory increase is primarily
22
<PAGE> 23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
caused by a net increase of 81 stores from August 3, 1996 and resulting 21%
increase in square footage and inventory needed to support the 13% increase in
same store sales. The increase wholesale inventories reflects the anticipation
of higher sales of certain footwear products and the slowdown of reorders by
certain key customers in the second quarter.
As reflected in the Consolidated Cash Flows Statement, accounts receivable at
August 2, 1997 increased $2.4 million compared to February 1, 1997 primarily due
to increased sales of men's branded footwear. Accounts receivable at August 2,
1997 were $3.7 million less than at August 3, 1996, primarily reflecting
improved accounts receivable turn and lower wholesale sales in the second
quarter.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Cash Flows Statement at August 2, 1997 and
August 3, 1996 is as follows:
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
Aug. 2, Aug. 3,
(In Thousands) 1997 1996
-------- --------
<S> <C> <C>
Accounts payable $ 7,836 $ 11,586
Accrued liabilities (6,321) (6,747)
-------- --------
$ 1,515 $ 4,839
======== ========
</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 interest payments on the Company's long-term debt.
There were no revolving credit borrowings during the six months ended August 2,
1997 and August 3, 1996, as cash on hand funded working capital requirements
and capital expenditures.
Capital Expenditures
Total capital expenditures in Fiscal 1998 are expected to be approximately $26.4
million. These include expected retail expenditures of $18.0 million to open
approximately 98 new retail stores and to complete 54 major store renovations.
Capital expenditures for wholesale and manufacturing operations and other
purposes are expected to be approximately $8.4 million including approximately
$5.3 million for new systems to improve customer service and support the
Company's growth. During the six months ended August 2, 1997 the Company had
$12.5 million in capital expenditures which included opening 61 new stores and
completing 29 major renovations.
Year 2000
The Company has developed a strategy and is currently in the process of
developing and implementing a detailed plan to modify its computer software and
databases to prevent problems
23
<PAGE> 24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
related to the Year 2000. As part of the process, the Company expects to replace
some systems, such as the systems described above, and to upgrade others. The
Company has not yet fully quantified the costs associated with the
modifications, but currently expects the Year 2000 assessment will be complete
by the end of the third quarter.
Environmental and Other Contingencies
The Company is subject to certain loss contingencies related to environmental
proceedings and other legal matters, including those disclosed in Note 7 to the
Consolidated Financial Statements. The Company has made provisions for certain
of these contingencies, including provisions of $150,000 in discontinued
operations in fiscal 1997 and $1,000,000 and $1,400,000 reflected in fiscal 1996
and 1995, respectively. The Company monitors these proceedings on an ongoing
basis and at least quarterly management reviews the Company's reserves and
accruals in relation to each of them, adjusting provisions as management deems
necessary in view of changes in available information. Changes in estimates of
liability are reported in the periods when they occur. Consequently, management
believes that its reserve in relation to each proceeding is a reasonable
estimate of the probable loss connected to the proceeding, or in cases in which
no reasonable estimate is possible, the minimum amount in the range of estimated
losses, based upon its analysis of the facts as of the close of the most recent
fiscal quarter. Because of uncertainties and risks inherent in litigation
generally and in environmental proceedings in particular, however, there can be
no assurance that future developments will not require additional reserves to be
set aside, that some or all reserves may not be inadequate or that the amounts
of any such additional reserves or any such inadequacy will not have a material
adverse effect upon the Company's financial condition or results of operations.
Litigation Settlement
As discussed in Note 7 to the Consolidated Financial Statements, on June 13,
1997 the Company consummated a settlement of a lawsuit by certain preferred
shareholders who had challenged the value they received for shares of preferred
stock acquired for common stock issued by the Company to the plaintiffs in a
1988 exchange transaction. The settlement included the issuance by the Company
to the plaintiffs of 525,495 additional shares of common stock.
The Company accounted for the issuance of shares in the settlement, which had a
market value of $6.7 million, as a capital transaction in the second quarter, in
the same manner that it accounted for the shares originally issued to the
plaintiffs in the 1988 exchange and for an award to dissenting shareholders made
in 1993 in a Tennessee dissenter's rights proceeding that arose in connection
with the 1988 exchange transaction. These shares of stock were issued in the
settlement agreement to recognize the additional value of the preferred stock
exchanged by the shareholders resulting from negotiations with the Company and
the precedent set by the Tennessee dissenters proceeding. The staff of the
Securities and Exchange Commission and the Company are involved in discussions
regarding this accounting treatment and the staff is currently expressing the
view that the $6.7 million market value of the shares issued in the settlement
should have been expensed. There is a possibility the Company may ultimately
revise its financial statements for the appropriate period to reflect a $6.7
24
<PAGE> 25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
million charge to earnings. Such a revision would have no effect on shareholders
equity at August 2, 1997, or on cash flows for any period.
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 1998, although
the Company may borrow from time to time to support seasonal working capital
requirements. The approximately $4.6 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 $13.7 million of letters of credit outstanding under the Company's
revolving credit agreement at August 2, 1997.
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 stock, except from a pool of available net
earnings and the proceeds of stock sales. At August 2, 1997, that pool was in a
$82.0 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 $300,000. The Company currently has dividend arrearages in the amount of $1.1
million and is unable to predict when dividends may be reinstated.
Changes in Accounting Principles
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128")
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. For the second quarter and six months ended August 2, 1997,
the amount reported as net income per common and common equivalent share is not
materially different from that which would have been reported for basic and
diluted earnings per share in accordance with SFAS No. 128. For the year ended
February 1, 1997, primary earnings per share were $.66 and fully diluted
earnings per share were $.65. Had SFAS No. 128 been in effect for the year ended
February 1, 1997, basic earnings per share would have been $.68 and diluted
earnings per share would have been $.66.
25
<PAGE> 26
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At August 2, 1997 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
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$2.30 Series 1 October 31, 1993 $ 298,880 $ 21,349 $ 320,229
$4.75 Series 3 October 31, 1993 323,672 21,338 345,010
$4.75 Series 4 October 31, 1993 272,850 19,489 292,339
$1.50 Subordinated Cumulative
Preferred October 31, 1993 157,589 11,257 168,846
- --------------------------------------------------------------------------------------------------------------
TOTALS $1,052,991 $ 73,433 $ 1,126,424
==============================================================================================================
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on June 25, 1997, shares
representing a total of 25,217,354 votes were outstanding and entitled to vote.
At the meeting, shareholders of the Company:
(1) elected nine directors nominated by the board of directors by the
following votes:
<TABLE>
<CAPTION>
Votes
Votes "For" "Withheld"
----------- ----------
<S> <C> <C>
David M. Chamberlain 22,056,566 218,412
W. Lipscomb Davis, Jr. 22,054,434 220,544
John Diebold 22,036,610 238,368
Harry D. Garber 22,050,958 224,020
Joel C. Gordon 22,054,125 220,853
Ben T. Harris 21,997,262 277,716
Kathleen Mason 21,989,238 285,740
William A. Williamson, Jr. 22,055,558 219,420
William S. Wire II 21,968,990 305,988
Gary M. Witkin 22,050,664 224,314
</TABLE>
(2) ratified the appointment of Price Waterhouse LLP as independent
accountants for the fiscal year ending January 31, 1998 by a vote of
22,071,189 for, 47,659 against, with 156,130 abstentions: and
(3) ratified the amendment to the Genesco 1996 stock incentive plan by a
vote of 15,823,696 for, 6,280,699 against, with 170,583 abstentions.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(11) Computation of earnings per common and common share equivalent.
(27) Financial Data Schedule (for SEC use only)
- --------------
REPORTS ON FORM 8-K
None
27
<PAGE> 28
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
September 16, 1997
28
<PAGE> 1
GENESCO INC. EXHIBIT 11
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and
Common Share Equivalent
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED,
----------------------------------------- -----------------------------------------
AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3, 1996
--------------------- ------------------ ------------------- --------------------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net earnings $ 4,133 $ 2,073 $ 6,315 $ 3,039
Preferred dividend requirements $ 75 $ 76 $ 150 $ 151
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock
and average common shares outstanding $ 4,058 25,468 $ 1,997 24,476 $ 6,165 25,192 $ 2,888 24,443
Employees preferred and stock options
deemed to be a common stock equivalent 1,681 1,123 1,599 905
- -----------------------------------------------------------------------------------------------------------------------------------
Total net earnings $ 4,058 27,149 $ 1,997 25,599 $ 6,165 26,791 $ 2,888 25,348
PER SHARE $ .15 $ .08 $ .23 $ .11
===================================================================================================================================
FULLY DILUTED EARNINGS PER SHARE
Net earnings applicable to common stock
and average common shares outstanding $ 4,058 27,149 $ 1,997 25,599 $ 6,165 26,791 $ 2,888 25,348
Senior securities the conversion of which
would dilute earnings per share 126 116 123 140
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NET EARNINGS $ 4,058 27,275 $ 1,997 25,715 $ 6,165 26,914 $ 2,888 25,488
PER SHARE $ .15 $ .08 $ .23 $ .11
===================================================================================================================================
All figures in thousands except amount per share.
</TABLE>
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SECOND QUARTER FISCAL 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 9,106
<SECURITIES> 8,518
<RECEIVABLES> 31,572
<ALLOWANCES> 3,899
<INVENTORY> 123,466
<CURRENT-ASSETS> 176,645
<PP&E> 101,901
<DEPRECIATION> 60,523
<TOTAL-ASSETS> 227,506
<CURRENT-LIABILITIES> 58,826
<BONDS> 75,082
0
7,938
<COMMON> 26,141
<OTHER-SE> 36,496
<TOTAL-LIABILITY-AND-EQUITY> 227,506
<SALES> 234,209
<TOTAL-REVENUES> 234,209
<CGS> 137,209
<TOTAL-COSTS> 137,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,718
<INTEREST-EXPENSE> 5,073
<INCOME-PRETAX> 6,376
<INCOME-TAX> 61
<INCOME-CONTINUING> 6,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,315
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
