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(Mark One) Form 10-K
/X/ Annual Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the Fiscal Year Ended
January 31, 1994
Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
Securities and Exchange 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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B)
EXCHANGES ON WHICH
TITLE REGISTERED
Common Stock, $1.00 par value New York and Chicago
Preferred Share Purchase Rights New York and Chicago
10 3/8% Senior Notes due 2003 New York
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G)
Subordinated Serial Preferred Stock, Series 1
Employees' Subordinated Convertible Preferred Stock
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the June 22, 1994
annual meeting of shareholders are incorporated into
Part III by reference.
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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 and (2) has been
subject to such filing requirements for the past 90
days. Yes /X/ No
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__________________________________________________
Common Shares Outstanding April 19, 1994 - 24,308,875
Aggregate market value on April 19, 1994 of the voting
stock held by nonaffiliates of the registrant was
approximately $94,000,000.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security
Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 19
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners
and Management 69
Item 13. Certain Relationships and Related Transactions 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 72
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PART I
ITEM 1, BUSINESS
GENERAL
Genesco Inc. ("Genesco" or the "Company") manufactures, markets and
distributes branded men's and women's shoes and boots and men's tailored
clothing. The Company's owned and licensed footwear brands, sold through both
wholesale and retail channels of distribution include Johnston & Murphy,
Dockers and Nautica shoes, Laredo and Code West boots, Toddler University,
Kids University and Street Hot children's shoes and Mitre athletic shoes.
Its tailored clothing labels, all of which the Company sells at wholesale,
include Perry Ellis and Perry Ellis Portfolio, Kilgour, French & Stanbury,
Mondo di Marco, Grays by Gary Wasserman and, through the fall 1994 season,
Polo University Club by Ralph Lauren and Chaps by Ralph Lauren. See
"Significant Developments in Fiscal 1994 - Tailored Clothing Segment" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this report ("Management's Discussion and
Analysis") for information regarding the loss of the Ralph Lauren brand
licenses.
Genesco products are sold at wholesale to more than 7,000 retailers, including
a number of leading department, discount and specialty stores, and at retail
through the Company's own network of 518 retail shoe stores and leased shoe
departments. Genesco products are supplied from the Company's own
manufacturing facilities as well as a variety of overseas and domestic sources.
Genesco operates in two business segments, footwear and tailored clothing.
References to Fiscal 1992, 1993, 1994 or 1995 are to the Company's fiscal year
ended or ending on January 31 of each such year. For further information on
the Company's business segments, see Note 19 to the Consolidated Financial
Statements included in Item 8 and Management's Discussion and Analysis. All
information contained in Management's Discussion and Analysis which is referred
to in Item 1 of this report is incorporated by such reference in Item 1.
In the fourth quarter of Fiscal 1994 the Company made a decision to restructure
certain of its footwear and tailored clothing operations. See Note 2 to the
Consolidated Financial Statements and "Significant Developments in Fiscal 1994"
in Management's Discussion and Analysis for information regarding the
restructuring and the financial effects thereof.
FOOTWEAR
Wholesale
The Company distributes its footwear products at wholesale to over 6,900
retailers, including independent shoe merchants, department stores, mail order
houses and other retailers. Approximately 99% of the Company's wholesale
footwear sales are Genesco owned or licensed brands.
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Johnston & Murphy. High-quality men's shoes have been sold under the Johnston
& Murphy name for more than 100 years. The Company believes Johnston & Murphy
traditionally-styled dress shoes and contemporary dress casual shoes enjoy a
reputation for quality craftsmanship, durability and comfort. Representative
suggested retail prices for Johnston & Murphy shoes are $90 to $225. Because
the Company believes that the market for casual and contemporary styles will
grow more rapidly than the market for traditional dress styles, in Fiscal 1994
the Company introduced a new J. Murphy line of casual and dress casual men's
shoes aimed at a younger consumer. Representative suggested retail prices for
J. Murphy shoes are $90 to $140. The Company further expanded its high-
quality product offerings in Fiscal 1994 by introducing a new line of
contemporary, European-styled men's dress shoes under the Domani label.
Representative suggested retail prices for Domani shoes are $175 to $225.
Laredo and Code West. Since 1976 the Company has manufactured traditional
western-style boots for men, women and children. Laredo boots are targeted to
people who wear boots for both work and recreation and are sold primarily
through independent retail outlets, predominantly western boot shops.
Representative suggested retail prices for Laredo boots are $50 to $120. In
1988 the Company created the Code West brand to enter the fashion segment of
the boot market. Code West styles are western-influenced fashion and
contemporary boots for men and women and are offered with distinctive detailing
and non-traditional colors. Code West boots, sold primarily through department
stores, boutiques and western boot shops, have representative suggested retail
prices of $90 to $190. See "Results of Operations - Fiscal 1994 Compared to
Fiscal 1993 - Footwear Wholesale and Manufacturing" in Management's Discussion
and Analysis for information regarding the Company's boot operations in Fiscal
1994.
Mitre. Mitre is a leading brand in soccer footwear in the United States and in
soccer balls and footwear in the United Kingdom. Genesco became the exclusive
North American licensee for Mitre products in 1981. In 1992 Genesco purchased
the worldwide rights to the Mitre name. See Note 3 to the Consolidated
Financial Statements included in Item 8 of this report for additional
information regarding the Mitre U.K. acquisition. The Company believes the
increased awareness of soccer in America as a result of the United States'
being the host country of the 1994 World Cup championship games has increased
competition in the United States by both domestic and foreign athletic
footwear companies and may expand the domestic market for soccer products.
The Company also markets Mitre cleated footwear for baseball and softball in
the United States and for cricket and rugby in the United Kingdom. The
majority of Mitre ball and cleated shoe sales come from sporting goods and
athletic specialty stores. Representative suggested retail prices for Mitre
cleated athletic shoes in the United States are $20 to $75.
Dockers. In 1991 Levi Strauss & Co. granted the Company the exclusive license
to market footwear under the Dockers brand name in the United States. Dockers
shoes are marketed through many of the same stores that carry Dockers slacks
and sportswear. In the fall of 1994 the Company redesigned the Dockers line
and lowered price points to broaden the appeal of this line of men's casual
shoes. Representative suggested retail prices of the redesigned shoes are $50
to $90.
Nautica. Genesco acquired the exclusive worldwide license to market Nautica
footwear in 1991. In 1992 the Company introduced a new line of casual footwear
under the Nautica label, targeted at young, active, upper-income consumers and
designed to complement Nautica sportswear. The first shipments of Nautica
footwear were delivered for the spring 1992 season. Representative suggested
retail prices of Nautica footwear are $98 to $115.
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University Brands. In December 1992 the Company acquired the assets of Toddler
U. Inc. and began marketing Toddler University and Kids University brand shoes
for children up to age 12. The Company also sells Street Hot brand children's
court shoes. Representative suggested retail prices are $30 to $40 for Toddler
University, $40 to $45 for Kids University and $35 to $40 for Street Hot. See
"Significant Developments in Fiscal 1994 - Restructuring Charge" in
Management's Discussion and Analysis and Note 2 to the Consolidated Financial
Statements included in Item 8 of this report for information regarding the
Toddler U Inc. acquisition.
Retail
At January 31, 1994 the Company operated 518 stores and leased departments
throughout the United States and Puerto Rico selling footwear for men, women or
both. The following table sets forth certain information concerning the
Company's footwear retailing operations:
RETAIL STORES LEASED DEPARTMENTS
-------------------------- -----------------------
JAN. 31, JAN. 31, JAN. 31, JAN 31,
1993 1994 1993 1994
-------- -------- -------- -------
Johnston & Murphy . . . . . . . . . . . . . . . . . . . . 108 103 7 7
Jarman . . . . . . . . . . . . . . . . . . . . . . . . . 176 160 82 82
Journeys . . . . . . . . . . . . . . . . . . . . . . . . 105 104 - -
Hardy . . . . . . . . . . . . . . . . . . . . . . . . . . 31 18 - -
Boot Factory . . . . . . . . . . . . . . . . . . . . . . 21 28 - -
Factory To You . . . . . . . . . . . . . . . . . . . . . 10 9 - -
University Brands . . . . . . . . . . . . . . . . . . . . - - - 7
--- --- -- --
Total . . . . . . . . . . . . . . . . . . . . . . . 451 422 89 96
=== === == ==
The following table sets forth certain additional information concerning the
Company's retail stores and leased departments during the five most recent
fiscal years:
FISCAL FISCAL FISCAL FISCAL FISCAL
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Retail Stores and Leased Departments
Beginning of year . . . . . . . . . . . . . . . . 635 628 613 575 540
Opened during year . . . . . . . . . . . . . . 40 47 26 24 26
Closed during year . . . . . . . . . . . . . . (47) (62) (64) (59) (48)
--- --- --- --- ---
End of year . . . . . . . . . . . . . . . . . . . 628 613 575 540 518
=== === === === ===
In the fourth quarter of Fiscal 1994 the Company made a decision to close 58
retail stores. See "Significant Developments in Fiscal 1994 - Restructuring
Charge" in Management's Discussion and Analysis. During Fiscal 1994 Genesco
opened 16 stores and 10 leased departments and closed 45 stores, 9 of which
were Hardy stores, and three leased departments. In addition, the Company
converted four Hardy stores to Journeys stores in Fiscal 1994. The Company is
planning to close or convert a majority of the remaining Hardy stores in Fiscal
1995. The Company also is planning to open approximately 24 stores, primarily
Boot Factory and Johnston & Murphy, and close approximately 72 stores in Fiscal
1995, of which 55 stores are included in the restructuring. Future store
closings, store openings and conversions will depend upon store operating
results, the availability of suitable locations, lease negotiations and other
factors.
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Johnston & Murphy. Johnston & Murphy's retail outlets sell a broad range of
men's dress and casual footwear and accessories to affluent business and
professional consumers. Johnston & Murphy stores carry predominantly Johnston
& Murphy brand shoes. Of the 103 Johnston & Murphy stores at January 31, 1994,
15 were factory outlet stores.
Jarman. The Company's Jarman stores and the Jarman leased departments target
male consumers ages 25 to 45 and sell footwear in the middle price ranges.
Most shoes sold in Jarman stores are Company-owned brands. Jarman leased
departments, all of which are located in department stores of a major retail
company, carry primarily branded merchandise of other shoe companies and do not
operate under the Jarman trade name.
Journeys; Hardy. Journeys stores target adolescent shoe buyers with fashion
merchandise, using popular music videos and neon lights to attract their
customer base. Hardy stores sell casual, contemporary shoes to a predominantly
male market. At the beginning of Fiscal 1991 the operation of the Hardy and
Journeys shoe store chains was placed under the direction of a single
management group. Since that time, 57 Hardy stores have been converted to
Journeys stores. Hardy stores converted to Journeys stores have, on average,
enjoyed increased sales upon reopening.
Boot Factory; Factory to You. In Fiscal 1990 the Company opened its first Boot
Factory outlet store to sell the Company's Laredo and Code West lines of boots.
By January 31, 1994 the chain had expanded to 28 outlet stores located
primarily in the southeastern United States. Factory To You stores, located
primarily in the southeastern United States, sell mainly factory damaged,
overrun and close-out footwear products from the Company's own plants as well
as other manufacturers.
Manufacturing and Sourcing
The Company sources its footwear product from its own domestic manufacturing
facilities as well as a variety of overseas and domestic sources. The Company
imports shoes, component parts and raw materials from the Far East, Latin
America and Europe. Genesco manufactures footwear in five facilities in the
southeastern United States and one facility in the United Kingdom. During
Fiscal 1994, approximately 62% of the footwear products manufactured by the
Company were men's, 30% were women's and 8% were children's. Approximately 83%
of the Company-manufactured footwear products were sold at wholesale, and 17%
at retail through stores and leased departments operated by the Company. The
estimated productive capacity of the U.S. footwear plants was approximately 64%
utilized in Fiscal 1994. The Company believes that its ability to manufacture
footwear in its own plants can provide better quality assurance with respect to
certain products and, in some cases, reduce inventory risks and long lead times
associated with imported footwear. The Company balances these considerations
against the cost advantage of importing footwear products. See "Significant
Developments in Fiscal 1994 - International Trade Developments" in Management's
Discussion and Analysis for information regarding recent developments that may
affect the Company's international sourcing. For information regarding the
Company's response to excess productive capacity in its factories, see "Results
of Operations - Fiscal 1994 Compared to Fiscal 1993" in Management's Discussion
and Analysis.
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The Company also conducts leather tanning and finishing operations in two
manufacturing facilities located in Michigan and Tennessee. Approximately 8%
of tanned leather products sold in Fiscal 1994 were for internal use, and the
balance was sold to military boot manufacturers and other unaffiliated
customers.
MEN'S APPAREL
The Greif Companies
The Company, doing business as The Greif Companies ("Greif"), manufactures and
markets quality men's tailored clothing, consisting of suits, sport coats and
slacks, in the United States. Greif's products are sold at wholesale to
department stores and specialty retail stores nationwide through a direct sales
force. Branded lines accounted for approximately 84% of Greif's Fiscal 1994
tailored clothing sales. Greif markets tailored clothing under a variety of
brand names, substantially all of which are licensed from third parties. See
"Licenses" below. The Company's tailored clothing brands include:
Perry Ellis; Perry Ellis Portfolio. The Company has licenses to market and
manufacture contemporary styled tailored clothing in the United States under
the trademarks, Perry Ellis and Perry Ellis Portfolio. Perry Ellis Portfolio
was the Company's best selling tailored clothing brand name in Fiscal 1994.
Perry Ellis brand suits have representative retail prices of $500 to $700.
Perry Ellis Portfolio tailored clothing is more moderately priced
(representative retail prices, $400 to $500).
Polo University Club; Chaps by Ralph Lauren. The Company's exclusive licenses
to market and manufacture traditionally styled tailored clothing in the United
States under both the Polo University Club by Ralph Lauren and Chaps by Ralph
Lauren labels expire in June of 1994. Polo University Club by Ralph Lauren
suits have representative retail prices of $400 to $500, and the Chaps by Ralph
Lauren line was repositioned in Fiscal 1993 at lower prices (representative
retail prices, $300 to $400).
Other Brands. Greif also markets and manufactures men's tailored clothing
under other name brands (representative retail prices $500 to $700).
Traditionally styled suits are marketed under the Grays by Gary Wasserman
label, under an agreement with Mr. Wasserman. Medium to high priced
(representative retail prices, $495 to $650) European styled suits are marketed
and manufactured in the United States under the Mondo di Marco label pursuant
to a license. Greif also has a limited license to market and manufacture
British-styled suits in the United States under the Kilgour, French & Stanbury
brand name (representative retail prices, $495 to $650). Greif has recently
announced its intention to introduce a new traditional line of tailored
clothing under the label Metropolis by Greif in the spring of 1995.
Representative retail prices for the line are expected to range from $325 to
$475.
Greif's unbranded clothing sales, which accounted for 16% of Greif's tailored
clothing sales in Fiscal 1994, include custom-made uniforms for certain
airlines and other career apparel products and garments bearing the private
labels of retail customers.
GCO Apparel Corporation
In Fiscal 1994 a wholly-owned subsidiary of the Company, GCO Apparel
Corporation ("GCO Apparel"), acquired the manufacturing assets of LaMar
Manufacturing Company ("LaMar"). See "Significant Developments in Fiscal 1994
- - Tailored Clothing Segment" and "Results of Operations - Fiscal 1994 Compared
to Fiscal 1993 - Tailored Clothing" in Management's Discussion and Analysis.
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Manufacturing
The Company manufactures tailored clothing in six facilities, the "Greif
facilities" located in Allentown and Shippensburg, Pennsylvania, Verona,
Virginia and the "GCO Apparel facilities" located in Heflin and Woodland,
Alabama and Bowdon, Georgia. During Fiscal 1994 the estimated productive
capacity of the Greif facilities was approximately 92% utilized while the GCO
Apparel facilities were approximately 72% utilized. See "Significant
Developments in Fiscal 1994" in Management's Discussion and Analysis for
information regarding the Company's decision to close certain of its tailored
clothing manufacturing facilities. Greif sources fabrics primarily from
domestic mills. The collective bargaining agreement to which Greif is subject
limits the sale by Greif of tailored clothing purchased from foreign and other
non-union manufacturers. See "Employees" below.
COMPETITION
The Company operates in highly competitive markets in both footwear
and tailored clothing. Retail footwear competitors range from small,
locally-owned shoe stores to regional and national department and discount
stores and specialty chains. The Company competes with hundreds of footwear
and apparel manufacturing operations in the United States and throughout the
world, most of which are relatively smaller, specialized operations but some of
which are larger, more diversified companies.
Competition from imports has grown significantly during the last two decades,
so that by 1993 approximately 86% of all non-rubber footwear sold in the United
States was imported. Manufacturers in foreign countries with lower labor costs
have a significant price advantage. The Company's footwear manufacturing
operations attempt to offset this advantage by offering superior product
quality and customer service or by concentrating on specific markets, such as
western boots, not subject to intense foreign competition.
In the mid-1980's there was an increase in imports of better-grade, tailored
clothing, and the Company believes that it and other domestic producers of such
clothing lost market share to foreign manufacturers during the remainder of the
1980's. Other factors affecting the domestic industry are the shrinking U.S.
market for tailored clothing, reflecting long-term demographic changes, a shift
in preferences toward more casual apparel and the loss or threatened loss of
middle management and professional jobs in recent years. This decline in U.S.
consumption has not adversely affected imports, leading to excess manufacturing
capacity in the U.S. tailored clothing industry. See "Significant
Developments in Fiscal 1994 - International Trade Developments" in Management's
Discussion and Analysis for information regarding the possible effect of
international competition on the Company's tailored clothing business.
The collective bargaining agreement between the Clothing Manufacturers'
Association and the Amalgamated Clothing and Textile Workers' Union, to which
Greif is a party, limits the sale of tailored clothing manufactured in a plant
not covered by such an agreement. See "Employees" below.
The Company believes that Greif must lower its product costs in order to
compete on a long-term basis in the tailored clothing industry and that the
restrictions contained in Greif's current collective bargaining agreement put
the Company and other manufacturers with similar labor agreements at a
disadvantage in competing with foreign and other non-union manufacturers.
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The Company's tailored clothing operations compete on brand recognition, price,
product style, quality and customer service.
LICENSES
Most of the Company's footwear brands are owned by the Company. The
Nautica and Dockers brand footwear lines, introduced in Fiscal 1993, are sold
under license agreements which extend through 2007 and 2001, respectively,
including renewal options. Most of the Company's branded tailored clothing
products are sold pursuant to license agreements with terms, including renewal
options, which expire from 1994 to 2005. Licensed products are generally
designed by the Company and submitted to the licensor for approval.
The Company's renewal options under its license agreements for both footwear
and tailored clothing brands are generally conditioned upon the Company's
meeting certain minimum sales requirements. Sales of Ralph Lauren branded
products (which accounted for $33.8 million of sales in Fiscal 1994) were
manufactured under license agreements which expire June 30, 1994 and will not
be renewed. See "Significant Developments in Fiscal 1994 - Tailored Clothing
Segment" in Management's Discussion and Analysis.
Sales of licensed products were approximately $100 million in Fiscal 1994 and
approximately $96 million in the previous year.
The Company also licenses others to use Mitre and certain of its other footwear
brands, mostly in foreign markets. License royalty income was not material in
Fiscal 1994.
RAW MATERIALS
Genesco is not dependent upon any single source of supply for any
major raw material. In Fiscal 1994 the Company experienced no shortages of raw
materials in its principal businesses. The Company considers its available raw
material sources to be adequate.
BACKLOG
On March 31, 1994 the Company's wholesale operations (which accounted
for 60% of sales in Fiscal 1994) had a backlog of orders, including unconfirmed
customer purchase orders, amounting to approximately $91.1 million, compared to
approximately $110.0 million on March 31, 1993. Of these amounts,
approximately $46.4 million and $57.6 million, respectively, were for footwear
and approximately $44.7 million and $52.4 million, respectively, were for men's
apparel. The backlog of orders is somewhat seasonal, reaching a peak for
footwear in the spring and for tailored clothing in the summer. Tailored
clothing and footwear operations maintain in-stock programs for selected
anticipated high volume styles, but customer orders for tailored clothing are
generally received several months in advance of shipping dates.
The order backlog in dollars on March 31, 1994 for footwear wholesale products,
which includes tanned leather, was 21% lower than on March 31, 1993. This
decrease is attributable to decreases in the order backlog for the Company's
boot and athletic products. The majority of orders for footwear and tanned
leather is for delivery within 90 days. Therefore, the footwear wholesale
products backlog at any one time is not necessarily indicative of a
corresponding change in future sales for an extended period of time.
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Tailored clothing backlog in dollars on March 31, 1994, consisting primarily of
spring 1994 and fall 1994 orders, was 15% lower than on March 31, 1993.
Tailored clothing backlog does not include sales anticipated under the cut,
make and trim agreement between GCO Apparel and LaMar. The Company believes
that the decrease in tailored clothing backlog is attributable to (i) general
market conditions throughout the tailored clothing industry, (ii) product
quality problems in Fiscal 1994 arising out of the Company's efforts to
redesign and manufacture certain products to meet retailer demands for
lower-cost, branded products, (iii) the Company's decision to reduce sales to
off-price retailers and (iv) retailer concerns regarding future pricing of the
Chaps by Ralph Lauren line by the new licensee. The Company expects the lower
level of demand for its tailored clothing products to continue through Fiscal
1995.
Management does not expect cancellations of existing orders for tailored
clothing and footwear to exceed 14%.
EMPLOYEES
Genesco had approximately 6,950 employees at January 31, 1994 including
approximately 770 part-time employees. Retail shoe stores employ a substantial
number of part-time employees during peak selling seasons. Approximately 1,475
employees are covered by collective bargaining agreements, most of whom are
employees of the Company's Greif tailored clothing operations. Of the 6,950
employees, approximately 4,300 were employed in footwear, 2,550 in tailored
clothing and 100 in corporate staff departments. See "Significant Developments
in Fiscal 1994 - Restructuring Charge" included in Management's Discussion and
Analysis for information regarding the Company's elimination of approximately
1,200 jobs.
Most employees of Greif are covered by a collective bargaining agreement with
the Amalgamated Clothing and Textile Workers' Union which expires April 30,
1995. See "Significant Developments in Fiscal 1994 - Tailored Clothing
Segment" and "Results of Operations - Fiscal 1994 Compared to Fiscal 1993 -
Tailored Clothing" included in Management's Discussion and Analysis for
information regarding labor difficulties experienced by Greif in Fiscal 1994.
PROPERTIES
The Company operates 15 manufacturing and 5 warehousing facilities,
substantially all of which are leased, aggregating 2,600,000 square feet. The
20 facilities are located in six states in the United States and in
Huddersfield, England. There are 14 footwear facilities with approximately
1,800,000 square feet and six tailored clothing facilities with approximately
800,000 square feet.
The Greif Companies tailored clothing operation is headquartered in Allentown,
Pennsylvania and maintains a marketing office and showrooms in New York City.
GCO Apparel's headquarters are in Bowdon, Georgia. The Company's executive
offices and the offices of its footwear operations are in a 295,000 square foot
leased building in Nashville, Tennessee.
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See the discussion of the footwear segment for information regarding the
Company's retail stores. New shopping center store leases typically are for a
term of seven to 10 years and new factory outlet leases typically are for a
term of five years and both provide for rent based on a percentage of sales
against a fixed minimum rent based on the square footage leased. The Company's
leased departments are operated under agreements which are generally terminable
by department stores upon short notice.
Leases on the Company's plants, offices and warehouses expire from 1995 to
2018, not including renewal options. The Company's retail stores, plants,
offices, warehouses and machinery and equipment are generally well maintained,
in good operating condition and suitable for their purposes. See Note 11 to
the Consolidated Financial Statements included in Item 8 for information about
commitments under capital and operating leases.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign laws, regulations
and ordinances that (i) govern activities which may have adverse environmental
effects, such as discharges to air or water as well as the handling and
disposal of solid and hazardous wastes, or (ii) impose liability for the costs
of cleaning up, and damages resulting from, past spillage, disposal or other
releases of hazardous substances (together, "Environmental Laws"). The Company
uses and generates, and in the past has used and generated, certain substances
and wastes that are regulated or may be deemed hazardous under applicable
Environmental Laws. The Company is involved in cleanup proceedings at several
sites with respect to which it is alleged that the Company sent certain waste
material in the past. See Item 3 "Legal Proceedings" for a discussion of
certain of such pending matters.
ITEM 2, PROPERTIES
See Item 1.
ITEM 3, LEGAL PROCEEDINGS
CERTAIN ENVIRONMENTAL PROCEEDINGS
As a result of the disposal in a rural area near Nashville, Tennessee of waste
material generated by a former operating division of the Company engaged in the
manufacture of adhesives, eight separate civil actions were filed in 1986 in
the Circuit Court of Williamson County, Tennessee on behalf of a total of 29
individuals against the Company, Emmett N. and Rose S. Kennon and Kennon
Construction Co. The Kennons are owners of the disposal site. An additional
action was filed against the same parties in the same court in 1988 on behalf
of one resident who had recently reached majority. The plaintiffs reside or
own property in the vicinity of the waste disposal site.
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The plaintiffs alleged that the defendants were liable for creating a nuisance,
negligence, trespass, creating an unreasonably hazardous condition (strict
liability) and violating several state and federal environmental statutes and
sought to recover for personal injuries and property damages totaling $17.6
million, punitive damages totaling $19.5 million, and certain costs and
expenses, including attorneys' fees. The Company filed answers to these suits.
In October and November 1992 the Company reached settlement agreements with 20
individual plaintiffs providing for cash payments by the Company aggregating
approximately $550,000 and the purchase of a residence at an appraised value of
$170,000. Damage claims totalling $22.2 million, including $9.1 million in
claimed compensatory damages and $13.1 million in punitive damages, were
dismissed pursuant to the settlement agreements. In light of the settlement
agreements already reached, management believes that the remaining actions
should not have a material adverse effect on the Company's results of
operations or financial condition.
On July 5, 1987 a civil action was filed by the State of New York in the United
States District Court for the Northern District of New York against the City of
Gloversville, New York, and 33 other private defendants, including the Company.
The complaint alleges that the defendants are liable under the U.S.
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"
or "Superfund") and certain common law theories for the costs of investigating
and performing remedial actions required to be taken with respect to a
municipal landfill owned and operated by the City of Gloversville. CERCLA
provides for the cleanup of sites from which there has been a release or
threatened release of hazardous substances. CERCLA authorizes the United
States Environmental Protection Agency (the "EPA") to take any necessary
response actions at Superfund sites, including, in certain circumstances,
ordering potentially responsible parties ("PRPs") liable for the release to
take or pay for such actions. PRPs are broadly defined under CERCLA, and
include past and present owners and operators of a site, as well as generators
and transporters of wastes to a site from which hazardous substances are
released. The landfill was used by a former operating division of the Company
engaged in the leather tanning business. While there is evidence that the
Company was not a material contributor to any hazardous conditions which may be
shown to exist, the liability under CERCLA is joint and several. On March 10,
1988 the Company filed its answer denying the substantive allegations of the
complaint and asserting numerous defenses. On August 30, 1988 the Company and
certain other defendants filed third party complaints against approximately 90
additional entities, alleging in essence that such third party defendants are
liable, in whole or in part, for any damages that may be incurred by the
Company or the other third party plaintiffs. On December 1, 1988 the third
party defendants answered, denying liability and asserting certain
counterclaims and crossclaims against the Company and others based upon the
same substantive allegations.
Also on July 5, 1987 a separate civil action was filed by the State of New York
in the United States District Court for the Northern District of New York
against the City of Johnstown, New York and 14 other defendants (not including
the Company). The allegations of the complaint, which are substantially
similar to those in the Gloversville action referred to above, relate to a
municipal landfill operated by the City of Johnstown which landfill has been
placed on the National Priority List of Superfund sites by the EPA.
12
13
On August 30, 1988 two defendants in the Johnstown action filed third party
complaints against a former division of the Company engaged in the leather
tanning business and approximately 100 other third party defendants. The third
party complaints, filed by Milligan & Higgins, a division of Hudson Industries,
and the Gloversville/Johnstown Joint Sewer Board, allege that the third party
defendants disposed of waste material into the Gloversville/ Johnstown joint
sewer system, which in turn was transported by employees of the sewer system to
the municipal landfill operated by the City of Johnstown. The third party
complaints charge, in essence, that the Company and the other third party
defendants are liable for all or a portion of any damages which may be incurred
by the third party plaintiffs based upon the State's allegations in the initial
complaint. The Company filed an answer asserting numerous defenses.
The EPA has issued records of decision reflecting adoption of remediation plans
an estimated cost of approximately $16.5 million in the case of the Johnstown
site and approximately $28.3 million with respect to the Gloversville site.
The Company has established a provision of $1 million to cover its estimated
share of future remediation costs with respect to both sites, including a
$500,000 charge in the fiscal quarter ended October 31, 1993. Because of
uncertainties related to the ability or willingness of other defendants,
including the municipalities involved, to pay a portion of such costs, the
availability of state funding to pay a portion of such costs, the insurance
coverage available to the various defendants and the basis for contribution
claims among the defendants, management is presently unable to predict the
outcome or to estimate the amount of the Company's liability with respect to
either of the Johnstown or Gloversville actions. The insurance companies from
which the Company purchased liability insurance coverage have agreed to bear a
portion of the cost of the Company's defense in the Johnstown and Gloversville
actions, but have reserved the right to deny coverage of any other liability
which the Company may incur in such actions.
On September 4, 1991 the Company's Whitehall, Michigan tanning facility was
cited by the Muskegon County Wastewater Management System ("MCWMS") for alleged
violations of certain regulations applicable to the facility's wastewater
effluent. Pursuant to administrative orders issued by the MCWMS, the Company
is required to bring the Whitehall facility's wastewater discharges into
compliance with applicable regulations. In May 1992 the EPA requested certain
information from the Company and other entities regarding wastewater discharges
to the MCWMS sewage treatment system at Whitehall, Michigan. In October 1992
the EPA notified the Company that it would recommend that a civil action be
brought against the Company for alleged violations of the Federal Water
Pollution Control Act and the pre-treatment standards for leather tanning and
finishing adopted thereunder. The alleged violations related to the wastewater
effluent from the Company's Whitehall tannery and involved similar violations
as those alleged in the MCWMS proceeding. The Company entered into a
stipulation of settlement with the EPA and the United States Department of
Justice dismissing the civil action. The stipulation of settlement was
approved by the court on December 16, 1993 and the Company has paid a civil
penalty of $550,000 to resolve all claims asserted in the complaint.
13
14
The EPA has also previously investigated soil and groundwater conditions at the
Whitehall facility and the Michigan Department of Natural Resources, acting on
behalf of the EPA, made further investigations of the site in April 1994.
Because the current status of the EPA's investigation is not clear, the Company
presently is unable to determine with certainty what effect such investigation
and any subsequent remedial action may have on the Company's results of
operations or financial condition but does not believe any remedial actions
should have a material adverse effect on such results of operations or
financial condition.
PREFERRED SHAREHOLDERS ACTIONS
On January 6, 1993, 23 holders of the Company's series 2, 3 and 4 subordinated
serial preferred stock filed a civil action against the Company, William S.
Wire II, the Company's chairman, and James S. Gulmi, the Company's vice
president and chief financial officer, in the United States District Court for
the Southern District of New York (the "U.S. District Court Action"). The
plaintiffs allege that the defendants misrepresented the value of the
plaintiffs' shares 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 January 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.
On March 2, 1993 the defendants filed their answer denying the plaintiffs'
substantive allegations and asserting certain affirmative defenses. On April
22, 1993, the defendants filed a motion for judgement on the pleadings. By
order dated December 2, 1993, the U.S. District Court denied the motion. On
April 20, 1994, the plaintiffs filed a motion for partial summary judgement
asking that the court find that the defendants are bound by the preferred stock
valuation in the Chancery Court Action (as defined below).
The U.S. District Court Action is based, in part, on a judicial determination
on July 29, 1992 of the fair value of the Company's series 2 and 3 subordinated
serial preferred stock in an appraisal action in the Chancery Court for
Davidson County, Tennessee (the "Chancery Court Action"). The Chancery Court
Action was commenced after certain preferred shareholders dissented from the
charter amendments approved by shareholders on February 4, 1988 and demanded
the fair value of their shares.
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15
The Chancery Court Action determined that the fair values of a share of series
2 was $131.32 and of a share of the series 3 was $193.11 (which amounts are in
excess of the mandatory redemption and liquidation values of a share of series
2 subordinated serial preferred stock and of the optional redemption and
liquidation values of a share of series 3 subordinated serial preferred stock),
compared with $91 a share for the series 2 and $46 a share for the series 3
previously paid by the Company as the fair value of such shares. The Chancery
Court ordered the Company to pay to Jacob Landis, the only shareholder who
prosecuted his dissenter's rights, the additional sum of $358,062 plus interest
at 10% from July 29, 1992 and attorneys' fees and costs to be determined in
further proceedings. The Company appealed the Chancery Court's decision and on
September 1, 1993 the Tennessee Court of Appeals affirmed the Chancery Court's
decision and remanded the case to the Chancellor for further proceedings. The
Company filed a petition to the Tennessee Supreme Court to review the case,
which the court denied on January 31, 1994. The Company paid the amount of the
judgement in the Chancery Court Action plus accrued interest on February 4,
1994. The dissenting shareholders have filed a claim for approximately
$780,000 in attorney's fees and expenses.
The Company and the individual defendants intend to vigorously defend the U.S.
District Court Action. The Company is unable to predict if the U.S. District
Court Action will have a material adverse effect on the Company's results of
operations or financial condition.
On May 13, 1993 the landlord of a building in New York City in which the
Company was the sole tenant, filed a civil action in the Supreme Court of the
State of New York claiming that the Company breached the lease for the premises
and negligently allowed the premises to deteriorate. The complaint seeks
compensatory damages of $2.5 million and punitive damages of $5 million. On
June 8, 1993 the Company removed the action to the United States District Court
for the Southern District of New York.
At various times in 1990 and 1991 (i) the Canadian Department of National
Revenue, Taxation (the "Department"), the Alberta Corporate Tax Administration
and the Ontario Ministry of Revenue made tax reassessments relating to the
deductibility of interest expense incurred by one of the Company's Canadian
subsidiaries on funds borrowed from the Company and (ii) the Department made
tax reassessments relating to non-resident withholding tax with respect to the
payment by that subsidiary of its loan from the Company and with respect to
interest on loans by that subsidiary to the Company. These reassessments,
which the Company has calculated to be approximately Canadian $18.7 million
including interest (approximately U.S. $14.1 million) at January 31, 1994, were
made against Agnew Group, Inc., the corporate successor to the purchaser of the
Company's Canadian operations (the "Taxpayer").
The Taxpayer has made indemnification claims with respect to all such
reassessments pursuant to the indemnification provisions in the stock purchase
agreement dated as of January 23, 1987 relating to the sale of the Company's
Canadian operations, and the Company has assumed the defense of the Taxpayer.
On behalf of the Taxpayer, the Company has filed notices of objections to all
of the reassessments and has appealed the confirmation by the Minister of
National Revenue of the Federal interest deductibility reassessments by filing
a statement of claim in the Federal Court of Canada. The Provincial
reassessments will be held in abeyance pending the outcome of the Federal Court
action. The Company has also filed notices of objection to the withholding tax
reassessments on behalf of the Taxpayer.
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Any liability which is finally determined to be owing by the Company as a
result of the indemnification provisions of the share purchase agreement is
subject to an offset of up to Canadian $5,000,000 pursuant to a loan agreement
dated February 6, 1987 among the Company, the purchaser and a former
stockholder of the purchaser.
On February 4, 1994 the Taxpayer filed for protection under the Companies
Creditors Arrangement Act and is seeking approval of a plan of compromise or
arrangement with its creditors. Resolution of the Department's tax claims is a
condition to any such plan.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of Fiscal 1994.
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EXECUTIVE OFFICERS OF GENESCO
The officers of the Company are generally elected at the first meeting
of the board of directors following the annual meeting of shareholders and hold
office until their successors have been chosen and qualify. The name, age and
office of each of the Company's executive officers and certain significant
employees and certain information relating to the business experience of each
are set forth below:
HARRY D. GARBER, 65, Chairman. Mr. Garber has served as a director of Genesco
since 1976 and was elected Chairman effective January 31, 1994. He was
employed by The Equitable Life Assurance Society of the United States, a major
provider of life insurance, health insurance and annuities, from 1950 until
June 1993 and served as its vice chairman since 1984.
E. DOUGLAS GRINDSTAFF, 53, President and Chief Executive Officer of Genesco.
Mr. Grindstaff was elected president and chief operating officer and a director
of Genesco on April 22, 1992 and chief executive officer as of February 1,
1993. In 1962 Mr. Grindstaff joined Procter & Gamble Inc. where he served in
a number of manufacturing, marketing and general management positions until his
election as president of Genesco. From 1987 to 1991 he was president of
Procter & Gamble's Canadian operations and most recently was president of
Procter & Gamble Cellulose Company.
THOMAS B. CLARK, 52, Executive Vice President - Administration and General
Counsel. Mr. Clark was employed by the Company in his present capacity in
January 1994. He was a partner in the law firm of Boult, Cummings, Conners and
Berry from 1987 through 1993. Mr. Clark previously served as vice president
and general counsel of the Company from 1978 to 1987.
JAMES S. GULMI, 48, Vice President - Finance and Chief Financial Officer. Mr.
Gulmi was employed by Genesco in 1971 as a financial analyst, appointed
assistant treasurer in 1974 and named treasurer in 1979. He was elected a vice
president in 1983 and assumed his present responsibilities in 1986.
MICHAEL A. CORBETT, 42, Treasurer. Before joining the Company in November
1993, Mr. Corbett had been a principal in a financial advisory services firm,
Highland Capital Corporation, since 1990. From 1987 to 1990 Mr. Corbett was
treasurer of MacMillan Inc., a diversified publishing company.
ROBERT E. BROSKY, 53, Controller and Chief Accounting Officer. Mr. Brosky
joined the Company in 1963, was named director of consolidated accounting and
financial reporting in 1983 and controller and chief accounting officer in
1986.
ROGER G. SISSON, 30, Secretary and Assistant General Counsel. Mr. Sisson
joined the Company in January 1994 as assistant general counsel and was elected
secretary in February 1994. Before joining the Company, Mr. Sisson was
associated with the firm of Boult, Cummings, Conners and Berry for
approximately six years.
MATTHEW N. JOHNSON, 29, Assistant Treasurer. Mr. Johnson joined the Company in
April 1993 as manager, corporate finance and was elected assistant treasurer in
December 1993. From 1986 until he joined the Company, he held a number of
positions with the First National Bank of Chicago, most recently a vice
president in the corporate and institutional banking division.
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FOWLER H. LOW, 62, Chairman of Johnston & Murphy (a division of Genesco). Mr.
Low has 38 years of experience in the footwear industry, including 31 years
with Genesco. He rejoined Genesco in 1984 after serving as vice president of
sales and marketing for G. H. Bass, a division of Chesebrough-Pond's Inc. He
was appointed president of the footwear manufacturing and wholesale group in
1988 and was appointed to his present post in February 1991.
BEN HARRIS, 50, President of the Jarman Shoe Company (a division of Genesco).
Mr. Harris joined the Company in 1961 and in 1987 was named director of the
leased department division of the Jarman Shoe Company. In November 1991, he
was named president of the Jarman Shoe Company.
HENRY D. SIEGAL, 41, President of The Greif Companies (a division of Genesco).
Before joining the Company in November 1993, Mr. Siegal was president of
Crystal Brands Jewelry, a position he had held since 1993. From 1991 to 1993
Mr. Siegal was president and chief executive officer for Crystal Brands
Tailored Clothing Group. From 1981 to 1991 he was president and chief
executive officer of Calvin Clothing Corporation.
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PART II
ITEM 5, MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
________________________________________________________________________________
The Company's common stock is listed on the New York Stock Exchange (Symbol:
GCO) and the Chicago Stock Exchange. The following table sets forth for the
periods indicated the high and low sales prices of the common stock as shown in
the New York Stock Exchange Composite Transactions listed in the Wall Street
Journal.
Fiscal Year ended January 31 High Low
- ---------------------------- ---- ---
1992 1st Quarter $ 5 1/8 $ 3 3/4
2nd Quarter 6 1/8 3 7/8
3rd Quarter 6 1/2 4 7/8
4th Quarter 6 1/8 4 1/2
Fiscal Year ended January 31
- ----------------------------
1993 1st Quarter 7 5 1/8
2nd Quarter 6 1/4 5
3rd Quarter 7 3/4 5 5/8
4th Quarter 11 1/4 7
Fiscal Year ended January 31
- ----------------------------
1994 1st Quarter 11 1/2 8 3/4
2nd Quarter 11 1/2 6 7/8
3rd Quarter 9 1/4 5 3/4
4th Quarter 6 7/8 4
There were approximately 14,000 common shareholders of record on January 31,
1994.
See Notes 10 and 12 to the Consolidated Financial Statements included in Item 8
for information regarding restrictions on dividends and redemptions of capital
stock.
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ITEM 6, SELECTED FINANCIAL DATA
FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT PER COMMON SHARE DATA, YEARS ENDED JANUARY 31
------------------------------------------------------------
FINANCIAL STATISTICS AND OTHER DATA 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS DATA
Net sales $572,860 $539,867 $471,766 $476,342 $492,248
Depreciation and amortization 10,723 9,719 9,109 8,915 8,190
Operating income (loss)* (25,454) 33,480 16,771 16,977 38,825
Pretax earnings (loss) (51,774) 13,703 570 1,342 19,812
Earnings (loss) before extraordinary loss and
cumulative effect of change in
accounting principle (51,779) 9,693 461 1,282 18,871
Loss on early retirement of debt (net of tax) 240 583 -0- 1,688 -0-
Cumulative effect of change in accounting
for postretirement benefits 2,273 -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(54,292) $ 9,110 $ 461 $ (406) $ 18,871
================================================================================================================================
PER COMMON SHARE DATA
Earnings (loss) from continuing operations
Primary $ (2.16) $ .40 $ .01 $ .04 $ .83
Fully diluted (2.16) .40 .01 .04 .80
Extraordinary loss
Primary (.01) (.02) .00 (.07) .00
Fully diluted (.01) (.02) .00 (.07) .00
Postretirement benefits
Primary (.09) .00 .00 .00 .00
Fully diluted (.09) .00 .00 .00 .00
Net earnings (loss)
Primary (2.26) .38 .01 (.03) .83
Fully diluted (2.26) .38 .01 (.03) .80
================================================================================================================================
BALANCE SHEET DATA
Total assets $309,386 $317,868 $237,244 $251,384 $279,791
Long-term debt 90,000 54,000 14,885 28,921 50,407
Capital leases 15,253 14,901 12,099 10,080 10,585
Non-redeemable preferred stock 8,064 8,305 8,330 14,272 16,757
Common shareholders' equity 90,659 146,746 140,834 134,887 135,794
Additions to plant, equipment and capital leases 8,356 10,132 9,341 11,922 10,685
================================================================================================================================
FINANCIAL STATISTICS
Operating income as a percent of net sales (4.4%) 6.2% 3.6% 3.6% 7.9%
Book value per share $ 3.73 $ 6.33 $ 6.16 $ 5.96 $ 5.96
Working capital $160,094 $168,875 $132,871 $143,538 $169,812
Current ratio 3.3 3.5 3.8 3.7 4.0
Percent long-term debt to total capital 51.6% 30.8% 15.3% 20.7% 28.6%
================================================================================================================================
OTHER DATA (END OF YEAR)
Number of retail outlets 518 540 575 613 628
Number of employees 6,950 6,550 6,150 6,150 6,700
================================================================================================================================
* Represents operating income of business segments.
Included in the loss for Fiscal 1994 was a restructuring charge of $29.4
million. See Note 2 to the Consolidated Financial Statements for additional
information regarding the charge.
Long-term debt and capital leases include current payments. On February 1,
1993, the Company issued $75 million of 10 3/8% senior notes due 2003. The
Company used $54 million of the proceeds to repay all of its outstanding
long-term debt. During Fiscal 1991 the Company paid prior to maturity
approximately $21,288,000 of its long-term debt.
During Fiscal 1990 the Company exchanged approximately 96,000 shares of
preferred stock for 1.9 million shares of common stock.
During Fiscal 1992 the Company acquired and cancelled approximately 712,000
shares of Employees Subordinated Convertible Preferred Stock.
The Company has not paid dividends on its Common Stock since 1973. See Note 12
to the Consolidated Financial Statements for a description of limitations on
the Company's ability to pay dividends.
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ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
____________________________________________________________________________
This discussion should be read in conjunction with the selected financial
information in Item 6 and the business segment information in Note 19 to the
Consolidated Financial Statements included in Item 8.
SIGNIFICANT DEVELOPMENTS IN FISCAL 1994
Senior Debt Financing
In February 1993 the Company completed a public offering of $75 million
principal amount of 10 3/8% senior notes due 2003 (the "10 3/8% Notes").
Proceeds from the sale of these notes were used to repay long-term debt and for
working capital and other general corporate purposes and were used on May 18,
1993 to redeem a minority interest in the Company's subsidiary, Mitre U.K. See
Note 10 to the Consolidated Financial Statements.
Revolving Credit Agreement
In August 1993 the Company entered into a three-year revolving credit agreement
providing for loans or letters of credit up to $100 million. The agreement
replaced a $45 million revolving credit agreement and a $25 million letter of
credit agreement. As a result of the restructuring charge and operating losses
in the fourth quarter, the revolving credit agreement was amended on January
31, 1994 to adjust certain financial covenants. See Notes 2 and 10 to the
Consolidated Financial Statements.
Tailored Clothing Segment
In May 1993 The Greif Companies ("Greif"), a division of the Company, withdrew
from the industry-wide collective bargaining arrangement between the Clothing
Manufacturers Association (the "CMA") and the Amalgamated Clothing and Textile
Clothing Workers Union and its affiliates (the "Union") and notified the Union
of its desire to bargain directly with the Union concerning new collective
bargaining agreements to replace the contracts expiring September 30, 1993.
The Union was the collective bargaining representative for approximately 1,500
Greif employees at September 30, 1993.
In July 1993 Greif notified the Union of its desire to bargain under its
existing contracts over a decision regarding possible closure of Greif's
manufacturing plants in Verona, Virginia and Shippensburg, Pennsylvania and the
effects of any such decision and delivered to the Union its initial bargaining
proposals for the new contract. In response, the Union began organizing
efforts at certain of the Company's footwear manufacturing plants and the
non-union tailored clothing plants recently acquired by a subsidiary of the
Company (see below) and initiated a nationwide consumer boycott campaign
against the Company's footwear and tailored clothing products.
In August 1993 a wholly-owned subsidiary of the Company, GCO Apparel
Corporation ("GCO Apparel"), completed the acquisition of the men's tailored
clothing manufacturing assets of LaMar Manufacturing Company ("LaMar"). LaMar
manufactured moderately-priced tailored clothing primarily for the private
label market and operated plants in Bowdon, Georgia and Heflin and Woodland,
Alabama. In connection with the acquisition, GCO Apparel entered into an
agreement not to sell to LaMar's then-existing customers. The LaMar
acquisition was intended primarily to allow the Company to participate in the
market for more moderately-priced clothing. In addition, the acquisition
provided Greif with a possible temporary alternative source of product in the
event of a strike at Greif's plants. See Note 3 to the Consolidated Financial
Statements.
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22
In connection with the acquisition of the assets of LaMar, GCO Apparel entered
into a two-year cut, make and trim agreement with LaMar which provides that in
Fiscal 1995 LaMar is required to purchase at least approximately 190,000 units,
which represents approximately 50% of GCO Apparel's annual manufacturing
capacity. GCO Apparel currently expects that purchases by LaMar will exceed
the minimum contract requirements. Under a cut, make and trim agreement, the
manufacturer typically cuts, sews and presses garments, using piece goods
furnished by the customer.
On September 30, 1993, Greif and the Union reached an agreement in principle on
a new 19-month collective bargaining agreement. Wages and benefits will
increase approximately 8% by the expiration of that agreement. Greif agreed
to the same wage and benefit increases which were negotiated between the Union
and the CMA and further agreed not to close Greif's Verona and Shippensburg
plants prior to October 1, 1994. Negotiations with the Union on definitive
contracts covering Greif's work force regarding local plant issues are
continuing, but the outcome of such negotiations are not expected to
materially affect the results of Greif's operations.
The Company last year reported that Greif did not expect to meet the minimum
sales requirements necessary to renew its license agreements for the Chaps and
Polo University Club by Ralph Lauren brands which were to expire June 30, 1993.
Sales of products licensed under those agreements accounted for $31.7 million
in Fiscal 1993 and $33.8 million in Fiscal 1994. On June 14, 1993, Greif
entered into a one-year extension of those license agreements. The Company
continued discussions regarding renewal of the licenses, but in the fourth
quarter of Fiscal 1994 the Company was notified that the licenses for these
brands would not be further extended or renewed.
Restructuring Charge
Because of developments in the fourth quarter of Fiscal 1994, the Company
changed operating strategies, made a decision to restructure certain of its
operations and reassessed the recoverability of certain assets. As a result,
the Company recorded a charge of $29.4 million, for which no tax benefit is
currently available. This charge reflects estimated costs of closing certain
manufacturing facilities, effecting permanent work force reductions and closing
58 retail stores. The provision includes $15.8 million in asset write-downs
and $13.6 million of future consolidation costs, of which approximately $12
million is expected to be incurred in Fiscal 1995. The restructuring involves
the elimination of approximately 1,200 jobs (20% of the Company's total work
force in Fiscal 1994). Included in the $15.8 million of asset write-downs is
$7.7 million relating to goodwill, of which $6.9 million relates to the LaMar
acquisition and $800,000 relates to the Toddler U Inc. acquisition. See Note 3
to the Consolidated Financial Statements for information regarding these
business acquisitions. The Company expects to fully implement the
restructuring plan in Fiscal 1995.
As a result of the loss of the Ralph Lauren product lines, as described above,
and the limited rights granted under Greif's new collective bargaining
agreement to source products from GCO Apparel, the Company reassessed the
valuation of the goodwill related to the LaMar acquisition by GCO Apparel. The
Company concluded on the basis of estimated undiscounted future cash flows that
the events in the fourth quarter resulted in a permanent impairment of the
goodwill related to the LaMar acquisition and accordingly determined to write
off the unamortized portion of the goodwill which amounted to $6.9 million.
22
23
During the fourth quarter of Fiscal 1994, the Company also reassessed the
valuation of the goodwill related to the acquisition of the assets of Toddler U
Inc. in light of a recognition during that quarter that there had been a
material erosion of sales to the principal customer of Toddler U Inc. which the
Company believed would not be replaced or recovered. In light of the material
diminution of these sales, which accounted for 36% of the sales of Toddler U
Inc. during the twelve months preceding the acquisition, the Company concluded
on the basis of estimated undiscounted future cash flows that the events in
the fourth quarter resulted in a permanent impairment of the goodwill related
to the acquisition of Toddler U Inc. and accordingly determined to write off
the unamortized portion of the goodwill which amounted to $800,000.
All remaining tangible assets and liabilities of GCO Apparel and University
Brands are valued at the lower of their cost or market. Market value was
determined using estimated undiscounted future cash flows. In developing
estimates of future cash flows, the Company has utilized historical operating
results adjusted for the implementation of a previously announced reduction in
the manufacturing capacity of GCO Apparel.
The tangible asset write-downs include $2.2 million for inventory, to reflect
discounts taken to facilitate the rapid liquidation of merchandise purchased
for sale in stores which are being closed, and $5.9 million for fixed asset
write-downs, of which $1.9 million relates to retail store closings and $4.0
million relates to plant closings.
During the fourth quarter of Fiscal 1994, the Company provided $2.1 million for
severance costs not related to the restructuring, which amount is included in
selling and administrative expenses.
The $29.4 million restructuring charge is comprised of an estimated $13.6
million of cash expenditures, of which $12 million is expected to be incurred
in Fiscal 1995. Although the Company has made a provision to reduce its
footwear manufacturing capacity by more than 10% and its tailored clothing
manufacturing capacity by more than 50%, the Company may not have sufficient
unit volume to fully absorb its fixed manufacturing costs and to thereby avoid
negative manufacturing variances in its remaining factories based on current
sales levels. However, the Company does expect substantial reductions in
manufacturing costs as a result of the restructuring. The retail stores
included in the restructuring had an operating loss of $3.4 million in Fiscal
1994. In addition, due to the corporate and operating division personnel
reductions for which provision was made in the restructuring charge, the
Company expects payroll costs included in selling (excluding selling expenses
included in retail store results) and administrative expense to decrease by
approximately $3.6 million in Fiscal 1995 as compared to Fiscal 1994.
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24
International Trade Developments
Manufacturers in China have become major suppliers to Genesco and other
footwear companies in the United States. In Fiscal 1995 the Company expects to
import footwear products from China having a total cost in the range of $40 to
$45 million. In June 1994 the President of the United States is expected to
decide whether the Chinese government has made overall significant progress on
certain human rights issues as a condition to continuing to grant China most
favored nation's status for bilateral trade purposes. Failure of the United
States government to continue to grant most favored nation's treatment to China
would raise duties and significantly increase the cost of footwear and other
products imported from China into the United States. It could also materially
affect the Company's ability to source those products from other countries,
because the Company would have to compete with other footwear companies, some
of whom buy substantially greater quantities and have substantially greater
resources, for productive capacity in other low-labor cost countries.
In December 1993, the Uruguay round of multilateral trade negotiations under
the General Agreement on Tariffs and Trade ("GATT") were concluded. The new
GATT agreements were signed and submitted to United States Congress for
approval on April 15, 1994, with a tentative effective date of July 1, 1995.
Trade in the textile and clothing sector has been governed by the Multifiber
Arrangement under which the developed nations confer import quotas on textile
products from the developing nations. The new GATT agreements, if approved,
would integrate textile and apparel products back into the GATT scheme by
phasing out these quotas and reducing oversea tariffs by approximately 12% over
a 10-year transition period. The elimination of the Multifiber Arrangement
would gradually remove quotas on piece goods imported from developing countries
and would also phase out quota barriers for imported finished suits, sport
coats and pants into the United States market from low-labor cost developing
countries. Management does not believe that the new GATT agreements, if
approved, will materially impact the Company's tailored clothing operations in
the next two years. The reduction in trade barriers could adversely affect the
realizable value of the Company's tailored clothing manufacturing facilities if
the Company decides to divest those facilities.
RESULTS OF OPERATIONS - FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales for the year ended January 31, 1994 increased 6.1% from
the previous year. Total gross margin for the year decreased 6.3% and declined
from 37.7% to 33.3% as a percentage of sales. Selling and administrative
expenses increased 10.9% and increased as a percentage of sales from 33.8% to
35.3%. The pretax loss for Fiscal 1994 was $51.8 million, compared to pretax
earnings of $13.7 million for Fiscal 1993. Included in Fiscal 1994 pretax
earnings is the $29.4 million restructuring charge. See "Significant
Developments in Fiscal 1994 - Restructuring Charge" above. The Company
reported a net loss of $54.3 million ($2.26 per share) for Fiscal 1994,
compared to net earnings of $9.1 million ($.38 per share) in Fiscal 1993. The
net loss in Fiscal 1994 includes a $2.3 million ($.09 per share) loss from the
cumulative effect of changes in the method of accounting for postretirement
benefits due to the implementation of Statement of Financial Accounting
Standards No. 106. See Note 15 to the Consolidated Financial Statements. In
addition, Fiscal 1994's net loss includes an extraordinary loss of $240,000
($.01 per share) from the early retirement of debt. See Note 10 to the
Consolidated Financial Statements.
24
25
Footwear Retail
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $231,456 $227,741 1.6%
Operating Income . . . . . . . . . . . . . . . . . . . . $ (3,841) $ 9,171 -
Operating Margin . . . . . . . . . . . . . . . . . . . . (1.7%) 4.0%
Net sales from footwear retail operations increased 1.6% in Fiscal 1994 as
compared to the previous year despite operating an average of 5% fewer stores.
The increase in net sales reflects an average price per unit increase of
approximately 2%, partially offset by a unit sales decrease of approximately
1%. Comparable store sales increased approximately 4% from the same period in
Fiscal 1993. Gross margin as a percentage of sales decreased from 50.2% to
49.3% due to increased markdowns. Inventory markdowns not included in the
restructuring charge (see "Significant Developments in Fiscal 1994 -
Restructuring Charge" above) resulted primarily from the purchase of fashion
merchandise for adolescent consumers which did not sell well. Operating
expenses increased 3.5% and increased as a percentage of sales from 46.1% to
47.0%. The increase in operating expenses is due primarily to increased
advertising expense. The decline in operating income, excluding an $8.7
million restructuring charge, is attributable to the increased markdowns and to
the expense increase.
Footwear Wholesale & Manufacturing
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $236,435 $202,386 16.8%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 373 $ 18,244 (98.0%)
Operating Margin . . . . . . . . . . . . . . . . . . . . .2% 9.0%
Net sales from footwear wholesale and manufacturing operations were $34.0
million (16.8%) higher in Fiscal 1994 than in the previous year, reflecting a
$25.0 million increase in sales from newly introduced products and those that
were acquired in Fiscal 1993, as well as increases in sales of existing product
lines, primarily tanned leather and soccer balls. Sales increased in all of
the Company's wholesale footwear operations except for boots and children's
court shoes.
Gross margin as a percentage of sales decreased from 30.7% to 26.0%, primarily
due to manufacturing variances and price reductions to stimulate sales and, to
a lesser extent, to a lower-margin product mix caused by increased tanned
leather sales.
25
26
As a result of aggressive sales growth plans for Fiscal 1994 which were not
met, several operating divisions entered the last half of Fiscal 1994 with
excess inventory and reduced prices to liquidate excess inventory. Price
reductions related to (i) boot products, (ii) a new line of casual men's shoes,
which had to be repositioned at lower price points, and (iii) children's shoes.
The volume-related negative manufacturing variances occurred in the Company's
boot plants as a result of a decision in the latter part of Fiscal 1994 to
curtail the production of boots in response to lower boot sales.
Sales of western and western influenced fashion products historically have been
cyclical in nature, and in Fiscal 1994 the Company experienced a decline in
wholesale sales of western products compared to the previous year. In
Fiscal 1993 the Company shifted a substantial portion of its manufacturing
capacity formerly utilized in manufacturing products which are now purchased
from foreign resources to the production of boots to meet the sharply rising
demand for those products. As a result of the decline of boot sales in Fiscal
1994 and the expected further decline in Fiscal 1995, the Company made a
decision to close a plant. See "Significant Developments in Fiscal 1994
- -Restructuring Charge" above.
Operating expenses increased 35.0% and increased as a percentage of sales from
21.1% to 24.4%, primarily because of increased divisional administrative and
selling expenses and increased advertising expenses to support aggressive sales
growth plans for Fiscal 1994.
The decline in operating income, excluding a $3.2 million restructuring charge,
is due to the increased expenses and lower margins described above.
Tailored Clothing
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $104,969 $109,740 (4.3%)
Operating Income . . . . . . . . . . . . . . . . . . . . $(21,986) $ 6,065 -
Operating Margin . . . . . . . . . . . . . . . . . . . . (20.9%) 5.5%
Net sales from tailored clothing operations decreased 4.3% in Fiscal 1994 as
compared to the previous year. Net sales, excluding those of GCO Apparel which
began operations in August 1993, declined by 13.6%. See "Significant
Developments in Fiscal 1994 - Tailored Clothing Segment" above.
Gross margin decreased 43% and declined as a percentage of sales from 24.7% to
14.6%. This decline was the result of industry-wide conditions and the
Company's response in Fiscal 1993 and Fiscal 1994 to those conditions as
described below.
26
27
The United States market for tailored clothing has been shrinking, reflecting a
long-term shift in consumer preferences toward more casual apparel, and the
market share of low-cost foreign and domestic, non-union manufacturers has been
increasing at the expense of traditional domestic manufacturers like Greif. In
addition, changes have occurred in the traditional channels of distribution for
tailored clothing as a result of the consolidation (frequently in leveraged
buyouts) of department stores, the declining number of independent men's
specialty stores and the growth of off-price clothing merchants. All of these
factors have led to increased demands by retailers for lower-priced clothing
and promotional pricing.
In Fiscal 1993 and Fiscal 1994, Greif implemented a plan to reduce its
manufacturing costs in order to become more competitive. Greif reduced its
manufacturing capacity through a reduction in employment and made changes in
product specifications to lower labor and material costs. The products
manufactured to the new specifications, which were shipped for the spring 1993
season, were not well-received by Greif's customers and led to higher than
normal returns, allowances and discounts. Greif has made improvements in the
quality of its products for spring 1994 despite having accepted orders based on
lower-cost product specifications.
In addition to the factors described above, tailored clothing gross margin was
adversely affected by disruptions in Greif's manufacturing operations related
to labor difficulties in the third quarter of Fiscal 1994 and the shift during
that quarter to production of lower-margin products in anticipation of a work
stoppage and by the inclusion of GCO Apparel's low margin cut, make and trim
operations in August 1993.
Operating expenses decreased 4% because of lower advertising and selling
expenses but increased as a percentage of sales from 19.2% to 19.3%. As a
result of a decline in orders for tailored clothing products stemming from the
problems discussed above and the loss of the Ralph Lauren licenses, the Company
decided to reduce manufacturing capacity in Fiscal 1995 by closing plants and
recorded a restructuring charge of $17.1 million. This charge is included in
tailored clothing operating loss for Fiscal 1994. The $11.4 million reduction
in operating income from Fiscal 1993 to Fiscal 1994 (excluding a $400,000
employee reduction charge in Fiscal 1993 and the $17.1 million restructuring
charge in Fiscal 1994) is attributable to lower sales and gross margins and
approximately $1.1 million of costs related to labor difficulties. Total costs
(including legal and security expenses) for Fiscal 1994 arising out of Greif's
labor problems were approximately $2.0 million.
As a result of continuing price pressures, the loss after the fall 1994 season
of the Ralph Lauren licenses and a decline in orders for the spring and fall
1994 seasons for Greif's other branded tailored clothing products, Greif does
not expect to be profitable in Fiscal 1995. Management expects that further
substantial reductions in administrative and selling expenses and in
manufacturing overhead expense may be required. While Greif is not presently
considering a reduction in employment of persons covered by collective
bargaining agreements beyond that provided for in the restructuring charge, a
further reduction in employment of management and other employees not covered
by collective bargaining agreements is possible.
27
28
Any reduction in employment of employees covered by collective bargaining
agreements beyond that anticipated in the restructuring plan provided for in
Fiscal 1994 could result in the incurrence of withdrawal liability for Greif's
portion of accumulated benefits in excess of the assets of the multiemployer
pension plan applicable to Greif's covered employees. The maximum liability,
and the corresponding maximum charge to earnings, that would result from a
permanent cessation of Greif's obligation to contribute to the multiemployer
plan or a cessation of all operations covered by collective bargaining
agreements would have been approximately $15.7 million in Fiscal 1994. A 70%
decline in Greif's contributions to the multiemployer plan or the permanent
cessation of the obligation to contribute to the plan with respect to a
facility could constitute a "partial withdrawal" and result in recognition of a
portion of the withdrawal liability calculated on the basis of the decline in
hours worked. The period over which any such withdrawal liability would have
to be paid is based on the average number of historical hours worked and the
contribution rate per hour but cannot exceed 20 years. The employment of fewer
covered employees in connection with a further reduction in the scope of
Greif's operations or the sale of all or a substantial portion of its business
and assets could result in the recognition of withdrawal liability. Any such
sale could also result in a failure to realize the full value of assets
employed in Greif's business and the recognition of certain lesser liabilities
not included in the restructuring provision. See Note 19 to the Consolidated
Financial Statements for information regarding assets employed in the tailored
clothing segment, most of which are assets of Greif.
Corporate and Interest Expenses
Corporate and other expenses were $15.3 million in Fiscal 1994, compared to
$14.1 million for the previous year, an increase of 8%. Fiscal 1994 expenses
included a net expense in the amount of $1,755,000, comprised of $2,138,000 for
corporate staff severance payments, a provision of $448,000 for an adverse
decision in a lawsuit, $404,000 for corporate restructuring, partially offset
by a $677,000 favorable adjustment to accrued liabilities relating to
previously divested operations and $558,000 gain from the sale of excess real
estate. Fiscal 1993 expenses included a net expense in the amount of $717,000,
comprised of a $350,000 provision for an adverse decision in a lawsuit and a
$367,000 provision from the closing of a printing service department.
Excluding these adjustments, corporate and other expenses increased $119,000 in
Fiscal 1994 as compared to Fiscal 1993, primarily due to higher legal fees.
Interest expense increased $5.4 million, or 95%, in Fiscal 1994 as compared to
Fiscal 1993 because of an increase in the average outstanding indebtedness and
the higher average interest rates as a result of the issuance of the 10 3/8%
Notes. The proceeds of the offering of the 10 3/8% Notes replaced bank
borrowings under the Company's revolving credit agreement and a $20,000,000
term loan, both of which were at lower interest rates. See "Liquidity and
Capital Resources."
RESULTS OF OPERATIONS - FISCAL 1993 COMPARED TO FISCAL 1992
The Company's net sales for the year ended January 31, 1993 increased 14.4%
from Fiscal 1992. Total gross margin for the year increased 19.3% and as a
percentage of sales increased from 36.2% to 37.7%. Selling and administrative
expenses increased 10.0% but decreased as a percentage of sales from 35.1% to
33.8%. Pretax earnings were $13.7 million in Fiscal 1993, compared to $570,000
in Fiscal 1992. Net earnings were $9.1 million ($.38 per share) for Fiscal
1993, compared to $461,000 ($.01 per share) for Fiscal 1992. Net earnings were
reduced in Fiscal 1993 by an extraordinary loss of $583,000 ($.02 per share)
from early retirement of debt.
28
29
Footwear Retail
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $227,741 $212,942 6.9%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 9,171 $ (47) -
Operating Margin . . . . . . . . . . . . . . . . . . . . 4.0% 0.0%
Net sales from footwear retail operations increased 6.9% from Fiscal 1992
reflecting an average price per unit increase of approximately 8%, offset by a
unit sales decrease of approximately 2%. Management believes that the increase
in average price per unit was caused by lower markdowns and shifts in product
mix to higher-priced, branded merchandise and that the decrease in units sold
was primarily attributable to the Company's operation of approximately 7% fewer
stores than in the previous year. Comparable store sales increased
approximately 8% from the same period in Fiscal 1992. Gross margin as a
percentage of sales increased from 49.3% to 50.2% due to lower markdowns as a
percent of sales. Markdowns were higher in Fiscal 1992 due to efforts to
stimulate sales during the economic downturn. Operating expenses remained
relatively unchanged from the prior period, but declined as a percentage of
sales from 49.0% to 46.1%. The improvement in operating income was
attributable to increased sales.
Footwear Wholesale and Manufacturing
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $202,386 $139,533 45.0%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 18,244 $ 13,094 39.3%
Operating Margin . . . . . . . . . . . . . . . . . . . . 9.0% 9.4%
Net sales from footwear wholesale and manufacturing operations were $62.9
million (45.0%) higher than Fiscal 1992, reflecting a 17% increase in unit
sales from the Company's existing operations, primarily boots, and $31.6
million in new product sales. The unit sales increase included a sharp
increase in unit sales of boots to existing customers as well as broader
distribution to new customers. Sales increased in most of the Company's
wholesale footwear operations. The $31.6 million of new product sales related
to the Company's Mitre U.K. subsidiary which was acquired in May 1992 and to
its Dockers and Nautica lines of footwear which were new in Fiscal 1993.
Included in the results for Fiscal 1992 were losses of $2.1 million related to
start-up costs of the Dockers and Nautica lines. Gross margin as a percentage
of sales increased from 29.5% in Fiscal 1992 to 30.7% in Fiscal 1993, primarily
due to a higher margin product mix, including Dockers and Nautica footwear.
Operating expenses increased 47.6%, primarily from increased volume related
expenses, and increased as a percentage of sales from 20.7% to 21.1%, primarily
because of bonus accruals based on increased profitability and expenses
relating to the Company's University Brands division acquired on
29
30
December 29, 1992. Most of the operating income improvement was attributable
to the Company's boot business. Operating income for Fiscal 1993 was reduced
by expenses of $981,000 related to environmental matters, primarily litigation
settlements.
Tailored Clothing
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $109,740 $119,291 (8.0%)
Operating Income . . . . . . . . . . . . . . . . . . . . $ 6,065 $ 3,724 62.9%
Operating Margin . . . . . . . . . . . . . . . . . . . . 5.5% 3.1%
Net sales from tailored clothing operations decreased 8.0% in Fiscal 1993,
reflecting an approximate 11% decrease in unit sales, primarily due to the
Company's decision to reduce the number of suits sold at discount prices. In
an effort to reduce costs and expenses of the tailored clothing operation and
thus reduce the need to absorb overhead by selling suits at discount prices,
the Company reduced employment during Fiscal 1993 by approximately 300
employees, mostly through attrition. As a result of these actions, gross
margin increased 10% and as a percentage of sales improved from 20.6% in Fiscal
1992 to 24.7% in Fiscal 1993. Operating expenses increased 1%, and increased
from 17.4% to 19.2% as a percentage of sales, primarily from increased
advertising and insurance expenses. Fiscal 1993 operating income also included
a $400,000 charge to income in the first quarter in connection with the
employee reduction. The improvement in operating income was due to the margin
improvement.
Corporate and Interest Expenses
Corporate and other expenses were $14.1 million in Fiscal 1993 compared to
$11.6 million for Fiscal 1992, an increase of 22.3%. The increase was
primarily due to a $350,000 provision for an adverse decision in a lawsuit and
$1.4 million of higher bonus accruals.
Interest expense in Fiscal 1993 increased $1.0 million, or 21.5%, from Fiscal
1992 because of an increase in the average outstanding indebtedness.
Approximately $1.1 million of interest expense was attributable to borrowings
related to the Mitre U.K. acquisition, and the remaining interest expense was
attributable to borrowings in response to increased working capital needs
related to the growth of the Company's wholesale business and to its new
wholesale lines. Increased borrowings were offset to some extent by lower
interest rates.
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31
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
January 31
--------------------------------
1994 1993 1992
------ ------ ------
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.6 $ 4.8 $ 7.2
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160.1 $168.9 $132.9
Long-term debt (includes current
maturities)
10 3/8% senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 - -
Refinanced long-term debt* . . . . . . . . . . . . . . . . . . . . . . . . . . . - $ 32.0 $ 14.9
Revolving credit debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.0 $ 22.0 -
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3x 3.5x 3.8x
- ---------------
* The refinanced long-term debt includes $12 million of
9.75% debt and the indebtedness incurred to finance the
Mitre U.K. acquisition. See Note 3 to the Consolidated
Financial Statements.
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable reaching peaks in the spring and fall of each
year. Cash flow from operations is generated principally in the fourth quarter
of each fiscal year.
Cash used by operating activities was $17.4 million in Fiscal 1994 and $5.0
million in Fiscal 1993, and $26.8 million of cash was provided by operating
activities in Fiscal 1992. An additional $12.4 million of cash was used by
operating activities in Fiscal 1994 as compared to the previous year primarily
due to the Company's net loss from operations for the year. The $31.8 million
decrease in cash flow from operating activities from Fiscal 1992 to Fiscal 1993
reflects the additional working capital requirements to support the growth in
the Company's existing businesses and additional working capital investments in
newly acquired or introduced businesses. Most of the cash provided by
operations in Fiscal 1992 was used to reduce long-term debt by $14.6 million
and for capital expenditures of $7.0 million.
A $3.6 million increase in inventories at January 31, 1994 as compared to
January 31, 1993 is from the LaMar acquisition. See Note 3 to the Consolidated
Financial Statements. In the Company's remaining businesses a buildup of
inventory in certain of the Company's wholesale lines resulting from a downturn
in sales was offset by a reduction in retail inventory either by markdowns or
sales. The $40.1 million increase in inventories from January 31, 1992 to
January 31, 1993 was comprised of more units of certain existing lines of
footwear in anticipation of higher sales and $16.0 million of new lines
introduced or acquired in Fiscal 1993. The inventory increase also reflects a
higher-priced inventory mix of branded merchandise in some of the Company's
retail divisions. Inventories at January 31, 1992 reflected an $11.2 million
decrease from January 31, 1991 levels, resulting from tighter inventory
controls in anticipation of lower sales in the economic environment which
existed in Fiscal 1992 and a decline in retail inventory from a net reduction
of 38 retail outlets.
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32
Accounts receivable at January 31, 1994 decreased $5.7 million compared to
January 31, 1993, primarily from decreased boot and tailored clothing sales in
the fourth quarter of Fiscal 1994. Accounts receivable at January 31, 1993
increased $17.4 million compared with January 31, 1992, primarily from
increased footwear wholesale sales (including $7.3 million attributable to the
new wholesale footwear lines that were introduced or acquired in Fiscal 1993)
and increased fourth quarter tailored clothing sales. Accounts receivable at
January 31, 1992 were down $8.8 million from January 31, 1991 levels,
reflecting improved collections and lower sales at the end of the year,
primarily tailored clothing. Also included in Fiscal 1991's accounts
receivable were $3 million of accounts receivable arising out of the Company's
women's branded business divested in February 1991.
Included in the accounts payable and accrued liabilities line in the
Consolidated Statement of Cash Flows are the following increases (decreases):
Years Ended January 31,
-----------------------------------------
(In Thousands) 1994 1993 1992
-------- ------- --------
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ (9,907) $10,128 $(3,763)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . (787) 3,061 1,005
-------- ------- -------
$(10,694) $13,189 $(2,758)
======== ======= =======
The fluctuations in accounts payable were due to changes in buying patterns,
payment terms negotiated with individual vendors and changes in inventory
levels.
The change in accrued liabilities in Fiscal 1994 was due primarily to decreased
bonus and tax accruals relating to the loss in Fiscal 1994. The change in
accrued liabilities in Fiscal 1993 was due primarily to increased bonus and tax
accruals relating to increased profitability in Fiscal 1993. The increase in
accrued liabilities in Fiscal 1992 primarily reflected higher accruals for
insurance.
The $36.0 million increase in long-term debt at January 31, 1994 as compared to
January 31, 1993 reflects $11.4 million of borrowings to fund acquisitions,
$7.9 million of borrowings to fund capital expenditures, $5.0 million of
borrowings to redeem a minority interest in Mitre U.K. and borrowings to
finance operations.
Revolving credit agreement borrowings increased by $22 million during Fiscal
1993 to finance $11.0 million of Fiscal 1993 acquisition costs and increased
working capital requirements. The borrowings under the Company's revolving
credit agreement decreased in Fiscal 1992 by $8 million as the Company managed
down its working capital requirements during the economic downturn.
Capital Expenditures and Acquisitions
Capital expenditures were $7.9 million in Fiscal 1994, $9.2 million in Fiscal
1993 and $7.0 million in Fiscal 1992. The $1.3 million decrease in Fiscal 1994
capital expenditures as compared to Fiscal 1993 resulted from a decrease in
retail store expenditures. The $2.2 million increase in Fiscal 1993 capital
expenditures as compared to Fiscal 1992 resulted from a $1.4 million decline in
the acquisition of fixed assets through capitalized leases and increased
footwear manufacturing machinery purchases related to increased boot
production. The $4.5 million decrease in Fiscal 1992 capital expenditures as
compared to Fiscal 1991 resulted primarily from a $2.0 million increase in the
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33
acquisition of fixed assets under capitalized leases and the opening of fewer
retail stores.
Total capital expenditures in Fiscal 1995 are expected to be approximately
$10.6 million. These include expected retail expenditures of $5.0 million to
open approximately 24 new retail stores and to complete 37 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other operations are expected to be approximately $5.6 million.
On May 6, 1992, the Company completed the acquisition of Mitre U.K. See Note 3
to the Consolidated Financial Statements. The cash portion of the purchase
price and related acquisition costs were partially financed through a $20
million term loan and borrowings under the Company's revolving credit agreement
of approximately $5 million. The term loan was prepa