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[GENESCO LOGO]
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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 For the Fiscal Year Ended January 29, 2000
[ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
EXCHANGES ON WHICH
TITLE REGISTERED
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Common Stock, $1.00 par value New York and Chicago
Preferred Share Purchase Rights New York and Chicago
5 1/2% Convertible Subordinated Notes due 2005 New York
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Subordinated Serial Preferred Stock, Series 1 Employees' Subordinated
Convertible Preferred Stock
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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the June 28, 2000 annual meeting of
shareholders are incorporated into Part III by reference.
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 14, 2000 - 21,554,528
Aggregate market value on April 14, 2000 of the voting stock held by
nonaffiliates of the registrant was approximately $260,000,000.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures about Market Risk 30
Item 8 Financial Statements and Supplementary Data 31
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 71
PART III
Item 10 Directors and Executive Officers of the Registrant 71
Item 11 Executive Compensation 71
Item 12 Security Ownership of Certain Beneficial Owners and Management 71
Item 13 Certain Relationships and Related Transactions 73
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 74
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PART I
ITEM 1, BUSINESS
GENERAL
Genesco is a leading retailer and wholesaler of branded footwear with net sales
for Fiscal 2000 of $573.7 million. During Fiscal 2000, the Company operated six
reportable business segments (not including corporate): Journeys; Jarman,
comprised of the Jarman, Underground Station and Stone & Co. retail footwear
chains; Johnston & Murphy, comprised of Johnston & Murphy retail stores and
wholesale distribution; Licensed Brands, comprised of Dockers and Nautica
Footwear; Other Retail, comprised of General Shoe Warehouse and the Jarman
Leased departments, both of which were closed in FY 2000; and Leather. At
January 29, 2000, the Company operated 679 retail stores and leased footwear
departments throughout the United States and Puerto Rico. It currently plans to
open a total of approximately 160 new retail stores and leased departments in
Fiscal 2001. At January 29, 2000, Journeys operated 323 stores; Jarman operated
161 stores, including 21 Underground Station stores and six Stone & Co. stores;
Johnston & Murphy operated 143 stores and factory stores; Nautica retail
operated 47 leased departments; and Other Retail operated five General Shoe
Warehouse stores. In the first quarter of Fiscal 2001, four of the General Shoe
Warehouse stores were transferred to the Jarman operating segment and one was
transferred to the Johnston & Murphy operating segment. The Company will no
longer report results from the Other Retail segment.
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
1996 1997 1998 1999 2000
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Retail Stores and Leased Departments
Beginning of year 444 434 475 561 674
Opened during year 21 55 102 162 113
Closed during year (31) (14) (16) (49) (108)
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End of year 434 475 561 674 679
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The Company also designs, sources, markets and distributes footwear under its
own and licensed brands, including Johnston & Murphy, Nautica, and Dockers, to
more than 1,900 retail accounts in the United States, including a number of
leading department, discount, and specialty stores. The Company's Leather
segment includes a leather tanning and finishing business, Volunteer Leather,
primarily for sale to military boot manufacturers and other customers.
Reference to Fiscal 2000 refers to the Company's fiscal year ended January 29,
2000. Reference to Fiscal 1999 refers to the Company's fiscal year ended January
30, 1999. References to Fiscal 1996 and 1998 are to the Company's fiscal year
ended on January 31 of each such year. Reference to Fiscal 1997 refers to the
Company's fiscal year ended February 1, 1997. For further information on the
Company's business segments, see Note 17 to the Consolidated Financial
Statements included in Item 8 and Management's Discussion and Analysis of
Financial Condition and Results of Operations. All information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is referred to in Item 1 of this report is incorporated by
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such reference in Item 1. This report contains forward-looking statements.
Actual results may turn out materially different from the expectations reflected
in these statements. For a discussion of some of the factors that may lead to
different results, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SEGMENTS
Journeys
The Journeys segment accounted for approximately 38% of the Company's net sales
in Fiscal 2000. Operating income attributable to Journeys was $29.7 million in
Fiscal 2000, with an operating margin of 13.8%. The Company believes its
innovative store formats, mix of well-known brands, new product introductions,
and experienced management team provide a significant competitive advantage.
At January 29, 2000, Journeys operated 323 stores, averaging approximately 1,450
square feet, throughout the United States and Puerto Rico, selling footwear for
young men and women.
Journeys added 65 net new stores in Fiscal 2000 and achieved a comparable store
sales increase of 13% from the prior fiscal year. Journeys stores, located
primarily in the Southeast, Midwest, California, Texas, and Puerto Rico, target
customers in the 14-22 year age group through the use of youth-oriented decor
and popular music videos. Journeys stores carry predominately branded
merchandise of other footwear companies across a spectrum of prices including
leading brand names such as Dr. Martens, Skechers, Timberland, adidas, Lugz and
Steve Madden. From a base of 118 Journeys stores at the end of Fiscal 1997, the
Company opened 58 net new Journeys stores in Fiscal 1998, 82 net new stores in
Fiscal 1999 and 65 net new stores in Fiscal 2000 and plans to open up to
approximately 100 net new Journeys stores in Fiscal 2001.
Jarman
The Jarman segment accounted for approximately 15% of the Company's net sales in
Fiscal 2000. Operating income attributable to Jarman was $4.3 million in Fiscal
2000, with an operating margin of 5.0%.
At January 29, 2000, Jarman operated 161 stores, including 21 Underground
Station stores and six Stone & Co. stores, averaging approximately 1,300 square
feet, throughout the United States, selling footwear primarily for men.
Jarman achieved a comparable store sales increase of 8% from the prior fiscal
year. Jarman stores are located primarily in urban and suburban areas in the
Southeast and Midwest, target male consumers in the 18-35 age group and sell
footwear in the mid-price range ($50 to $100). The Jarman stores which operate
under the name Underground Station are located primarily in urban areas. For
Fiscal 2000, most of the footwear sold in Jarman stores was branded merchandise
of national brands other than the Company's, with the remainder made up of
Genesco and private label brands. The product mix at each Jarman store is
tailored to match local customer preferences and competitive dynamics. The
Company opened 9 new Jarman stores and closed fourteen Jarman stores in Fiscal
2000, decreasing the total number of stores to 161. The Company plans to open
approximately 41 net new Jarman stores in Fiscal 2001, including approximately
20 Underground Station stores.
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Johnston & Murphy
The Johnston & Murphy segment accounted for approximately 29% of the Company's
net sales in Fiscal 2000. Operating income attributable to Johnston & Murphy was
$22.2 million in Fiscal 2000, with an operating margin of 13.3%. All of the
Johnston & Murphy wholesale sales are of the Genesco-owned Johnston & Murphy
brand and approximately 92% of the Johnston & Murphy retail sales are of
Genesco-owned brands.
At January 29, 2000, Johnston & Murphy operated 143 retail stores and factory
stores, averaging approximately 1,400 square feet, throughout the United States
selling footwear for men.
Johnston & Murphy Wholesale Operations. In its nearly 150-year history as a
high-quality men's footwear label, Johnston & Murphy has come to symbolize
superior craftsmanship, quality materials, and classic styling. The Company has
taken these brand attributes to the growing casual lifestyle market by expanding
the product line to include a wide selection of dress casual and casual styles.
The Company has also introduced a line of contemporary, European-influenced
dress and dress casual footwear. In addition to sales through Company-owned
Johnston & Murphy retail shops and factory stores, Johnston & Murphy footwear is
sold primarily through better department and independent specialty stores.
Johnston & Murphy Retail Operations. Johnston & Murphy retail shops are located
primarily in better malls nationwide and sell a broad range of men's dress and
casual footwear and accessories. Johnston & Murphy stores target business and
professional consumers primarily between the ages of 25 and 54. Retail prices
for Johnston & Murphy footwear generally range from $130 to $240. To capitalize
upon the trend toward more casual business attire, Johnston & Murphy retail
shops have increased their selection of casual and dress casual products, which
accounted for 28% of total Johnston & Murphy retail sales in Fiscal 2000. The
Company has been repositioning the brand to appeal to a broader market and
estimates it has lowered the average age of the Johnston & Murphy customer by
ten years since the initiative was launched. Johnston & Murphy comparable store
sales were up 4% from the prior fiscal year.
Licensed Brands
The Licensed Brands segment accounted for approximately 13% of the Company's net
sales in Fiscal 2000. Operating income attributable to Licensed Brands was $2.5
million in Fiscal 2000, with an operating margin of 3.4%. Substantially all of
the Licensed Brands sales are of footwear marketed under brands for which
Genesco has an exclusive footwear license. See "Trademarks and Licenses."
Dockers. In 1991, Levi Strauss & Co. granted the Company the exclusive license
to market men's footwear under the Dockers brand name in the United States. The
Dockers brand name is well recognized in the men's casual fashion industry. The
Company uses the Dockers brand name to market a line of comfortable,
moderately-priced, casual lifestyle footwear. Dockers footwear is marketed
through many of the same national retail chains that carry Dockers slacks and
sportswear. Suggested retail prices for Dockers footwear generally range from
$50 to $84.
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
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young, active, upper-income consumers, and designed to complement Nautica
sportswear. In Fiscal 1997, the Company introduced a line of Nautica footwear
for boys and a line of athletic footwear under the Nautica Competition label.
The Company introduced a new athletic line for men and women, Nautica Sport Tech
(NST), to replace the Nautica Competition label in the first quarter of Fiscal
2000. Suggested retail prices of Nautica casual footwear generally range from
$42 to $110, suggested retail prices of Nautica boys' footwear generally range
from $39 to $70, and suggested retail prices of NST athletic footwear generally
range from $45 to $65. Nautica footwear is sold in department stores and
specialty footwear stores and in unmanned leased shoe departments in Nautica
retail outlets operated by an affiliate of the licensor of the Nautica
trademark. At January 29, 2000, Licensed Brands operated 47 Nautica leased
departments.
Other Retail
The Other Retail segment accounted for approximately 2% of the Company's net
sales in Fiscal 2000.
Under an agreement with Mercantile Stores Company, Inc. the Company operated the
men's shoe departments in Mercantile department stores through the Company's
Jarman Leased departments division. Because of the 1998 acquisition of
Mercantile by Dillards Inc., the Company has ended its operation of the leased
departments. The Company transferred the remaining Jarman Leased departments to
Dillards Inc. and Saks Inc. during the first quarter ended May 1, 1999. See
"Significant Developments" in Management's Discussion and Analysis of Financial
Condition and Results of Operations for more information regarding Jarman Leased
departments. As of January 29, 2000, only five Other Retail stores were open,
which were General Shoe Warehouse stores. In the first quarter of Fiscal 2001,
four of the General Shoe Warehouse stores were transferred to the Jarman
operating segment and one was transferred to the Johnston & Murphy operating
segment. The Company will no longer report results from the Other Retail
segment.
Leather
During Fiscal 2000, the Company conducted leather tanning and finishing
operations in two manufacturing facilities located in Michigan and Tennessee.
The tanned leather products were sold in Fiscal 2000 to military boot
manufacturers and other customers. The Leather segment accounted for
approximately 4% of the Company's net sales in Fiscal 2000. Operating income
attributable to the leather operations was $1.4 million in Fiscal 2000, with an
operating margin of 6.1%.
MANUFACTURING AND SOURCING
The Company relies primarily on independent third-party manufacturers for
production of its footwear products. The Company sources footwear products from
foreign manufacturers located in China, Italy, Mexico, Brazil, Indonesia, Taiwan
and the United Kingdom. During Fiscal 2000, Genesco manufactured Johnston &
Murphy footwear in one facility in Nashville, Tennessee, but shoes manufactured
in the Johnston & Murphy factory have not accounted for a significant portion of
its sales of footwear products.
COMPETITION
Competition is intense in the footwear industry. The Company's retail footwear
competitors range from small, locally owned shoe stores to regional and national
department stores, discount stores, and specialty chains. The Company competes
with hundreds of footwear wholesale and
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manufacturing operations in the United States and throughout the world, most of
which are relatively small, specialized operations, but some of which are large,
more diversified companies. Some of the Company's competitors have certain
resources that are not available to the Company. The Company's success depends
upon its ability to remain competitive with respect to the key factors of style,
price, quality, comfort, brand loyalty, and customer service. The location and
atmosphere of the Company's retail stores is an additional competitive factor
for the Company's retail operations. Any failure by the Company to remain
competitive with respect to such key factors could have a material adverse
effect on the Company's business, financial condition, or results of operations.
TRADEMARKS AND LICENSES
The Company owns its Johnston & Murphy footwear brand. The Nautica and Dockers
brand footwear lines, introduced in Fiscal 1993, are sold under license
agreements. The Nautica license agreement expires on January 31, 2002 with an
option to renew through 2007 provided the Company meets minimum sales
requirements and subject to other conditions. The Dockers license agreement
expires on June 30, 2001 with an option to renew through June 30, 2002. Net
sales of Nautica and Dockers products were approximately $74 million in Fiscal
2000 and approximately $67 million in Fiscal 1999. The Company licenses certain
of its footwear brands, mostly in foreign markets. License royalty income was
not material in Fiscal 2000.
RAW MATERIALS
Genesco is not dependent upon any single source of supply for any major raw
material. In Fiscal 2000 the Company experienced no significant shortages of raw
materials in its principal businesses. The Company considers its available raw
material sources to be adequate.
BACKLOG
Most of the Company's orders are for delivery within 90 days. Therefore, the
backlog at any one time is not necessarily indicative of future sales for an
extended period of time. As of March 25, 2000, the Company's wholesale
operations and leather operations had a backlog of orders, including unconfirmed
customer purchase orders, amounting to approximately $30.1 million, compared to
approximately $23.7 million on March 27, 1999. The backlog is somewhat seasonal,
reaching a peak in spring. The Company maintains in-stock programs for selected
anticipated high volume sales.
EMPLOYEES
Genesco had approximately 4,250 employees at January 29, 2000, approximately
4,170 of whom were employed in footwear and 80 in corporate staff departments.
Retail footwear stores employ a substantial number of part-time employees during
peak selling seasons and approximately 1,840 of the Company's employees were
part-time during such seasons. Approximately 75 of the Company's employees are
covered by a collective bargaining agreement, which will expire on May 31, 2001.
PROPERTIES
At January 29, 2000, the Company operated 679 retail stores and leased
departments throughout the United States and Puerto Rico. New shopping center
store leases typically are for a term of approximately 10 years and new factory
outlet leases typically are for a term of approximately five years. Both
typically provide for rent based on a percentage of sales against a fixed
minimum rent
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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.
The Company operates three manufacturing facilities (two of which are owned, one
of which is leased) and four warehousing facilities (two of which are owned and
two of which are leased) aggregating approximately 1,100,000 square feet. Six
facilities are located in Tennessee and one in Michigan. The Company's executive
offices and the offices of its footwear operations, which are leased, are in
Nashville, Tennessee where Genesco occupies approximately 60% of a 295,000
square foot building.
Leases on the Company's Nashville, Tennessee, plant, offices, and warehouses
expire in 2007, including renewal options. The Company believes that all leases
(other than the long-term Nashville leases) of properties that are material to
its operations may be renewed on terms not materially less favorable to the
Company than existing leases.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to numerous federal, state,
and local laws and regulations relating to human health and safety and the
environment. These laws and regulations address and regulate, among other
matters, wastewater discharge, air quality and the generation, handling,
storage, treatment, disposal, and transportation of solid and hazardous wastes
and releases of hazardous substances into the environment. In addition, third
parties and governmental agencies in some cases have the power under such laws
and regulations to require remediation of environmental conditions and, in the
case of governmental agencies, to impose fines and penalties. The Company makes
capital expenditures from time to time to stay in compliance with applicable
laws and regulations. Several of the facilities owned or operated by the Company
(currently or in the past) are located in industrial areas and have historically
been used for extensive periods for industrial operations such as tanning,
dyeing, and manufacturing. Some of these operations used materials and generated
wastes that would be considered regulated substances under current environmental
laws and regulations. The Company currently is involved in several
administrative and judicial environmental proceedings relating to the Company's
former and current facilities. See "Legal Proceedings."
ITEM 2, PROPERTIES
See Item 1.
ITEM 3, LEGAL PROCEEDINGS
New York State Environmental Proceedings
The Company is a defendant in a civil action filed by the State of New York
against the City of Gloversville, New York, and 33 other private defendants. The
action arose out of the alleged disposal of certain hazardous material directly
or indirectly into a municipal landfill and seeks recovery under a federal
environmental statute and certain common law theories for the costs of
investigating and performing remedial actions and damage to natural resources.
The environmental authorities have selected a plan of remediation for the site
with a total estimated cost of approximately $12.0 million. The Company has
filed an answer to the complaint denying liability and asserting numerous
defenses. The Company, along with other defendants, and the State of
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New York are participating in non-binding mediation in an attempt to agree upon
an allocation of the remediation costs. Because of uncertainties related to the
ability or willingness of the other defendants to pay a portion of remediation
costs, the availability of New York State funding to pay a portion of
remediation costs and insurance coverage available to the various defendants,
the applicability of joint and several liability and the basis for contribution
claims among the defendants, management is unable to predict the outcome of the
action. However, management does not presently expect the action to have a
material effect on the Company's financial condition or results of operations.
The Company has received notice from the New York State Department of
Environmental Conservation (the "Department") that it deems remedial action to
be necessary with respect to certain contaminants in the vicinity of a knitting
mill operated by a former subsidiary of the Company from 1965 to 1969, and that
it considers the Company a potentially responsible party. In August 1997, the
Department and the Company entered into a consent order whereby the Company
assumed responsibility for conducting a remedial investigation and feasibility
study ("RIFS") and implementing an interim remediation measure with regard to
the site, without admitting liability or accepting responsibility for any future
remediation of the site. In conjunction with the consent order, the Company
entered into an agreement with the owner of the site providing for a release
from liability for property damage and for necessary access to the site, for
payments totaling $400,000. The Company estimates that the cost of conducting
the RIFS and implementing the interim remedial measure will be in the range of
$2.2 million to $2.6 million, including certain enhancements to the program
recommended by the Company's environmental consultants in the fourth quarter of
Fiscal 2000. The Company believes that it has adequately reserved for the costs
of conducting the RIFS and implementing the interim remedial measure
contemplated by the consent order, but there is no assurance that the consent
order will ultimately resolve the matter. The Company has not ascertained what
responsibility, if any, it has for any contamination in connection with the
facility or what other parties may be liable in that connection and is unable to
predict whether its liability, if any, beyond that voluntarily assumed by the
consent order will have a material effect on its financial condition or results
of operations.
Whitehall Environmental Sampling
Pursuant to a work plan approved by the Michigan Department of Environmental
Quality ("MDEQ") the Company has performed sampling and analysis of soil,
sediments, surface water, groundwater and waste management areas at the
Company's Volunteer Leather Company facility in Whitehall, Michigan. On June 29,
1999, the Company submitted a final remedial action plan (the "Plan") for the
site to MDEQ. The Plan proposes no direct remedial action with respect to soils
at the site, which are in compliance with applicable regulatory standards, or
lake sediments, which the Company believes do not pose a threat to human health
or the environment and do not violate any applicable regulatory standard. The
Plan includes the filing of certain restrictive covenants encumbering the
tannery property to prevent activities disturbing the lake sediments and uses of
the property inconsistent with the applicable regulatory standards. The Company,
with the approval of MDEQ, previously installed horizontal wells to capture
groundwater from a portion of the site and treat it by air sparging. The Plan
proposes continued operation of this system for an indefinite period and
monitoring of groundwater samples to ensure that the system is functioning as
intended. The Plan is subject to MDEQ approval. In December 1999, MDEQ responded
to the Plan with a request for further information.
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On June 30, 1999, the City of Whitehall filed an action against the Company in
the circuit court for the City of Muskegon alleging that the Company's and its
predecessors' past wastewater management practices have adversely affected the
environment, and seeking injunctive relief under Parts 17 and 201 of the
Michigan Natural Resources Environmental Protection Act ("MNREPA") to require
the Company to correct the alleged pollution. Further, the City alleges
violations of City ordinances prohibiting blight and litter, and that the
Whitehall Volunteer Leather plant constitutes a public nuisance. The Company
filed an answer denying the material allegations of the complaint and asserting
affirmative defenses and counterclaims against the City. The Company also moved
to join the State of Michigan as a party to the action, since it has primary
responsibility for administration of the environmental statutes underlying most
of the City's claims. The State moved to dismiss the Company's action against it
and to intervene in the case on a limited basis, seeking declaratory and
injunctive relief regarding the restrictive covenants on the property, the
State's jurisdiction under MNREPA Part 201 and its right of access to the
property.
If the proposed Plan is approved and the litigation's outcome does not require
additional remediation of the site, the Company does not expect remediation to
have a material impact on its financial condition or results of operations.
However, there can be no assurance that the Plan will be approved as submitted,
and the Company is unable to predict whether any further remediation that may
ultimately be required will have a material effect on its financial condition or
results of operations.
Whitehall Accident
On June 4, 1999, a truck driver working under contact with a carrier for a
chemical vendor died after inhaling a toxic vapor produced when he deposited a
chemical compound that he was delivering to the Company's Whitehall, Michigan
leather tannery into a tank containing another chemical solution. Regulatory
authorities, including the National Transportation Safety Board and the Michigan
Occupational Safety and Health Administration, are investigating the incident.
The Michigan agency has issued six citations alleging regulatory infractions
identified in the course of a general compliance review following the accident.
Proposed monetary penalties associated with the citations total $15,100. The
Company is contesting the citations. On March 14, 2000, the estate of the
deceased truck driver brought an action against the Company in Michigan state
court alleging that the Company's negligent acts and omissions caused his death
and seeking unspecified damages. The Company is currently unable to predict the
extent of its liability, if any, in connection with the accident and how
liability, if found, would be allocated among other potential defendants,
including the chemical vendor and the common carrier, and whether such
liability, if any, would have a material effect on its financial condition or
results of operations. The Company's insurance carrier is defending the Company
in the action, subject to a standard reservation of rights to deny coverage.
Threatened Indemnity Claim
The Company has been advised by the purchaser of an adhesives manufacturing
business formerly owned by the Company that the purchaser may be subject to an
indemnification claim by a subsequent acquirer of the business. The subsequent
acquirer has been named as a third-party defendant in a suit brought under
CERCLA relating to an Alabama solvent recycling facility allegedly used by the
business. According to the purchaser, it would in turn seek indemnification from
the Company against any portion of its liability arising out of the Company's
operation of the business prior to the purchaser's 1986 acquisition of it. The
Company believes that a release
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obtained from the purchaser in connection with the settlement of an earlier
disputed claim would bar any claim against the Company by the purchaser relating
to the present matter. Therefore, the Company does not currently expect this
threatened claim to have a material adverse effect on its financial condition or
results of operations. While there can be no assurance that claims by other
parties arising out of the Alabama facility will not be asserted, no such claim
has yet been asserted.
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 2000.
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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 information relating to the
business experience of each are set forth below:
BEN T. HARRIS, 56, Chairman, President and Chief Executive Officer of Genesco.
Mr. Harris joined the Company in 1967 and in 1980 was named manager of the
leased department division of the Jarman Shoe Company. In 1991, he was named
president of the Jarman Shoe Company and in 1995 was named president of Retail
Footwear, which included the Jarman Shoe Company, Journeys, Boot Factory and
General Shoe Warehouse. Mr. Harris was named executive vice president -
operations in January 1996. He was named president and chief operating officer
and a director of the Company as of November 1, 1996 and was named chief
executive officer as of February 1, 1997. Mr. Harris was named chairman as of
November 4, 1999.
HAL N. PENNINGTON, 62, Executive Vice President and Chief Operating Officer. Mr.
Pennington has served in various roles during his 38 year tenure with Genesco.
He was vice president-wholesale for Johnston & Murphy from 1990 until his
appointment as president of Dockers Footwear in August 1995. He was named
president of Johnston & Murphy in February 1997 and named senior vice president
in June 1998. Mr. Pennington was named executive vice president, chief operating
officer and a director of the Company as of November 4, 1999 and is responsible
for all the Company's operating divisions.
JAMES S. GULMI, 54, Senior 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 the responsibilities of chief financial officer in
1986. He was again elected treasurer in February 1995. Mr. Gulmi was appointed
senior vice president - finance in January 1996.
JAMES W. BOSCAMP, 50, Senior Vice President. Mr. Boscamp joined the Company in
1991 as president of Nautica Footwear. He was appointed senior vice president of
the Company in January 1996. He was appointed president of Jarman, overseeing
the Jarman retail chain, in March 1999. Before joining the Company, Mr. Boscamp
was executive vice president, marketing at Munsingwear.
JOHN W. CLINARD, 52, Vice President - Human Resources. Mr. Clinard has served in
various human resources capacities during his 25 year tenure with Genesco. He
was named vice president - human resources in June 1997.
ROGER G. SISSON, 36, Secretary and General Counsel. Mr. Sisson joined the
Company in January 1994 as assistant general counsel and was elected secretary
in February 1994. He was named general counsel in January 1996. Before joining
the Company, Mr. Sisson was associated with the firm of Boult, Cummings, Conners
& Berry for approximately six years.
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MATTHEW N. JOHNSON, 35, Treasurer. Mr. Johnson joined the Company in April 1993
as manager, corporate finance and was elected assistant treasurer in December
1993. He was elected treasurer in June 1996. Prior to joining the Company, Mr.
Johnson was a vice president in the corporate and institutional banking division
of The First National Bank of Chicago.
PAUL D. WILLIAMS, 45, Chief Accounting Officer. Mr. Williams joined the Company
in 1977, was named director of corporate accounting and financial reporting in
1993 and chief accounting officer in April 1995.
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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 30
- ----------------------------
HIGH LOW
---------- ----------
1999 1st Quarter 18 7/8 12 1/2
2nd Quarter 18 1/16 10 7/16
3rd Quarter 10 15/16 3 15/16
4th Quarter 7 3/4 4 3/4
FISCAL YEAR ENDED JANUARY 29
- ----------------------------
2000 1st Quarter 12 7 1/16
2nd Quarter 15 10 5/8
3rd Quarter 13 5/8 10 1/16
4th Quarter 14 9
There were approximately 7,400 common shareholders of record on January 29,
2000.
See Notes 9 and 11 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, FISCAL YEAR END
---------------------------------------------------------
FINANCIAL STATISTICS AND OTHER DATA 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS DATA
Net sales $573,720 $549,748 $536,107 $461,348 $434,575
Depreciation and amortization 10,514 9,691 8,893 7,747 7,354
Earnings before interest and taxes 47,930 37,696 17,722 18,873 5,889
Pretax earnings (loss) 41,943 31,085 8,860 10,132 (3,756)
Earnings (loss) before discontinued operations and
extraordinary loss 25,922 54,923 8,820 10,554 (3,781)
Discontinued operations -0- 450 -0- (150) 13,852
Loss on early retirement of debt (net of tax) -0- 2,245 169 -0- -0-
- -------------------------------------------------------------------------------------------------------------------
Net earnings $ 25,922 $ 53,128 $ 8,651 $ 10,404 $ 10,071
===================================================================================================================
PER COMMON SHARE DATA
Earnings (loss) before discontinued operations and
extraordinary loss
Basic $ 1.14 $ 2.15 $ .33 $ .42 $ (.17)
Diluted 1.05 1.89 .32 .40 (.17)
Discontinued operations
Basic .00 .02 .00 (.01) .57
Diluted .00 .01 .00 (.01) .57
Extraordinary loss
Basic .00 (.10) .00 .00 .00
Diluted .00 (.07) (.01) .00 .00
Net earnings
Basic 1.14 2.07 .33 .41 .40
Diluted 1.05 1.83 .31 .39 .40
===================================================================================================================
BALANCE SHEET DATA
Total assets $301,165 $307,198 $246,817 $221,654 $197,806
Long-term debt 103,500 103,500 75,000 75,000 75,000
Capital leases 34 36 279 1,485 2,697
Non-redeemable preferred stock 7,882 7,918 7,945 7,944 7,958
Common shareholders' equity 100,360 108,661 64,019 45,846 25,947
Additions to plant, equipment and capital leases 22,312 23,512 24,725 14,640 8,564
===================================================================================================================
FINANCIAL STATISTICS
Earnings before interest and taxes as a percent of net
sales 8.4% 6.9% 3.3% 4.1% 1.4%
Book value per share $ 4.73 $ 4.56 $ 2.43 $ 1.82 $ 1.04
Working capital $138,007 $155,778 $119,313 $108,795 $108,135
Current ratio 2.8 3.1 2.6 2.6 3.2
Percent long-term debt to total capitalization 48.9% 47.0% 51.1% 58.7% 69.6%
===================================================================================================================
OTHER DATA (END OF YEAR)
Number of retail outlets* 679 674 587 504 463
Number of employees 4,250 3,650 4,300 4,050 3,750
===================================================================================================================
*Includes 78 Jarman Leased departments in Fiscal 1999 which were divested during
the first quarter of Fiscal 2000 and 26 Boot Factory stores in Fiscal 1998 and
29 Boot Factory stores in Fiscal 1997 and 1996 which were divested during the
second quarter of Fiscal 1999.
Reflected in the earnings for Fiscal 1999 was a tax benefit of $23.8 million.
See Note 12 to the Consolidated Financial Statements for additional information.
Reflected in the earnings for Fiscal 1999, 1998, 1997 and 1996 were
restructuring and other charges of ($2.4) million, $17.7 million, $1.7 million
and $15.1 million, respectively. See Note 2 to the Consolidated Financial
Statements for additional information regarding these charges. Also reflected in
the earnings for Fiscal 1997 was a $6.7 million litigation settlement.
Long-term debt and capital leases include current payments. On April 9, 1998,
the Company issued $103.5 million of 5 1/2% convertible subordinated notes due
2005. The Company used $80 million of the proceeds to repay all of its 10 3/8%
senior notes including interest and expenses incurred in connection therewith.
The Company has not paid dividends on its Common Stock since 1973. See Note 11
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 and the notes to the Consolidated Financial Statements include
certain forward-looking statements. Actual results could differ materially from
those reflected by the forward-looking statements in this discussion and a
number of factors may adversely affect future results, liquidity and capital
resources. These factors include changes in consumer demand or tastes that
affect sales at retail or wholesale, changes in buying patterns by significant
wholesale customers, changes in business strategies by the Company's
competitors, the Company's ability to open, staff and support additional retail
stores on schedule and at acceptable expense levels, the ability to execute its
strategies to achieve improvements in Nautica's performance and the outcome of
litigation and environmental matters, including those discussed in Note 16 to
the Consolidated Financial Statements. Although the Company believes it has an
appropriate business strategy and the resources necessary for its operations,
future revenue and margin trends cannot be reliably predicted and the Company
may alter its business strategies to address changing conditions.
SIGNIFICANT DEVELOPMENTS
Jarman Leased Departments Transition
Under an agreement with Mercantile Stores Company, Inc. the Company operated the
men's shoe departments in Mercantile department stores through the Company's
Jarman Leased departments division. Because of the 1998 acquisition of
Mercantile by Dillards Inc., the Company has ended its operation of the leased
departments. The Company transferred the remaining Jarman Leased departments to
Dillards Inc. and Saks Inc. during the first quarter ended May 1, 1999. The
Jarman Leased departments business contributed sales of $1.2 million, $47.4
million and $52.3 million for Fiscal 2000, 1999 and 1998, respectively. The
Jarman Leased departments business contributed operating earnings (loss) of
($0.3) million, $2.1 million and $4.1 million for Fiscal 2000, 1999 and 1998,
respectively.
Share Repurchase Program
During the third quarter ended October 31, 1998, the Company's board of
directors authorized the repurchase of up to 2.6 million shares of the Company's
common stock. During the fourth quarter ended January 30, 1999, the board
authorized an additional 2.2 million shares to be repurchased. In August of
1999, the board authorized the repurchase of an additional 1.0 million shares.
In February of 2000, the board authorized the repurchase of an additional 1.0
million shares. The purchases may be made on the open market or in privately
negotiated transactions. In total, the Company's board of directors has
authorized the repurchase of 6.8 million shares of the Company's common stock.
As of January 29, 2000, the Company had repurchased 5.8 million shares at a cost
of $51.8 million.
Workforce Reduction
In connection with the Boot Divestiture discussed below and the closing of the
Jarman Leased departments, the Company reviewed the structure and level of
staffing in all of its operations during the third and fourth quarters of Fiscal
1999. Upon completion of the review, the Company recorded a $1.3 million charge
to earnings, included in selling and administrative expenses, during the fourth
quarter of Fiscal 1999 for a workforce reduction of 66 positions, of which
substantially all were eliminated by January 29, 2000. Twenty-six of the
positions eliminated related to the Jarman Leased departments business, with the
remainder being primarily employed at corporate headquarters.
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Fiscal 1998 Restructuring
As a result of the continued weakness in the western boot market, the Company
approved a plan in the fourth quarter of Fiscal 1998 to exit the western boot
business (the "Boot Divestiture"). In connection with the Boot Divestiture, the
Company recorded a charge to earnings of $17.3 million in the fourth quarter of
Fiscal 1998, including $11.3 million in asset writedowns. The carrying value of
the assets held for sale was reduced to fair value based on estimated selling
values less estimated costs to sell. The charges related to the Boot Divestiture
also included $3.2 million in employee-related costs and $2.8 million of
facility shutdown and other costs. On June 12, 1998, the Company and Texas Boot,
Inc. entered into an agreement providing for the purchase by Texas Boot, Inc. of
most of the assets related to the western boot business, including the Company's
26 store Boot Factory retail chain, which the Company had not planned to include
in the Boot Divestiture. The Company completed the divestiture on July 14, 1998.
Net sales of the Company's western boot business were $16.6 million and $59.3
million for Fiscal 1999 and 1998, respectively, and the operating loss was $1.3
million and $2.6 million for Fiscal 1999 and 1998, respectively.
Net earnings for the second quarter ended August 1, 1998 reflect a restructuring
gain of $2.4 million, primarily from the Boot Divestiture. The gain represents
savings of expected employee-related costs and facility shutdown costs because
the buyer continued to operate a manufacturing facility that the Company would
have closed and retained certain employees whose positions the Company would
have eliminated. The Company's actions relating to the Boot Divestiture directly
resulted in the elimination of 622 jobs, including all positions related to the
western boot business and the Boot Factory retail chain.
In addition to the charge related to the Boot Divestiture, the Company took a
charge of $0.6 million during the fourth quarter of Fiscal 1998 to consolidate
staff in one operating division as well as to account for the costs of
eliminating a production process at its remaining footwear plant.
During the second quarter of Fiscal 1998, the Company recorded a restructuring
gain of $1.1 million and losses from an asset impairment and other charges of
$0.8 million, resulting in a net gain of $0.3 million reported in the income
statement. The restructuring gain relates to both the Manufacturing
Restructuring and a restructuring plan adopted in the third quarter of Fiscal
1995 (the "1995 Restructuring"). It arose primarily from the sale of one
facility and cancellation of leases on two facilities (including one facility
included in the 1995 Restructuring) more quickly and on more favorable terms
than contemplated when the reserves were established. The asset impairment and
other charges during the second quarter of Fiscal 1998 arose from the decrease
in production in one of the Company's western boot plants as a result of
continued weakness in the western boot market. The asset impairment and other
charges related to excess equipment, including $0.1 million of equipment covered
by operating leases.
Business Segments
The Company operates through six operating reportable business segments (not
including corporate): Journeys; Jarman, comprised of the Jarman, Underground
Station and Stone & Co. retail footwear chains; Johnston & Murphy, comprised of
Johnston & Murphy retail stores and wholesale distribution; Licensed Brands,
comprised of Dockers and Nautica Footwear; Other Retail, comprised of General
Shoe Warehouse and the Jarman Leased departments, both of which were closed in
FY 2000; and Leather.
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RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999
The Company's net sales for Fiscal 2000 increased 4.4% to $573.7 million from
$549.7 million in Fiscal 1999. Excluding net sales attributable to the divested
Other Retail and western boot businesses from both periods, the Company's net
sales increased 18.4% to $564.9 million in Fiscal 2000 from $477.0 million in
Fiscal 1999. Gross margin for Fiscal 2000 increased 5.2% to $257.1 million in
Fiscal 2000 from $244.4 million in Fiscal 1999 and increased as a percentage of
net sales from 44.5% in Fiscal 1999 to 44.8% in Fiscal 2000. Selling and
administrative expenses in Fiscal 2000 were flat with Fiscal 1999 but decreased
as a percentage of net sales from 38.0% in Fiscal 1999 to 36.5% in Fiscal 2000.
Explanations of the changes in results of operations are provided by business
segment in discussions following this introductory paragraph.
Earnings before income taxes, discontinued operations and extraordinary loss
("pretax earnings") for Fiscal 2000 were $41.9 million compared to $31.1 million
for Fiscal 1999. Pretax earnings for Fiscal 1999 included a restructuring gain
of $2.4 million primarily relating to the Boot Divestiture and $2.3 million of
other charges, primarily litigation and severance charges, including the fourth
quarter $1.3 million workforce reduction charge discussed above.
Net earnings in Fiscal 2000 were $25.9 million ($1.05 diluted earnings per
share) compared to $53.1 million ($1.83 diluted earnings per share) for Fiscal
1999. In addition to the adjustments to earnings discussed above, Fiscal 1999
earnings included a tax benefit of $23.8 million, a gain from discontinued
operations, net of tax, of $0.5 million ($0.01 diluted earnings per share) and
an extraordinary charge, net of tax, of $2.2 million ($0.07 diluted earnings per
share) for the early retirement of debt. The Company recorded an effective
federal income tax rate of 38.2% for Fiscal 2000.
The Fiscal 1999 tax benefit of $23.8 million related to reversal of valuation
reserves on deferred tax assets in the fourth quarter of Fiscal 1999. The
reversal resulted from the reassessment by the Company of the levels of
valuation allowances. The Company concluded it was more likely than not that the
increased levels of deferred tax assets will be realized due to increased levels
of profitability, future income projections and the substantial removal of
uncertainties surrounding the Company's divestitures.
Journeys
Fiscal Year Ended
---------------------- %
2000 1999 Change
-------- -------- ------
(dollars in thousands)
Net sales ......................... $215,318 $159,965 34.6%
Operating income .................. $ 29,719 $ 21,704 36.9%
Operating margin .................. 13.8% 13.6%
Reflecting both a 28% increase in average Journeys stores operated (i.e., the
sum of the number of stores open on the first day of the fiscal year and the
last day of each fiscal month during the year divided by thirteen) and a 13%
increase in comparable store sales, net sales from Journeys increased
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34.6% for Fiscal 2000 compared to Fiscal 1999. The average price per pair of
shoes increased 3% in Fiscal 2000 and unit sales increased 31% during the same
period. The store count for Journeys included 323 stores at the end of Fiscal
2000 compared to 258 stores at the end of Fiscal 1999.
Journeys operating income for Fiscal 2000 was up 36.9% to $29.7 million compared
to $21.7 million in Fiscal 1999. The increase was due to increased sales both
from store openings and a comparable store sales increase and decreased expenses
as a percentage of sales.
Jarman
Fiscal Year Ended
--------------------- %
2000 1999 Change
------- ------- -------
(dollars in thousands)
Net sales ......................... $86,897 $83,315 4.3%
Operating income .................. $ 4,336 $ 2,983 45.4%
Operating margin .................. 5.0% 3.6%
Primarily due to an 8% increase in comparable store sales, net sales from Jarman
increased 4.3% for Fiscal 2000 compared to Fiscal 1999. The increase in sales
was driven primarily by Underground Station stores. The average price per pair
of shoes increased 7% in Fiscal 2000 while unit sales decreased 4% during the
same period. Jarman operated 161 stores at the end of Fiscal 2000, including 21
Underground Station stores and six Stone & Co. stores. It had operated 166
stores at the end of Fiscal 1999, including 17 Underground Station stores.
Jarman operating income for Fiscal 2000 was up 45.4% to $4.3 million compared to
$3.0 million in Fiscal 1999 and increased as a percent of sales to 5.0% from
3.6% in Fiscal 1999. The increase was due to increased sales, increased gross
margin in dollars and as a percentage of sales due primarily to lower markdowns
and decreased expenses as a percentage of sales.
Other Retail
Fiscal Year Ended
------------------ %
2000 1999 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $ 8,840 $56,184 (84.3%)
Operating income (loss) ..................... $ (500) $ 2,214 NA
Operating margin ............................ (5.7%) 3.9%
The Jarman Leased departments business was closed in the first quarter of Fiscal
2000. Primarily because of the loss of sales from the Jarman Leased departments
business and a 14% decrease in comparable store sales for General Shoe
Warehouse, net sales from Other Retail decreased 84.3% for Fiscal 2000 compared
to Fiscal 1999. Other Retail operating income for Fiscal 2000 was down $2.7
19
20
million from Fiscal 1999 as a result of the decreased sales and decreased gross
margins as a percentage of sales. As of January 29, 2000, only five Other Retail
stores were open, which were General Shoe Warehouse stores, compared to 94 Other
Retail stores operated at the end of Fiscal 1999. In the first quarter of Fiscal
2001, four of the General Shoe Warehouse stores were transferred to the Jarman
operating segment and one was transferred to the Johnston & Murphy operating
segment. The Company will no longer report results from the Other Retail
segment.
Johnston & Murphy
Fiscal Year Ended
------------------ %
2000 1999 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $166,340 $147,434 12.8%
Operating income ............................ $ 22,187 $ 19,708 12.6%
Operating margin ............................ 13.3% 13.4%
Johnston & Murphy net sales increased 12.8% to $166.3 million in Fiscal 2000
from $147.4 million in Fiscal 1999, reflecting primarily a 4% increase in
comparable store sales for Johnston & Murphy retail operations, which accounted
for 63% of Johnston & Murphy segment sales in Fiscal 2000 and 62% of Johnston &
Murphy segment sales in Fiscal 1999, a 9% increase in average Johnston & Murphy
retail stores operated and a 10% increase in Johnston & Murphy wholesale sales.
The store count for Johnston & Murphy retail operations at the end of Fiscal
2000 included 143 Johnston & Murphy stores and factory stores compared to 132
Johnston & Murphy stores and factory stores at the end of Fiscal 1999. The
average price per pair of shoes for Johnston & Murphy retail increased 1% in
Fiscal 2000 and unit sales increased 11% during the same period. Unit sales for
the Johnston & Murphy wholesale business increased 12% in Fiscal 2000, while the
average price per pair of shoes decreased 3% for the same period, reflecting
increased promotional activities and mix changes.
Johnston & Murphy operating income for Fiscal 2000 increased 12.6% from $19.7
million in Fiscal 1999 to $22.2 million in Fiscal 2000, primarily due to
increased sales and decreased expenses as a percentage of sales from increased
leverage.
Licensed Brands
Fiscal Year Ended
------------------ %
2000 1999 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $74,122 $67,356 10.0%
Operating income ............................ $ 2,487 $ 2,435 2.1%
Operating margin ............................ 3.4% 3.6%
Licensed Brands net sales increased 10.0% to $74.1 million in Fiscal 2000 from
$67.4 million in Fiscal 1999, reflecting primarily a 9% increase in Licensed
Brands wholesale sales. Licensed Brands' net sales also included the net sales
of unmanned leased shoe departments in Nautica retail outlets
20
21
operated by an affiliate of the licensor of the Nautica trademark. There were 47
Nautica leased departments at the end of Fiscal 2000, compared to 24 Nautica
leased departments at the end of Fiscal 1999. Unit sales for the Licensed Brands
wholesale businesses increased 16% in Fiscal 2000, while the average price per
pair of shoes decreased 6% for the same period, reflecting increased promotional
activities.
Licensed Brands operating income for Fiscal 2000 increased 2.1% from $2.4
million in Fiscal 1999 to $2.5 million in Fiscal 2000, primarily due to
increased sales and decreased expenses as a percentage of sales.
Leather
Fiscal Year Ended
------------------ %
2000 1999 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $22,203 $18,934 17.3%
Operating income ............................ $ 1,363 $ 898 51.8%
Operating margin ............................ 6.1% 4.7%
Leather net sales increased 17.3% to $22.2 million in Fiscal 2000 from $18.9
million in Fiscal 1999, primarily due to increased orders from military footwear
suppliers, which make up the majority of the Company's tanned leather business.
Leather operating income for Fiscal 2000 increased from $0.9 million in Fiscal
1999 to $1.4 million in Fiscal 2000, primarily due to increased sales and
decreased expenses as a percentage of sales. The Company does not expect
continued operating income improvement in Fiscal 2001, because of product margin
pressures from increased raw material prices and competitive pressures in
pricing.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for Fiscal 2000 were $10.9 million compared to
$11.0 million for Fiscal 1999 (exclusive of other charges of $0.8 million,
primarily litigation and severance charges, in Fiscal 2000 and a restructuring
gain of $2.4 million and other charges of $2.3 million, primarily litigation and
severance charges, in Fiscal 1999), a decrease of 1.3%. The decrease in
corporate expenses in Fiscal 2000 is attributable primarily to decreased
professional fees.
Interest expense decreased 11.9% from $9.3 million in Fiscal 1999 to $8.2
million in Fiscal 2000, primarily due to the decrease in interest rates on the
Company's long-term debt from 10 3/8% on $75 million in borrowings as a result
of the notes being redeemed in Fiscal 1999 to 5 1/2% on $103.5 million of
convertible notes issued in Fiscal 1999. Interest income decreased 18% from $2.6
million in Fiscal 1999 to $2.2 million in Fiscal 2000, due to decreases in
general marketplace interest rates. There were no borrowings under the Company's
revolving credit facility during either Fiscal 2000 or Fiscal 1999.
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
The Company's net sales for Fiscal 1999 increased 2.5% to $549.7 million from
$536.1 million in Fiscal 1998. Excluding net sales attributable to the divested
Other Retail and western boot businesses
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from both periods, the Company's net sales increased 14.6% to $477.0 million in
Fiscal 1999 from $416.2 million in Fiscal 1998. Gross margin for Fiscal 1999
increased 9.3% to $244.4 million in Fiscal 1999 from $223.6 million in Fiscal
1998 and increased as a percentage of net sales from 41.7% in Fiscal 1998 to
44.5% in Fiscal 1999. Selling and administrative expenses for Fiscal 1999
increased 11.1% to $209.1 million in Fiscal 1999 from $188.1 million in Fiscal
1998 and increased as a percentage of net sales from 35.1% in Fiscal 1998 to
38.0% in Fiscal 1999.
Earnings before income taxes, discontinued operations and extraordinary loss
("pretax earnings") for Fiscal 1999 were $31.1 million compared to $8.9 million
for Fiscal 1998. Pretax earnings for Fiscal 1999 included a restructuring gain
of $2.4 million primarily relating to the Boot Divestiture and $2.3 million of
other charges, primarily litigation and severance charges, including the fourth
quarter $1.3 million workforce reduction charge discussed above. Pretax earnings
for Fiscal 1998 included an $18.0 million restructuring charge incurred
primarily in connection with the Boot Divestiture and a net gain of $0.3 million
in the second quarter of Fiscal 1998 related to restructurings and asset
impairments as discussed in detail above.
Net earnings in Fiscal 1999 were $53.1 million ($1.83 diluted earnings per
share) compared to $8.7 million ($0.31 diluted earnings per share) for Fiscal
1998. In addition to the charges to earnings discussed above, Fiscal 1999
earnings included a tax benefit of $23.8 million, a gain from discontinued
operations, net of tax, of $0.5 million ($0.01 diluted earnings per share) and
an extraordinary charge, net of tax, of $2.2 million ($0.07 diluted earnings per
share) for the early retirement of debt. Fiscal 1998 net earnings included an
extraordinary charge of $0.2 million ($0.01 diluted earnings per share) for the
early retirement of debt.
The Fiscal 1999 tax benefit of $23.8 million related to reversal of valuation
reserves on deferred tax assets in the fourth quarter of Fiscal 1999. The
reversal resulted from the reassessment by the Company of the levels of
valuation allowances. The Company concluded it was more likely than not that the
increased levels of deferred tax assets will be realized due to increased levels
of profitability, future income projections and the substantial removal of
uncertainties surrounding the Company's divestitures.
Journeys
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $159,965 $120,775 32.4%
Operating income ............................ $ 21,704 $ 16,915 28.3%
Operating margin ............................ 13.6% 14.0%
Reflecting both a 48% increase in average Journeys stores operated and a 1%
increase in comparable store sales, net sales from Journeys increased 32.4% for
Fiscal 1999 compared to Fiscal 1998. The average price per pair of shoes
decreased 2% in Fiscal 1999 while unit sales increased 38% during the same
period. The store count for Journeys included 258 stores at the end of Fiscal
1999 compared to 176 stores at the end of Fiscal 1998.
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23
Journeys operating income for Fiscal 1999 was up 28.3% to $21.7 million compared
to $16.9 million in Fiscal 1998. The increase was due to the increased sales and
increased gross margin as a percentage of sales.
Jarman
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $83,315 $82,729 0.7%
Operating income ............................ $ 2,983 $ 8,151 (63.4%)
Operating margin ............................ 3.6% 9.9%
Primarily due to a 10% increase in average Jarman stores operated, net sales
from Jarman increased 0.7% for Fiscal 1999 compared to Fiscal 1998 despite a 7%
decrease in comparable store sales for Fiscal 1999. The average price per pair
of shoes decreased 5% in Fiscal 1999 while unit sales increased 5% during the
same period. Jarman operated 166 stores at the end of Fiscal 1999, including 17
Underground Station stores. It had operated 158 stores at the end of Fiscal
1998.
Jarman operating income for Fiscal 1999 was down 63.4% to $3.0 million compared
to $8.2 million in Fiscal 1998. The decrease was due to decreased gross margin
as a percentage of sales due to higher markdowns and increased expenses as a
percentage of sales primarily due to the 10% increase in average Jarman stores
operated and the decline in comparable store sales, which resulted in increased
occupancy related expenses and selling salaries.
Other Retail
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $56,184 $60,621 (7.3%)
Operating income ............................ $ 2,214 $ 4,724 (53.1%)
Operating margin ............................ 3.9% 7.8%
Primarily due to a 12% decrease in comparable store sales for Other Retail, net
sales from Other Retail decreased 7.3% for Fiscal 1999 compared to Fiscal 1998.
The average price per pair of shoes decreased 4% in Fiscal 1999 and unit sales
decreased 3% during the same period. The store count for Other Retail included
94 stores at the end of Fiscal 1999 compared to 96 stores at the end of Fiscal
1998.
23
24
Other Retail operating income for Fiscal 1999 was down 53.1% to $2.2 million
compared to $4.7 million in Fiscal 1998. The decrease was due to decreased
sales, decreased gross margin as a percentage of sales and increased expenses as
a percentage of sales caused in large part by the leased department transition.
See "Jarman Leased Departments Transition" under Significant Developments above
for further information.
Johnston & Murphy
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $147,434 $125,568 17.4%
Operating income ............................ $ 19,708 $ 14,827 32.9%
Operating margin ............................ 13.4% 11.8%
Johnston & Murphy net sales increased 17.4% to $147.4 million in Fiscal 1999
from $125.6 million in Fiscal 1998, reflecting primarily an 8% increase in
comparable store sales for Johnston & Murphy retail operations, which accounted
for 62% of Johnston & Murphy segment sales in Fiscal 1999 and Fiscal 1998, a 4%
increase in average Johnston & Murphy retail stores operated and a 15% increase
in Johnston & Murphy wholesale sales. The store count for Johnston & Murphy
retail operations at the end of Fiscal 1999 included 132 Johnston & Murphy
stores and factory stores compared to 127 Johnston & Murphy stores and factory
stores at the end of Fiscal 1998. The average price per pair of shoes for
Johnston & Murphy retail increased 2% in Fiscal 1999 and unit sales increased
14% during the same period. Unit sales for the Johnston & Murphy wholesale
business increased 13% in Fiscal 1999 while the average price per pair of shoes
remained flat for the same period.
Johnston & Murphy operating income for Fiscal 1999 increased 32.9% from $14.8
million in Fiscal 1998 to $19.7 million in Fiscal 1999, primarily due to
increased sales and increased gross margin as a percentage of sales.
Licensed Brands
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $67,356 $57,890 16.4%
Operating income ............................ $ 2,435 $ 4,505 (45.9%)
Operating margin ............................ 3.6% 7.8%
Licensed Brands net sales increased 16.4% to $67.4 million in Fiscal 1999 from
$57.9 million in Fiscal 1998, reflecting primarily a 15% increase in Licensed
Brands wholesale sales. There were 24 Nautica leased departments at the end of
Fiscal 1999 compared to four Nautica leased departments at the end of Fiscal
1998. Unit sales for the Licensed Brands wholesale businesses increased 20% in
Fiscal 1999 while the average price per pair of shoes decreased 5% for the same
period.
24
25
Licensed Brands operating income for Fiscal 1999 decreased 45.9% from $4.5
million in Fiscal 1998 to $2.4 million in Fiscal 1999, primarily due to
decreased gross margin as a percentage of sales due to increased markdowns in
the Company's Nautica Footwear business and increased expenses as a percentage
of sales.
Leather
Fiscal Year Ended
------------------ %
1999 1998 Change
------- ------- -------
(dollars in thousands)
Net sales ................................... $18,934 $29,218 (35.2%)
Operating income ............................ $ 898 $ 1,519 (40.9%)
Operating margin ............................ 4.7% 5.2%
Leather net sales decreased 35.2% to $18.9 million in Fiscal 1999 from $29.2
million in Fiscal 1998, primarily due to lower orders from military footwear
suppliers, which were impacted by a decrease in demand for leather military
footwear, which make up the majority of the Company's tanned leather business.
Leather operating income for Fiscal 1999 decreased 40.9% from $1.5 million in
Fiscal 1998 to $0.9 million in Fiscal 1999, primarily due to lower sales and
increased expenses as a percentage of sales.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for Fiscal 1999 were $11.0 million compared to
$11.8 million for Fiscal 1998 (exclusive of a restructuring gain of $2.4 million
and other charges of $2.3 million, primarily litigation and severance charges,
in Fiscal 1999 and a restructuring charge of $17.7 million and other charges of
$0.9 million, primarily litigation and severance charges, in Fiscal 1998), a
decrease of 6.5%. The decrease in corporate expenses in Fiscal 1999 is
attributable primarily to decreased compensation expense, including decreased
bonus accruals.
Interest expense decreased 9.1% from $10.2 million in Fiscal 1998 to $9.3
million in Fiscal 1999, primarily due to the decrease in interest rates on the
Company's long-term debt from 10 3/8% on $75 million in borrowings as a result
of the notes being redeemed in Fiscal 1999 to 5 1/2% on $103.5 million of
convertible notes issued in Fiscal 1999. Interest income increased 101% from
$1.3 million in Fiscal 1998 to $2.6 million in Fiscal 1999, due to increases in
average short-term investments as a result of the increased cash from the Boot
Divestiture and the net proceeds from the issuance of $103.5 million of 5 1/2%
convertible subordinated notes. There were no borrowings under the Company's
revolving credit facility during either Fiscal 1999 or Fiscal 1998.
25
26
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
Jan. 29, Jan. 30, Jan. 31,
2000 1999 1998
-------- -------- --------
(dollars in millions)
Cash and short-term investments ................ $ 57.9 $ 58.7 $ 49.3
Working capital ................................ $ 138.0 $ 155.8 $ 119.3
Long-term debt (includes current maturities) ... $ 103.5 $ 103.5 $ 75.0
Current ratio .................................. 2.8x 3.1x 2.6x
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and fall
of each year. Cash flow from operations is generated principally in the fourth
quarter of each fiscal year.
Cash provided by operating activities was $45.7 million in Fiscal 2000 compared
to $7.5 million in Fiscal 1999. The $38.2 million increase in cash flow from
operating activities reflects primarily improved earnings, a much smaller
increase in inventory for Fiscal 2000 compared to Fiscal 1999 and an increase in
accrued liabilities for increased bonus accruals and income taxes to be paid in
Fiscal 2001. The Company's earnings before income taxes, discontinued operations
and extraordinary loss improved $10.9 million with an increase of only $2.6
million in taxes paid as the Company utilized its remaining net operating loss
carryforwards. Contributing to the inventory change was a slowdown in store
openings from 162 stores in Fiscal 1999 compared to 113 stores in Fiscal 2000
and the sell off of Jarman Leased departments inventory. Cash provided by
operating activities was $7.5 million in Fiscal 1999 compared to $26.9 million
in Fiscal 1998. The $19.4 million decrease in cash flow from operating
activities reflects primarily $8.2 million in pension contributions and a $9.4
million reduction in accrued liabilities due to payments related to the Boot
Divestiture, changes in timing of interest payments and decreased bonus
accruals.
The $0.3 million increase in inventories at January 29, 2000 from January 30,
1999 levels reflects planned increases in retail inventory to support the net
increase of 83 stores, excluding Jarman Leased departments, in Fiscal 2000. The
$12.3 million increase in inventories at January 30, 1999 reflects planned
increases in retail inventory to support the net increase of 93 stores,
excluding Jarman Leased departments, in Fiscal 1999 and increases in men's
wholesale inventory to support growth in certain of the wholesale businesses.
Accounts receivable at January 29, 2000 decreased $0.7 million compared to
January 30, 1999 primarily due to exiting the Jarman Leased departments
business. Accounts receivable at January 30, 1999 increased $2.8 million
compared to January 31, 1998, primarily due to increased sales of men's branded
footwear.
26
27
Cash provided (or used) due to changes in accounts payable and accrued
liabilities are as follows:
Fiscal Year Ended
-----------------
2000 1999 1998
------- ------- --------
(in thousands)
Accounts payable ........................................... $ (348) $ (634) $ 11,209
Accrued liabilities ........................................ 4,385 (3,107) (2,456)
------- ------- --------
$ 4,037 $(3,741) $ 8,753
======= ======= ========
The fluctuations in accounts payable for Fiscal 2000 from Fiscal 1999 and for
Fiscal 1999 from Fiscal 1998 are due to changes in buying patterns, payment
terms negotiated with individual vendors and changes in inventory levels. The
change in accrued liabilities in Fiscal 2000 was due primarily to increased
bonus accruals and income tax accruals. The change in accrued liabilities in
Fiscal 1999 was due primarily to payments related to the Boot Divestiture and
changes in timing of interest payments.
There were no revolving credit borrowings during Fiscal 2000, 1999 and 1998, as
cash generated from operations and cash on hand funded seasonal working capital
requirements and capital expenditures.
Capital Expenditures
Capital expenditures were $22.3 million, $23.5 million and $24.7 million for
Fiscal 2000, 1999 and 1998, respectively. The $1.2 million decrease in Fiscal
2000 capital expenditures as compared to Fiscal 1999 resulted primarily from a
decrease of capital expenditures connected with new system initiatives related
to the year 2000 which more than offset the increase in retail store capital
expenditures due to the increase in new stores. The $1.2 million decrease in
Fiscal 1999 capital expenditures as compared to Fiscal 1998 resulted primarily
from a decrease in the number of major renovations in retail stores for Fiscal
1999 versus Fiscal 1998.
Total capital expenditures in Fiscal 2001 are expected to be approximately $29.8
million. These include expected retail expenditures of $24.5 million to open up
to approximately 100 Journeys stores, 13 Johnston & Murphy stores and factory
stores, 41 Jarman Retail stores which includes approximately 20 Underground
Station stores and three Stone & Co. stores and to complete 42 major store
renovations. Capital expenditures for wholesale and manufacturing operations and
other purposes are expected to be approximately $5.3 million, including
approximately $2.0 million for new systems to improve customer service and
support the Company's growth.
Year 2000
The Company completed its Year 2000 software program conversions and compliance
programs during the fourth quarter of Fiscal 2000. The total cost of upgrading
most of the Company's major operating systems, including the Year 2000 project
for Fiscal Years 1998 through 2000, was $19.1 million. Of the total project
cost, approximately $11.2 million is attributable to the purchase of new
software and hardware which has been capitalized. The remaining $7.9 million has
been expensed, including costs of $1.8 million for Fiscal 2000. Subsequent to
December 31, 1999, the Company has not experienced any material Year 2000
problems either internally or from outside sources. The Company has no reason to
believe that Year 2000 problems will materially affect it in the future.
However, since it may take several additional months before it is known whether
the Company or
27
28
third party suppliers, vendors or customers may have had Year 2000 problems, no
assurances can be given that the Company will not experience losses or
disruptions due to Year 2000 computer-related problems. The Company will
continue to monitor its operations for any Year 2000 problems.
Environmental and Other Contingencies
The Company is subject to certain loss contingencies related to environmental
proceedings and other legal matters, including those disclosed in Note 16 to the
Company's Consolidated Financial Statements. The Company has made provisions for
certain of these contingencies, including approximately $250,000 reflected in
Fiscal 1998, $402,000 reflected in Fiscal 1999 and $472,000 reflected in Fiscal
2000. The Company monitors these matters on an ongoing basis and at least
quarterly management reviews the Company's reserves and accruals in relation to
each of them, adjusting provisions as management deems necessary in view of
changes in available information. Changes in estimates of liability are reported
in the periods when they occur. Consequently, management believes that its
reserve in relation to each proceeding is a reasonable estimate of the probable
loss connected to the proceeding, or in cases in which no reasonable estimate is
possible, the minimum amount in the range of estimated losses, based upon its
analysis of the facts and circumstances as of the close of the most recent
fiscal quarter. Because of uncertainties and risks inherent in litigation
generally and in environmental proceedings in particular, however, there can be
no assurance that future developments will not require additional reserves to be
set aside, that some or all reserves may not be adequate or that the amounts of
any such additional reserves or any such inadequacy will not have a material
adverse effect upon the Company's financial condition or results of operations.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be
sufficient to fund all of its capital expenditures through Fiscal 2001, although
the Company may borrow from time to time to support seasonal working capital
requirements. The approximately $3.1 million of costs associated with the prior
restructurings and discontinued operations that are expected to be incurred
during the next twelve months are also expected to be funded from cash on hand.
The Company has also authorized the additional repurchase, from time to time, of
up to 1.0 million shares of the Company's common stock. These purchases will be
funded from available cash. The Company repurchased 3.4 million shares at a cost
of $39.5 million during Fiscal 2000. The Company has repurchased a total of 5.8
million shares at a cost of $51.8 million from previous authorizations for
Fiscal 1999 and Fiscal 2000.
There were $9.8 million of letters of credit outstanding under the revolving
credit agreement at January 29, 2000, leaving availability under the revolving
credit agreement of $55.2 million.
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At January 29, 2000, $30.1 million
was available for such payments. The aggregate of annual dividend requirements
on the Company's Subordinated Serial Preferred Stock, $2.30 Series 1, $4.75
Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative Preferred
Stock is $300,000.
FINANCIAL MARKET RISK
The following discusses the Company's exposure to financial market risk related
to changes in interest rates and foreign currency exchange rates.
28
29
Outstanding Debt of the Company - The Company's outstanding long-term debt of
$103.5 million 5 1/2% convertible subordinated notes due April 2005 bears
interest at a fixed rate. Accordingly, there would be no immediate impact on the
Company's interest expense due to fluctuations in market interest rates. The
fair value of the Company's long-term debt was $77.8 million at January 29, 2000
based on a dealer quote.
Cash and Short-Term Investments - The Company's cash and short-term investment
balances are invested in financial instruments with original maturities of three
months or less. The Company does not have significant exposure to changing
interest rates on invested cash at January 29, 2000. As a result, the interest
rate market risk implicit in these investments at January 29, 2000, if any, is
low.
Foreign Currency Exchange Rate Risk - Most purchases by the Company from foreign
sources are denominated in U.S. dollars. To the extent that import transactions
are denominated in other currencies, it is the Company's practice to hedge its
risks through the purchase of forward foreign exchange contracts. The loss from
such transaction was $2.5 million at January 29, 2000. At January 29, 2000, the
Company had $30.1 million of foreign exchange contracts for Italian Lira and
Euro. As of January 29, 2000, a 10% adverse change in foreign currency exchange
rates from market rates would decrease the fair value of the contracts by
approximately $5.0 million.
Summary - Based on the Company's overall market interest rate and foreign
currency rate exposure at January 29, 2000, the Company believes that the
effect, if any, of reasonably possible near-term changes in interest rates or
fluctuations in foreign currency exchange rates on the Company's consolidated
financial position, result of operations or cash flows for Fiscal 2001 would not
be material.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
CHANGES IN ACCOUNTING PRINCIPLES
The American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, in March 1998. The Company adopted the
new rules in Fiscal 2000 and capitalized approximately $0.6 million of software
development costs during the year.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. The Financial Accounting Standards Board issued SFAS No. 137 in
July 1999 to delay the effective date of SFAS No. 133 for one year, to fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires an entity to recognize all derivatives as either assets or liabilities
in the consolidated balance sheet and to measure those instruments at fair
value. Under certain conditions, a derivative may be specifically designated as
a fair value hedge or a cash flow hedge. The accounting for changes in the fair
value of a derivative will depend on the intended use of the derivative and the
resulting designation. At this time, the impact of adopting the provisions of
this statement is not currently estimable and will depend on the financial
position of the Company and the nature and purpose of the derivative instruments
in use at that time.
29
30
INFLATION
The Company does not believe inflation has had a material impact on sales or
operating results during periods covered in this discussion.
ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information regarding market risk to
appear under the heading "Market Risk" in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
30
31
ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants 32
Consolidated Balance Sheet, January 29, 2000 and January 30, 1999 33
Consolidated Earnings, each of the three fiscal years ended 2000, 1999 and 1998 34
Consolidated Cash Flows, each of the three fiscal years ended
2000, 1999 and 1998 35
Consolidated Shareholders' Equity, each of the three fiscal years ended
2000, 1999 and 1998 36
Notes to Consolidated Financial Statements 37
31
32
To the Board of Directors and
Shareholders of Genesco Inc.
Report of Independent Accountants
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 on page 74, presents fairly, in all material respects,
the financial position of Genesco Inc. and its subsidiaries (the "Company") at
January 29, 2000 and January 30, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 29,
2000 in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14 on page 74 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
Nashville, Tennessee
February 22, 2000
32
33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
AS OF FISCAL YEAR END
- -----------------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and short-term investments $ 57,860 $ 58,743
Accounts receivable 23,617 26,258
Inventories 109,815 117,213
Deferred income taxes 14,826 19,327
Other current assets 8,881 6,719
- -----------------------------------------------------------------------------------------------------------------
Total current assets 214,999 228,260
- -----------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases 68,661 58,387
Deferred income taxes 4,184 10,370
Other noncurrent assets 13,321 10,181
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 301,165 $ 307,198
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 74,874 $ 70,606
Provision for discontinued operations 2,118 1,876
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 76,992 72,482
- -----------------------------------------------------------------------------------------------------------------
Long-term debt 103,500 103,500
Other long-term liabilities 6,368 6,446
Provision for discontinued operations 6,063 8,191
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 192,923 190,619
- -----------------------------------------------------------------------------------------------------------------
Contingent liabilities (see Note 16)
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,882 7,918
Common shareholders' equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued: 2000 - 21,714,678; 1999 - 24,327,109 21,715 24,327
Additional paid-in capital 94,784 126,095
Retained earnings (accumulated deficit) 1,718 (23,904)
Accumulated other comprehensive income -0- -0-
Treasury shares, at cost (17,857) (17,857)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 108,242 116,579
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 301,165 $ 307,198
=================================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
33
34
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands, except per share amounts
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR
------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ 573,720 $ 549,748 $ 536,107
Cost of sales 316,628 305,366 312,534
Selling and administrative expenses 209,162 209,089 188,145
Restructuring and other charges, net -0- (2,403) 17,706
- -------------------------------------------------------------------------------------------------------------------------
Earnings from operations before interest 47,930 37,696 17,722
- -------------------------------------------------------------------------------------------------------------------------
Interest expense 8,152 9,250 10,174
Interest income (2,165) (2,639) (1,312)
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense, net 5,987 6,611 8,862
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, discontinued operations
and extraordinary loss 41,943 31,085 8,860
Income taxes (benefit) 16,021 (23,838) 40
- -------------------------------------------------------------------------------------------------------------------------
Earnings before discontinued operations and
extraordinary loss 25,922 54,923 8,820
Excess provision discontinued operations, net -0- 450 -0-
- -------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary loss 25,922 55,373 8,820
Extraordinary loss from early retirement of debt, net -0- (2,245) (169)
- -------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 25,922 $ 53,128 $ 8,651
=========================================================================================================================
Basic earnings per common share:
Before discontinued operations and extraordinary loss $ 1.14 $ 2.15 $ .33
Discontinued operations $ .00 $ .02 $ .00
Extraordinary loss $ .00 $ (.10) $ .00
Net earnings $ 1.14 $ 2.07 $ .33
Diluted earnings per common share:
Before discontinued operations and extraordinary loss $ 1.05 $ 1.89 $ .32
Discontinued operations $ .00 $ .01 $ .00
Extraordinary loss $ .00 $ (.07) $ (.01)
Net earnings $ 1.05 $ 1.83 $ .31
=========================================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
34
35
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR
---------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net earnings $ 25,922 $ 53,128 $ 8,651
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 10,514 9,691 8,893
Deferred income taxes 10,687 (28,762) (520)
Provision for losses on accounts receivable 434 447 969
Impairment of long-lived assets and other charges -0- -0- 831
Loss on retirement of debt -0- 3,651 169
Restructuring charge (gain) -0- (2,403) 16,875
Excess loss on discontinued operations -0- (731) -0-
Other 1,690 2,344 1,328
Effect on cash of changes in working capital and other assets and liabilities:
Accounts receivable 671 (2,814) 3,935
Inventories (282) (12,284) (22,487)
Other current assets (2,162) (913) (1,437)
Accounts payable and accrued liabilities 4,037 (3,741) 8,753
Other assets and liabilities (5,785) (10,082) 912
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 45,726 7,531 26,872
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (22,312) (23,512) (24,725)
Proceeds from businesses divested and asset sales 10,069 14,115 193
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,243) (9,397) (24,532)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments of long-term debt -0- (77,220) -0-
Payments on capital leases (2) (243) (1,206)
Stock repurchases (39,519) (12,232) -0-
Long-term borrowings -0- 103,500 -0-
Dividends paid (300) (1,502) -0-
Exercise of options and related income tax benefits 5,455 4,056 3,874
Deferred note expense -0- (3,970) -0-
Other -0- (1,056) 893
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (34,366) 11,333 3,561
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW (883) 9,467 5,901
Cash and short-term investments at
beginning of year 58,743 49,276 43,375
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 57,860 $ 58,743 $ 49,276
===================================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for:
Interest $ 7,520 $ 11,112 $ 9,594
Income taxes 2,605 23 375
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
35
36
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
- -------------------------------------------------------------------------------------------------------------------------------
ACCUMU-
TOTAL RETAINED LATED
NON- EARNINGS OTHER TOTAL
REDEEMABLE ADDITIONAL (ACCU- COMPRE- COMPRE- SHARE-
PREFERRED COMMON PAID-IN TREASURY MULATED HENSIVE HENSIVE HOLDERS'
STOCK STOCK CAPITAL STOCK DEFICIT) INCOME INCOME EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
Balance February 1, 1997 $ 7,944 $25,195 $122,615 $ (17,857) $ (84,107) $ -0- $ 53,790
===============================================================================================================================
Net earnings -0- -0- -0- -0- 8,651 -0- 8,651 8,651
Exercise of options -0- 458 2,809 -0- -0- -0- -0- 3,267
Issue shares - Employee Stock Purchase Plan -0- 70 496 -0- -0- -0- -0- 566
Issue shares - litigation settlement -0- 525 6,175 -0- -0- -0- -0- 6,700
Tax effect of exercise of stock options -0- -0- 42 -0- -0- -0- -0- 42
Minimum pension liability adjustment -0- -0- -