<PAGE> 1
[LOGO OMITTED]
(Mark One) FORM 10-Q
[X] Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
July 31, 1999
[ ] 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
--------------------------------------
Indicate by check mark whether the
registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934
during the preceding 12 months (or such
shorter period that the registrant was
required to file such reports with the
commission) and (2) has been subject to
such filing requirements for the past 90
days. Yes [X] No [ ]
- --------------------------------------------------------
Common Shares Outstanding September 3, 1999 - 21,769,379
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part 1 - Financial Information 3
Consolidated Balance Sheet -July 31, 1999, January 30, 1999 and
August 1, 1998 3
Consolidated Earnings - Three Months Ended and Six Months Ended
July 31, 1999 and August 1, 1998 4
Consolidated Cash Flows - Three Months Ended and Six Months Ended
July 31, 1999 and August 1, 1998 5
Consolidated Shareholders' Equity - Year Ended
January 30, 1999 and Six Months Ended July 31, 1999 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
Part II - Other Information 35
Signature 36
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
<TABLE>
<CAPTION>
-----------------------------------------
JULY 31, JANUARY 30, AUGUST 1,
1999 1999 1998
-----------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 49,079 $ 58,743 $ 53,249
Accounts receivable 22,132 26,258 27,112
Inventories 119,219 117,213 126,421
Deferred income taxes 14,541 19,327 -0-
Other current assets 5,868 6,719 5,393
--------- --------- ---------
Total current assets 210,839 228,260 212,175
--------- --------- ---------
Plant, equipment and capital leases, net 62,544 58,387 53,754
Deferred income taxes 10,370 10,370 -0-
Other noncurrent assets 8,826 10,181 9,874
--------- --------- ---------
TOTAL ASSETS $ 292,579 $ 307,198 $ 275,803
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 73,778 $ 70,606 $ 68,970
Provision for discontinued operations 2,264 1,876 2,969
--------- --------- ---------
Total current liabilities 76,042 72,482 71,939
Long-term debt 103,500 103,500 103,500
Other long-term liabilities 6,463 6,446 12,059
Provision for discontinued operations 7,148 8,191 9,323
--------- --------- ---------
Total liabilities 193,153 190,619 196,821
--------- --------- ---------
Contingent liabilities (see Note 8)
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,890 7,918 7,951
Common shareholders' equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued: July 31, 1999 - 22,257,743;
January 30, 1999 - 24,327,109;
August 1, 1998 - 26,545,414 22,258 24,327 26,545
Additional paid-in capital 102,947 126,095 133,613
Accumulated deficit (15,812) (23,904) (70,120)
Accumulated other comprehensive income -0- -0- (1,150)
Treasury shares, at cost (17,857) (17,857) (17,857)
--------- --------- ---------
Total shareholders' equity 99,426 116,579 78,982
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 292,579 $ 307,198 $ 275,803
========= ========= =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
3
<PAGE> 4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
<TABLE>
<CAPTION>
----------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1999 1998 1999 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 125,903 $ 132,049 $ 254,559 $ 265,857
Cost of sales 69,392 74,298 140,533 150,285
Selling and administrative expenses 48,159 51,951 97,528 104,181
Restructuring income and other charges, net -0- (2,403) -0- (2,403)
--------- --------- --------- ---------
Earnings from operations before interest 8,352 8,203 16,498 13,794
--------- --------- --------- ---------
Interest expense 2,041 2,180 4,037 5,069
Interest income (580) (636) (1,241) (1,441)
--------- --------- --------- ---------
Total interest expense, net 1,461 1,544 2,796 3,628
--------- --------- --------- ---------
Earnings before income taxes
and extraordinary loss 6,891 6,659 13,702 10,166
Income taxes (benefit) 2,715 34 5,459 (247)
--------- --------- --------- ---------
Earnings before extraordinary loss 4,176 6,625 8,243 10,413
Extraordinary loss from
early retirement of debt -0- (3,651) -0- (3,651)
--------- --------- --------- ---------
NET EARNINGS $ 4,176 $ 2,974 $ 8,243 $ 6,762
========= ========= ========= =========
Basic earnings per common share:
Before extraordinary loss $ .18 $ .25 $ .35 $ .40
Extraordinary loss $ .00 $ (.14) $ .00 $ (.15)
Net earnings $ .18 $ .11 $ .35 $ .25
Diluted earnings per common share:
Before extraordinary loss $ .17 $ .24 $ .33 $ .37
Extraordinary loss $ .00 $ (.13) $ .00 $ (.13)
Net Earnings $ .17 $ .11 $ .33 $ .24
========= ========= ========= =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
4
<PAGE> 5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
<TABLE>
<CAPTION>
-------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1999 1998 1999 1998
-------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net earnings $ 4,176 $ 2,974 $ 8,243 $ 6,762
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,438 2,722 4,878 5,107
Provision for deferred income taxes 2,446 -0- 4,786 -0-
Provision for losses on accounts receivable 96 (407) 168 147
Loss on retirement of debt -0- 3,651 -0- 3,651
Restructuring charge (credit) -0- (2,403) -0- (2,403)
Other 438 178 627 441
Effect on cash of changes in working capital and other assets
and liabilities:
Accounts receivable 2,105 (2,602) 2,422 (3,367)
Inventories (14,607) (14,943) (9,686) (21,492)
Other current assets (377) 83 850 413
Accounts payable and accrued liabilities 17,005 7,613 3,411 (3,411)
Other assets and liabilities 80 (258) 247 (3,100)
-------- --------- -------- ---------
Net cash provided by (used in) operations 13,800 (3,392) 15,946 (17,252)
-------- --------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures (5,471) (6,519) (10,216) (14,003)
Proceeds from businesses divested and asset sales 91 13,926 10,055 13,926
-------- --------- -------- ---------
Net cash provided by (used in) investing activities (5,380) 7,407 (161) (77)
-------- --------- -------- ---------
FINANCING ACTIVITIES:
Payments of long-term debt -0- (77,220) -0- (77,220)
Payments on capital leases (1) (70) (1) (217)
Dividends paid (75) (1,426) (150) (1,426)
Long-term borrowings -0- -0- -0- 103,500
Stock repurchase (15,525) -0- (28,264) -0-
Exercise of stock options and related income tax benefits 549 614 2,966 1,634
Deferred note expense -0- (440) -0- (3,914)
Other -0- 74 -0- (1,055)
-------- --------- -------- ---------
Net cash provided by (used in) financing activities (15,052) (78,468) (25,449) 21,302
-------- --------- -------- ---------
NET CASH FLOW (6,632) (74,453) (9,664) 3,973
Cash and short-term investments at
beginning of period 55,711 127,702 58,743 49,276
-------- --------- -------- ---------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 49,079 $ 53,249 $ 49,079 $ 53,249
======== ========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 438 $ 2,528 $ 3,598 $ 7,062
Income taxes 1,577 76 1,652 (101)
======== ========= ======== =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
5
<PAGE> 6
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Total Accumulated
Non-Redeemable Additional Other
Preferred Common Paid-In Treasury Accumulated Comprehensive
Stock Stock Capital Stock (Deficit) Income
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 31, 1998 $ 7,945 $ 26,264 $ 132,218 $ (17,857) $ (75,456) $ (1,150)
========= ======== ========= ========= ========== ========
Net earnings -0- -0- -0- -0- 53,128 -0-
Dividends paid -0- -0- -0- -0- (1,576) -0-
Exercise of options -0- 230 845 -0- -0- -0-
Issue shares - restricted stock options -0- 67 533 -0- -0- -0-
Issue shares - Employee Stock Purchase Plan -0- 107 387 -0- -0- -0-
Tax effect of exercise of stock options -0- -0- 1,887 -0- -0- -0-
Stock repurchases -0- (2,343) (9,889) -0- -0- -0-
Minimum pension liability adjustment -0- -0- -0- -0- -0- 1,150
Other (27) 2 114 -0- -0- -0-
Comprehensive Income
--------- -------- --------- --------- ---------- --------
BALANCE JANUARY 30, 1999 $ 7,918 $ 24,327 $ 126,095 $ (17,857) $ (23,904) $ -0-
========= ======== ========= ========= ========== ========
Net earnings -0- -0- -0- -0- 8,243 -0-
Dividends paid -0- -0- -0- -0- (151) -0-
Exercise of options -0- 376 2,334 -0- -0- -0-
Tax effect of exercise of stock options -0- -0- 256 -0- -0- -0-
Stock repurchases -0- (2,457) (25,807) -0- -0- -0-
Other (28) 12 69 -0- -0- -0-
Comprehensive Income
--------- -------- --------- --------- ---------- --------
BALANCE JULY 31, 1999 $ 7,890 $ 22,258 $ 102,947 $ (17,857) $ (15,812) $ -0-
========= ======== ========= ========= ========== ========
<CAPTION>
------------------------
Total
Share-
Comprehensive holders'
Income Equity
------------------------
<S> <C> <C>
BALANCE JANUARY 31, 1998 $ 71,964
======= =========
Net earnings 53,128 53,128
Dividends paid -0- (1,576)
Exercise of options -0- 1,075
Issue shares - restricted stock options -0- 600
Issue shares - Employee Stock Purchase Plan -0- 494
Tax effect of exercise of stock options -0- 1,887
Stock repurchases -0- (12,232)
Minimum pension liability adjustment 1,150 1,150
Other -0- 89
-------
Comprehensive Income $54,278
------- ---------
BALANCE JANUARY 30, 1999 $ 116,579
======= =========
Net earnings 8,243 8,243
Dividends paid -0- (151)
Exercise of options -0- 2,710
Tax effect of exercise of stock options -0- 256
Stock repurchases -0- (28,264)
Other -0- 53
-------
Comprehensive Income $ 8,243
------- ---------
BALANCE JULY 31, 1999 $ 99,426
======= =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
6
<PAGE> 7
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
INTERIM STATEMENTS
The consolidated financial statements contained in this report are unaudited
but reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods of the
fiscal year ending January 29, 2000 ("Fiscal 2000") and of the fiscal year
ended January 30, 1999 ("Fiscal 1999"). The results of operations for any
interim period are not necessarily indicative of results for the full year. The
financial statements should be read in conjunction with the financial
statements and notes thereto included in the annual report on Form 10-K.
NATURE OF OPERATIONS
The Company's businesses include the manufacture or sourcing, marketing and
distribution of footwear principally under the Johnston & Murphy, Dockers and
Nautica brands, the tanning and distribution of leather by the Volunteer
Leather division and the operation at July 31, 1999 of 635 Jarman, Journeys,
Johnston & Murphy, General Shoe Warehouse, Underground Station, Stone & Co. and
Nautica retail footwear stores and leased departments. Because of the
acquisition of Mercantile by Dillards Inc., the Company ended its operation of
the Jarman leased departments. The Company transferred the remaining Jarman
lease departments to Dillards Inc. and Saks Inc. during the first quarter ended
May 1, 1999. The Jarman leased departments' business contributed sales of
approximately $13.9 million for the second quarter of Fiscal 1999 and sales of
$1.2 million and $25.3 million for the first six months of Fiscal 2000 and
1999, respectively. The Jarman leased departments' business contributed
operating earnings of $0.2 million for the second quarter of Fiscal 1999 and
operating income (loss) of $(0.3) million and $0.5 million for the first six
months of Fiscal 2000 and 1999, respectively.
BASIS OF PRESENTATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to the
current presentation.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at January 30, 1999 and July 31,
1999, are short-term investments of $53.5 million and $43.2 million,
respectively. Short-term investments are highly-liquid debt instruments having
an original maturity of three months or less.
7
<PAGE> 8
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- -------------------------------------------------------------------------------
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, with cost determined principally by the first-in, first-out
method. Retail inventories are determined by the retail method.
PLANT, EQUIPMENT AND CAPITAL LEASES
Plant, equipment and capital leases are recorded at cost and depreciated or
amortized over the estimated useful life of related assets. Depreciation and
amortization expense are computed principally by the straight-line method over
estimated useful lives:
Buildings and building equipment 20-45 years
Machinery, furniture and fixtures 3-15 years
Leasehold improvements and properties under capital leases are amortized on the
straight-line method over the shorter of their useful lives or their related
lease terms.
IMPAIRMENT OF LONG-TERM ASSETS
The Company periodically assesses the realizability of its long-lived assets
and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than carrying
amount.
HEDGING CONTRACTS
In order to reduce exposure to foreign currency exchange rate fluctuations in
connection with inventory purchase commitments, the Company enters into foreign
currency forward exchange contracts for Italian lira and Euro. At January 30,
1999 and July 31, 1999, the Company had approximately $21.2 million and $30.0
million, respectively, of such contracts outstanding. Forward exchange
contracts have an average term of approximately four months. Gains and losses
arising from these contracts offset gains and losses from the underlying hedged
transactions. The Company monitors the credit quality of the major national and
regional financial institutions with whom it enters into such contracts.
8
<PAGE> 9
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- -------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS
Substantially all full-time employees are covered by a defined benefit pension
plan. The Company also provides certain former employees with limited medical
and life insurance benefits. The Company funds at least the minimum amount
required by the Employee Retirement Income Security Act.
REVENUE RECOGNITION
Retail sales are recorded net of actual returns, and exclude all taxes, while
wholesale revenue is recorded net of estimated returns when the related goods
have been shipped and legal title has passed to the customer.
PREOPENING COSTS
Costs associated with the opening of new stores are expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were $9.4 million
and $10.0 million for the first six months of Fiscal 2000 and 1999,
respectively.
ENVIRONMENTAL COSTS
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated and are evaluated independently of any future claims for
recovery. Generally, the timing of these accruals coincides with completion of
a feasibility study or the Company's commitment to a formal plan of action.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value.
INCOME TAXES
Deferred income taxes are provided for all temporary differences and operating
loss and tax credit carryforwards limited, in the case of deferred tax assets,
to the amount the Company believes is more likely than not to be realized in
the foreseeable future.
9
<PAGE> 10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- -------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities to issue common stock were
exercised or converted to common stock. (see Note 7).
COMPREHENSIVE INCOME
The Company implemented Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income" in the first quarter of Fiscal 1999. This
statement establishes standards for reporting and display of comprehensive
income. SFAS 130 requires the minimum pension liability adjustment to be
included in other comprehensive income.
BUSINESS SEGMENTS
The Company implemented Statement of Financial Accounting Standards (SFAS) 131,
"Disclosures about Segments of an Enterprise and Related Information" in the
fourth quarter of Fiscal 1999. The standard requires that companies disclose
"operating segments" based on the way management disaggregates the company for
making internal operating decisions. (see Note 9).
10
<PAGE> 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS
- -------------------------------------------------------------------------------
Workforce Reduction
In connection with the divestiture of the western boot business and the
substantial completion of the exiting of the Jarman leased department business,
the Company reviewed the structure and level of staffing in all of its
operations. 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 58 positions were eliminated by July 31, 1999. Twenty-six of the
positions eliminated related to the Jarman Lease division, with the remainder
being primarily employed at corporate headquarters.
Fiscal 1998 Restructuring
As a result of the continued weakness in the western boot market, the Company
approved a plan (the "Boot Divestiture") in the fourth quarter of Fiscal 1998
to exit the western boot business. 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
sale of its western boot business to Texas Boot, Inc. on July 14, 1998. Net
sales of the Company's western boot business were $5.8 million and the
operating loss was $0.6 million for the second quarter ended August 1, 1998.
Net sales of the Company's western boot business were $16.6 million and the
operating loss was $1.5 million for the six months ended August 1, 1998.
The Company's actions relating to the Boot Divestiture resulted in the
elimination of 622 jobs, including all positions related to the western boot
business and the Boot Factory retail chain.
11
<PAGE> 12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 30,
IN THOUSANDS 1999 1999
-------- -----------
<S> <C> <C>
Trade accounts receivable $ 23,280 $ 23,106
Miscellaneous receivables 1,701 5,430
-------- --------
Total receivables 24,981 28,536
Allowance for bad debts (1,109) (1,075)
Other allowances (1,740) (1,203)
-------- --------
NET ACCOUNTS RECEIVABLE $ 22,132 $ 26,258
======== ========
</TABLE>
The Company's footwear wholesaling business sells primarily to independent
retailers and department stores across the United States. Receivables arising
from these sales are not collateralized. Credit risk is affected by conditions
or occurrences within the economy and the retail industry. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
Two customers each accounted for 14% of the Company's trade receivables balance
as of July 31, 1999 and no other customer accounted for more than 8% of the
Company's trade receivables balance as of July 31, 1999.
NOTE 4
INVENTORIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 30,
IN THOUSANDS 1999 1999
-------- ------------
<S> <C> <C>
Raw materials $ 2,647 $ 2,969
Work in process 2,061 2,077
Finished goods 27,326 33,949
Retail merchandise 87,185 78,218
-------- ------------
TOTAL INVENTORIES $119,219 $ 117,213
======== ============
</TABLE>
12
<PAGE> 13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 5
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
- -------------------------------------------------------------------------------
JULY 31, JANUARY 30,
IN THOUSANDS 1999 1999
--------- ----------
<S> <C> <C>
Plant and equipment:
Land $ 263 $ 263
Buildings and building equipment 2,726 2,729
Machinery, furniture and fixtures 42,534 39,587
Construction in progress 9,055 8,819
Improvements to leased property 56,909 56,790
Capital leases:
Buildings 485 200
Machinery, furniture and fixtures 3,515 4,026
--------- ---------
Plant, equipment and capital leases, at cost 115,487 112,414
Accumulated depreciation and amortization:
Plant and equipment (49,122) (49,993)
Capital leases (3,821) (4,034)
--------- ---------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 62,544 $ 58,387
========= =========
</TABLE>
13
<PAGE> 14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
- -------------------------------------------------------------------------------
PROVISION FOR DISCONTINUED OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMPLOYEE
RELATED
IN THOUSANDS COSTS* OTHER TOTAL
--------- ----- --------
<S> <C> <C> <C>
Balance January 30, 1999 $ 9,693 $ 374 $ 10,067
Charges and adjustments, net (496) (159) (655)
--------- ----- --------
Balance July 31, 1999 9,197 215 9,412
Current portion 2,049 215 2,264
--------- ----- --------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 7,148 $ -0- $ 7,148
========= ===== ========
*Union pension withdrawal liability.
</TABLE>
Restructuring Reserves
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
-------- -------- ----- -------
<S> <C> <C> <C> <C>
Balance January 30, 1999 $ 268 $ 955 $ 985 $ 2,208
Charges and adjustments, net (24) (153) (142) (319)
-------- -------- ----- -------
Balance July 31, 1999 244 802 843 1,889
Current portion (included in accounts
payable and accrued liabilities) 244 683 843 1,770
-------- -------- ----- -------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 119 $ -0- $ 119
======== ======== ===== =======
</TABLE>
14
<PAGE> 15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
EARNINGS PER SHARE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JULY 31, 1999 AUGUST 1, 1998
--------------------------------------- -------------------------------------
(IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary loss $ 4,176 $ 6,625
Less: Preferred stock dividends (75) (75)
-------- ------ ------ -------- ------ ------
BASIC EPS
Income available to
common shareholders 4,101 22,428 $ .18 6,550 26,034 $ .25
====== ======
EFFECT OF DILUTIVE SECURITIES
Options 1,200 1,363
Contingent Options(1) -0- 67
Employees' Preferred Stock(2) 73 80
-------- ------ ------ -------- ------ ------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 4,101 23,701 $ .17 $ 6,550 27,544 $ .24
======== ====== ====== ======== ====== ======
</TABLE>
(1) These options are contingent upon service to the Company and the Company's
common stock trading at various prices.
(2) The Company's Employees' Subordinated Convertible Preferred Stock is
convertible one for one to the Company's common stock. Because there are no
dividends paid on this stock, these shares are assumed to be converted.
The amount of the dividend on the convertible preferred stock per common share
obtainable on conversion of the convertible preferred stock is higher than
basic earnings per share for the period. Therefore, conversion of the
convertible preferred stock is not reflected in diluted earnings per share,
because it would have been antidilutive. The shares convertible to common stock
for Series 1, 3 and 4 preferred stock would have been 30,816, 40,869 and
24,946, respectively.
The amount of the interest on the convertible subordinated notes (net of tax)
for the period per common share obtainable on conversion is higher than basic
earnings per share, therefore the convertible debt is not reflected in diluted
earnings per share because it is antidilutive.
The weighted shares outstanding reflects the effect of the stock buy back
program of up to 5.8 million shares announced by the Company in August 1998,
January 1999 and August 1999. The Company has repurchased 4.8 million shares as
of July 31, 1999.
15
<PAGE> 16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
EARNINGS PER SHARE, CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 31, 1999 AUGUST 1, 1998
-------------------------------------- -----------------------------------------
(IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary loss $ 8,243 $ 10,413
Less: Preferred stock dividends (150) (150)
-------- ------ ------- -------- ------ ----------
BASIC EPS
Income available to
common shareholders 8,093 23,011 $ .35 10,263 25,975 $ .40
======= ==========
EFFECT OF DILUTIVE SECURITIES
Options 1,081 1,426
Contingent Options(1) -0- 67
Employees' Preferred Stock(2) 73 80
-------- ------ ------- -------- ------ ----------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 8,093 24,165 $ .33 $ 10,263 27,548 $ .37
======== ====== ======= ======== ====== ==========
</TABLE>
(1) These options are contingent upon service to the Company and the Company's
common stock trading at various prices.
(2) The Company's Employees' Subordinated Convertible Preferred Stock is
convertible one for one to the Company's common stock. Because there are no
dividends paid on this stock, these shares are assumed to be converted.
The amount of the dividend on the convertible preferred stock per common share
obtainable on conversion of the convertible preferred stock is higher than
basic earnings per share for the period. Therefore, conversion of the
convertible preferred stock is not reflected in diluted earnings per share,
because it would have been antidilutive. The shares convertible to common stock
for Series 1, 3 and 4 preferred stock would have been 30,816, 40,869 and
24,946, respectively.
The amount of the interest on the convertible subordinated notes (net of tax)
for the period per common share obtainable on conversion is higher than basic
earnings per share, therefore the convertible debt is not reflected in diluted
earnings per share because it is antidilutive.
The weighted shares outstanding reflects the effect of the stock buy back
program of up to 5.8 million shares announced by the Company in August 1998,
January 1999 and August 1999. The Company has repurchased 4.8 million shares as
of July 31, 1999.
16
<PAGE> 17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
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 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
remediaton 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 $1.6 million to $2.0 million. 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.
17
<PAGE> 18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
LEGAL PROCEEDINGS, CONTINUED
- -------------------------------------------------------------------------------
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 for the site to
MDEQ. The plan proposes no 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 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 remedial action
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 remedial action plan is subject to MDEQ approval. If the plan is
approved, the Company does not expect it 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.
On June 30, 1999, the City of Whitehall filed an action against the Company in
the circuit court for the City of Muskegon under various state environmental
statutes and City ordinances, seeking to compel a more extensive cleanup of the
site than the remediation plan proposes. The Company has filed an answer
denying all the material allegations in the City's complaint, asserting
affirmative defenses and including a counterclaim against the city for
contribution.
Whitehall Accident
On June 4, 1999, a truck driver employed by 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 Company is currently unable to predict the additional effect, if
any, of the incident on its financial condition or results of operations.
18
<PAGE> 19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
BUSINESS SEGMENT INFORMATION
- --------------------------------------------------------------------------------
The Company has four reportable segments: Specialty Retail Footwear, comprised
of Journeys, Jarman, Underground Station, Stone & Co. and General Shoe
Warehouse; Branded Footwear, comprised of Johnston & Murphy retail and
wholesale, Dockers Footwear and Nautica Footwear; Leather; and Western Boots,
which was divested in Fiscal 1999. All the Company's segments, except Leather,
sell footwear products at either retail or wholesale. The Leather segment is
comprised of Volunteer Leather, a leather tanning and finishing company which
sells primarily to military boot manufacturers and other customers.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The Company's reportable segments are based on an organization methodology used
by management in order to make operating decisions and assess performance along
types of products sold. Specialty Retail Footwear primarily sells branded
products from other companies while Branded Footwear primarily sells the
Company's owned and licensed brands.
Corporate assets include cash, deferred income taxes, prepaid pension cost and
deferred note expense. The Company does not allocate certain costs to each
segment in order to make decisions and assess performance. These costs include
corporate overhead, restructuring gains and losses, interest expense, interest
income, and other charges. Other includes severance and litigation charges and
a $2.4 million restructuring gain in Fiscal 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SPECIALTY
THREE MONTHS ENDED RETAIL BRANDED
JULY 31, 1999 FOOTWEAR FOOTWEAR LEATHER CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 65,275 $ 56,934 $ 5,369 $ -0- $ 127,578
Intercompany sales -0- (1,205) (470) -0- (1,675)
--------- --------- --------- --------- ---------
Net sales to external customers 65,275 55,729 4,899 -0- 125,903
--------- --------- --------- --------- ---------
Operating income (loss) 5,742 5,606 325 (2,919) 8,754
Interest expense -0- -0- -0- 2,041 2,041
Interest income -0- -0- -0- 580 580
Other -0- -0- -0- (402) (402)
--------- --------- --------- --------- ---------
Pretax earnings (loss) 5,742 5,606 325 (4,782) 6,891
--------- --------- --------- --------- ---------
Total assets 100,210 84,250 8,183 99,936 292,579
Depreciation 1,190 730 114 404 2,438
Capital expenditures 3,549 1,011 11 900 5,471
</TABLE>
19
<PAGE> 20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
BUSINESS SEGMENT INFORMATION, CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIALTY
THREE MONTHS ENDED RETAIL BRANDED WESTERN
AUGUST 1, 1998 FOOTWEAR FOOTWEAR LEATHER BOOT CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 69,230 $ 55,052 $ 4,110 $ 5,764 $ -0- $ 134,156
Intercompany sales -0- (1,312) (795) -0- -0- (2,107)
-------- -------- ------- ---------- ---------- ------------
Net sales to external customers 69,230 53,740 3,315 5,764 -0- 132,049
-------- -------- ------- ---------- ---------- ------------
Operating income (loss) 3,247 6,908 (134) (646) (2,860) 6,515
Interest expense -0- -0- -0- -0- 2,180 2,180
Interest income -0- -0- -0- -0- 636 636
Other -0- -0- -0- -0- 1,688 1,688
-------- -------- ------- ---------- ---------- ------------
Pretax earnings (loss) 3,247 6,908 (134) (646) (2,716) 6,659
-------- -------- ------- ---------- ---------- ------------
Total assets 103,662 86,416 8,733 -0- 76,992 275,803
Depreciation 1,242 705 138 140 497 2,722
Capital expenditures 4,308 881 129 (18) 1,219 6,519
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SPECIALTY
SIX MONTHS ENDED RETAIL BRANDED
JULY 31, 1999 FOOTWEAR FOOTWEAR LEATHER CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $126,528 $ 120,484 $ 11,205 $ -0- $ 258,217
Intercompany sales -0- (2,641) (1,017) -0- (3,658)
-------- --------- -------- ------- ------------
Net sales to external customers 126,528 117,843 10,188 -0- 254,559
-------- --------- -------- ------- ------------
Operating income (loss) 9,263 12,431 525 (5,192) 17,027
Interest expense -0- -0- -0- 4,037 4,037
Interest income -0- -0- -0- 1,241 1,241
Other -0- -0- -0- (529) (529)
-------- --------- -------- ------- ------------
Pretax earnings (loss) 9,263 12,431 525 (8,517) 13,702
-------- --------- -------- ------- ------------
Total assets 100,210 84,250 8,183 99,936 292,579
Depreciation 2,419 1,448 229 782 4,878
Capital expenditures 6,396 2,131 20 1,669 10,216
</TABLE>
20
<PAGE> 21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
BUSINESS SEGMENT INFORMATION, CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SPECIALTY
SIX MONTHS ENDED RETAIL BRANDED WESTERN
AUGUST 1, 1998 FOOTWEAR FOOTWEAR LEATHER BOOT CORPORATE CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $131,173 $ 112,155 $ 10,731 $ 16,560 $ -0- $ 270,619
Intercompany sales -0- (3,170) (1,592) -0- -0- (4,762)
-------- --------- -------- ---------- ------- ------------
Net sales to external customers 131,173 108,985 9,139 16,560 -0- 265,857
-------- --------- -------- ---------- ------- ------------
Operating income (loss) 7,052 12,484 128 (1,529) (5,956) 12,179
Interest expense -0- -0- -0- -0- 5,069 5,069
Interest income -0- -0- -0- -0- 1,441 1,441
Other -0- -0- -0- -0- 1,615 1,615
-------- --------- -------- ---------- ------- ------------
Pretax earnings (loss) 7,052 12,484 128 (1,529) (7,969) 10,166
-------- --------- -------- ---------- ------- ------------
Total assets 103,662 86,416 8,733 -0- 76,992 275,803
Depreciation 2,303 1,348 317 336 803 5,107
Capital expenditures 9,716 1,656 157 -0- 2,474 14,003
</TABLE>
21
<PAGE> 22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
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 in the Company's retail stores or sales by its Branded Footwear
operations at wholesale, changes in business strategies or directions of the
Company's competitors, the Company's ability to open, staff and support
additional retail stores on schedule and at acceptable expense levels, the cost
and availability of externally sourced products and the acceptance of planned
new product offerings and new store concepts. Failure by the Company to
successfully complete its plans for addressing the Year 2000 issue, discussed
elsewhere in this report, or failures related to the issue by key suppliers of
goods or services to the Company or by the customers of the Company could also
result in a failure to meet expectations reflected in forward-looking
statements. Other factors that could also lead to such a failure to meet
expectations reflected in forward looking statements include international trade
developments affecting foreign sourcing of products, the outcome of various
litigation and environmental contingencies, including those discussed in Note 8
to the Consolidated Financial Statements, the solvency of the wholesale
customers of the Company, the ability to deal with changes in markets for the
Company's products and the impact of the Year 2000 issue on the economy as a
whole. 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
Leased Department 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 Lease division. Because of the 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 $13.9 million for the second
quarter of Fiscal 1999 and sales of $1.2 million and $25.3 million for the
first six months of Fiscal 2000 and 1999, respectively. The Jarman leased
departments' business contributed operating earnings of $0.2 million for the
second quarter of Fiscal 1999 and operating income (loss) of $(0.3) million and
$0.5 million for the first six months of Fiscal 2000 and 1999, respectively.
Share Repurchase Program
During the third quarter ended October 31, 1998, the Company authorized the
purchase, from time to time, of up to 2.6 million shares of the Company's
common stock. During the fourth quarter ended January 30, 1999, the Company
authorized an additional 2.2 million shares to be repurchased. As of July 31,
1999, the Company completed the repurchase of 4.8 million shares at a cost of
$40.5 million. In August of 1999, the Company authorized the repurchase from
time to time of an additional 1.0 million shares. The purchases may be made on
the open market or in privately negotiated transactions.
22
<PAGE> 23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
Workforce Reduction
In connection with the divestiture of the western boot business and the
substantial completion of the exiting of the Jarman leased department business,
the Company reviewed the structure and level of staffing in all of its
operations. 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 58 positions were eliminated by July 31, 1999. Twenty-six of the
positions eliminated related to the Jarman Lease division, with the remainder
being primarily employed at corporate headquarters.
5 1/2% Convertible Subordinated Notes
On April 9, 1998, the Company issued $103.5 million of 5 1/2% convertible
subordinated notes due April 15, 2005. During the second quarter of Fiscal 1999
the Company used: 1) $79.9 million of the proceeds to repay all of the
Company's 10 3/8% senior notes including interest and expenses incurred in
connection therewith, resulting in an extraordinary loss of $3.7 million in the
second quarter, 2) $1.3 million of the proceeds to pay preferred dividends in
arrears because of certain covenants in the indenture relating to the senior
notes, and 3) the remaining proceeds for general corporate purposes.
Fiscal 1998 Restructuring
As a result of the continued weakness in the western boot market, the Company
approved a plan (the "Boot Divestiture") in the fourth quarter of Fiscal 1998
to exit the western boot business. 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
sale of its western boot business to Texas Boot, Inc. on July 14, 1998. Net
sales of the Company's western boot business were $5.8 million and the
operating loss was $0.6 million for the second quarter ended August 1, 1998.
Net sales of the Company's western boot business were $16.6 million and the
operating loss was $1.5 million for the six months ended August 1, 1998.
The Company's actions relating to the Boot Divestiture resulted in the
elimination of 622 jobs, including all positions related to the western boot
business and the Boot Factory retail chain.
23
<PAGE> 24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 2000 COMPARED TO FISCAL 1999
The Company's net sales in the second quarter ended July 31, 1999 decreased
4.7% to $125.9 million from $132.0 million in the second quarter ended August
1, 1998. Excluding sales attributable to the Jarman lease business and the Boot
Divestiture from last year, the Company's net sales increased 12.0% to $125.9
million for the second quarter of this year compared to $112.4 million for the
second quarter of last year. Gross margin decreased 2.1% to $56.5 million in
the second quarter this year from $57.8 million in the same period last year
but increased as a percentage of net sales from 43.7% to 44.9%. Selling and
administrative expenses in the second quarter this year decreased 7.3% from the
second quarter last year and decreased as a percentage of net sales from 39.3%
to 38.3%.
Pretax earnings in the second quarter ended July 31, 1999 were $6.9 million
compared to $6.7 million for the second quarter ended August 1, 1998. Pretax
earnings for the second quarter ended August 1, 1998 included a restructuring
gain of $2.4 million.
Net earnings for the second quarter ended July 31, 1999 were $4.2 million ($.17
diluted earnings per share) compared to $3.0 million ($0.11 diluted earnings
per share) for the second quarter ended August 1, 1998. The Company had an
effective tax rate of 39.4% for the second quarter ended July 31, 1999. Net
earnings for the second quarter last year included taxes of $34,000 and an
extraordinary loss for the early retirement of debt of $3.7 million.
Specialty Retail Footwear
<TABLE>
<CAPTION>
Three Months Ended
--------------------
July 31, August 1, %
1999 1998 Change
-------- --------- -------
(dollars in thousands)
<S> <C> <C> <C>
Net sales ........... $65,275 $69,230 (5.7)%
Operating income .... $ 5,742 $ 3,247 76.8%
Operating margin .... 8.8% 4.7%
</TABLE>
Primarily due to exiting the Jarman lease business, net sales from Specialty
Retail Footwear operations decreased 5.7% for the second quarter ended July 31,
1999 compared to the same period last year. Excluding sales attributable to the
Jarman lease business from both periods, Specialty Retail Footwear net sales
increased 18.0% for the second quarter of this year compared to the second
quarter of last year, primarily due to a 6% increase in comparable store sales
and a 14% increase in average ongoing Specialty Retail Footwear stores
operated. Excluding the Jarman lease business, the average price per pair of
shoes increased 8% and unit sales increased 4% for the second quarter of Fiscal
2000.
24
<PAGE> 25
The Company's comparable store sales and store count for Specialty Retail
Footwear at the end of the periods were as follows:
<TABLE>
<CAPTION>
Store Count
--------------------
Comparable July 31, August 1,
Sales Changes 1999 1998
------------- -------- --------
<S> <C> <C> <C>
Journeys .......................... 7% 287 232
Jarman Retail ..................... 6% 158(1) 166(2)
Jarman Lease ...................... -- -0- 103
General Shoe Warehouse ............ -9% 15 13
------- --------
Total Specialty Retail Footwear 6% 460 514
======= ========
</TABLE>
- ---------------------
(1) Includes seventeen Underground Station stores and one Stone & Co. store.
(2) Includes eleven Underground Station stores.
Specialty Retail Footwear operating income for the second quarter ended July
31, 1999 increased 76.8% to $5.7 million compared to $3.2 million for the same
period last year. The increase was due primarily to increased sales, increased
gross margin as percentage of sales and decreased expenses as a percentage of
sales from the ongoing Specialty Retail Footwear businesses. The Jarman lease
business had earnings of $0.2 million for the second quarter ended August 1,
1998.
Branded Footwear
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
July 31, August 1, %
1999 1998 Change
-------- --------- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales ...................... $55,729 $53,740 3.7%
Operating income................ $ 5,606 $ 6,908 (18.8)%
Operating margin ............... 10.1% 12.9%
</TABLE>
Branded Footwear net sales increased 3.7% to $55.7 million for the second
quarter ended July 31, 1999 from $53.7 million for the second quarter ended
August 1, 1998, reflecting primarily a 3% increase in comparable store sales
for Johnston & Murphy Retail. The store count for Branded Footwear retail
operations at the end of the second quarter this year included 138 Johnston &
Murphy stores and factory stores and 37 Nautica Retail leased departments
compared to 127 Johnston & Murphy stores and factory stores and 15 Nautica
Retail leased departments at the end of the second quarter of last year. The
average price per pair of shoes for Branded Footwear retail increased 1% for
the second quarter of this year and unit sales increased 10% during the same
period. Unit sales for the Branded Footwear wholesale businesses decreased 3%
for the second
25
<PAGE> 26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
quarter of this year due primarily to decreased sales in the Company's Nautica
Footwear business, and the average price per pair of shoes decreased 1% for the
same period.
Branded Footwear operating income for the second quarter ended July 31, 1999
decreased 18.8% from $6.9 million in the second quarter of last year to $5.6
million in the second quarter of this year, primarily due to decreased gross
margin as a percentage of sales and increased expenses as a percentage of
sales. In the Company's Nautica Footwear business, sales were down for the
quarter, primarily due to a significant decline in shipments to a single major
customer since the end of the second quarter last year. As a result of the
decreased sales, additional markdowns were taken, causing a decrease in gross
margin.
Leather
<TABLE>
<CAPTION>
Three Months Ended
----------------------
July 31, August 1, %
1999 1998 Change
-------- --------- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales ............... $4,899 $ 3,315 47.8%
Operating income (loss).. $ 325 $ (134) NA
operating margin ........ 6.6% (4.0)%
</TABLE>
Leather net sales increased 47.8% to $4.9 million in the second quarter ended
July 31, 1999 from $3.3 million in the second quarter ended August 1, 1998,
primarily due to increased orders from military footwear suppliers, which makes
up the bulk of the Company's tanned leather business.
Leather operating income increased from a loss of ($0.1) million in the second
quarter last year to earnings of $0.3 million in the second quarter this year,
primarily due to increased sales, increased gross margin as a percentage of
sales and decreased expenses as a percentage of sales.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for the second quarter ended July 31, 1999 were
flat with the same period last year (exclusive of other charges of $0.4
million, primarily environmental charges, in the second quarter this year and
an other credit of $1.7 million, comprising primarily litigation and severance
charges and a restructuring gain of $2.4 million, in the second quarter last
year).
Interest expense decreased 6.4% from $2.2 million in the second quarter ended
August 1, 1998 to $2.0 million in the second quarter ended July 31, 1999,
primarily due to the decrease in interest rates on the Company's long-term debt
from 10 3/8% on $75 million borrowings to 5 1/2% on $103.5 million borrowings.
Interest income decreased 8.8% from $636,000 in the second quarter of last year
to $580,000 in the second quarter of this year, due to decreases in interest
rates. There were no borrowings under the Company's revolving credit facility
during the three months ended July 31, 1999 or August 1, 1998.
26
<PAGE> 27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SIX MONTHS FISCAL 2000 COMPARED TO FISCAL 1999
The Company's net sales for the six months ended July 31, 1999 decreased 4.2%
to $254.6 million from $265.9 million for the six months ended August 1, 1998.
Excluding sales attributable to the Jarman lease business and the Boot
Divestiture from both periods, the Company's net sales increased 13.1% to
$253.4 million for the first six months this year compared to $224.0 million
for the first six months last year. Gross margin decreased 1.3% to $114.0
million in the first six months this year from $115.6 million in the same
period last year but increased as a percentage of net sales from 43.5% to
44.8%. Selling and administrative expenses in the first six months this year
decreased 6.4% from the first six months last year and decreased as a
percentage of net sales from 39.2% to 38.3%.
Pretax earnings for the six months ended July 31, 1999 were $13.7 million
compared to $10.2 million for the six months ended August 1, 1998. Pretax
earnings for the six months ended August 1, 1998 included a restructuring gain
of $2.4 million.
Net earnings for the six months ended July 31, 1999 were $8.2 million ($.33
diluted earnings per share) compared to $6.8 million ($0.24 diluted earnings
per share) for the six months ended August 1, 1998. The Company had an
effective tax rate of 39.8% for the six months ended July 31, 1999. Net
earnings for the first six months last year included a tax credit of $247,000
and an extraordinary loss for the early retirement of debt of $3.7 million.
Specialty Retail Footwear
<TABLE>
<CAPTION>
Six Months Ended
---------------------
July 31, August 1, %
1999 1998 Change
-------- ---------- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales ............... $126,528 $131,173 (3.5)%
Operating income ........ $ 9,263 $ 7,052 31.4%
Operating margin ........ 7.3% 5.4%
</TABLE>
27
<PAGE> 28
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
Primarily due to exiting the Jarman lease business, net sales from Specialty
Retail Footwear operations decreased 3.5% for the six months ended July 31,
1999 compared to the same period last year. Excluding sales attributable to the
Jarman lease business from both periods, Specialty Retail Footwear net sales
increased 18.4% for the first six months of this year compared to the first six
months of last year, primarily due to a 5% increase in comparable store sales
and an 18% increase in average ongoing Specialty Retail Footwear stores
operated. Excluding the Jarman lease business, the average price per pair of
shoes increased 7% and unit sales increased 10% for the first six months of
Fiscal 2000.
The Company's comparable store sales and store count for Specialty Retail
Footwear at the end of the periods were as follows:
<TABLE>
<CAPTION>
Store Count
--------------------
Comparable July 31, August 1,
Sales Changes 1999 1998
------------- -------- ---------
<S> <C> <C> <C>
Journeys .............................. 7% 287 232
Jarman Retail ......................... 3% 158(1) 166(2)
Jarman Lease .......................... 56%(3) -0- 103
General Shoe Warehouse ................ -11% 15 13
--- ---
Total Specialty Retail Footwear.... 5% 460 514
=== ===
</TABLE>
- --------------------------
(1) Includes seventeen Underground Station stores and one Stone & Co. store.
(2) Includes eleven Underground Station stores.
(3) This number resulted from the liquidation of the inventory due to the close
out of the Jarman lease business in the first quarter of Fiscal 2000.
Specialty Retail Footwear operating income for the six months ended July 31,
1999 increased 31.4% to $9.3 million compared to $7.1 million for the same
period last year. The increase was due primarily to increased sales, increased
gross margin as a percentage of sales and decreased expenses as a percentage of
sales from the ongoing Specialty Retail Footwear businesses. The Jarman lease
business lost $0.3 million in the first six months this year compared to
earnings of $0.5 million for the same period last year.
28
<PAGE> 29
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
Branded Footwear
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
July 31, August 1, %
1999 1998 Change
-------- --------- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales ................... $117,843 $108,985 8.1%
Operating income............. $ 12,431 $ 12,484 (0.4)%
Operating margin ............ 10.5% 11.5%
</TABLE>
Branded Footwear net sales increased 8.1% to $117.8 million for the six months
ended July 31, 1999 from $109.0 million for the six months ended August 1,
1998, reflecting primarily a 4% increase in comparable store sales for Johnston
& Murphy Retail and a 4% increase in men's Branded Footwear wholesale sales.
The store count for Branded Footwear retail operations at the end of the first
six months this year included 138 Johnston & Murphy stores and factory stores
and 37 Nautica Retail leased departments compared to 127 Johnston & Murphy
stores and factory stores and 15 Nautica Retail leased departments at the end
of the first six months of last year. The average price per pair of shoes for
Branded Footwear retail increased 1% for the first six months of this year and
unit sales increased 11% during the same period. Unit sales for the Branded
Footwear wholesale businesses increased 5% for the first six months of this
year while the average price per pair of shoes decreased 2% for the same
period.
Branded Footwear operating income for the six months ended July 31, 1999
decreased 0.4% from $12.5 million in the first six months of last year to $12.4
million in the first six months of this year, primarily due to decreased gross
margin as a percentage of sales as a result of the decreased sales and
increased markdowns in the Company's Nautica Footwear business.
Leather
<TABLE>
<CAPTION>
Six Months Ended
---------------------
July 31, August 1, %
1999 1998 Change
-------- --------- -------
(dollars in thousands)
<S> <C> <C> <C>
Net sales....................... $10,188 $9,139 11.5%
Operating income ............... $ 525 $ 128 310.2%
Operating margin ............... 5.2% 1.4%
</TABLE>
29
<PAGE> 30
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
Leather net sales increased 11.5% to $10.2 million for the six months ended
July 31, 1999 from $9.1 million for the six months ended August 1, 1998,
primarily due to increased orders from military footwear suppliers, which makes
up the bulk of the Company's tanned leather business.
Leather operating income increased 310.2% from $0.1 million in the first six
months last year to $0.5 million in the first six months this year, primarily
due to increased sales, increased gross margin as a percentage of sales and
decreased expenses as a percentage of sales.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for the first six months ended July 31, 1999 were
$5.2 million compared to $6.0 million for the six months ended August 1, 1998
(exclusive of other charges of $0.5 million, primarily environmental charges,
in the first six months this year and an other credit of $1.6 million,
comprising primarily litigation and severance charges and a restructuring gain
of $2.4 million, in the first six months last year), a decrease of 12.8%. The
decrease in corporate expenses in the first six months this year is
attributable primarily to decreased professional expenses.
Interest expense decreased 20.4% from $5.1 million for the six months ended
August 1, 1998 to $4.0 million for the six months ended July 31, 1999,
primarily due to the decrease in interest rates on the Company's long-term debt
from 10 3/8% on $75 million of borrowings to 5 1/2% on $103.5 million of
borrowings. Interest income decreased 13.9% from $1.4 million in the first six
months of last year to $1.2 million in the first six months of this year, due
to decreases in interest rates. There were no borrowings under the Company's
revolving credit facility during the six months ended July 31, 1999 or August
1, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
<TABLE>
<CAPTION>
July 31, August 1,
1999 1998
-------- ---------
(dollars in millions)
<S> <C> <C>
Cash and short-term investments .............. $ 49.1 $ 53.2
Working capital .............................. $ 134.8 $ 140.2
Long-term debt (includes current maturities) . $ 103.5 $ 103.5
Current ratio ................................ 2.8X 2.9X
</TABLE>
30
<PAGE> 31
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
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 $15.9 million in the first six months
of Fiscal 2000 compared to $17.3 million cash used in operating activities in
the first six months of Fiscal 1999. The $33.2 million increase in cash flow
from operating activities reflects primarily the increase in earnings, a
smaller increase in inventory for the first six months this year compared to
the first six months last year and an increase in payables due to changes in
buying patterns and payment terms negotiated with individual vendors.
Contributing to the inventory change was a slowdown in store openings from 107
+tores in last years first six months to 52 stores in this years first six
months and the selloff of Jarman lease inventory.
The $9.7 million increase in inventories at July 31, 1999 from January 30, 1999
levels included in the statement of cash flows reflects planned increases in
retail inventory to support the net increase of 39 stores in the first six
months of Fiscal 2000.
Accounts receivable at July 31, 1999 decreased $2.4 million compared to January
30, 1999, primarily due to exiting the Jarman lease business.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities are as follows:
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
July 31, August 1,
1999 1998
-------- ---------
(in thousands)
<S> <C> <C>
Accounts payable $ 8,315 $ 3,431
Accrued liabilities (4,904) (6,842)
-------- --------
$ 3,411 $ (3,411)
======== ========
</TABLE>
The fluctuations in accounts payable for the first six months this year from
the first six months last year are due to changes in buying patterns, payment
terms negotiated with individual vendors and changes in inventory levels.
The change in accrued liabilities for the first six months this year was due
primarily to payments of liabilities related to restructurings.
31
<PAGE> 32
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
There were no revolving credit borrowings during the first six months ended
July 31, 1999 and August 1, 1998, as cash generated from operations and cash on
hand funded seasonal working capital requirements and capital expenditures.
Capital Expenditures
Total capital expenditures in Fiscal 2000 are expected to be approximately
$26.1 million. These include expected retail expenditures of $19.0 million to
open approximately 66 Journeys stores, 18 Johnston & Murphy stores and factory
stores and six Jarman Retail stores and to complete 27 major store renovations.
Capital expenditures for wholesale and manufacturing operations and other
purposes are expected to be approximately $7.1 million, including approximately
$3.2 million for new computer systems to improve customer service and support
the Company's growth.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal activities.
The Company has determined that it will be required to modify or replace
significant portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company is in the process of
upgrading and modernizing its major information systems, including its
wholesale and retail operating systems and its financial systems. The
replacement systems are expected to be Year 2000 compliant.
The Company is utilizing both internal and external resources to reprogram or
replace and test software for Year 2000 compliance. The Company currently has
100% of the estimated human resources it expects to be required in the
remediation and testing process committed.
The Company plans to complete its Year 2000 remediation project no later than
October 31, 1999. As of the beginning of the first quarter of Fiscal 2000, the
Company is using all modules of its new financial system. The Company has
implemented a contingency plan that provides for remediation of the existing
retail systems, adding an additional 0.5 million lines of code to be remediated.
After adjusting for the additional lines of code to be remediated, the Company
has completed the remediation, including final testing, of approximately 91% of
its identified 2.5 million lines of code in its legacy systems. The Company's
existing staffing plan would allow the completion of this contingency plan by
the end of October 1999.
32
<PAGE> 33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
The total cost of upgrading most of the Company's major operating systems,
including the Year 2000 project for Fiscal Years 1998 through 2000, is
estimated at $20.3 million and is being funded through operating cash flows and
cash on hand. Of the total project cost, approximately $12.6 million is
attributable to the purchase of new software and hardware which has been or
will be capitalized. The remaining $7.7 million has been or will be expensed,
including projected costs of $2.0 million for Fiscal 2000. Cumulative to date
expenditures through July 31, 1999 are $6.3 million plus cumulative capital
expenditures of $10.7 million.
The Company has developed plans for formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The communications began in the last quarter of Fiscal 1998
which the Company initially completed in the fourth quarter of Fiscal 1999 and
the Company anticipates follow-up continuing until the Year 2000 with critical
trading partners based on the initial responses. There can be no assurance the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have material
adverse effect on the Company.
Under the most reasonably likely worst case scenario, the Company believes
problems could arise that would relate to possible failure in one or more
geographic regions of third party systems over which the Company has no control,
principally relating to power and telecommunications systems. These failures
could effect the Company's own stores as well as its suppliers of footwear. The
Company anticipates the disruptions will be short-term in nature and because the
shipment of merchandise to the Company's stores is traditionally at a low point
during that time of year, the impact should be minimal. However, despite the
Company's efforts in remediation on contingency planning there can be no
assurance that the Year 2000 issues will not have a material adverse impact on
the Company's financial condition and operating results.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. Management uses outside consultants to review the adequacy of
its Year 2000 plans. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
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 8 to the
Company's Consolidated Financial Statements. The Company has made provisions
for certain of these contingencies, including provisions of $150,000 in
discontinued operations in Fiscal 1997, $250,000 reflected in Fiscal 1998 and
$402,000 reflected in Fiscal 1999. The Company monitors these proceedings on an
ongoing basis and at least quarterly management reviews the Company's reserves
and accruals in relation to each of them, adjusting provisions as management
deems necessary in view of changes in available information. Changes in
estimates of liability are reported in the periods when they occur.
Consequently, management believes that its reserve in relation to each
proceeding is a reasonable estimate of the probable loss connected to the
proceeding, or in cases in which no reasonable estimate is possible, the
minimum amount in the range of estimated losses, based upon its analysis of the
facts as of the close of the most recent fiscal quarter. Because of
uncertainties and risks
33
<PAGE> 34
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
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 2000,
although the Company may borrow from time to time to support seasonal working
capital requirements. Approximately $4.0 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 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 completed the previously authorized
repurchase of 4.8 million shares at a cost of $40.5 million as of July 31,
1999.
There were $12.3 million of letters of credit outstanding under the revolving
credit agreement at July 31, 1999, leaving availability under the revolving
credit agreement of $52.7 million.
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At July 31, 1999, $32.0 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.
Changes in Accounting Principles
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, management has not fully evaluated the
impact of SFAS No. 133.
34
<PAGE> 35
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
On June 4, 1999, a truck driver employed by 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 Company is currently unable to predict the additional effect, if
any, of the incident on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on June 23, 1999, shares
representing a total of 22,810,672 votes were outstanding and entitled to vote.
At the meeting, shareholders of the Company:
(1) elected nine directors nominated by the board of directors by the following
votes:
<TABLE>
<CAPTION>
Votes
Votes "For" "Withheld"
----------- ----------
<S> <C> <C>
Leonard L. Berry 20,106,679 116,137
David M. Chamberlain 20,111,175 107,145
W. Lipscomb Davis, Jr. 20,112,479 104,537
Joel C. Gordon 20,111,350 106,795
Ben T. Harris 20,114,163 101,169
Kathleen Mason 20,112,579 104,337
William A. Williamson, Jr. 20,112,907 103,681
William S. Wire II 20,108,736 112,023
Gary M. Witkin 20,082,446 164,603
</TABLE>
(2) approved an amendment to the Company's 1996 Stock Incentive Plan by a vote
of 20,621,896 for, 768,774 against, with 68,092 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(27) Financial Data Schedule (for SEC use only)
- --------------
REPORTS ON FORM 8-K
None
35
<PAGE> 36
SIGNATURE
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
James S. Gulmi
Chief Financial Officer
September 14, 1999
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SECOND QUARTER FISCAL 2000 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 5,860
<SECURITIES> 43,219
<RECEIVABLES> 21,540
<ALLOWANCES> 1,109
<INVENTORY> 119,219
<CURRENT-ASSETS> 210,839
<PP&E> 115,487
<DEPRECIATION> 52,943
<TOTAL-ASSETS> 292,579
<CURRENT-LIABILITIES> 76,042
<BONDS> 103,500
0
7,890
<COMMON> 22,258
<OTHER-SE> 69,278
<TOTAL-LIABILITY-AND-EQUITY> 292,579
<SALES> 254,559
<TOTAL-REVENUES> 254,559
<CGS> 140,533
<TOTAL-COSTS> 140,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 224
<INTEREST-EXPENSE> 4,037
<INCOME-PRETAX> 13,702
<INCOME-TAX> 5,459
<INCOME-CONTINUING> 8,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,243
<EPS-BASIC> .35
<EPS-DILUTED> .33
</TABLE>
