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(GENESCO LOGO]
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(Mark One) FORM 10-K
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[X] Annual Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended
January 30, 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
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GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
EXCHANGES ON WHICH
TITLE REGISTERED
Common Stock, $1.00 par value New York and Chicago
Preferred Share Purchase Rights New York and Chicago
10 3/8% Senior Notes due 2003 New York
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Subordinated Serial Preferred Stock, Series 1
Employees' Subordinated Convertible Preferred Stock
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the June 23, 1999 annual
meeting of shareholders are incorporated into Part III by
reference.
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No
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Common Shares Outstanding April 16, 1999 - 23,060,107
Aggregate market value on April 16, 1999 of the voting stock
held by nonaffiliates of the registrant was approximately
$250,000,000.
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TABLE OF CONTENTS
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
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 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners and Management 69
Item 13. Certain Relationships and Related Transactions 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 72
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PART I
ITEM 1, BUSINESS
GENERAL
Genesco is a leading retailer and wholesaler of branded footwear with net sales
for Fiscal 1999 of $549.7 million. During Fiscal 1999, the Company operated four
segments: Specialty Retail Footwear, Branded Footwear, Leather and Western Boot
which was divested in Fiscal 1999. At January 30, 1999, the Company operated 674
stores and leased footwear departments throughout the United States and Puerto
Rico and expects to open approximately 80 new stores and leased departments in
Fiscal 2000. At January 30, 1999, the Company's Specialty Retail Footwear
segment operated under three names and formats including: Journeys (258 stores),
Jarman (244 stores and leased departments), and General Shoe Warehouse (16
stores and leased departments). 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 will end its operation
of the leased departments. The Company had 78 Jarman leased departments at
January 30, 1999. Of those 78 leased departments, 64 have been transferred to
Dillards Inc. and the Company ended operations of the remaining 14 leased
departments on April 3, 1999. In its Branded Footwear Segment, the Company
designs, sources, markets and distributes footwear at wholesale under its own
and licensed brands, including Johnston & Murphy, Nautica, and Dockers, to more
than 2,700 retail accounts in the United States, including a number of leading
department, discount, and specialty stores. The Branded Footwear Segment also
includes two retail businesses: Johnston & Murphy (132 stores and leased
departments), and Nautica Retail (24 leased departments). The Company's Leather
segment includes a leather tanning and finishing business, Volunteer Leather,
primarily for sale to military boot manufacturers and other customers. The
Western Boot segment is the Company's divested boot operation. The sale of the
Western Boot business was completed on July 14, 1998. (See below for more
information regarding the sale of the Western Boot business.)
Reference to Fiscal 1999 refers to the Company's fiscal year ended January 30,
1999. References to Fiscal 1995, 1996 or 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 18 to the Consolidated Financial
Statements included in Item 8 and Management's Discussion and Analysis of
Financial Condition and Results of Operations. Prior to its discontinuation
pursuant to the 1995 Restructuring (defined below), the Company's business
included operations in a men's apparel segment. 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 such
reference in Item 1.
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. 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 Company's 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.
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Net earnings for the second quarter ended August 1, 1998 reflects a
restructuring gain of $2.4 million primarily from the Boot Divestiture. The $2.4
million 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 position
the Company would have eliminated. 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.
The Company approved a plan, ("the Manufacturing Restructuring"), in the third
quarter of Fiscal 1997 to realign its manufacturing operations as part of an
overall strategy to focus on marketing and global sourcing. The plan included
closing the Company's Hohenwald, Tennessee western boot plant by July 1997.
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.
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations in Fiscal 1995, the
Company's board of directors approved a plan (the "1995 Restructuring") designed
to focus the Company on its core footwear businesses by selling or liquidating
four businesses, two of which constituted its entire men's apparel segment.
The 1995 Restructuring provided for the following:
1995 Restructuring Charge relating to:
- - Liquidation of the University Brands children's shoe business,
- - Sale of the Mitre Sports soccer business, and
- - Facility consolidation costs and permanent work force reductions.
1995 Restructuring Provision relating to:
- - Liquidation of The Greif Companies men's tailored clothing business,
and
- - Sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
The 1995 Restructuring was substantially complete as of January 31, 1996. The
divestiture of the University Brands business was completed in February 1995.
The liquidation of The Greif Companies was substantially completed in June 1995.
The Company's GCO Apparel Corporation was sold in June 1995. The Company's Mitre
Sports soccer business was sold in August 1995.
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SEGMENTS
Specialty Retail Footwear
Pro forma for the Boot Divestiture, the Company's Specialty Retail Footwear
segment accounted for approximately 56% of net sales in Fiscal 1999. Operating
income attributable to the Specialty Retail Footwear segment, excluding
restructuring and other nonrecurring charges, was $26.9 million in Fiscal 1999,
with an operating margin of 9.0%. 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 30, 1999 the Company operated 518 specialty retail stores and leased
departments throughout the United States and Puerto Rico selling footwear for
men and women. The following table sets forth certain information concerning the
Company's Specialty Retail Footwear operations:
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RETAIL STORES LEASED DEPARTMENTS
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FEBRUARY 1, JANUARY 31, JANUARY 30, FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999 1997 1998 1999
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Jarman 143 158 166 85 84 78
Journeys 118 176 258 -- -- --
General Shoe Warehouse 7 7 7 3 5 9
--- --- --- -- -- --
Specialty Retail
Footwear Total 268 341 431 88 89 87
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The following table sets forth certain additional information concerning the
Company's retail stores and leased departments operated in its Specialty Retail
Footwear segment during the five most recent fiscal years:
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FISCAL FISCAL FISCAL FISCAL FISCAL
1995 1996 1997 1998 1999
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Retail Stores and Leased Departments
Beginning of year 373 328 319 356 430
Opened during year 14 14 48 82 127
Closed during year (59) (23) (11) (8) (39)
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End of year 328 319 356 430 518
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The Company operates its retail stores and leased departments of its Specialty
Retail Footwear segment primarily in the following formats:
Journeys. Journeys accounted for 53% of the Company's Specialty Retail sales in
Fiscal 1999 and added 82 net new stores in Fiscal 1999 and achieved a comparable
store sales increase of 1% from the prior fiscal year. Journeys stores, located
primarily in the Southeast, Midwest, California, Texas, and Puerto Rico, target
customers in the 13-22 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, Nike, Airwalk, Skechers, and
Timberland. From a base of 118 Journeys stores at the end of Fiscal 1997, the
Company opened 58 net new Journeys stores in Fiscal 1998 and 82 net new stores
in Fiscal 1999 and plans to open approximately 50 net new Journeys stores in
Fiscal 2000.
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Jarman. Jarman accounted for 44% of the Company's Specialty Retail Footwear
sales in Fiscal 1999 with comparable store sales down 9% from the prior fiscal
year. Jarman consists of both stand-alone stores and leased space in larger
department stores. 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 1999, 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 2 net new Jarman stores and leased departments in Fiscal 1999,
increasing the total number of stores and leased departments to 244. As
discussed earlier, the remaining Jarman leased departments closed as of April 3,
1999. See "Significant Developments" in Management's Discussion and Analysis of
Financial Condition and Results of Operations for more information regarding
Jarman lease departments.
General Shoe Warehouse. General Shoe Warehouse stores, located primarily in the
southeast, sell mainly factory damaged, overrun and close-out footwear products.
Comparable store sales for Fiscal 1999 were a breakeven with the prior fiscal
year. The Company opened 4 net new General Shoe Warehouse stores and leased
departments, increasing the total number of stores and leased departments to 16.
Branded Footwear
Pro forma for the Boot Divestiture, the Company's Branded Footwear segment
accounted for approximately 40% of net sales in Fiscal 1999. Pro forma for the
Boot Divestiture, the Company's net sales attributable to the Branded Footwear
segment were $214.8 million in Fiscal 1999, an increase of 17.1% from Fiscal
1998. Substantially all of the Company's wholesale Branded Footwear sales are of
Genesco-owned brands for which Genesco has an exclusive footwear license and
approximately 79% of the Company's retail Branded Footwear sales are of
Genesco-owned brands.
At January 30, 1999 the Company operated 156 branded retail stores and leased
departments throughout the United States selling footwear for men and women. The
following table sets forth certain information concerning the Company's retail
Branded Footwear operations:
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RETAIL STORES LEASED DEPARTMENTS
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FEBRUARY 1, JANUARY 31, JANUARY 30, FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999 1997 1998 1999
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Johnston & Murphy 110 120 126 9 7 6
Nautica Retail -- -- -- - 4 24
--- --- --- - -- --
Branded Footwear Total 110 120 126 9 11 30
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The following table sets forth certain additional information concerning the
Company's Branded Footwear retail stores and leased departments during the five
most recent fiscal years:
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FISCAL FISCAL FISCAL FISCAL FISCAL
1995 1996 1997 1998 1999
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Retail Stores and Leased Departments
Beginning of year 110 116 115 119 131
Opened during year 13 7 7 20 35
Closed during year (7) (8) (3) (8) (10)
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End of year 116 115 119 131 156
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The Company's Branded Footwear segment includes the following wholesale and
retail businesses:
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. Johnston &
Murphy's branded footwear accounted for approximately 78% of Johnston & Murphy's
retail sales for Fiscal 1999. Retail prices for Johnston & Murphy footwear
generally range from $135 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 34% of total
Johnston & Murphy retail sales in Fiscal 1999. 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 8%
from the prior fiscal year. At the end of Fiscal 1999, the Company operated 132
Johnston & Murphy stores and leased departments.
Nautica. Genesco acquired the exclusive worldwide license to market Nautica
footwear in 1991. In 1992, the Company introduced a new line of casual footwear
under the Nautica label, targeted at young, active, upper-income consumers, and
designed to complement Nautica sportswear. 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 will introduce new athletic
lines for men and women, Nautica Sport Tech (NST), to replace the Nautica
Competition label in the first quarter of Fiscal 2000. The NST footwear line
will coordinate with the new NST Apparel which is also being introduced in the
Spring of 1999 by Nautica Enterprises. Suggested retail prices of Nautica casual
footwear generally range from $45 to $150, suggested retail prices of Nautica
boys' footwear will generally range from $45 to $60, and suggested retail prices
of NST athletic footwear will generally range from $50 to $90.
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Nautica footwear is sold in department stores, specialty footwear stores and the
Company's 24 Nautica leased departments.
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 one of the most 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 $49 to $79.
Leather
During Fiscal 1999, 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 1999 to military boot
manufacturers and other customers.
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 1999, Genesco manufactured Johnston &
Murphy footwear in one facility in Nashville, Tennessee. The Company believes
that shoes manufactured in the Johnston & Murphy factory will not account for a
significant portion of its unit sales.
MEN'S APPAREL
On November 3, 1994 the Company's board of directors approved a plan to exit the
entire men's apparel segment.
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 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. Sales of Nautica and Dockers products were
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approximately $72 million in Fiscal 1999 and approximately $62 million in Fiscal
1998. The Company licenses certain of its footwear brands, mostly in foreign
markets. License royalty income was not material in Fiscal 1999.
RAW MATERIALS
Genesco is not dependent upon any single source of supply for any major raw
material. In Fiscal 1999 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 27, 1999, the Company's wholesale
operations and leather operations had a backlog of orders, including unconfirmed
customer purchase orders, amounting to approximately $23.7 million, compared to
approximately $31.5 million on March 28, 1998. The backlog is somewhat seasonal,
reaching a peak in spring. Footwear companies maintain in-stock programs for
selected anticipated high volume sales.
EMPLOYEES
Genesco had approximately 3,650 employees at January 30, 1999, approximately
3,565 of whom were employed in footwear and 85 in corporate staff departments.
Retail footwear stores employ a substantial number of part-time employees during
peak selling seasons and approximately 1,400 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 30, 1999 the Company operated 674 (including 78 Jarman Lease
departments that ceased operations in the first quarter of Fiscal 2000) 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 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 five warehousing facilities (two of which are owned and
three of which are leased) aggregating approximately 1,300,000 square feet.
Seven 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 63% of a 295,000 square foot
building.
Leases on the Company's plants, offices, and warehouses expire from 2007 to
2018, not including renewal options. The Company believes that all leases (other
than long-term leases) of properties that are material to its operations may be
renewed on terms not materially less favorable to the Company than existing
leases.
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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 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
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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.
Whitehall Environmental Sampling
The Michigan Department of Environmental Quality ("MDEQ") has performed sampling
and analysis of soil, sediments, surface water, groundwater and waste management
areas at the Company's Volunteer Leather Company facility in Whitehall,
Michigan. In response to the testing data, the Company submitted and MDEQ
approved a work plan, pursuant to which the Company performed a hydrogeological
study and a series of studies regarding wastes on-site and groundwater. On the
basis of these studies, the Company, with the approval of MDEQ, has installed
horizontal wells to capture groundwater from a portion of the site, and will
treat the groundwater either after its use in the manufacturing process or
through an air sparge system and install monitoring wells. Associated operations
and maintenance costs are expected to be in the range of $10,000 to $15,000 per
year. Based on these estimates, the Company does not believe that soil and
groundwater remediation at the site will have a material impact on its financial
condition or results of operations. The proposed plan does not address lake
sediments. Officials of MDEQ have been quoted in press reports as proposing a
$3.5 million lake sediment cleanup with $2.5 million to be funded by responsible
parties, which would presumably include but not be limited to the Company.
Certain remedial alternatives could be more costly. The MDEQ has informally
advised the Company that it intends to begin its own testing of lake sediments
and may implement a remediation strategy which would involve dredging a portion
of the lake. The Company is continuing to study the lake sediment issues, and at
present is unable to predict whether and to what extent it may be required to
participate in a remediation of sediments, or whether its participation, if any,
will have a material effect on its financial condition or results of operations.
Other Legal Proceedings
On August 8, 1997, the trustee in bankruptcy of a Texas boot retailer filed an
action in Texas state court against the Company and an unrelated boot wholesaler
and retail chain alleging violations of a Texas antitrust statute and breach of
contract by the Company. The trustee's allegations against the Company involve
its decision not to consign additional boot inventories to the bankrupt retailer
for its liquidation sale. The complaint seeks damages in an unspecified amount.
The Company has filed an answer denying all material allegations in the
complaint and does not presently expect the action to have a material effect on
its financial condition or results of operations. The Company and the plaintiff
have agreed, subject to bankruptcy court approval, to settle the action for a
payment of $162,500 by the Company.
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 1999.
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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:
DAVID M. CHAMBERLAIN, 55, Chairman. Mr. Chamberlain was elected chairman as of
February 1, 1995. He served as president from October 1994 until October 1996
and as chief executive officer from October 1994 until January 1997. In March
1998, he became president and chief executive officer of L. Kee & Co., a
California based textile importer. Mr. Chamberlain joined Shaklee Corporation, a
manufacturer and marketer of consumer products, in 1983 as president and chief
operating officer, and served as chief executive officer from 1985 until 1993.
He was chairman of Shaklee Corporation from 1989 until May 1994, when he became
a partner in Consumer Focus Partners, a California venture capital firm. He has
been a director of Genesco since 1989. Mr. Chamberlain is also a director of
Wild Oats Markets, Inc., Expressly Portraits Inc., Payless Cashways Inc. and L.
Kee & Co.
BEN T. HARRIS, 55, 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. In 1995, he was named president of Retail Footwear,
which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe
Warehouse. He 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. He was named chief executive officer as of February 1,
1997.
JAMES S. GULMI, 53, 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. He was appointed senior
vice president finance in January 1996.
JAMES W. BOSCAMP, 49, 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 Genesco Retail,
overseeing the Journeys, Jarman and General Shoe Warehouse retail chains in
March 1999. Before joining the Company, Mr. Boscamp was executive vice
president, marketing at Munsingwear.
HAL N. PENNINGTON, 61, Senior Vice President. Mr. Pennington has served in
various roles during his 37 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.
JOHN W. CLINARD, 51, Vice President - Human Resources. Mr. Clinard has served in
various human resources capacities during his 24 year tenure with Genesco. He
was named vice president - human resources in June 1997.
12
<PAGE> 13
ROGER G. SISSON, 35, 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.
MATTHEW N. JOHNSON, 34, 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, he
was a vice president in the corporate and institutional banking division of The
First National Bank of Chicago.
PAUL D. WILLIAMS, 44, 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.
13
<PAGE> 14
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.
<TABLE>
<CAPTION>
Fiscal Year ended January 31 High Low
---- ---
<S> <C> <C> <C>
1998 1st Quarter 12 1/4 8 5/8
2nd Quarter 15 5/16 11
3rd Quarter 15 7/16 11 1/8
4th Quarter 13 7/8 11 1/8
Fiscal Year ended January 30
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
</TABLE>
There were approximately 10,000 common shareholders of record on January 30,
1999.
See Notes 10 and 12 to the Consolidated Financial Statements included in Item 8
for information regarding restrictions on dividends and redemptions of capital
stock.
14
<PAGE> 15
<TABLE>
<CAPTION>
ITEM 6, SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT PER COMMON SHARE DATA, FISCAL YEAR END
----------------------------------------------------------------
FINANCIAL STATISTICS AND OTHER DATA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA
Net sales $ 549,748 $ 536,107 $ 461,348 $ 434,575 $ 462,901
Depreciation and amortization 9,691 8,893 7,747 7,354 9,254
Earnings (loss) before interest and taxes 37,696 17,722 18,873 5,889 (5,802)
Pretax earnings (loss) 31,085 8,860 10,132 (3,756) (17,757)
Earnings (loss) before discontinued operations and
extraordinary loss 54,923 8,820 10,554 (3,781) (18,514)
Discontinued operations 450 -0- (150) 13,852 (62,678)
Loss on early retirement of debt (net of tax) 2,245 169 -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 53,128 $ 8,651 $ 10,404 $ 10,071 $ (81,192)
==========================================================================================================================
PER COMMON SHARE DATA
Earnings (loss) before discontinued operations and
extraordinary loss
Basic $ 2.15 $ .33 $ .42 $ (.17) $ (.77)
Diluted 1.89 .32 .40 (.17) (.77)
Discontinued operations
Basic .02 .00 (.01) .57 (2.58)
Diluted .01 .00 (.01) .57 (2.58)
Extraordinary loss
Basic (.10) .00 .00 .00 .00
Diluted (.07) (.01) .00 .00 .00
Net earnings (loss)
Basic 2.07 .33 .41 .40 (3.35)
Diluted 1.83 .31 .39 .40 (3.35)
==========================================================================================================================
BALANCE SHEET DATA
Total assets $ 307,198 $ 246,817 $ 221,654 $ 197,806 $ 243,878
Long-term debt 103,500 75,000 75,000 75,000 75,000
Capital leases 36 279 1,485 2,697 12,400
Non-redeemable preferred stock 7,918 7,945 7,944 7,958 7,943
Common shareholders' equity 108,661 64,019 45,846 25,947 21,450
Additions to plant, equipment and capital leases 23,512 24,725 14,640 8,564 5,750
==========================================================================================================================
FINANCIAL STATISTICS
Earnings (loss) before interest and taxes as a percent
of net sales 6.9% 3.3% 4.1% 1.4% (1.3)%
Book value per share $ 4.56 $ 2.43 $ 1.82 $ 1.04 $ .87
Working capital $ 155,778 $ 119,313 $ 108,795 $ 108,135 $ 100,731
Current ratio 3.1 2.6 2.6 3.2 2.2
Percent long-term debt to total capitalization 47.0% 51.1% 58.7% 69.6% 74.8%
==========================================================================================================================
OTHER DATA (END OF YEAR)
Number of retail outlets 674* 587 504 463 498
Number of employees 3,650 4,300 4,050 3,750 5,400
==========================================================================================================================
</TABLE>
*Includes 78 Jarman lease departments which were divested during the first
quarter of Fiscal 2000.
Reflected in the earnings for Fiscal 1999 was a tax benefit of $23.8 million.
See Note 13 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.
Reflected in the loss for Fiscal 1995 was a restructuring charge of $22.1
million. See Note 2 to the Consolidated Financial Statements for additional
information regarding these charges.
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 12
to the Consolidated Financial Statements for a description of limitations on the
Company's ability to pay dividends.
15
<PAGE> 16
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 the 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. 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 17 to the Consolidated Financial Statements, the
solvency of the wholesale customers of the Company and the ability to deal with
changes in markets for the Company's products. 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
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, net of tax, of $2.2 million; 2)
$1.3 million of the proceeds to pay dividends in arrears because of certain
convenants in the indenture relating to the senior notes, and 3) the remaining
proceeds for general corporate purposes. See Note 10 to the Company's
Consolidated Financial Statements.
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
had 78 Jarman leased departments at January 30, 1999. Of those 78 leased
departments, 64 have been transferred to Dillards Inc. and the Company ended
operations of the remaining 14 leased departments on April 3, 1999. Net sales of
the Company's Jarman leased departments' business were approximately $47.4
million, $52.3 million and $47.7 million for Fiscal 1999, 1998 and 1997,
respectively. The operating earnings for the Company's Jarman leased
departments' business were approximately $2.1 million, $4.1 million and $4.1
million for Fiscal 1999, 1998 and 1997, respectively. The Jarman leased
departments had inventory of $9.1 million and total assets of $13.0 million at
January 30, 1999.
16
<PAGE> 17
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 for a
workforce reduction of 66 positions, of which 12 positions were eliminated by
January 30, 1999. Twenty-six of the positions eliminated related to the Jarman
Lease division, with the remainder being primarily employed at corporate
headquarters.
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. The purchases may be made on
the open market or in privately negotiated transactions. As of January 30, 1999,
the Company had repurchased 2.3 million shares at a cost of $12.2 million.
Fiscal 1998 Restructuring, Asset Impairment and Other Charges
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,
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. Net sales of the Company's wholesale western boot
business for Fiscal 1999, 1998 and 1997 were $11.9 million, $45.4 million and
$56.1 million, respectively. The operating losses for the Company's wholesale
western boot business for Fiscal 1999, 1998 and 1997 were $1.4 million, $3.7
million and $2.2 million, respectively.
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. Net
sales of the Company's Boot Factory retail chain for Fiscal 1999, 1998 and 1997
were $4.7 million, $13.9 million and $14.2 million, respectively. The operating
losses for the Company's Boot Factory retail chain for Fiscal 1999 and 1997 were
$0.5 million and $0.8 million, respectively. The operating income for the
Company's Boot Factory retail chain for Fiscal 1998 was $0.2 million. The
Company completed the sale of its western boot business to Texas Boot, Inc. on
July 14, 1998.
Net earnings for the second quarter ended August 1, 1998 reflects a
restructuring gain of $2.4 million primarily from the Boot Divestiture. The $2.4
million 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 position
the Company would have eliminated.
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.
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.
17
<PAGE> 18
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 discussed below 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 in response
to the continued weakness in the western boot market. The asset impairment and
other charges related to excess equipment, including $0.1 million of equipment
covered by operating leases.
Manufacturing Restructuring
The Company approved a plan ("the Manufacturing Restructuring") in the third
quarter of Fiscal 1997 to realign its manufacturing operations as part of an
overall strategy to focus on marketing and global sourcing. The Manufacturing
Restructuring included closing the Company's Hohenwald, Tennessee western boot
plant by July 1997 with the elimination of approximately 190 jobs. In connection
with the adoption of the Manufacturing Restructuring, the Company recorded a
charge to earnings of $1.7 million in Fiscal 1998, including $0.5 million in
asset write-downs of the plant and excess equipment to estimated market value
and $1.2 million of other costs. Included in other costs are employee severance,
facility shutdown and lease costs.
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. Pro forma for the Boot Divestiture including the
western boot retail stores, the Company's net sales increased 11.8% to $533.2
million in Fiscal 1999 from $476.8 million in Fiscal 1998. Gross margin for
Fiscal 1999 increased 9.4% to $243.9 million in Fiscal 1999 from $222.9 million
in Fiscal 1998 and increased as a percentage of net sales from 41.6% in Fiscal
1998 to 44.4% in Fiscal 1999. Selling and administrative expenses in Fiscal 1999
increased 11.3% from Fiscal 1998 and increased as a percentage of net sales from
34.8% in Fiscal 1998 to 37.8% 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 reflects a restructuring gain
of $2.4 million primarily from the Boot Divestiture and $2.3 million of other
non-recurring charges, primarily litigation and severance charges. Pretax
earnings for Fiscal 1998 reflects an $18.0 million restructuring charge incurred
primarily in connection with the Boot Divestiture, $0.9 million of other
non-recurring charges, primarily severance and litigation charges, and a net
gain of $0.3 million in the second quarter 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 $0.2 million ($.01 diluted earnings per share) for the
early retirement of debt.
18
<PAGE> 19
The Fiscal 1999 tax benefit of $23.8 million relates to reversal of valuation
reserves on deferred tax assets in the fourth quarter of Fiscal 1999. The
reversal related to reassessment by the Company of the levels of valuation
allowances. The Company concluded it is 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.
Specialty Retail Footwear
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------- %
1999 1998 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 299,462 $ 264,125 13.4%
Operating income........................................ $ 26,902 $ 29,790 (9.7)%
Operating margin........................................ 9.0% 11.3%
</TABLE>
Primarily due to a 24% increase in average Specialty Retail Footwear stores
operated, net sales from Specialty Retail Footwear operations increased 13.4%
for Fiscal 1999 compared to Fiscal 1998. The average price per pair of shoes
decreased 3% in Fiscal 1999 while unit sales increased 18% during the same
period.
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
Fiscal Year End
Comparable -----------------
Sales Changes 1999 1998
------------- ---- ----
<S> <C> <C> <C>
Journeys................................................. 1% 258 176
Jarman Retail............................................ -7% 166(1) 158
Jarman Lease............................................. -13% 78 84
General Shoe Warehouse................................... -0-% 16 12
---- ----
Total Specialty Retail Footwear...................... -4% 518 430
==== ====
</TABLE>
- -----------------------
(1) Includes seventeen Underground Station stores.
Specialty Retail Footwear operating income for Fiscal 1999 was down 9.7% to
$26.9 million compared to $29.8 million in Fiscal 1998. The decline reflected
increased expenses as a percentage of sales, primarily due to the 24% increase
in average Specialty Retail Footwear stores operated and the decline in
comparable store sales, which resulted in increased occupancy related expenses
and selling salaries.
19
<PAGE> 20
Branded Footwear
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------- %
1999 1998 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 214,829 $ 183,458 17.1%
Operating income........................................ $ 22,186 $ 19,311 14.9%
Operating margin........................................ 10.3% 10.5%
</TABLE>
Branded Footwear net sales increased 17.1% to $214.8 million in Fiscal 1999 from
$183.5 million in Fiscal 1998, reflecting primarily an 8% increase in comparable
store sales for Johnston & Murphy Retail, a 15% increase in average Branded
Footwear retail stores operated and an increase in men's branded wholesale
sales. The store count for Branded Footwear retail operations at the end of
Fiscal 1999 included 132 Johnston & Murphy stores and factory stores and 24
Nautica Retail leased departments compared to 127 Johnston & Murphy stores and
factory stores and four Nautica Retail leased departments at the end of Fiscal
1998. The average price per pair of shoes for Branded Footwear retail increased
2% in Fiscal 1999 and unit sales increased 14% during the same period. Unit
sales for the Branded Footwear wholesale businesses increased 19% in Fiscal 1999
while the average price per pair of shoes decreased 4% for the same period.
Branded Footwear operating income for Fiscal 1999 increased 14.9% from $19.3
million in Fiscal 1998 to $22.2 million in Fiscal 1999, primarily due to
increased sales and increased gross margin as a percentage of sales.
Leather
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------- %
1999 1998 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 18,897 $ 29,218 (35.3)%
Operating income........................................ $ 854 $ 1,511 (43.5)%
Operating margin........................................ 4.5% 5.2%
</TABLE>
Leather net sales decreased 35.3% 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 makes up the bulk of the Company's tanned leather business.
Leather operating income for Fiscal 1999 decreased 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, Non-recurring and Interest Expenses
Corporate and other expenses for Fiscal 1999 were $10.9 million compared to
$30.4 million for Fiscal 1998 (exclusive of a restructuring gain of $2.4 million
and non-recurring charges of $2.3 million, primarily litigation and severance
charges, in Fiscal 1999 and a restructuring charge of $17.7 million and
non-recurring 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.
20
<PAGE> 21
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 borrowings to 5 1/2% on
$103.5 million borrowings. 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.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
The Company's net sales for Fiscal 1998 increased 16.2% to $536.1 million from
$461.3 million in Fiscal 1997. Pro forma for the Boot Divestiture including the
western boot retail stores, the Company's net sales increased 21.9% to $476.8
million in Fiscal 1998 from $391.0 million in Fiscal 1997. Gross margin for
Fiscal 1998 increased 19.2% to $222.9 million in Fiscal 1998 from $187.1 million
in Fiscal 1997 and increased as a percentage of net sales from 40.5% in Fiscal
1997 to 41.6% in Fiscal 1998. Selling and administrative expenses in Fiscal 1998
increased 17.1% from Fiscal 1997 and increased slightly as a percentage of net
sales from 34.6% in Fiscal 1997 to 34.8% in Fiscal 1998.
Earnings before income taxes, discontinued operations and extraordinary loss
("pretax earnings") for Fiscal 1998 were $8.9 million compared to $10.1 million
for Fiscal 1997. Pretax earnings for Fiscal 1998 reflects an $18.0 million
restructuring charge incurred primarily in connection with the Boot Divestiture,
$0.9 million of other non-recurring charges, primarily severance and litigation
charges, and a net gain of $0.3 million in the second quarter related to
restructurings and asset impairments as discussed in detail above. Pretax
earnings for Fiscal 1997 included a $1.7 million Manufacturing Restructuring
charge, a $6.7 million litigation settlement charge and $0.1 million of other
non-recurring charges, primarily severance.
Net earnings in Fiscal 1998 were $8.7 million ($0.31 diluted earnings per share)
compared to $10.4 million ($0.39 diluted earnings per share) for Fiscal 1997. In
addition to the charges to pretax earnings discussed above, Fiscal 1998 net
earnings included an extraordinary charge of $0.2 million ($.01 diluted earnings
per share) for the early retirement of debt. Fiscal 1997 net earnings included a
loss from discontinued operations of $0.2 million ($.01 diluted earnings per
share).
Specialty Retail Footwear
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------- %
1998 1997 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 264,125 $ 205,209 28.7%
Operating income........................................ $ 29,790 $ 21,119 41.1%
Operating margin........................................ 11.3% 10.3%
</TABLE>
Primarily due to a 10% increase in comparable store sales and a 20% increase in
average Specialty Retail Footwear stores operated, net sales from Specialty
Retail Footwear operations increased 28.7% for Fiscal 1998 compared to Fiscal
1997. The average price per pair of shoes remained flat in Fiscal 1998 while
unit sales increased 28% during the same period.
21
<PAGE> 22
The Company's comparable store sales increases and store count for Specialty
Retail Footwear at the end of the periods were as follows:
<TABLE>
<CAPTION>
Store Count
Fiscal Year End
Comparable ---------------
Sales Changes 1998 1997
------------- ---- ----
<S> <C> <C> <C>
Journeys................................................. 15% 176 118
Jarman Retail............................................ 6% 158 143
Jarman Lease............................................. 8% 84 85
General Shoe Warehouse................................... 8% 12 10
---- ----
Total Specialty Retail Footwear...................... 10% 430 356
==== ====
</TABLE>
Specialty Retail Footwear operating income for Fiscal 1998 was up 41.1% to $29.8
million compared to $21.1 million in Fiscal 1997. The increase reflects
increased sales both due to store openings and strong comparable store sales
increases and the lower expenses as a percentage of sales.
Branded Footwear
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------- %
1998 1997 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 183,458 $ 151,041 21.5%
Operating income........................................ $ 19,311 $ 15,732 22.7%
Operating margin........................................ 10.5% 10.4%
</TABLE>
Branded Footwear net sales increased 21.5% to $183.5 million in Fiscal 1998 from
$151.0 million in Fiscal 1997, reflecting primarily a 13% increase in comparable
store sales for Johnston & Murphy Retail, a 9% increase in average Branded
Footwear retail stores operated and an increase in men's branded wholesale
sales. The store count for Branded Footwear retail operations at the end of
Fiscal 1998 included 127 Johnston & Murphy stores and factory stores and four
Nautica Retail lease departments compared to 119 Johnston & Murphy stores and
factory stores at the end of Fiscal 1997. The average price per pair of shoes
for Branded Footwear retail decreased 1% in Fiscal 1998 while unit sales
increased 20% during the same period. Unit sales for the Branded Footwear
wholesale businesses increased 28% in Fiscal 1998 while the average price per
pair of shoes decreased 4% for the same period. The increase in Branded Footwear
wholesale sales in Fiscal 1998 included sales of new products introduced by the
Company's Nautica division.
Branded Footwear operating income for Fiscal 1998 increased 22.7% from $15.7
million in Fiscal 1997 to $19.3 million in Fiscal 1998, primarily due to
increased sales and increased gross margin as a percentage of sales.
22
<PAGE> 23
Leather
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------- %
1998 1997 Change
---- ---- ------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................... $ 29,218 $ 34,783 (16.0)%
Operating income........................................ $ 1,511 $ 2,841 (46.8)%
Operating margin....................................... 5.2% 8.2%
</TABLE>
Leather net sales decreased 16.0% to $29.2 million in Fiscal 1998 from $34.8
million in Fiscal 1997, primarily due to lower orders from military footwear
suppliers, which were impacted by a decrease in demand for leather military
footwear, which makes up the bulk of the Company's tanned leather business.
Leather operating income for Fiscal 1998 decreased from $2.8 million in Fiscal
1997 to $1.5 million in Fiscal 1998, primarily due to lower sales and lower
gross margin as a percentage of sales.
Corporate, Non-recurring and Interest Expenses
Corporate and other expenses for Fiscal 1998 were $30.4 million compared to
$17.9 million for Fiscal 1997 (exclusive of a restructuring charge of $17.7
million and non-recurring charges of $0.9 million, primarily litigation and
severance charges, in Fiscal 1998 and a restructuring charge of $1.7 million, a
litigation settlement of $6.7 million and non-recurring charges of $0.1 million,
primarily severance, in Fiscal 1997), an increase of 26.0%. The increase in
corporate expenses in Fiscal 1998 is attributable primarily to increased
compensation expense, including performance-related stock based compensation and
increased bonus accruals based on the Company's increased earnings before
restructuring and other charges.
Interest expense decreased 1% from $10.3 million in Fiscal 1997 to $10.2 million
in Fiscal 1998, and interest income decreased 15% from $1.5 million in Fiscal
1997 to $1.3 million in Fiscal 1998 due to decreases in average short-term
investments. There were no borrowings under the Company's revolving credit
facility during either Fiscal 1998 or Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
<TABLE>
<CAPTION>
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
-------- -------- -------
(dollars in millions)
<S> <C> <C> <C>
Cash and short-term investments.............................................. $ 58.7 $ 49.3 $ 43.4
Working capital.............................................................. $ 155.8 $ 119.3 $ 108.8
Long-term debt (includes current maturities)................................. $ 103.5 $ 75.0 $ 75.0
Current ratio................................................................ 3.1x 2.6x 2.6x
</TABLE>
23
<PAGE> 24
On April 9, 1998, the Company issued $103.5 million in principal amount of 5
1/2% Convertible Subordinated Notes due 2005. On May 8, 1998, using a portion of
the proceeds of the sale of the Convertible Subordinated Notes, the Company
redeemed $75 million in principal amount of its 10 3/8% Senior Notes due 2003,
at 102.96% of their face value.
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 $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. Cash provided by operating activities was $26.9 million in Fiscal 1998
compared to $22.4 million in Fiscal 1997. The $4.5 million increase in cash flow
from operating activities for Fiscal 1998 compared to Fiscal 1997 reflects a
$3.2 million pension contribution that was deferred until February 1998 and
improved earnings before restructuring charges.
The $12.3 million increase in inventories at January 30, 1999 from January 31,
1998 levels reflects planned increases in retail inventory to support the net
increase of 87 stores in Fiscal 1999 and increases in men's branded wholesale
inventory to support growth in certain of the wholesale businesses. The $22.5
million increase in inventories at January 31, 1998 reflects planned increases
in retail inventory to support the net increase of 83 stores in Fiscal 1998 and
increases in men's branded wholesale inventory to support growth in those
businesses and lower than anticipated sales in certain product styles.
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.
Accounts receivable at January 31, 1998 decreased $3.9 million compared to
February 1, 1997, primarily due to a $4.0 million litigation settlement included
in the February 1, 1997 accounts receivable balance.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Accounts payable........................................... $ (634) $ 11,209 $ 10,625
Accrued liabilities........................................ (3,107) (2,456) (1,665)
-------- -------- ---------
$ (3,741) $ 8,753 $ 8,960
======== ======== =========
</TABLE>
The fluctuations in accounts payable for Fiscal 1999 from Fiscal 1998 and for
Fiscal 1998 from Fiscal 1997 are due to changes in buying patterns, payment
terms negotiated with individual vendors and changes in inventory levels.
24
<PAGE> 25
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. The
change in accrued liabilities in Fiscal 1998 was due primarily to payment of a
litigation settlement. The change in accrued liabilities in Fiscal 1997 was due
primarily to payment of bonuses and to payment of severance costs and
liabilities related to the restructurings.
There were no revolving credit borrowings during Fiscal 1999, 1998 and 1997, as
cash generated from operations, the Boot Divestiture and cash on hand funded
seasonal working capital requirements and capital expenditures. On September 24,
1997, the Company entered into a revolving credit agreement with three banks
providing for loans or letters of credit of up to $65 million. The agreement, as
amended, expires September 24, 2002.
Capital Expenditures
Capital expenditures were $23.5 million, $24.7 million and $14.6 million for
Fiscal 1999, 1998 and 1997, respectively. 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. The $10.1 million increase in Fiscal 1998 capital
expenditures as compared to Fiscal 1997 resulted primarily from the net increase
of 83 new retail stores in Fiscal 1998 as well as $4.2 million of capital
expenditures connected with new system initiatives related to the year 2000.
Total capital expenditures in Fiscal 2000 are expected to be approximately $25.6
million. These include expected retail expenditures of $17.3 million to open
approximately 50 Journeys stores, 21 Johnston & Murphy stores and factory
stores, seven Jarman Retail stores and five Nautica Retail leased departments
and to complete 32 major store renovations. Capital expenditures for wholesale
and manufacturing operations and other purposes are expected to be approximately
$8.3 million, including approximately $4.8 million for new 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.
25
<PAGE> 26
The Company plans to complete its Year 2000 project no later than October 31,
1999. The Company has completed the remediation, including final testing, of
approximately 77% of its identified 2.0 million lines of code in its legacy
systems. 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. The Company
will fully remediate the existing retail systems if certain hurdles in the
installation of its new retail systems are not met by July 31, 1999. The
Company's existing staffing plan would allow the completion of this contingency
plan by the end of October 1999.
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 $20.0 million and is being funded through operating cash flows and cash on
hand. Of the total project cost, approximately $12.5 million is attributable to
the purchase of new software and hardware which has been or will be capitalized.
The remaining $8.0 million has been or will be expensed, including projected
costs of $2.3 million for Fiscal 2000. Cumulative to date expenditures through
Fiscal 1999 are $5.3 million plus cumulative capital expenditures of $9.3
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. The Company is presently developing contingency plans to
determine what actions the Company will take if its trading partners are not
Year 2000 compliant. The Company expects such contingency plans to be completed
by the end of July 1999.
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.
26
<PAGE> 27
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 17 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 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. The approximately $3.9 million of costs associated with the prior
restructurings and the Boot Divestiture 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 4.8
million shares of the Company's common stock. These purchases will be funded
from available cash. During the third and fourth quarters of Fiscal 1999, the
Company repurchased 2.3 million shares at a cost of $12.2 million.
There were $11.1 million of letters of credit outstanding under the revolving
credit agreement at January 30, 1999, leaving availability under the revolving
credit agreement of $53.9 million.
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At January 30, 1999, $48.0 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.
MARKET RISK
The following discusses the Company's exposure to market risk related to changes
in interest rates and foreign currency exchange rates.
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 $72.9 million at January 30, 1999
based on dealer quotes.
27
<PAGE> 28
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 30, 1999. As a result, the interest
rate market risk implicit in these investments at January 30, 1999, 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. Any gains or
losses from such transactions offset gains and losses from the underlying hedged
transactions. At January 30, 1999, the Company had $21.2 million of foreign
exchange contracts for Italian lira. As of January 30, 1999, a 10% adverse
change in foreign currency exchange rates from market rates would decrease the
fair value of the contracts by approximately $1.9 million.
Summary - Based on the Company's overall market interest rate and foreign
currency rate exposure at January 30,1999, 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 would not be material.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
CHANGES IN ACCOUNTING PRINCIPLES
The Company implemented Statement of Financial Accounting Standards (SFAS) 128,
"Earnings per Share" in the fourth quarter of Fiscal 1998. This statement
simplifies the computation of earnings per share (EPS) and requires the
disclosure of basic and diluted earnings per share. Under SFAS 128, primary EPS
is replaced by "Basic" EPS, which 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" EPS, which is computed similarly to
fully diluted EPS, reflects the potential dilution that could occur if
securities to issue common stock were exercised or converted to common stock.
The Company has restated all prior period EPS information. For additional
information, see Note 15 to the Company's Consolidated Financial Statements.
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. The adoption of this statement had no
impact on the Company's net income or shareholders' equity for Fiscal years
1999, 1998 or 1997.
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. For additional information, see Note 18 to
the Company's Consolidated Financial Statements.
28
<PAGE> 29
The Company implemented Statement of Financial Accounting Standards (SFAS) 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" in the
fourth quarter of Fiscal 1999. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful. The
Company has restated all prior period information. For additional information,
see Note 14 to the Company's Consolidated Financial Statements.
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. 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.
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.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 31
Consolidated Balance Sheet, January 30, 1999 and January 31, 1998 32
Consolidated Earnings, each of the three fiscal years ended 1999, 1998 and 1997 33
Consolidated Cash Flows, each of the three fiscal years ended
1999, 1998 and 1997 34
Consolidated Shareholders' Equity, each of the three fiscal years ended
1999, 1998 and 1997 35
Notes to Consolidated Financial Statements 36
</TABLE>
30
<PAGE> 31
February 24, 1999
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 72, presents fairly, in all material respects,
the financial position of Genesco Inc. and its subsidiaries (the "Company") at
January 30, 1999 and January 31, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 30,
1999, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14 on page 72 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 generally accepted auditing standards 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
31
<PAGE> 32
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
- ----------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 58,743 $ 49,276
Accounts receivable 26,258 20,339
Inventories 117,213 102,042
Deferred income taxes 19,327 -0-
Other current assets 6,719 5,802
Current assets of operations to be divested -0- 17,105
- ----------------------------------------------------------------------------------------------
Total current assets 228,260 194,564
- ----------------------------------------------------------------------------------------------
Plant, equipment and capital leases 58,387 44,810
Deferred income taxes 10,370 935
Other noncurrent assets 10,181 5,688
Noncurrent assets of operations to be divested -0- 820
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 307,198 $ 246,817
==============================================================================================
- ----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 70,606 $ 72,234
Provision for discontinued operations 1,876 3,017
- ----------------------------------------------------------------------------------------------
Total current liabilities 72,482 75,251
- ----------------------------------------------------------------------------------------------
Long-term debt 103,500 75,000
Other long-term liabilities 6,446 14,258
Provision for discontinued operations 8,191 10,344
- ----------------------------------------------------------------------------------------------
Total liabilities 190,619 174,853
- ----------------------------------------------------------------------------------------------
Contingent liabilities (see Note 17)
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,918 7,945
Common shareholders' equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued: 1999 - 24,327,109; 1998 - 26,264,109 24,327 26,264
Additional paid-in capital 126,095 132,218
Accumulated deficit (23,904) (75,456)
Accumulated other comprehensive income -0- (1,150)
Treasury shares, at cost (17,857) (17,857)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 116,579 71,964
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 307,198 $ 246,817
==============================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
32
<PAGE> 33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands, except per share amounts
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FISCAL YEAR
------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 549,748 $ 536,107 $ 461,348
Cost of sales 305,869 313,198 274,273
Selling and administrative expenses 207,840 186,819 159,518
Restructuring and other charges, net (2,403) 17,706 1,693
- ----------------------------------------------------------------------------------------------------------------------
Earnings from operations before
other income and expenses 38,442 18,384 25,864
- ----------------------------------------------------------------------------------------------------------------------
Other expenses (income):
Interest expense 9,250 10,174 10,289
Interest income (2,639) (1,312) (1,548)
Litigation settlement -0- -0- 6,700
Other expenses 746 662 291
- ----------------------------------------------------------------------------------------------------------------------
Total other (income) expenses, net 7,357 9,524 15,732
- ----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, discontinued operations
and extraordinary loss 31,085 8,860 10,132
Income taxes (benefit) (23,838) 40 (422)
- ----------------------------------------------------------------------------------------------------------------------
Earnings before discontinued operations and
extraordinary loss 54,923 8,820 10,554
Excess provision (provision for) discontinued operations, net 450 -0- (150)
- ----------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary loss 55,373 8,820 10,404
Extraordinary loss from early retirement of debt, net (2,245) (169) -0-
- ----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 53,128 $ 8,651 $ 10,404
======================================================================================================================
Basic earnings (loss) per common share:
Before discontinued operations and extraordinary loss $ 2.15 $ .33 $ .42
Discontinued operations $ .02 $ .00 $ (.01)
Extraordinary loss $ (.10) $ .00 $ .00
Net earnings $ 2.07 $ .33 $ .41
Diluted earnings (loss) per common share:
Before discontinued operations and extraordinary loss $ 1.89 $ .32 $ .40
Discontinued operations $ .01 $ .00 $ (.01)
Extraordinary loss $ (.07) $ (.01) $ .00
Net earnings $ 1.83 $ .31 $ .39
======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
33
<PAGE> 34
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR
--------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net earnings $ 53,128 $ 8,651 $ 10,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 9,691 8,893 7,747
Deferred income taxes (28,762) (520) (415)
Provision for losses on accounts receivable 447 969 2,060
Impairment of long-lived assets and other charges -0- 831 -0-
Loss on retirement of debt 3,651 169 -0-
Restructuring charge (gain) (2,403) 16,875 1,693
(Excess) provision for loss on discontinued operations (731) -0- 150
Litigation settlement -0- -0- 6,700
Other 2,344 1,328 699
Effect on cash of changes in working capital and other assets and liabilities:
Accounts receivable (2,814) 3,935 (314)
Inventories (12,284) (22,487) (10,954)
Other current assets (913) (1,437) (192)
Accounts payable and accrued liabilities (3,741) 8,753 8,960
Other assets and liabilities (10,082) 912 (4,136)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,531 26,872 22,402
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (23,512) (24,725) (14,631)
Proceeds from businesses divested and asset sales 14,115 193 76
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,397) (24,532) (14,555)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments of long-term debt (77,220) -0- -0-
Payments on capital leases (243) (1,206) (1,220)
Stock repurchases (12,232) -0- -0-
Long-term borrowings 103,500 -0- -0-
Dividends paid (1,502) -0- -0-
Exercise of options and related income tax benefits 4,056 3,874 1,202
Deferred note expense (3,970) -0- -0-
Other (1,056) 893 (4)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11,333 3,561 (22)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW 9,467 5,901 7,825
Cash and short-term investments at beginning of year 49,276 43,375 35,550
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 58,743 $ 49,276 $ 43,375
=================================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 11,112 $ 9,594 $ 9,887
Income taxes 23 375 (42)
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
34
<PAGE> 35
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, 1996 $ 7,958 $24,844 $121,715 $(17,857) $(94,511) $(8,244)
==============================================================================================================================
Net earnings -0- -0- -0- -0- 10,404 -0-
Exercise of options -0- 187 455 -0- -0- -0-
Issue shares - Employee Stock Purchase Plan -0- 161 399 -0- -0- -0-
Minimum pension liability adjustment -0- -0- -0- -0- -0- 8,244
Other (14) 3 46 -0- -0- -0-
Comprehensive Income
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE FEBRUARY 1, 1997 7,944 $25,195 $122,615 $(17,857) $(84,107) $ -0-
==============================================================================================================================
Net earnings -0- -0- -0- -0- 8,651 -0-
Exercise of options -0- 458 2,809 -0- -0- -0-
Issue shares - Employee Stock Purchase Plan -0- 70 496 -0- -0- -0-
Issue shares - litigation settlement -0- 525 6,175 -0- -0- -0-
Tax effect of exercise of stock options -0- -0- 42 -0- -0- -0-
Minimum pension liability adjustment -0- -0- -0- -0- -0- (1,150)
Other 1 16 81 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
- ------------------------------------------------------------------------------------------------------------------------------
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-
==============================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------
Total
Share-
Comprehensive holders'
Income Equity
- ---------------------------------------------------------------------------
<S> <C> <C>
BALANCE JANUARY 31, 1996 $ $ 33,905
===========================================================================
Net earnings 10,404 10,404
Exercise of options -0- 642
Issue shares - Employee Stock Purchase Plan -0- 560
Minimum pension liability adjustment 8,244 8,244
Other -0- 35
-------
Comprehensive Income $18,648
- ---------------------------------------------------------------------------
BALANCE FEBRUARY 1, 1997 $ 53,790
===========================================================================
Net earnings 8,651 8,651
Exercise of options -0- 3,267
Issue shares - Employee Stock Purchase Plan -0- 566
Issue shares - litigation settlement -0- 6,700
Tax effect of exercise of stock options -0- 42
Minimum pension liability adjustment (1,150) (1,150)
Other -0- 98
-------
Comprehensive Income $ 7,501
- ---------------------------------------------------------------------------
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
=========================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
35
<PAGE> 36
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 January 30, 1999 of 674 Jarman, Journeys, Johnston
& Murphy, General Shoe Warehouse, Underground Station and Nautica retail
footwear stores and leased departments. Because of the acquisition of Mercantile
by Dillards Inc., the Company will end its operation of the Jarman leased
departments. The Company had 78 Jarman leased departments at January 30, 1999.
Of those 78 leased departments, 64 have been transferred to Dillards Inc. and
the Company ended operations of the remaining 14 leased departments on April 3,
1999. The Jarman leased departments' business contributed sales of approximately
$47.4 million, $52.3 million and $47.7 million and operating earnings of $2.1
million, $4.1 million and $4.1 million in Fiscal 1999, 1998 and 1997,
respectively. The Jarman leased departments had inventory of $9.1 million and
total assets of $13.0 million at January 30, 1999.
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.
FISCAL YEAR
For the year ended February 1, 1997 ("Fiscal 1997"), the Company changed its
fiscal year end to the Saturday closest to January 31. As a result, Fiscal 1999
and 1998 had 364 days, while Fiscal 1997 had 367 days. Fiscal Years 1999, 1998,
and 1997 ended on January 30, 1999, January 31, 1998 and February 1, 1997,
respectively.
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 January 31,
1998, are short-term investments of $53.5 million and $45.6 million,
respectively. Short-term investments are highly-liquid debt instruments having
an original maturity of three months or less.
36
<PAGE> 37
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:
<TABLE>
<S> <C>
Buildings and building equipment 20-45 years
Machinery, furniture and fixtures 3-15 years
</TABLE>
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. At January 30, 1999 and
January 31, 1998, the Company had approximately $21.2 million and $15.0 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.
37
<PAGE> 38
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments at
January 30, 1999 and January 31, 1998 are:
<TABLE>
<CAPTION>
FAIR VALUES
- --------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
Long-term Debt $103,500 $72,900 $75,000 $76,900
</TABLE>
Carrying amounts reported on the balance sheet for cash, short-term investments,
receivables and accounts payable approximate fair value due to the short-term
maturity of these instruments.
The fair value of the Company's long-term debt was based on dealer prices on the
respective balance sheet dates.
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.
The Company implemented Statement of Financial Accounting Standards (SFAS) 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" in the
fourth quarter of Fiscal 1999. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful. The
Company has restated all prior period information (see Note 14).
REVENUE RECOGNITION
Retail sales are recorded net of actual returns, and exclude all taxes, while
wholesale revenue is recorded net of 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.
38
<PAGE> 39
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were $19.4
million, $14.4 million and $13.1 million for Fiscal 1999, 1998 and 1997,
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.
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 15).
STOCK-BASED COMPENSATION PLANS
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized other than for
its restricted stock options. (see Note 16).
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. The adoption of this statement had no
impact on the Company's net income or shareholders' equity for Fiscal years
1999, 1998 or 1997.
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 18).
39
<PAGE> 40
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 for a
workforce reduction of 66 positions, of which 12 positions were eliminated by
January 30, 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,
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. Net sales of the Company's wholesale western boot
business for Fiscal 1999, 1998 and 1997 were $11.9 million, $45.4 million and
$56.1 million, respectively. The operating losses for the Company's wholesale
western boot business for Fiscal 1999, 1998 and 1997 were $1.4 million, $3.7
million and $2.2 million, respectively.
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. Net
sales for the Company's Boot Factory retail chain for Fiscal 1999, 1998 and 1997
were $4.7 million, $13.9 million and $14.2 million, respectively. The operating
losses for the Company's Boot Factory retail chain for Fiscal 1999 and 1997 were
$0.5 million and $0.8 million, respectively. The Company's Boot Factory retail
chain had operating income of $0.2 million for Fiscal 1998. The Company
completed the sale of its western boot business to Texas Boot, Inc. on July 14,
1998.
Net earnings for the second quarter ended August 1, 1998 reflects a
restructuring gain of $2.4 million primarily from the Boot Divestiture. The $2.4
million 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 position
the Company would have eliminated.
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.
40
<PAGE> 41
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
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 a 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 in response to the continued
weakness in the western boot market.
41
<PAGE> 42
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 3
ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts receivable $ 23,106 $ 19,947
Miscellaneous receivables 5,430 3,142
- --------------------------------------------------------------------------------
Total receivables 28,536 23,089
Allowance for bad debts (1,075) (988)
Other allowances (1,203) (1,762)
- --------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 26,258 $ 20,339
================================================================================
</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 more than 10% of the Company's trade
receivables balance as of January 30, 1999.
<TABLE>
<CAPTION>
NOTE 4
INVENTORIES
- --------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,969 $ 4,452
Work in process 2,077 2,261
Finished goods 33,949 28,458
Retail merchandise 78,218 66,871
- --------------------------------------------------------------------------------
TOTAL INVENTORIES $117,213 $102,042
================================================================================
</TABLE>
42
<PAGE> 43
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 5
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
- --------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land $ 263 $ 263
Buildings and building equipment 2,729 2,515
Machinery, furniture and fixtures 39,587 34,338
Construction in progress 8,819 6,767
Improvements to leased property 56,790 51,136
Capital leases:
Buildings 200 200
Machinery, furniture and fixtures 4,026 4,777
- --------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 112,414 99,996
Accumulated depreciation and amortization:
Plant and equipment (49,993) (50,519)
Capital leases (4,034) (4,667)
- --------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 58,387 $ 44,810
================================================================================
</TABLE>
43
<PAGE> 44
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 6
ASSETS OF OPERATIONS TO BE DIVESTED
- ------------------------------------------------------------------------------------------
IN THOUSANDS 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance of $3,325 $ 7,684
Inventory 9,421
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 17,105
==========================================================================================
Noncurrent assets:
Plant and equipment 820
- ------------------------------------------------------------------------------------------
TOTAL NONCURRENT ASSETS $ 820
==========================================================================================
NOTE 7
OTHER NONCURRENT ASSETS
- ------------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- ------------------------------------------------------------------------------------------
Other noncurrent assets:
Prepaid pension cost $ 4,728 $ 3,299
Investments and long-term receivables 1,841 733
Deferred note expense 3,612 1,656
- ------------------------------------------------------------------------------------------
TOTAL OTHER NONCURRENT ASSETS $ 10,181 $ 5,688
==========================================================================================
NOTE 8
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- ------------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- ------------------------------------------------------------------------------------------
Trade accounts payable $ 33,305 $ 33,939
Accrued liabilities:
Employee compensation 12,218 14,179
Taxes other than income taxes 4,665 3,826
Rent 3,574 2,953
Income taxes 2,325 436
Insurance 2,121 2,039
Interest 1,778 4,200
Other 10,620 10,662
- ------------------------------------------------------------------------------------------
TOTAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 70,606 $ 72,234
==========================================================================================
</TABLE>
At January 30, 1999, outstanding checks drawn on certain domestic banks
exceeded book cash balances by approximately $7.2 million. These amounts are
included in trade accounts payable.
44
<PAGE> 45
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 9
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
- -----------------------------------------------------------------------------------------------------------
PROVISION FOR DISCONTINUED OPERATIONS
- -----------------------------------------------------------------------------------------------------------
EMPLOYEE
RELATED
IN THOUSANDS COSTS* OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance January 31, 1998 $ 12,036 $ 1,325 $ 13,361
Charges and adjustments, net (2,343) (951) (3,294)
- -----------------------------------------------------------------------------------------------------------
Balance January 30, 1999 9,693 374 10,067
Current portion 1,502 374 1,876
- -----------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 8,191 $ 0 $ 8,191
===========================================================================================================
</TABLE>
*Union pension withdrawal liability.
Charges and adjustments, net includes $731,000 ($450,000 net of tax) of excess
provision for discontinued operations restored to income in the fourth quarter
of Fiscal 1999 from the favorable resolution of an accounts receivable dispute.
<TABLE>
<CAPTION>
RESTRUCTURING RESERVES
- ----------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1998 $ 3,593 $ 1,983 $ 1,532 $ 7,108
Charges and adjustments, net (3,325) (1,028) (547) (4,900)
- ----------------------------------------------------------------------------------------------------------------
Balance January 30, 1999 268 955 985 2,208
Current portion (included in accounts
payable and accrued liabilities) 268 787 985 2,040
- ----------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ 0 $ 168 $ 0 $ 168
================================================================================================================
</TABLE>
45
<PAGE> 46
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 10
LONG-TERM DEBT
- --------------------------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10 3/8% senior notes due February 2003 $ 0 $75,000
5 1/2% convertible subordinated notes due April 2005 103,500 0
- --------------------------------------------------------------------------------------------------------
Total long-term debt 103,500 75,000
Current portion 0 0
- --------------------------------------------------------------------------------------------------------
Total Noncurrent Portion of Long-Term Debt $103,500 $75,000
========================================================================================================
</TABLE>
REVOLVING CREDIT AGREEMENT:
On September 24, 1997, the Company entered into a revolving credit agreement
with three banks providing for loans or letters of credit of up to $65 million
which, as amended, expires September 24, 2002. This agreement replaced a $35
million revolving credit agreement providing for loans or letters of credit.
The replacement of the $35 million revolving credit agreement resulted in an
extraordinary loss of $169,000, recognized in the third quarter of Fiscal 1998.
Outstanding letters of credit at January 30, 1999 were $11.1 million; no loans
were outstanding at that date.
Under the revolving credit agreement, the Company may borrow at the prime rate
or LIBOR plus 1.5% which may be changed if the Company's pricing ratio (as
defined in the credit agreement) changes. Facility fees are 0.425% per annum on
$65.0 million and also varies based on the pricing ratio. The revolving credit
agreement requires the Company to meet certain financial ratios and covenants,
including minimum tangible net worth, fixed charge coverage and debt to equity
ratios. The Company is required by the credit agreement to reduce the
outstanding principal balance of the revolving loans to zero for 30 consecutive
days during each period beginning on December 15 of any fiscal year and ending
on April 15 of the following fiscal year. The revolving credit agreement, as
amended, contains other covenants which restrict the payment of dividends and
other payments with respect to capital stock. In addition, annual capital
expenditures are limited to $30.0 million for Fiscal 1998 and thereafter,
subject to possible carryforwards from the previous year of up to $3.0 million
if less is spent in the current year. The Company was in compliance with the
financial covenants contained in the revolving credit agreement at January 30,
1999.
10 3/8% SENIOR NOTES DUE 2003:
On February 1, 1993, the Company issued $75 million of 10 3/8% senior notes due
February 1, 2003. These notes were redeemed on May 8, 1998, resulting in a $3.7
million extraordinary loss ($2.2 million net of tax) for early retirement of
debt recognized in the second quarter of Fiscal 1999.
46
<PAGE> 47
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
LONG-TERM DEBT, CONTINUED
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2005:
On April 9, 1998, the Company issued $103.5 million of 5 1/2% convertible
subordinated notes due April 15, 2005. The notes are convertible into 47.5172
shares of common stock per $1,000 principal amount of Notes (equivalent to a
conversion price of $21.045 per share of common stock), subject to adjustment.
During the second quarter 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, net of
tax, of $2.2 million, 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.
The indenture pursuant to which the convertible subordinated notes were issued
does not restrict the incurrence of Senior Debt by the Company or other
indebtedness or liabilities by the Company or any of its subsidiaries.
47
<PAGE> 48
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 11
COMMITMENTS UNDER LONG-TERM LEASES
- ------------------------------------------------------------------------------------------
OPERATING LEASES
Rental expense under operating leases of continuing operations was:
- ------------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 30,121 $ 23,398 $ 18,719
Contingent rentals 10,598 11,611 10,270
Sublease rentals (993) (1,039) (1,035)
- ------------------------------------------------------------------------------------------
TOTAL RENTAL EXPENSE $ 39,726 $ 33,970 $ 27,954
==========================================================================================
</TABLE>
Minimum rental commitments payable in future years are:
<TABLE>
<CAPTION>
FISCAL YEARS IN THOUSANDS
- -------------------------------------------------------------------
<S> <C>
2000 $ 32,043
2001 30,103
2002 25,921
2003 23,125
2004 21,698
Later years 87,173
- -------------------------------------------------------------------
TOTAL MINIMUM RENTAL COMMITMENTS $ 220,063
===================================================================
</TABLE>
Most leases provide for the Company to pay real estate taxes and other expenses
and contingent rentals based on sales. Approximately 6% of the Company's leases
contain renewal options.
48
<PAGE> 49
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 12
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
NON-REDEEMABLE PREFERRED STOCK
COMMON
SHARES NUMBER OF SHARES AMOUNTS IN THOUSANDS CONVERTIBLE NO. OF
---------------------- --------------------
CLASS (IN ORDER OF PREFERENCE) AUTHORIZED 1999 1998 1997 1999 1998 1997 RATIO VOTES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subordinated Serial Preferred (Cumulative)
$2.30 Series 1 64,368 37,128 37,128 37,123 $1,485 $1,485 $1,485 .83 1
$4.75 Series 3 40,449 19,369 19,369 19,469 1,937 1,937 1,947 2.11 2
$4.75 Series 4 53,764 16,412 16,412 16,412 1,641 1,641 1,641 1.52 1
Series 6 400,000 0 0 0 0 0 0 100
$1.50 Subordinated Cumulative Preferred 5,000,000 30,017 30,017 30,017 901 901 901
- --------------------------------------------------------------------------------------------------------------------------------
102,926 102,926 103,021 5,964 5,964 5,974
Employees' Subordinated
Convertible Preferred 5,000,000 73,696 80,313 80,313 2,211 2,409 2,409 1.00* 1
- --------------------------------------------------------------------------------------------------------------------------------
Stated Value of Issued Shares 8,175 8,373 8,383
Employees' Preferred Stock Purchase Accounts (257) (428) (439)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-REDEEMABLE PREFERRED STOCK $7,918 $7,945 $7,944
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Also convertible into one share of $1.50 Subordinated Cumulative Preferred
Stock.
<TABLE>
<CAPTION>
PREFERRED STOCK TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EMPLOYEES'
NON-REDEEMABLE PREFERRED TOTAL
NON-REDEEMABLE EMPLOYEES' STOCK NON-REDEEMABLE
PREFERRED PREFERRED PURCHASE PREFERRED
STOCK STOCK ACCOUNTS STOCK
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1996 $ 5,994 $ 2,410 $(446) $ 7,958
Other (20) (1) 7 (14)
- -------------------------------------------------------------------------------------------------------------------------------
Balance February 1, 1997 5,974 2,409 (439) 7,944
- ------------------------------------------------------------------------------------------------------------------------------
Other (10) 0 11 1
- ------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1998 5,964 2,409 (428) 7,945
- ------------------------------------------------------------------------------------------------------------------------------
Other 0 (198) 171 (27)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 30, 1999 $ 5,964 $ 2,211 $(257) $ 7,918
==============================================================================================================================
</TABLE>
SUBORDINATED SERIAL PREFERRED STOCK (CUMULATIVE):
Stated and redemption values for Series 1 are $40 per share and for Series 3
and 4 are each $100 per share; liquidation value for Series 1--$40 per share
plus accumulated dividends and for Series 3 and 4--$100 per share plus
accumulated dividends.
49
<PAGE> 50
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
The Company's shareholders' rights plan grants to common shareholders the right
to purchase, at a specified exercise price, a fraction of a share of
subordinated serial preferred stock, Series 6, in the event of an acquisition
of, or an announced tender offer for, 10% or more of the Company's outstanding
common stock. Upon any such event, each right also entitles the holder (other
than the person making such acquisition or tender offer) to purchase, at the
exercise price, shares of common stock having a market value of twice the
exercise price. In the event the Company is acquired in a transaction in which
the Company is not the surviving corporation, each right would entitle its
holder to purchase, at the exercise price, shares of the acquiring company
having a market value of twice the exercise price. The rights expire in
September 2000, are redeemable under certain circumstances for $.01 per right
and are subject to exchange for one share of common stock or an equivalent
amount of preferred stock at any time after the event which makes the rights
exercisable and before a majority of the Company's common stock is acquired.
$1.50 SUBORDINATED CUMULATIVE PREFERRED STOCK:
Stated and liquidation values and redemption price--$30 per share.
EMPLOYEES' SUBORDINATED CONVERTIBLE PREFERRED STOCK:
Stated and liquidation values--$30 per share.
COMMON STOCK:
Common stock-$1 par value. Authorized: 80,000,000 shares; issued: January 30,
1999--24,327,109 shares; January 31, 1998--26,264,109 shares. There were
488,464 shares held in treasury at January 30, 1999 and January 31, 1998 not
considering the shares repurchased in Fiscal 1999. Each outstanding share is
entitled to one vote. At January 30, 1999, common shares were reserved as
follows: 170,277 shares for conversion of preferred stock; 847,039 shares for
the 1987 Stock Option Plan; 2,131,625 shares for the 1996 Stock Option Plan;
133,333 shares for executive stock options; 79,935 shares for the Restricted
Stock Plan for Directors; and 580,061 shares for the Genesco Employee Stock
Purchase Plan.
For the year ended January 30, 1999, 403,343 shares of common stock were issued
for the exercise of stock options and 2,457 shares were issued as part of the
Directors Restricted Stock Plan. In addition, the Company repurchased 2,342,800
shares of common stock. An additional 2,457,200 shares may be repurchased under
stock buy back programs announced in August 1998 and January 1999.
For the year ended January 31, 1998, 527,906 shares of common stock were issued
for the exercise of stock options and 16,204 shares were issued as part of the
Directors Restricted Stock Plan. In addition, 525,495 shares were issued in
connection with a $6.7 million litigation settlement reflected in the Fiscal
1997 income statement.
RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS OF CAPITAL STOCK:
The Company's charter provides that no dividends may be paid and no shares of
capital stock acquired for value if there are dividend or redemption arrearages
on any senior or equally ranked stock. Exchanges of subordinated serial
preferred stock for common stock or other stock junior to such exchanged stock
are permitted.
50
<PAGE> 51
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At January 30, 1999, $48.0
million was available for such payments.
The April 9, 1998 indenture, under which the Company's 5 1/2% convertible
subordinated notes due 2005 were issued, does not restrict the payment of
dividends.
Dividends declared for Fiscal 1999 were as follows:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
(In Thousands)
<S> <C> <C>
Series 1 $ 12.075 $ 448
Series 3 $ 24.9375 483
Series 4 $ 24.9375 409
$1.50 Subordinated
Cumulative Preferred $ 7.875 236
------------
Total $ 1,576
</TABLE>
Fiscal 1999 dividends declared include $1.3 million in cumulative dividend
arrearages from the fourth quarter of Fiscal 1994 through the first quarter of
Fiscal 1999.
51
<PAGE> 52
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
- -------------------------------------------------------------------------------------------------------------------
CHANGES IN THE SHARES OF THE COMPANY'S CAPITAL STOCK
- -------------------------------------------------------------------------------------------------------------------
NON-
REDEEMABLE EMPLOYEES'
COMMON PREFERRED PREFERRED
STOCK STOCK STOCK
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued at January 31, 1996 24,844,036 103,294 80,313
- -------------------------------------------------------------------------------------------------------------------
Exercise of options 186,712 0 0
Issue shares - Employee Stock Purchase Plan 161,329 0 0
Other 2,427 (273) 0
- -------------------------------------------------------------------------------------------------------------------
Issued at February 1, 1997 25,194,504 103,021 80,313
Exercise of options 457,848 0 0
Issue shares - Employee Stock Purchase Plan 70,058 0 0
Issue shares - Litigation Settlement 525,495 0 0
Other 16,204 (95) 0
- -------------------------------------------------------------------------------------------------------------------
Issued at January 31, 1998 26,264,109 102,926 80,313
Exercise of options 296,543 0 0
Issue shares - Employee Stock Purchase Plan 106,800 0 0
Stock Repurchase (2,342,800) 0 0
Other 2,457 0 (6,617)
- -------------------------------------------------------------------------------------------------------------------
Issued at January 30, 1999 24,327,109 102,926 73,696
Less treasury shares 488,464 0 0
- -------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JANUARY 30, 1999 23,838,645 102,926 73,696
===================================================================================================================
</TABLE>
52
<PAGE> 53
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
INCOME TAXES
- --------------------------------------------------------------------------------
Income tax expense (benefit) from continuing operations is comprised of the
following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
U.S. federal $ 1,789 $ 505 $ (70)
Foreign 76 55 41
State 47 0 22
Deferred
U.S. federal (22,335) (505) (415)
Foreign (237) (15) 0
State (3,178) 0 0
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE (BENEFIT) $ (23,838) $ 40 $ (422)
===============================================================================================================
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
JANUARY 30, JANUARY 31,
IN THOUSANDS 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pensions $ (1,896) $ (947)
Other 0 (164)
- ---------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (1,896) (1,111)
- ---------------------------------------------------------------------------------------------------------
Net operating loss carryforwards 7,715 8,967
Net capital loss carryforwards 7,826 7,900
Provisions for discontinued operations
and restructurings 5,073 13,352
Inventory valuation 2,090 1,873
Expense accruals 5,116 5,497
Allowances for bad debts and notes 703 1,695
Uniform capitalization costs 2,131 2,463
Depreciation 4,355 4,641
Pensions 0 0
Leases 17 28
Other 2,089 1,160
Tax credit carryforwards 2,743 2,809
- ---------------------------------------------------------------------------------------------------------
Gross deferred tax assets 39,858 50,385
- ---------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance (8,265) (48,339)
- ---------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 29,697 $ 935
=========================================================================================================
</TABLE>
53
<PAGE> 54
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
INCOME TAXES, CONTINUED
The Company has net operating loss carryforwards available to offset future U.S.
taxable income of approximately $21 million expiring in 2011. The Company also
has capital loss carryforwards available to offset future U.S. capital gains of
approximately $20 million expiring in 2001.
The Company establishes valuation allowances in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and is recognizing
these benefits only as the Company believes that it is more likely than not
that the benefits will be realized.
The Company previously limited the recognition of deferred tax assets to an
amount no greater than the amount of tax refunds the Company could claim as
loss carrybacks. In the fourth quarter of Fiscal 1999, due to increased levels
of profitability, future income projections and the substantial removal of
uncertainties surrounding the Company's divestitures, the valuation allowance
was reduced by a net $40.0 million. The Company's remaining valuation allowance
relates primarily to the net capital loss carryforwards.
Reconciliation of the United States federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. federal statutory rate of tax 34.00% 34.00% 34.00%
State taxes (net of federal tax benefit) 4.50 4.50 4.50
Release of deferred tax valuation allowance (115.38) (38.50) (38.50)
Other .19 0 (2.9)
- --------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE (76.69)% 0 (2.9)%
========================================================================================================
</TABLE>
54
<PAGE> 55
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors a non-contributory, defined benefit pension plan.
Effective January 1, 1996, the Company amended the plan to change the pension
benefit formula to a cash balance formula from the existing benefit calculation
based upon years of service and final average pay. The benefits accrued under
the old formula were frozen as of December 31, 1995. Upon retirement, the
participant will receive this accrued benefit payable as an annuity. In
addition, the participant will receive as a lump sum (or annuity if desired)
the amount credited to their cash balance account under the new formula.
Under the amended plan, beginning January 1, 1996, the Company credits each
participants' account annually with an amount equal to 4% of the participant's
compensation plus 4% of the participant's compensation in excess of the Social
Security taxable wage base. Beginning December 31, 1996 and annually
thereafter, the account balance of each active participant will be credited
with 7% interest calculated on the sum of the balance as of the beginning of
the plan year and 50% of the amounts credited to the account, other than
interest, for the plan year. The account balance of each participant who is
inactive will be credited with interest at the lesser of 7% or the 30 year
Treasury interest rate.
The Company provides health care benefits for early retirees and life insurance
benefits for certain retirees not covered by collective bargaining agreements.
Under the health care plan, early retirees are eligible for limited benefits
until age 65. Employees who meet certain requirements are eligible for life
insurance benefits upon retirement. The Company accrues such benefits during
the period in which the employee renders service.
55
<PAGE> 56
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED
ASSETS AND OBLIGATIONS
The following table sets forth the change in benefit obligation for the
respective fiscal year:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
----------------------- ---------------------
IN THOUSANDS 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 97,530 $ 91,350 $ 2,653 $ 2,544
Service cost 1,575 1,476 84 78
Interest cost 6,460 6,644 180 180
Plan participants' contributions 0 0 116 129
Curtailment gain 0 (1,354) 0 0
Benefits paid (8,088) (7,031) (304) (332)
Actuarial loss 786 6,445 46 54
- ----------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 98,263 $ 97,530 $ 2,775 $ 2,653
==========================================================================================================
The following table sets forth the change in plan assets for the respective
fiscal year:
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
----------------------- ---------------------
IN THOUSANDS 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 84,848 $ 81,077 $ 0 $ 0
Actual return on plan assets 7,209 10,802 0 0
Employer contributions 8,221 0 188 203
Plan participants' contributions 0 0 116 129
Benefits paid (8,088) (7,031) (304) (332)
- ----------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 92,190 $ 84,848 $ 0 $ 0
==========================================================================================================
</TABLE>
At January 30, 1999 and January 31, 1998, there were no Company related assets
in the plan. The pension plan assets are invested primarily in common stocks,
mutual funds, domestic bond funds and cash equivalent securities.
56
<PAGE> 57
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED
The following table sets forth the funded status of the plans for the
respective fiscal year:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
IN THOUSANDS 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation $(92,166) $(90,748) $(2,775) $(2,654)
Future pay increases (6,097) (6,782) 0 0
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation (98,263) (97,530) (2,775) (2,654)
Assets 92,190 84,848 0 0
- ----------------------------------------------------------------------------------------------------------
Unfunded PBO (6,073) (12,682) (2,775) (2,654)
Transition obligation 2,474 3,299 0 0
Prior service cost (1,195) (1,318) 0 0
Cumulative net (gains)/losses 9,522 9,250 628 645
- ----------------------------------------------------------------------------------------------------------
(Accrued Benefit Liability)/Prepaid Benefit Cost $ 4,728 $ (1,451) $(2,147) $(2,009)
==========================================================================================================
The amounts recognized in the balance sheet consist of:
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
IN THOUSANDS 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 4,728 $ 0 $ 0 $ 0
Accrued benefit liability 0 (5,900) (2,147) (2,009)
Intangible asset 0 3,299 0 0
Accumulated other comprehensive income 0 1,150 0 0
- ----------------------------------------------------------------------------------------------------------
Net amount recognized on balance sheet $ 4,728 $ (1,451) $(2,147) $(2,009)
==========================================================================================================
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets 9.50% 9.50% -- --
Rate of compensation increase 5.00% 5.00% -- --
</TABLE>
The weighted average discount rate used to measure the benefit obligation for
the pension plan decreased from 7.00% to 6.75% from Fiscal 1998 to Fiscal 1999.
The decrease in the rate increased the accumulated benefit obligation by $2.5
million and increased the projected benefit obligation by $2.8 million. The
weighted average discount rate used to measure the benefit obligation for the
pension plan decreased from 7.50% to 7.00% from Fiscal 1997 to Fiscal 1998. The
decrease in the rate increased the accumulated benefit obligation by $4.6
million and increased the projected benefit obligation by $5.4 million.
57
<PAGE> 58
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED
For measurement purposes, an 8.50% increase in the health care cost trend rate
was used for Fiscal 1999. The trend rate is assumed to decrease gradually to
5.0% by Fiscal 2013. The effect on disclosure information of one percentage
point change in the assumed health care cost trend rate for each future year is
shown below.
<TABLE>
<CAPTION>
1% DECREASE 1% INCREASE
(IN THOUSANDS) IN RATES IN RATES
----------- -----------
<S> <C> <C>
Aggregated service and interest cost $ (25) $ 29
Accumulated postretirement benefit obligation $(201) $232
</TABLE>
PENSION EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
----------------------------------- ------------------------
IN THOUSANDS 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,575 $ 1,476 $ 1,490 $ 84 $ 79 $ 83
Interest cost 6,460 6,644 6,437 180 180 175
Expected return on plan assets (7,171) (6,591) (5,904) 0 0 0
Amortization:
Transition obligation 825 983 983 0 0 0
Prior service cost (123) (146) (146) 0 0 0
Losses 476 690 1,257 62 62 0
- ------------------------------------------------------------------------------------------------------
Net amortization 1,178 1,527 2,094 62 62 0
- ------------------------------------------------------------------------------------------------------
Curtailment Loss 0 379 0 0 0 0
- ------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost $ 2,042 $ 3,435 $ 4,117 $326 $321 $258
======================================================================================================
</TABLE>
SECTION 401(K) SAVINGS PLAN
The Company has a Section 401(k) Savings Plan available to employees who have
completed one full year of service and are age 21 or older.
Concurrent with the January 1, 1996 amendment to the pension plan (discussed
previously), the Company amended the 401(k) savings plan to make matching
contributions equal to 50% of each employee's contribution of up to 5% of
salary. Matching funds vest after five years of service with the Company. Years
of service earned prior to the adoption of this change contribute toward the
vesting requirement. The contribution expense to the Company for the matching
program was approximately $1.0 million, $1.0 million and $1.1 million for
Fiscal 1999, 1998 and 1997, respectively.
58
<PAGE> 59
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 15
EARNINGS PER SHARE
- -------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JAN. 30, 1999 JAN. 31, 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
discontinued operations and
extraordinary loss $54,923 $8,820
Less: Preferred stock dividends (300) (300)
- -------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 54,623 25,461 $ 2.15 8,520 25,464 $.33
====== ====
EFFECT OF DILUTIVE SECURITIES
Options 1,042 1,393
5 1/2% convertible subordinated notes 3,124 3,969 0 0
Contingent Options(1) 67 67
Employees' Preferred Stock(2) 78 80
- -------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $57,747 30,617 $ 1.89 $8,520 27,004 $.32
===================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------
FOR THE YEAR ENDED
FEB. 1, 1997
----------------------------------
(IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE
PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before
discontinued operations and
extraordinary loss $10,554
Less: Preferred stock dividends (301)
- ----------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 10,253 24,540 $.42
====
EFFECT OF DILUTIVE SECURITIES
Options 1,098
5 1/2% convertible subordinated notes 0 0
Contingent Options(1) 0
Employees' Preferred Stock(2) 80
- ----------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $10,253 25,718 $.40
============================================================================
</TABLE>
(1) These options are contingent upon service to the Company and the Company's
common stock trading at various prices. See Note 16 to the Consolidated
Financial Statements under "Restricted Stock Options."
(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 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.
Options to purchase 284,000 shares of common stock at $11.00 per share, 157,250
shares of common stock at $12.75 per share and 250,000 shares of common stock
at $6.06 per share were outstanding at the end of Fiscal 1999 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
Options to purchase 194,500 shares of common stock at $12.75 per share and
51,954 shares of common stock at $12.38 per share were outstanding at the end
of Fiscal 1998 but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares.
Options to purchase 100,000 shares of common stock at $9 per share and 344,500
shares of common stock at $11 per share were outstanding at the end of Fiscal
1997 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares.
The weighted shares outstanding reflects the effect of the stock buy back
program of up to 4.8 million shares announced by the Company in August 1998 and
January 1999. The Company repurchased 2.3 million shares as of January 30,
1999.
59
<PAGE> 60
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
STOCK OPTION PLANS
The Company's stock-based compensation plans, as of January 30, 1999, are
described below. The Company applies APB Opinion 25 and related Interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized other than for its restricted stock options. The compensation cost
that has been charged against income for its restricted plans was $1.1 million,
$1.7 million and $1.0 million for Fiscal 1999, 1998 and 1997, respectively. The
compensation cost that has been charged against shareholders' equity for its
directors' restricted stock plan was $89,000, $100,000 and $35,000 for Fiscal
1999, 1998 and 1997, respectively. Had compensation cost for all of the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
methodology prescribed by FAS 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------
(In thousands, except per share amounts) 1999 1998 1997
-------- ------- --------
<S> <C> <C> <C> <C>
Net Income As reported $ 53,128 $ 8,651 $ 10,404
Pro forma $ 52,464 $ 7,954 $ 10,394
Diluted EPS As reported $ 1.83 $ 0.31 $ 0.39
Pro forma $ 1.81 $ 0.28 $ 0.39
Basic EPS As reported $ 2.07 $ 0.33 $ 0.41
Pro forma $ 2.05 $ 0.30 $ 0.41
</TABLE>
FIXED STOCK OPTION PLANS
The Company has three fixed option plans. Under the 1987 Stock Option Plan, the
Company may grant options to its management personnel for up to 2.2 million
shares of common stock. Under the 1996 Stock Incentive Plan, the Company may
grant options to its officers and other key employees of and consultants to the
Company for up to 2.3 million shares of common stock, which excludes 100,000
shares reserved for issuance to outside directors. Under both plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant and an option's maximum term is 10 years. Options granted
under both plans vest 25% at the end of each year with the exception of shares
granted February 20, 1995 which vest 20% at the end of each year.
60
<PAGE> 61
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
STOCK OPTION PLANS, CONTINUED
With regard to the 100,000 shares reserved for issuance to outside directors,
an automatic grant of restricted stock will be given to outside directors on
the date of the annual meeting of shareholders at which an outside director is
first elected and on the date of every third annual meeting of shareholders of
the Company thereafter. The outside director restricted stock shall vest with
respect to one-third of the shares each year. Once the shares have vested, the
director is restricted from selling, transferring, pledging or assigning the
shares for an additional two years. There were no shares issued in Fiscal 1999
and 9,522 shares and 1,993 shares of restricted stock were issued to directors
for Fiscal 1998 and 1997, respectively. An outside director may elect
irrevocably to receive all or a specified portion of his annual retainers for
board membership and any committee chairmanship for the following fiscal year
in a number of shares of restricted stock (the "Retainer Stock"). Shares of the
Retainer Stock shall be granted as of the first business day of the fiscal year
as to which the election is effective, subject to forfeiture to the extent not
earned upon the Outside Director's ceasing to serve as a director or committee
chairman during such fiscal year. Once the shares are earned, the director is
restricted from selling, transferring, pledging or assigning the shares for an
additional four years. There were 4,555 shares and 6,475 shares of Retainer
Stock issued to directors for Fiscal 1999 and 1998, respectively.
Under the 1996 Stock Incentive Plan, shares of restricted stock may be issued
either alone, in addition to or in tandem with other awards granted under the
Plan and/or cash awards made outside the Plan. To encourage stock ownership by
key management employees, the Company instituted a program allowing the chief
executive officer, eight other executive officers and two high-level operating
division employees to elect to receive part or all of their target awards under
the Fiscal 1998 and Fiscal 1997 plans in the form of nonqualified stock
options. The Fiscal 1998 options were granted February 25, 1997 and the Fiscal
1997 options were granted March 15, 1996. As of the grant date, the
participants were permitted to elect to relinquish irrevocably all or a portion
of the target award under the plan in exchange for a ten-year option to
purchase shares of common stock at the closing price of the stock on the grant
date. The option is to become exercisable one year from the date on which
entitlement to the award under the plan for Fiscal 1998 and Fiscal 1997 is
determined by the Company. Compensation cost charged against income for these
options was $0.4 million for Fiscal 1998 and $0.9 million for Fiscal 1997.
The third fixed option plan is the executive stock option plan which granted
200,000 shares to the chief executive officer at the end of Fiscal 1996. The
exercise price of these shares is equal to the market price of the Company's
stock on the date of grant, the maximum term is 10 years and options for
100,000 shares vested after six months and an additional 100,000 shares vested
after one year.
The weighted-average fair value of each option granted in the fixed stock
option plans described above is estimated on the date of grant using the
Black-Scholes option-pricing model -average assumptions used for grants in
Fiscal 1999, 1998 and 1997, respectively: expected volatility of 62, 45 and 50
percent; risk-free interest rates of 5.0, 6.0 and 6.1 percent; and expected
lives of seven, six and six years, respectively.
61
<PAGE> 62
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
STOCK OPTION PLANS, CONTINUED
A summary of the status of the Company's fixed stock option plans as of January
30, 1999, January 31, 1998 and February 1, 1997 and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- --------- ------------------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,528,655 $ 5.88 2,616,171 $ 4.96 1,525,150 $ 3.35
Granted 268,000 6.06 377,370 11.40 1,346,883 6.48
Exercised (229,876) 4.21 (457,848) 5.23 (186,712) 3.44
Forfeited (295,390) 8.29 (7,038) 2.62 (69,150) 3.24
--------- --------- ----------
Outstanding at end of year 2,271,389 5.76 2,528,655 5.88 2,616,171 4.96
========== ========= ==========
Options exercisable at year-end 1,279,034 944,176 970,571
Weighted-average fair value of
options granted during the year $ 4.02 $ 6.48 $ 3.58
</TABLE>
The following table summarizes information about fixed stock options outstanding
at January 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 1/30/99 CONTRACTUAL LIFE EXERCISE PRICE AT 1/30/99 EXERCISE PRICE
--------------- ------------ ---------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
$1.875 - 2.75 567,026 5.8 years $ 2.27 297,026 $ 2.33
3.375 - 5.00 899,008 7.0 4.55 760,133 4.49
5.50 - 7.75 253,000 9.5 6.06 1,500 6.13
9.00 - 12.75 552,355 8.1 11.22 220,375 11.30
----------- ----------
$1.875 - 12.75 2,271,389 7.4 6.11 1,279,034 5.17
=========== ==========
</TABLE>
RESTRICTED STOCK OPTIONS
On January 10, 1997, 200,000 shares of restricted stock were granted to the
chairman of the board under the 1996 Stock Incentive Plan. The stock price at
the date of grant was $9 per share. The restrictions lapsed for one third of the
shares (66,667 shares) on January 31, 1998 and the second one third of the
shares on January 31, 1999. The restrictions would lapse for the last one third
of the shares on January 31, 2000 if (1) the chairman remains on the board of
the Company and serves as chairman or in such other capacity as the board may
request through that date and (2) the Company's common stock trades at or above
$15.00 per share for 20 consecutive trading days during Fiscal 2000.
Compensation cost charged against income for these options was $0.8 million,
$1.3 million and $0.1 million in Fiscal 1999, 1998 and 1997, respectively.
As of the beginning of the first quarter of Fiscal 1999, a three year long term
incentive plan was approved for the president - CEO which covers Fiscal 1999
through Fiscal 2001. The incentive plan provides a maximum of 300,000
performance shares of stock to be awarded based on cumulative revenue growth,
cumulative earnings before income taxes to sales ratio and cumulative assets to
sales ratio. Compensation cost charged against income for these options was $0.4
million in Fiscal 1999.
62
<PAGE> 63
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
STOCK OPTION PLANS, CONTINUED
EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan, the Company is authorized to issue up to
1.0 million shares of common stock to those full-time employees whose total
annual base salary is less than $100,000. Under the terms of the Plan, employees
can choose each year to have up to 15 percent of their annual base earnings
withheld to purchase the Company's common stock. The purchase price of the stock
is 85 percent of the closing market price of the stock on either the exercise
date or the grant date, whichever is less. Approximately 20 percent of eligible
employees participate in the Plan. Under the Plan, the Company sold 106,800
shares, 70,058 shares and 161,329 shares to employees in Fiscal 1999, 1998 and
1997, respectively. Compensation cost is recognized for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for Fiscal 1999, 1998 and 1997, respectively: an
expected life of 1 year for all years; expected volatility of 82, 34 and 52
percent; and risk-free interest rates of 4.6, 5.6 and 5.7 percent. The
weighted-average fair value of those purchase rights granted in Fiscal 1999,
1998 and 1997 was $2.47, $3.78 and $3.26, respectively.
STOCK PURCHASE PLANS
Stock purchase accounts arising out of sales to employees prior to 1972 under
certain employee stock purchase plans amounted to $264,000 and $436,000 at
January 30, 1999 and January 31, 1998, respectively, and were secured at January
30, 1999, by 13,657 employees' preferred shares. Payments on stock purchase
accounts under the stock purchase plans have been indefinitely deferred. No
further sales under these plans are contemplated.
63
<PAGE> 64
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17
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.
64
<PAGE> 65
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17
LEGAL PROCEEDINGS, CONTINUED
Whitehall Environmental Sampling
The Michigan Department of Environmental Quality ("MDEQ") has performed sampling
and analysis of soil, sediments, surface water, groundwater and waste management
areas at the Company's Volunteer Leather Company facility in Whitehall,
Michigan. In response to the testing data, the Company submitted and MDEQ
approved a work plan, pursuant to which the Company performed a hydrogeological
study and a series of studies regarding wastes on-site and groundwater. On the
basis of these studies, the Company, with the approval of MDEQ, has installed
horizontal wells to capture groundwater from a portion of the site, and will
treat the groundwater either after its use in the manufacturing process or
through an air sparge system and install monitoring wells. Associated operations
and maintenance costs are expected to be in the range of $10,000 to $15,000 per
year. Based on these estimates, the Company does not believe that soil and
groundwater remediation at the site will have a material impact on its financial
condition or results of operations. The proposed plan does not address lake
sediments. Officials of MDEQ have been quoted in press reports as proposing a
$3.5 million lake sediment cleanup with $2.5 million to be funded by responsible
parties, which would presumably include but not be limited to the Company.
Certain remedial alternatives could be more costly. The MDEQ has informally
advised the Company that it intends to begin its own testing of lake sediments
and may implement a remediation strategy which would involve dredging a portion
of the lake. The Company is continuing to study the lake sediment issues, and at
present is unable to predict whether and to what extent it may be required to
participate in a remediation of sediments, or whether its participation, if any,
will have a material effect on its financial condition or results of operations.
Other Legal Proceedings
On August 8, 1997, the trustee in bankruptcy of a Texas boot retailer filed an
action in Texas state court against the Company and an unrelated boot wholesaler
and retail chain alleging violations of a Texas antitrust statute and breach of
contract by the Company. The trustee's allegations against the Company involve
its decision not to consign additional boot inventories to the bankrupt retailer
for its liquidation sale. The complaint seeks damages in an unspecified amount.
The Company has filed an answer denying all material allegations in the
complaint and does not presently expect the action to have a material effect on
its financial condition or results of operations. The Company and the plaintiff
have agreed, subject to bankruptcy court approval, to settle the action for a
payment of $162,500 by the Company.
65
<PAGE> 66
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
BUSINESS SEGMENT INFORMATION
The Company has four reportable segments: Specialty Retail Footwear comprised of
Journeys, Jarman and General Shoe Warehouse; Branded Footwear comprised of
Johnston & Murphy retail and wholesale, Dockers and Nautica; 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 the way management organizes the
segments in order to make operating decisions and assess performance along types
of products sold. Specialty retail sells primarily branded products from other
companies while branded footwear sells primarily 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, interest expense, interest income, and
other non-recurring items. Other non-recurring items include severance,
litigation and environmental charges.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SPECIALTY
RETAIL BRANDED WESTERN
FISCAL 1999 FOOTWEAR FOOTWEAR LEATHER BOOT CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $299,462 $220,686 $ 21,433 $ 16,560 $ -0- $558,141
Intercompany sales -0- (5,857) (2,536) -0- -0- (8,393)
- -------------------------------------------------------------------------------------------------------------------------
Net sales 299,462 214,829 18,897 16,560 -0- 549,748
- -------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 26,902 22,186 854 (1,309) (11,007) 37,626
Restructuring (gain)/charge -0- -0- -0- -0- (2,403) (2,403)
Interest expense -0- -0- -0- -0- 9,250 9,250
Interest income -0- -0- -0- -0- 2,639 2,639
Other non-recurring items -0- -0- -0- -0- (2,333) (2,333)
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes,
discontinued operations and
extraordinary loss 26,902 22,186 854 (1,309) (17,548) 31,085
- -------------------------------------------------------------------------------------------------------------------------
Total assets 93,292 88,798 8,759 -0- 116,349 307,198
Depreciation 4,736 2,661 556 336 1,402 9,691
Capital expenditures 13,396 4,444 157 -0- 5,515 23,512
</TABLE>
66
<PAGE> 67
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
BUSINESS SEGMENT INFORMATION, CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SPECIALTY
RETAIL BRANDED WESTERN
FISCAL 1998 FOOTWEAR FOOTWEAR LEATHER BOOT CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $264,125 $189,192 $ 30,781 $ 59,371 $ -0- $543,469
Intercompany sales -0- (5,734) (1,563) (65) -0- (7,362)
- -------------------------------------------------------------------------------------------------------------------------
Net sales 264,125 183,458 29,218 59,306 -0- 536,107
- -------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 29,790 19,311 1,511 (2,521) (11,768) 36,323
Restructuring (gain)/charge -0- -0- -0- -0- 17,706 17,706
Interest expense -0- -0- -0- -0- 10,174 10,174
Interest income -0- -0- -0- -0- 1,312 1,312
Other non-recurring items -0- -0- -0- -0- (895) (895)
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes,
discontinued operations and
extraordinary loss 29,790 19,311 1,511 (2,521) (39,231) 8,860
- -------------------------------------------------------------------------------------------------------------------------
Total assets 75,839 74,814 10,997 17,925 67,242 246,817
Depreciation 3,575 2,469 461 1,097 1,291 8,893
Capital expenditures 12,942 4,487 1,044 398 5,854 24,725
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SPECIALTY
RETAIL BRANDED WESTERN
FISCAL 1997 FOOTWEAR FOOTWEAR LEATHER BOOT CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------
Sales to external customers $205,209 $155,169 $ 36,014 $ 70,964 $ -0- $467,356
Intercompany sales -0- (4,128) (1,231) (649) -0- (6,008)
- -------------------------------------------------------------------------------------------------------------------------
Net sales 205,209 151,041 34,783 70,315 -0- 461,348
- -------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 21,119 15,732 2,841 (2,945) (9,337) 27,410
Restructuring (gain)/charge -0- -0- -0- -0- 1,693 1,693
Interest expense -0- -0- -0- -0- 10,289 10,289
Interest income -0- -0- -0- -0- 1,548 1,548
Other non-recurring items -0- -0- -0- -0- (6,844) (6,844)
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes,
discontinued operations and
extraordinary loss 21,119 15,732 2,841 (2,945) (26,615) 10,132
- -------------------------------------------------------------------------------------------------------------------------
Total assets 52,204 60,225 11,665 35,049 62,511 221,654
Depreciation 3,026 1,745 361 1,339 1,276 7,747
Capital expenditures 7,351 4,704 892 798 886 14,631
</TABLE>
67
<PAGE> 68
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
(IN THOUSANDS, EXCEPT -------------------- ---------------------- ----------------- ------------------------
PER SHARE AMOUNTS) 1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------- ---------------------- ------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $133,808 $114,185 $132,049 $120,024 $129,764 $147,046 $154,127 $154,852
Gross margin 57,821 47,872 57,442 49,128 58,077 60,659 70,539 65,250
Pretax earnings (loss) 3,507 2,199 6,659(1) 4,177(3) 6,435 9,577 14,484 (7,093)(7)
Earnings (loss) before
discontinued operations
and extraordinary loss 3,788 2,182 6,625 4,133 6,273 9,522 38,237(5) (7,017)
Net earnings (loss) 3,788 2,182 2,974(2) 4,133 6,273 9,353(4) 40,093(6) (7,017)
Diluted earnings (loss) per common share:
Before discontinued operations and
extraordinary loss .13 .08 .24 .15 .23 .35 1.30 (.28)
Net earnings (loss) .13 .08 .11 .15 .23 .34 1.36 (.28)
=================================================================================================================================
<CAPTION>
NOTE 19
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT FISCAL YEAR
------------------------
PER SHARE AMOUNTS) 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
Net sales $549,748 $536,107
Gross margin 243,879 222,909
Pretax earnings (loss) 31,085 8,860
Earnings (loss) before
discontinued operations
and extraordinary loss 54,923 8,820
Net earnings (loss) 53,128 8,651
Diluted earnings (loss) per common share
Before discontinued operations and
extraordinary loss 1.89 .32
Net earnings (loss) 1.83 .31
===================================================================================================================================
</TABLE>
(1) Includes a restructuring gain of $2.4 million (see Note 2).
(2) Includes a $3.7 million extraordinary loss for early retirement of debt
(see Note 10).
(3) Includes a restructuring gain of $0.3 million (see Note 2).
(4) Includes a $169,000 extraordinary loss for early retirement of debt
(see Note 10).
(5) Includes a tax benefit of $23.8 million (see Note 13).
(6) Includes a gain of $0.5 million, net of tax, from discontinued
operations and a $1.4 million gain due to the tax effect of the
extraordinary loss in the second quarter (see Notes 9 and 10).
(7) Includes a restructuring charge of $18.0 million (see Note 2).
68
<PAGE> 69
ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference the (i) information regarding directors of
the Company appearing under the heading "Information Concerning Nominees" to be
included in the Company's proxy statement relating to the annual meeting of
shareholders scheduled for June 23, 1999 (the "Proxy Statement") and (ii)
information regarding compliance by persons subject to Section 16(a) of the
Securities Exchange Act of 1934 appearing under the heading "Compliance with
Beneficial Ownership Reporting Rules" to be included in the Proxy Statement.
Information regarding the executive officers of the Company appears under the
heading "Executive Officers of Genesco" in this report following Item 4 of
Part I.
ITEM 11, EXECUTIVE COMPENSATION
The Company incorporates by reference the (i) information regarding the
compensation of directors of the Company to appear under the heading "Director
Compensation" in the Proxy Statement and (ii) information regarding the
compensation of the Company's executive officers to appear under the heading
"Executive Compensation" in the Proxy Statement.
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of the Company's voting securities by
(i) the Company's directors, (ii) certain executive officers and (iii) the
officers and directors of the Company as a group is incorporated by reference to
the Proxy Statement.
The following information regarding beneficial ownership on March 27, 1999
(except as indicated) of the Company's voting securities is furnished with
respect to each person or group of persons acting together who, as of such date,
was known by the Company to be the beneficial owner of more than five percent of
any class of the Company's voting securities. Beneficial ownership of the shares
consists of sole voting and investment power except as otherwise noted.
<TABLE>
<CAPTION>
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- -------- ------ ----------
<S> <C> <C> <C>
Entrust Capital Inc. Common 2,370,591(1) 10.1
650 Madison Ave.
New York, NY 10022
Eagle Asset Management, Inc. Common 2,353,315(2) 10.0
880 Carillon Parkway
St. Petersburg, FL 33776
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- -------- ------ ----------
<S> <C> <C> <C>
Jeannie Bussetti Series 1 3,000 8.1
12 Carteret Drive
Pomona, NY 10970
Joseph Bussetti Series 1 2,000 5.4
52 South Lilburn Drive
Garnerville, NY 10923
Ronald R. Bussetti Series 1 2,000 5.4
12 Carteret Drive
Pomona, NY 10970
S. Robert Weltz, Jr. Series 1 2,308 6.2
415 Hot Springs Road
Santa Barbara, CA 93108
Empire & Co. Series 1 5,889 15.9
P. O. Box 426
Exchange Place Station
69 Montgomery St.
Jersey City, NJ 07803
Empire & Co. Series 3 4,226 21.8
P. O. Box 426
Exchange Place Station
69 Montgomery St.
Jersey City, NJ 07803
Estate of Hyman Fuhrman, Deceased Series 3 1,081 5.6
c/o Sylvia Fuhrman
3801 South Ocean Drive
Apt. PHG
Hollywood, FL 33020
Hazel Grossman Series 3 1,074 5.5
30 Argyle Ave., Apt. 209
Riverside, RI 02915
</TABLE>
70
<PAGE> 71
<TABLE>
<CAPTION>
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- -------- ------ ----------
<S> <C> <C> <C>
Jack Rubens Series 3 1,514 7.8
5114 Windsor Parke Dr.
Boca Raton, FL 33496
Mathew Evins Series 4 2,571 15.7
c/o Evins Communications Ltd.
635 Madison Ave.
New York, NY 10022
Melissa Evins Series 4 2,893 17.6
417 East 57th Street
New York, NY 10022
Reed Evins Series 4 2,418 14.7
417 East 57th Street
Apt. 32B
New York, NY 10022
James H. Cheek, Jr. Subordinated 2,413 8.0
Apt. 407 Cumulative
11 Burton Hills Blvd. Preferred
Nashville, TN 37215
- --------------
</TABLE>
* See Note 12 to the Consolidated Financial Statements included in Item 8 and
under the heading "Voting Securities" included in the Company's Proxy Statement
for a more complete description of each class of stock.
(1) This information is from an Amendment to Schedule 13G dated February 9,
1999.
(2) This information is from an Amendment to Schedule 13G dated January 29,
1999.
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference information appearing under the heading
"Certain Relationships and Related Transactions" included in the Company's Proxy
Statement.
71
<PAGE> 72
PART IV
ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following are included in Item 8.
Report of Independent Accountants
Consolidated Balance Sheet, January 30, 1999 and January 31, 1998
Consolidated Earnings, each of the three fiscal years ended 1999, 1998 and 1997
Consolidated Cash Flows, each of the three fiscal years ended 1999, 1998 and
1997
Consolidated Shareholders' Equity, each of the three fiscal years ended
1999, 1998 and 1997
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
II -Reserves, each of the three fiscal years ended 1999, 1998 and 1997
All other schedules are omitted because the required information is either not
applicable or is presented in the financial statements or related notes. These
schedules begin on page 77.
EXHIBITS
(3) a. By-laws of Genesco Inc. Incorporated by reference to Exhibit
(3)a to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995.
b. Restated Charter of Genesco Inc. Incorporated by reference to
Exhibit (3)b to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993. Amendment to Restated
Charter of Genesco Inc. dated as of June 17, 1998. Incorporated
by reference to Exhibit (3)b to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 1, 1998.
(4) Indenture dated as of April 9, 1998 between the Company and United
States Trust Company of New York relating to 5 1/2% Convertible
Subordinated Notes due 2005. Incorporated by reference to
Registration Statement on Form S-3 filed November 9, 1998 (File No.
333-58541).
(10) a. Form of Split-Dollar Insurance Agreement with Executive
Officers. Incorporated by reference to Exhibit (10)a to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997.
b. Key Executives Stock Option Plan and Form of Stock Option
Agreement. Incorporated by reference to Exhibit (10)c to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993.
c. Form of Officers and Key Executives Change-in-Control Employment
Agreement. Incorporated by reference to Exhibit (10)d to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993.
72
<PAGE> 73
d. 1987 Stock Option Plan and Form of Stock Option Agreement.
Incorporated by reference to Exhibit (10)e to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1993.
e. 1996 Stock Incentive Plan. Incorporated by reference to
Registration Statement on Form S-8 filed July 19, 1996 (File No.
33-08463).
f. 1999 Management Incentive Compensation Plan. Incorporated by
reference to Exhibit (10)g to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998.
g. 2000 EVA Incentive Compensation Plan.
h. Form of Indemnification Agreement For Directors. Incorporated by
reference to Exhibit (10)m to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1993.
i. Modified and Restated Loan Agreement dated as of September 24,
1997 among the Company and The First National Bank of Chicago,
NationsBank, N.A. and Bank of America, FSB. Incorporated by
reference to Exhibit (10)l to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 1, 1997. First
Amendment to Modified and Restated Loan Agreement dated as of
January 30, 1998 and Second Amendment to Modified and Restated
Loan Agreement dated as of March 31, 1998. Incorporated by
reference to Exhibit (10)i to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998. Third
Amendment to Modified and Restated Loan Agreement dated as of
August 1, 1998. Fourth Amendment to Modified and Restated Loan
Agreement dated as of December 11, 1998.
j. Supplemental Pension Agreement dated as of October 18, 1988
between the Company and William S. Wire II, as amended January
9, 1993. Incorporated by reference to Exhibit (10)p to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993.
k. Deferred Compensation Trust Agreement dated as of February 27,
1991 between the Company and NationsBank of Tennessee for the
benefit of William S. Wire, II, as amended January 9, 1993.
Incorporated by reference to Exhibit (10)q to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1993.
l. Shareholder Rights Agreement dated as of August 8, 1990 between
the Company and Chicago Trust Company of New York. First
Amendment to the Rights Agreement dated as of August 8, 1990.
Incorporated by reference to Registration Statement on Form 8-A
filed August 15, 1990 (File No. 1-3083). Second Amendment to the
Rights Agreement dated as of March 24, 1998. Incorporated by
reference to Registration Statement on Form 8-A filed March 25,
1998 (File No. 1-3083). Third Amendment to the Rights Agreement
dated as of November 9, 1998. Incorporated by reference to
Registration Statement on Form 8-K filed November 19, 1998 (File
No. 1-3083).
m. Form of Employment Protection Agreement between the Company and
certain executive officers dated as of February 26, 1997.
Incorporated by reference to Exhibit (10)p to the Company's
Annual Report on Form 10-K for the fiscal year ended February 1,
1997.
n. Nonqualified Stock Option Agreement as amended and restated
through December 21, 1994 between the Company and David M.
Chamberlain. Incorporated by reference to Exhibit (10)x to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995.
73
<PAGE> 74
o. Nonqualified Stock Option Agreement dated as of December 21,
1994 between the Company and David M. Chamberlain. Incorporated
by reference to Exhibit (10)y to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995.
(21) Subsidiaries of the Company.
(23) Consent of Independent Accountants included on page 75.
(24) Power of Attorney
(27) Financial Data Schedule
(99) Financial Statements and Report of Independent Accountants with
respect to the Genesco Employee Stock Purchase Plan being filed
herein in lieu of filing Form 11-K pursuant to Rule 15d-21.
Exhibits (10)a through (10)h and (10)m through (10)o are Management Contracts or
Compensatory Plans or Arrangements required to be filed as Exhibits to this Form
10-K.
- ---------------
A copy of any of the above described exhibits will be furnished to the
shareholders upon written request, addressed to Director, Corporate Relations,
Genesco Inc., Genesco Park, Room 498, P.O. Box 731, Nashville, Tennessee
37202-0731, accompanied by a check in the amount of $15.00 payable to Genesco
Inc.
REPORTS ON FORM 8-K
None.
74
<PAGE> 75
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-58541) and
the Registration Statements on Form S-8 (Nos. 33-15835, 33-30828, 33-35329,
33-50248, 33-62653 and 33-08463) of Genesco Inc. of our report dated February
24, 1999 appearing on page 31 of this Form 10-K. We also consent to the
incorporation by reference in the Registration Statement on Form S-8 (No.
33-62653) of Genesco Inc. of our report dated April 8, 1999 appearing on page 1
of the January 30, 1999 Genesco Employee Stock Purchase Plan Financial
Statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Nashville, Tennessee
April 30, 1999
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 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.
By: /s/James S. Gulmi
-------------------------------
James S. Gulmi
Senior Vice President - Finance
Date: April 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the thirtieth day of April, 1999.
/s/Ben T. Harris President and Chief Executive Officer
- --------------------------------- and a Director
Ben T. Harris
/s/James S. Gulmi Senior Vice President - Finance
- --------------------------------- (Principal Financial Officer)
James S. Gulmi
/s/Paul D. Williams Chief Accounting Officer
- ---------------------------------
Paul D. Williams
Directors:
David M. Chamberlain* William A. Williamson, Jr.*
W. Lipscomb Davis, Jr.* William S. Wire, II*
Joel C. Gordon* Gary M. Witkin*
Kathleen Mason*
*By /s/Roger G. Sisson
------------------------------
Roger G. Sisson
Attorney-In-Fact
76
<PAGE> 77
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Financial Statement Schedules
January 30, 1999
77
<PAGE> 78
SCHEDULE 2
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Reserves
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 30, 1999
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $ 988 1,028 15(1) (956)(2) $ 1,075
Allowance for cash discounts 2 -0- -0- (2)(3) -0-
Allowance for sales returns 365 -0- -0- (73)(4) 292
Allowance for customer deductions 1,006 -0- -0- (495)(5) 511
Allowance for co-op advertising 389 -0- -0- 11 (6) 400
- ---------------------------------------------------------------------------------------------------------------
TOTALS $ 2,750 1,028 15 (1,515) $ 2,278
===============================================================================================================
YEAR ENDED JANUARY 31, 1998
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- ---------------------------------------------------------------------------------------------------------------
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $ 3,353 809 274(1) (3,448)(2) $ 988
Allowance for cash discounts 168 -0- -0- (166)(3) 2
Allowance for sales returns 483 -0- -0- (118)(4) 365
Allowance for customer deductions 621 -0- -0- 385 (5) 1,006
Allowance for co-op advertising 667 -0- -0- (278)(6) 389
- ---------------------------------------------------------------------------------------------------------------
TOTALS $ 5,292 809 274 (3,625) $2,750
===============================================================================================================
YEAR ENDED FEBRUARY 1, 1997
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- ---------------------------------------------------------------------------------------------------------------
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $ 2,065 2,847 151(1) (1,710)(2) $3,353
Allowance for cash discounts 119 -0- -0- 49 (3) 168
Allowance for sales returns 483 -0- -0- -0- (4) 483
Allowance for customer deductions 984 -0- -0- (363)(5) 621
Allowance for co-op advertising 545 -0- -0- 122 (6) 667
- ---------------------------------------------------------------------------------------------------------------
TOTALS $ 4,196 2,847 151 (1,902) $5,292
===============================================================================================================
</TABLE>
Note: Most subsidiaries and branches charge credit and collection expense
directly to profit and loss. Adding such charges of $74,000 in 1999,
$345,000 in 1998 and $292,000 in 1997 to the addition above, the
total bad debt expense amounted to $1,102,000 in 1999, $1,154,000 in
1998 and $3,139,000 in 1997.
- --------------------------------------------------------------------------------
(1) Bad debt recoveries.
(2) Bad debt charged to reserve and transfers to operations to be divested.
(3) Adjustment of allowance for estimated discounts to be allowed
subsequent to period end on receivables at same date and transfers to
operations to be divested.
(4) Adjustment of allowance for sales returns to be allowed subsequent to
period end on receivables at same date and transfers to operations to be
divested.
(5) Adjustment of allowance for customer deductions to be allowed subsequent
to period end on receivables at same date and transfers to operations to
be divested.
(6) Adjustment of allowance for estimated co-op advertising to be allowed
subsequent to period end on receivables at same date and transfers to
operations to be divested.
See Note 3 to the Consolidated Financial Statements included in Item 8.
78
<PAGE> 1
EXHIBIT (10)G.
GENESCO INC.
EVA INCENTIVE COMPENSATION PLAN
1. PURPOSE.
The purposes of the Genesco Inc. EVA Incentive Compensation Plan ("the Plan")
are to motivate and reward excellence and teamwork in achieving maximum
improvement in shareholder value; to provide attractive and competitive total
cash compensation opportunities for exceptional corporate and business unit
performance; to reinforce the communication and achievement of the mission,
objectives and goals of the Company; to motivate managers to think
strategically (long term) as well as tactically (short term); and to enhance
the Company's ability to attract, retain and motivate the highest caliber
management team. The purposes of the Plan shall be carried out by payment to
eligible participants of annual incentive cash awards, subject to the terms and
conditions of the Plan and the discretion of the Compensation Committee of the
board of directors of the Company.
2. AUTHORIZATION.
On October 27, 1998, the Compensation Committee approved the Plan.
3. SELECTION OF PARTICIPANTS.
Participants shall be selected annually by the Chief Executive Officer from
among full-time employees of the Company who serve in operational,
administrative, professional or technical capacities. The participation and
target bonus amounts of Company officers and employees whose annual base
compensation is $125,000 or more shall be approved by the Compensation
Committee with the advice of the Chief Executive Officer. The Chief Executive
Officer shall not be eligible to participate in the Plan.
The Chief Executive Officer shall annually assign participants to a Business
Unit. For participants whose Business Unit consists of more than one profit
center, the Chief Executive Officer shall determine in advance the relative
weight to be given to the performance of each profit center in the calculation
of awards. If a participant is transferred to a different business unit during
the Plan Year he or she shall be eligible to receive a bonus for each of the
Business Units to which the participant was assigned during the Plan Year,
prorated for the amount of time worked in each assignment, unless the Chief
Executive Officer determines that a different proration is warranted in the
circumstances.
In the event of another significant change in the responsibilities and duties
of a participant during a Plan Year, the Chief Executive Officer shall have the
authority, in his sole discretion, to terminate the participant's participation
in the Plan, if such change results in diminished responsibilities, or to
1
<PAGE> 2
make such changes as he deems appropriate in (i) the target award the
participant is eligible to earn, (ii) the participant's applicable goal(s) and
(iii) the period during which the participant's applicable award applies.
4. PARTICIPANTS ADDED DURING PLAN YEAR.
A person selected for participation in the Plan after the beginning of a Plan
Year will be eligible to earn a prorated portion of the award the participant
might have otherwise earned for a full year's service under the Plan during
that Plan Year, provided the participant is actively employed as a participant
under the Plan for at least 120 days during the Plan Year. The amount of the
award, if any, earned by such participant for such Plan Year shall be based on
the number of full months of the Plan Year during which the employee
participated in the Plan.
5. DISQUALIFICATION FOR UNSATISFACTORY PERFORMANCE.
Any participant whose performance is found to be unsatisfactory or who shall
have violated in any material respect the Company's Policy on Legal Compliance
and Ethical Business Practices shall not be eligible to receive an award under
the Plan in the current Plan Year. The participant shall be eligible to be
considered by the Chief Executive Officer for reinstatement to the Plan in
subsequent Plan Years. Any determination of unsatisfactory performance or of
violation of the Company's Policy on Legal Compliance and Ethical Business
Practices shall be made by the Chief Executive Officer. Participants who are
found ineligible for participation in a Plan Year due to unsatisfactory
performance will be so notified in writing prior to October 31 of the Plan
Year.
6. TERMINATION OF EMPLOYMENT.
A participant whose employment is terminated voluntarily or involuntarily,
except by reason of death, medical disability or voluntary retirement, prior to
the end of a Plan Year shall not be eligible to receive an award under the
Plan. A participant who voluntarily retires, is on medical leave of absence or
the estate of a participant who dies during the Plan Year will be eligible to
receive a prorated portion of the award the participant would have otherwise
received for a full year's service under the Plan, provided the participant is
actively employed as a participant under the Plan for at least 120 days during
the Plan Year. The amount of any award payable to such disabled or retired
participant or the estate of such deceased participant shall be based on the
number of full months of the Plan Year during which the disabled, retired or
deceased employee was classified in the Company's payroll system as an active
employee. A participant who has received or is receiving severance pay at the
end of the Plan Year shall be considered a terminated employee and shall not be
eligible to receive an award under the Plan.
2
<PAGE> 3
7. ECONOMIC VALUE ADDED ("EVA") CALCULATION
EVA for a Business Unit or the entire Company, as applicable, shall be the
result of a Business Unit's or the Company's net operating profit after taxes
less a charge for capital employed by that Business Unit or the Company. The
Company will track the change in EVA by Business Unit over each Plan Year for
the purpose of determining bonus as further described below.
8. AMOUNT OF AWARDS.
Participants are eligible to earn cash awards based on (i) change in EVA for a
Business Unit or for multiple Business Units; and (ii) achievement of
individual Performance Plan Goals to be approved by the Chief Executive Officer
prior to March 31 of each Plan Year. Prior to the beginning of each Plan Year,
the Chief Executive Officer will establish for each Business Unit and for the
Company as a whole target levels of expected changes in EVA for each Business
Unit and for the Company for such Plan Year and a range of multiples to be
applied to the participant's target bonus based on actual performance for the
Plan Year. The multiple related to Business Unit performance is referred to as
the "Business Unit Multiple." The multiple related to the performance of the
Company as a whole is referred to as the "Corporate Multiple." The Corporate
Multiple and Business Unit Multiples may be positive or negative and may
consist of whole numbers or fractions. Not later than March 31 the Plan Year,
the participant and the participant's supervisor shall agree on a set of
strategic performance objectives for the participant for the Plan Year (the
"Performance Plan Goals").
The "Declared Bonus" shall be determined as follows:
For participants who are Business Unit Presidents, the Declared Bonus shall
equal the sum of (A) the Business Unit Multiple times one-half the
participant's target bonus plus (B) the Corporate Multiple times one-quarter of
the participant's target bonus plus (C) the percentage of the participant's
achievement of his or her Performance Plan Goals determined by the
participant's supervisor (the "Performance Plan Percentage") times one-quarter
of the participant's target bonus times the Business Unit Multiple; provided,
however that if the Business Unit Multiple is a negative number, the
Performance Plan Percentage shall be 100%.
For other Business Unit participants, the Declared Bonus shall equal the sum of
(A) the Business Unit Multiple times 75% of the participant's target bonus plus
(B) the Business Unit Multiple times 25% of the participant's target bonus
times the Performance Plan Percentage; provided, however that if the Business
Unit Multiple is a negative number, the Performance Plan Percentage shall be
100%.
For the Corporate Staff participants, the Declared Bonus shall equal the sum of
(A) the Corporate Multiple times 75% of the participant's target bonus plus (B)
the Corporate Multiple times 25% of the participant's target bonus times the
Performance Plan Percentage; provided that, if the Corporate Multiple is a
negative number, the Performance Plan Percentage shall be 100%.
3
<PAGE> 4
Each participant shall have a balance in a "Bonus Bank" consisting of the
cumulative total since the first year of such participant's participation in
the Plan of (i) all of the participant's negative Declared Bonuses and (ii) all
of participant's positive Declared Bonuses not distributed because of payout
limitations. The sum of the participant's Declared Bonus for the current Plan
Year and the participant's Bonus Bank balance (positive or negative) will
constitute the "Available Bonus." A participant's Bonus Payout at the end of
the Plan Year shall be equal to the lesser of (A) the Available Bonus or (B)
the sum of (i) the Declared Bonus, up to three times the participant's target
bonus for the Plan Year plus (ii) one-third of the participant's Bonus Bank
balance, if positive, after the addition to the Bonus Bank of any amount by
which the Declared Bonus exceeds three times the target bonus.
Any positive balance in the Bonus Bank shall be payable without interest
promptly upon the Company's termination of the participant's employment without
"Cause," or upon the participant's death or retirement. "Cause" for termination
for purposes of this Plan means any act of dishonesty involving the Company,
any violation of the Policy on Legal Compliance and Ethical Business Practices
as then in effect, any breach of fiduciary duty owed to the Company, persistent
or flagrant failure to follow the lawful directives of the board of directors
or of the executive to whom the participant reports or conviction of a felony.
Nothing in this Plan (including but not limited to the foregoing definition of
Cause) shall in any manner alter the participant's status as an employee at
will or limit the Company's right or ability to terminate the participant's
employment for any reason or for no reason at all. Upon termination for Cause
or voluntary termination at the participant's instance, any unpaid portion of
the "Bonus Bank" will be forfeited by the participant.
9. PAYMENT OF AWARDS.
Any awards payable under the Plan (including awards with respect to
participants who die, are placed on medical leave of absence or voluntarily
retire during the Plan Year), other than the amount, if any, to be credited to
the Bonus Bank, will be made in cash, net of applicable withholding taxes, as
soon as reasonably practicable after the end of the Plan Year, but in no event
prior to the date on which the Company's audited financial statements for the
Plan Year are reviewed by the audit committee of the Company's board of
directors. The positive Bonus Bank balance will be paid in cash, net of
applicable withholding taxes, as soon as reasonably practicable after the date
on which it becomes payable.
10. PLAN ADMINISTRATION.
The Chief Executive Officer shall have final authority to interpret the
provisions of the Plan. Interpretations by the Chief Executive Officer which
are not patently inconsistent with the express
4
<PAGE> 5
provisions of the Plan shall be conclusive and binding on all participants and
their designated beneficiaries. It is the responsibility of the Vice President
Human Resources (i) to cause each person selected to participate in the Plan to
be furnished with a copy of the Plan and to be notified in writing of such
selection, the applicable goals and the range of the awards for which the
participant is eligible; (ii) to cause the awards to be calculated in
accordance with the Plan; and (iii) except to the extent reserved to the Chief
Executive Officer or the Compensation Committee hereunder, to administer the
Plan consistent with its express provisions.
11. NON-ASSIGNABILITY.
A participant may not at any time encumber, transfer, pledge or otherwise
dispose of or alienate any present or future right or expectancy that the
participant may have at any time to receive any payment under the Plan. Any
present or future right or expectancy to any such payment is non-assignable and
shall not be subject to execution, attachment or similar process.
12. MISCELLANEOUS.
Nothing in the Plan shall interfere with or limit in any way the right of the
Company to terminate any participant's employment or to change any
participant's duties and responsibilities, nor confer upon any participant the
right to be selected to participate in any incentive compensation plans for
future years. Neither the Chief Executive Officer, the Vice President Human
Resources, nor the Compensation Committee shall have any liability for any
action taken or determination made under the Plan in good faith.
13. BINDING ON SUCCESSORS.
The obligations of the Company under the Plan shall be binding upon any
organization which shall succeed to all or substantially all of the assets of
the Company, and the term Company, whenever used in the Plan, shall mean and
include any such organization after the succession. If the subject matter of
this Section 13 is covered by a change-in-control agreement or similar
agreement which is more favorable to the participant than this Section 13, such
other agreement shall govern to the extent applicable and to the extent
inconsistent herewith.
14. DEFINITIONS.
"EVA" means the economic value added to the Company during the Plan Year as
determined by the net operating profit in a particular Business Unit as
reflected on the Company's books for internal reporting purposes, reduced by
the cost of capital.
5
<PAGE> 6
"BUSINESS UNIT" means any of the Company's business units or any combination of
two or more of the profit centers, which comprise Genesco Inc.
The "CHIEF EXECUTIVE OFFICER" means the president and chief executive officer
of the Company.
The "COMPANY" means Genesco Inc.
The "COMPENSATION COMMITTEE" means the compensation committee of the board of
directors of the Company.
"THE "PLAN" means this EVA Incentive Compensation Plan for the Plan Year.
"PLAN YEAR" means the fiscal year of the Company ending January 31, 2000.
The "VICE PRESIDENT HUMAN RESOURCES" means the vice president Human Resources
of Genesco Inc.
6
<PAGE> 1
EXHIBIT (10)I.
THIRD AMENDMENT TO MODIFIED
AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO MODIFIED AND RESTATED LOAN AGREEMENT (the
"Third Amendment") dated as of August 1, 1998, is to that Modified and Restated
Loan Agreement dated as of September 24, 1997, as amended January 30, 1998 and
March 31, 1998 (hereinafter, such Loan Agreement as amended hereby, and as
further amended or modified from time to time, the "Loan Agreement"; all terms
used but not otherwise defined herein shall have the meanings provided in the
Loan Agreement), by and among GENESCO INC. (the "Borrower"), the banks and
financial institutions on the signature pages hereto (the "Banks"), FIRST
NATIONAL BANK OF CHICAGO, as Co-Agent for the Banks (the "Co-Agent"), and
NATIONSBANK, N.A., as Agent for the Banks (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested certain modifications to the Loan
Agreement; and
WHEREAS, the Banks have agreed to the requested modifications on the
terms and conditions herein set forth;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. Effective as of August 1, 1998, the definition of
"Consolidated Net Worth" in Section 1.1 of the Loan Agreement is amended by
adding the following proviso at the end of such definition:
provided, however, "Consolidated Net Worth" shall be adjusted
upward by the amount of any capital stock of the Borrower repurchased
on and after August 1, 1998 up to an aggregate purchase price of
$20,000,000.
B. Effective as of August 1, 1998, the definition of "Restricted
Payment" in Section 1.1 of the Loan Agreement is amended by adding the
following proviso at the end of such definition:
provided, however, "Restricted Payment" shall not include
payments made in connection with the "Stock Buyback of 1998".
C. Effective as of August 1, 1998, Section 1.1 of the Loan
Agreement is further amended by adding the following definition in the
alphabetically appropriate place:
"Stock Buyback of 1998" means the repurchase by the Borrower
on or after August 1, 1998 of common stock of the Borrower up to an
aggregate purchase price of $20,000,000.
<PAGE> 2
D. Effective as of August 1, 1998, Section 7.4(a) of the Loan
Agreement is amended in its entirety so that such Section now reads as follows:
(a) The Borrower may make Restricted Payments if the
cumulative amount of all such Restricted Payments (including any
Restricted Payment proposed to be made) after the Closing Date would
not exceed the sum of (i) $5,000,000.00; plus (ii) 50%, if positive,
or minus 100%, if negative, of cumulative Consolidated Net Income
after August 1, 1998 to the end of the accounting month immediately
preceding the date of the action by the board of directors of the
Borrower declaring or authorizing the Restricted Payment, taken as a
single period; plus (iii) 50% of the cumulative net cash proceeds of
the issuance of new equity Securities by the Borrower, other than
proceeds applied for the purposes described in clauses (i)(C) and
(ii)(B) of the definition of Restricted Payment;
E. The Borrower hereby represents and warrants that:
(i) any and all representations and warranties made by
the Borrower and contained in the Loan Agreement (other than those
which expressly relate to a prior period) are true and correct in all
material respects as of the date of this Third Amendment; and
(ii) No Default or Potential Default currently exists and
is continuing under the Loan Agreement simultaneously with the
execution of this Third Amendment.
F. The Borrower will execute such additional documents as are
reasonably requested by the Agent to reflect the terms and conditions of this
Third Amendment.
G. Except as modified hereby and except for necessary
modifications to exhibits to bring such exhibits in conformity with the terms
of this Third Amendment, all of the terms and provisions of the Loan Agreement
(and Exhibits) remain in full force and effect.
H. The Borrower agrees to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this Third
Amendment, including without limitation the reasonable fees and expenses of the
Agent's legal counsel.
I. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and it shall not be necessary in making proof of this Third Amendment
to produce or account for more than one such counterpart.
J. This Third Amendment and the Loan Agreement, as amended
hereby, shall be deemed to be contracts made under, and for all purposes shall
be construed in accordance with the laws of the State of Tennessee.
[Remainder of Page Intentionally Left Blank]
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Third Amendment to be duly executed under seal and
delivered as of the date and year first above written.
BORROWER:
GENESCO INC.
a Tennessee corporation
By: /s/ James S. Gulmi
----------------------------------------------
Title: Senior Vice President - Finance
-------------------------------------------
BANKS:
NATIONSBANK, N.A.
individually in its capacity as a
Bank and in its capacity as Agent
By: /s/ Timothy H. Spanos
----------------------------------------------
Title: Senior Vice President
-------------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
individually in its capacity as a Bank and in its
capacity as a Co-Agent
By: /s/ Catherine A. Muszynski
----------------------------------------------
Title: Vice President
-------------------------------------------
BANK OF AMERICA, FSB
By: /s/ Howard D. Kim
----------------------------------------------
Title: Vice President
-------------------------------------------
<PAGE> 4
FOURTH AMENDMENT TO MODIFIED
AND RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT TO MODIFIED AND RESTATED LOAN AGREEMENT (the
"Fourth Amendment") dated as of December 11, 1998, is to that Modified and
Restated Loan Agreement dated as of September 24, 1997, as amended January 30,
1998, March 31, 1998 and August 1, 1998 (hereinafter, such Loan Agreement as
amended hereby, and as further amended or modified from time to time, the "Loan
Agreement"; all terms used but not otherwise defined herein shall have the
meanings provided in the Loan Agreement), by and among GENESCO INC. (the
"Borrower"), the banks and financial institutions on the signature pages hereto
(the "Banks"), FIRST NATIONAL BANK OF CHICAGO, as Co-Agent for the Banks (the
"Co-Agent"), and NATIONSBANK, N.A., as Agent for the Banks (in such capacity,
the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested certain modifications to the Loan
Agreement; and
WHEREAS, the Banks have agreed to the requested modifications on the
terms and conditions herein set forth;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. Effective as of October 31, 1998, the definition of
"Consolidated EBITDA" in Section 1.1 of the Loan Agreement is amended by adding
the following sentence at the end of such definition:
"Notwithstanding the foregoing, cash payments relating to
non-cash charges taken by the Borrower in connection with the
divestiture of its western boot business shall not be subtracted from
Consolidated Net Income in the calculation of Consolidated EBITDA."
B. Effective as of October 31, 1998, the definition of "Majority
Banks" in Section 1.1 of the Loan Agreement is amended by replacing the
references to "66 2/3%" with references to "70%".
C. Effective as of October 31, 1998, the Consolidated Fixed
Charge Coverage Ratio in Section 7.5.2 of the Loan Agreement is amended as
follows:
<PAGE> 5
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
October 31, 1998 and each quarter
ending thereafter through October 31, 1999 1.55 to 1.0
January 31, 2000 and each quarter
ending thereafter through October 31, 2000 1.60 to 1.0
January 31, 2001 and each quarter ending
thereafter 1.65 to 1.0
</TABLE>
D. Effective as of October 31, 1998, the second sentence of
Section 2.7 (a) of the Loan Agreement is amended in its entirety as follows:
"No Letter of Credit shall have a term of more than one year with the
exception of the Letter of Credit, LC #00352663, issued by The First
National Bank of Chicago in the amount of $327,500.00."
E. Effective as of October 31, 1998, Section 6.1(a) of the Loan
Agreement is deleted and Section 6.1(b) of the Loan Agreement is amended in its
entirety so that such Section now reads as follows:
(b) as soon as practicable and in any event within 60
days after the end of each fiscal quarter in each of the Borrower's
Fiscal Years, other than the fourth fiscal quarter, an unaudited
consolidated balance sheet and income and cash flow statements of the
Borrower and its Subsidiaries as at the end of such period and for the
year-to-date period then ended, but in any event setting forth, in
comparative form, the consolidated figures for the corresponding
periods of the previous Fiscal Year and the consolidated figures
included in the operating plan delivered to the Banks pursuant to
Section 6.1(1), all in reasonable detail;
F. The Banks hereby waive any violation of the Loan Agreement
under Section 6.1(a) occurring prior to October 31, 1998.
G. The Borrower hereby represents and warrants that:
(i) any and all representations and warranties made by
the Borrower and contained in the Loan Agreement (other than those
which expressly relate to a prior period) are true and correct in all
material respects as of the date of this Fourth Amendment; and
(ii) No Default or Potential Default currently exists and
is continuing under the Loan Agreement simultaneously with the
execution of this Fourth Amendment.
H. The Borrower will execute such additional documents as are
reasonably requested by the Agent to reflect the terms and conditions of this
Fourth Amendment.
<PAGE> 6
I. Except as modified hereby and except for necessary
modifications to exhibits to bring such exhibits in conformity with the terms
of this Fourth Amendment, all of the terms and provisions of the Loan Agreement
(and Exhibits) remain in full force and effect.
J. The Borrower agrees to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this Fourth
Amendment, including without limitation the reasonable fees and expenses of the
Agent's legal counsel.
K. This Fourth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and it shall not be necessary in making proof of this Fourth Amendment
to produce or account for more than one such counterpart.
L. This Fourth Amendment and the Loan Agreement, as amended
hereby, shall be deemed to be contracts made under, and for all purposes shall
be construed in accordance with the laws of the State of Tennessee.
[Remainder of Page Intentionally Left Blank]
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Fourth Amendment to be duly executed under seal and
delivered as of the date and year first above written.
BORROWER:
GENESCO INC.
a Tennessee corporation
By: /s/ James S. Gulmi
----------------------------------------------
Title: Senior Vice President - Finance
-------------------------------------------
BANKS:
NATIONSBANK, N.A.
individually in its capacity as a
Bank and in its capacity as Agent
By: /s/ Timothy H. Spanos
----------------------------------------------
Title: Senior Vice President
-------------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
individually in its capacity as a Bank and in its
capacity as a Co-Agent
By: /s/ Catherine A. Muszynski
----------------------------------------------
Title: Vice President
-------------------------------------------
BANK OF AMERICA, FSB
By: /s/ Timothy H. Spanos
----------------------------------------------
Title: Senior Vice President
-------------------------------------------
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF THE COMPANY:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PLACE OF PERCENT OF VOTING SECURITIES
NAMES OF SUBSIDIARY INCORPORATION OWNED BY REGISTRANT
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Beagen Street Corporation Delaware 100
Flagg Bros. of Puerto Rico, Inc. Delaware 100
GCO Properties, Inc. Tennessee 100
Genesco Global, Inc. Delaware 100
Genesco Merger Company Inc. Tennessee 100
Genesco Netherlands BV Netherlands 100
Genesco Virgin Islands Virgin Islands 100
Genesco World Apparel, Ltd. Delaware 100
==================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, certain of the officers and directors of Genesco Inc., a
Tennessee corporation ("Genesco"), do hereby constitute and appoint Roger G.
Sisson and James S. Gulmi, and any one of them, to act severally as
attorneys-in-fact for and in their respective names, places and steads, with
full power of substitution, to execute, sign and file with the Securities and
Exchange Commission the Annual Report on Form 10-K of Genesco for the fiscal
year ended January 30, 1999, and any and all amendments thereto; granting to
said attorneys-in-fact, and each of them, full power and authority to do and
perform every act and thing whatsoever requisite or necessary to be done in and
about the premises as fully to all intents and purposes as the undersigned or
any of them might or could do if personally present, and the undersigned do
hereby ratify and confirm all that said attorney-in-fact or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED as of this 24th day of February, 1999.
<TABLE>
<S> <C>
/s/ David M. Chamberlain /s/ James S. Gulmi
- -------------------------------------------- ---------------------------------------------
David M. Chamberlain, Chairman James S. Gulmi, Senior Vice President-Finance
and a Director (Principal Financial Officer)
/s/ Ben T. Harris
- --------------------------------------------
Ben T. Harris, President and Chief Executive
Officer and a Director
/s/ W. Lipscomb Davis, Jr. /s/ William A. Williamson, Jr.
- -------------------------------------------- ---------------------------------------------
W. Lipscomb Davis, Jr., Director William A. Williamson, Jr., Director
/s/ Joel C. Gordon /s/ William S. Wire II
- -------------------------------------------- ---------------------------------------------
Joel C. Gordon, Director William S. Wire II, Director
/s/ Kathleen Mason /s/ Gary M. Witkin
- -------------------------------------------- ---------------------------------------------
Kathleen Mason, Director Gary M. Witkin, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 5,256
<SECURITIES> 53,487
<RECEIVABLES> 21,903
<ALLOWANCES> 1,075
<INVENTORY> 117,213
<CURRENT-ASSETS> 228,260
<PP&E> 112,414
<DEPRECIATION> 54,027
<TOTAL-ASSETS> 307,198
<CURRENT-LIABILITIES> 72,482
<BONDS> 103,500
0
7,918
<COMMON> 24,327
<OTHER-SE> 84,334
<TOTAL-LIABILITY-AND-EQUITY> 307,198
<SALES> 549,748
<TOTAL-REVENUES> 549,748
<CGS> 305,869
<TOTAL-COSTS> 305,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,028
<INTEREST-EXPENSE> 9,250
<INCOME-PRETAX> 31,085
<INCOME-TAX> (23,838)
<INCOME-CONTINUING> 54,923
<DISCONTINUED> 450
<EXTRAORDINARY> (2,245)
<CHANGES> 0
<NET-INCOME> 53,128
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 1.83
</TABLE>
<PAGE> 1
EXHIBIT (99)
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Financial Statements
January 30, 1999 and January 31, 1998
<PAGE> 2
April 8, 1999
To the Participants and Administrator
of the Genesco Employee Stock Purchase Plan
Report of Independent Accountants
In our opinion, the accompanying statement of financial condition and the
related statement of changes in plan equity present fairly, in all material
respects, the financial condition of the Genesco Employee Stock Purchase Plan
(the "Plan") at January 30, 1999 and January 31, 1998, and the changes in plan
equity for each of the three years in the period ended January 30, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards 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
<PAGE> 3
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Statement of Financial Condition
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
JANUARY 30, JANUARY 31,
ASSETS 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Due from Genesco Inc. $212,836 $233,587
---------------------------------------------------------------------------------------
TOTAL ASSETS $212,836 $233,587
=======================================================================================
LIABILITIES AND PLAN EQUITY
---------------------------------------------------------------------------------------
Payable to withdrawn participants $ 9,281 $ 5,059
Plan equity 203,555 228,528
---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PLAN EQUITY $212,836 $233,587
=======================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
-2-
<PAGE> 4
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Statement of Changes in Plan Equity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
-----------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee contributions $ 586,814 $ 629,482 $ 543,528
Options exercised (493,630) (565,719) (479,763)
Distributions to withdrawn participants (118,157) (51,880) (15,948)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in plan equity (24,973) 11,883 47,817
Plan equity at beginning of period 228,528 216,645 168,828
- --------------------------------------------------------------------------------------------------------
PLAN EQUITY AT END OF PERIOD $ 203,555 $ 228,528 $ 216,645
========================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
-3-
<PAGE> 5
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The records of the Genesco Employee Stock Purchase Plan (the "Plan") are
maintained on the accrual basis of accounting.
All expenses incurred in administration of the Plan are paid by Genesco Inc.
(the "Company") and are excluded from these financial statements.
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 disclosures of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
NOTE 2
THE PLAN
BACKGROUND AND SUMMARY
The following description of the Plan provides only general information.
Participants should refer to the Plan prospectus for a more complete description
of the Plan's provisions.
The Plan became effective October 1, 1995 to advance the interests of the
Company and its shareholders by attracting and retaining qualified employees and
by encouraging them to identify with shareholder interests through the
acquisition of shares of the Company's common stock.
ELIGIBILITY
Each employee whose total annual base salary is less than $100,000 and whose
customary employment is greater that 20 hours per week and greater than five
months per year is eligible to participate in the Plan if the employee has been
employed by the Company for at least six months prior to the grant date. The
Plan excludes statutory insiders and five percent shareholders.
CONTRIBUTIONS
Contributions to the Plan are solely from participating employees of the Company
who, through after-tax payroll deductions, may use their contributions to
purchase common stock of the Company at the end of a one-year option period. The
maximum number of shares available to any participant is the lesser of 2,000 a
year or that number of shares equal to $10,000 divided by the closing market
price of the common stock on the grant date or the exercise date. The maximum
contribution is the lesser of $10,000 a year or 15% of the participant's base
pay as of October 1. The minimum contribution is $250 per participant per year.
Shares will be purchased September 30 of the year following the October 1 grant
date with the initial grant date being October 1, 1995.
-4-
<PAGE> 6
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE 2
THE PLAN, CONTINUED
An option enables the participant to purchase shares of the Company's common
stock at the lesser of 85% of the market value on the grant date or the exercise
date. Options are to be granted each year through and including October 1, 2004,
unless the board of directors, at its discretion, determines in advance that no
options are to be granted. The cumulative number of shares which may be
purchased under the Plan is 1,000,000. The options granted and rights thereto
may not be sold, assigned, pledged or otherwise transferred and may be exercised
during the lifetime of the participant only by the participant.
PARTICIPANT ACCOUNTS
A separate account is maintained for each participant's contributions. The
Company provides each participant with an annual statement reflecting the value
of their account. Participant contributions are held by Genesco Inc., which has
an unfunded and unsecured obligation to the Plan.
At the exercise date, the Company issues stock that is transferred to a
brokerage firm and allocated among the participants according to the number of
options exercised by each participant.
VESTING
Participants are 100% vested in the value of their account and may withdraw from
the Plan at any time except during the period September 15 through September 30
which is the time that preparations are made for the issuance of the stock each
year.
If a participant is terminated for any reason other than retirement or death,
the participant's involvement in the Plan and any unexercised options
automatically terminate, and the participant will receive the account balance in
cash.
TERMINATION OF THE PLAN
The Company reserves the right to terminate the Plan at any time. In the event
of Plan termination, the balance of each participant's account shall be paid in
cash as soon as is reasonably practical.
PLAN ADMINISTRATOR
The Plan is to be administered by the compensation committee of the board of
directors or another designee of the board of directors.
REGULATORY MATTERS
The Plan is intended to qualify as an Employee Stock Purchase Plan within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
Accordingly, no income will result for federal income tax purposes when an
option is granted or exercised; however, income may result upon disposition of
the stock.
The Plan is not subject to any provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
-5-
<PAGE> 7
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PLAN PLAN PLAN
OPTIONS TO PURCHASE COMPANY STOCK TOTAL 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Estimated options granted - October 1, 1996 89,097 -0- -0- 89,097
Options exercised -0- -0- -0- -0-
Options withdrawn (1,854) -0- -0- (1,854)
- -------------------------------------------------------------------------------------------------------------
Options outstanding, February 1, 1997 87,243 -0- -0- 87,243
- -------------------------------------------------------------------------------------------------------------
Estimated options granted - October 1, 1997 53,747 -0- 53,747 -0-
Options exercised (70,058) -0- -0- (70,058)
Options withdrawn (18,978) -0- (1,793) (17,185)
- -------------------------------------------------------------------------------------------------------------
Options outstanding, January 31, 1998 51,954 -0- 51,954 -0-
- -------------------------------------------------------------------------------------------------------------
Estimated options granted - October 1, 1998 143,852 143,852 -0- -0-
Additional options granted at exercise date (Note 2) 71,369 -0- 71,369 -0-
Options exercised (106,800) -0- (106,800) -0-
Options withdrawn (27,199) (10,676) (16,523) -0-
- -------------------------------------------------------------------------------------------------------------
Options outstanding, January 30, 1999 133,176 133,176 -0- -0-
=============================================================================================================
85% of fair market value of stock at date of grant $ 4.41 $ 12.38 $ 8.08
Date of grant 10/1/98 10/1/97 10/1/96
85% of fair market value of stock at date of exercise N/A $ 4.62 $ 12.43
Exercise date 9/30/99 9/30/98 9/30/97
</TABLE>
-6-
<PAGE> 8
GENESCO EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE 3, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PLAN PLAN PLAN
NUMBER OF PARTICIPANTS TOTAL 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Enrollment - October 1, 1996 435 -0- -0- 435
Exercised options -0- -0- -0- -0-
Withdrawn (12) -0- -0- (12)
- ----------------------------------------------------------------------------------------------------
Active, February 1, 1997 423 -0- -0- 423
- ----------------------------------------------------------------------------------------------------
Enrollment - October 1, 1997 377 -0- 377 -0-
Exercised options (331) -0- -0- (331)
Withdrawn (107) -0- (15) (92)
- ----------------------------------------------------------------------------------------------------
Active, January 31, 1998 362 -0- 362 -0-
- ----------------------------------------------------------------------------------------------------
Enrollment - October 1, 1998 350 350 -0- -0-
Exercised options (268) -0- (268) -0-
Withdrawn (119) (25) (94) -0-
- ----------------------------------------------------------------------------------------------------
Active, January 30, 1999 325 325 -0- -0-
====================================================================================================
</TABLE>
The cumulative options exercised as of January 30, 1999 are 305,896.
-7-
