1
GENESCO
[GENESCO LOGO]
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(Mark One) FORM 10-Q
[X] Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
July 29, 2000
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
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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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Indicate by check mark whether
the registrant (1) has filed all
reports required to be filed by
Section 13 or 15(d) of the
Securities Exchange Act of 1934
during the preceding 12 months
(or such shorter period that the
registrant was required to file
such reports with the
commission) and (2) has been
subject to such filing
requirements for the past 90
days.
Yes [X] No
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Common Shares Outstanding September 1, 2000 - 21,457,903
2
INDEX
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PAGE
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Part 1 - Financial Information 3
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Consolidated Balance Sheet - July 29, 2000, January 29, 2000 and
July 31, 1999 3
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Consolidated Earnings - Three Months Ended and Six Months Ended
July 29, 2000 and July 31, 1999 4
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Consolidated Cash Flows - Three Months Ended and Six Months Ended
July 29, 2000 and July 31, 1999 5
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Consolidated Shareholders' Equity - Year Ended
January 29, 2000 and Six Months Ended July 29, 2000 6
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Notes to Consolidated Financial Statements 7
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Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
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Part II - Other Information 34
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Signature 35
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PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
JULY 29, JANUARY 29, JULY 31,
2000 2000 1999
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ASSETS
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CURRENT ASSETS
Cash and short-term investments $ 38,275 $ 57,860 $ 49,079
Accounts receivable 23,957 23,617 22,132
Inventories 140,562 109,815 119,219
Deferred income taxes 14,826 14,826 14,541
Other current assets 9,154 8,881 5,868
Current assets of discontinued operations 6,232 -0- -0-
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Total current assets 233,006 214,999 210,839
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Plant, equipment and capital leases, net 79,609 68,661 62,544
Deferred income taxes 4,184 4,184 10,370
Other noncurrent assets 12,709 13,321 8,826
Plant and equipment of discontinued operations, net 669 -0- -0-
=========================================================================================
TOTAL ASSETS $ 330,177 $ 301,165 $ 292,579
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 93,696 $ 74,874 $ 73,778
Provision for discontinued operations 5,293 2,118 2,264
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Total current liabilities 98,989 76,992 76,042
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Long-term debt 103,500 103,500 103,500
Other long-term liabilities 6,108 6,368 6,463
Provision for discontinued operations 5,447 6,063 7,148
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Total liabilities 214,044 192,923 193,153
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Contingent liabilities (see Note 9)
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,843 7,882 7,890
Common shareholders' equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued: July 29, 2000 - 21,942,727;
January 29, 2000 - 21,714,678;
July 31, 1999 - 22,257,743 21,943 21,715 22,258
Additional paid-in capital 94,112 94,784 102,947
Retained earnings (accumulated deficit) 10,092 1,718 (15,812)
Accumulated other comprehensive income -0- -0- -0-
Treasury shares, at cost (17,857) (17,857) (17,857)
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Total shareholders' equity 116,133 108,242 99,426
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 330,177 $ 301,165 $ 292,579
=========================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
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Net sales $ 142,743 $ 121,004 $ 288,757 $ 244,368
Cost of sales 74,278 64,786 152,616 131,086
Selling and administrative expenses 57,592 47,789 113,396 96,907
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Earnings from operations before interest 10,873 8,429 22,745 16,375
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Interest expense 2,093 2,041 4,194 4,037
Interest income (261) (580) (680) (1,241)
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Total interest expense, net 1,832 1,461 3,514 2,796
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Earnings before income taxes
and discontinued operations 9,041 6,968 19,231 13,579
Income taxes 3,510 2,745 7,507 5,411
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Earnings before discontinued operations 5,531 4,223 11,724 8,168
Discontinued operations (net of tax):
Operating income (loss) 6 (47) (226) 75
Provision for discontinued operations (2,975) -0- (2,975) -0-
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NET EARNINGS $ 2,562 $ 4,176 $ 8,523 $ 8,243
===========================================================================================
Basic earnings per common share:
Before discontinued operations $ .25 $ .18 $ .54 $ .35
Discontinued operations $ (.13) $ .00 $ (.15) $ .00
Net earnings $ .12 $ .18 $ .39 $ .35
Diluted earnings per common share:
Before discontinued operations $ .24 $ .18 $ .50 $ .33
Discontinued operations $ (.11) $ (.01) $ (.12) $ .00
Net earnings $ .13 $ .17 $ .38 $ .33
===========================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
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OPERATIONS:
Net earnings $ 2,562 $ 4,176 $ 8,523 $ 8,243
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 3,138 2,438 6,177 4,878
Deferred income taxes -0- 2,446 -0- 4,786
Provision for losses on accounts receivable 109 96 231 168
Provision for discontinued operations 4,854 -0- 4,854 -0-
Other 155 438 496 627
Effect on cash of changes in working capital and other assets
and liabilities:
Accounts receivable (779) 2,105 (5,928) 2,422
Inventories (28,635) (14,607) (31,973) (9,686)
Other current assets (177) (377) (274) 850
Accounts payable and accrued liabilities 23,002 17,005 18,686 3,411
Other assets and liabilities (119) 80 286 503
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Net cash provided by operating activities 4,110 13,800 1,078 16,202
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INVESTING ACTIVITIES:
Capital expenditures (10,279) (5,471) (19,229) (10,216)
Proceeds from businesses divested and asset sales 293 91 388 10,055
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Net cash used in investing activities (9,986) (5,380) (18,841) (161)
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FINANCING ACTIVITIES:
Stock repurchase (1,631) (15,525) (5,359) (28,264)
Payments on capital leases -0- (1) (1) (1)
Dividends paid (74) (75) (149) (150)
Exercise of options and related income tax benefits 638 549 3,687 2,710
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Net cash used in financing activities (1,067) (15,052) (1,822) (25,705)
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NET CASH FLOW (6,943) (6,632) (19,585) (9,664)
Cash and short-term investments at
beginning of period 45,218 55,711 57,860 58,743
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 38,275 $ 49,079 $ 38,275 $ 49,079
============================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for:
Interest $ 496 $ 438 $ 3,878 $ 3,598
Income taxes 6,726 1,577 7,411 1,652
============================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
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TOTAL RETAINED ACCUMULATED TOTAL
NON-REDEEMABLE ADDITIONAL EARNINGS OTHER SHARE-
PREFERRED COMMON PAID-IN TREASURY (ACCUMULATED COMPREHENSIVE COMPREHENSIVE HOLDERS'
STOCK STOCK CAPITAL STOCK DEFICIT) INCOME INCOME EQUITY
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Balance January 30, 1999 $7,918 $24,327 $126,095 $ (17,857) $ (23,904) $ -0- $116,579
===================================================================================================================================
Net earnings -0- -0- -0- -0- 25,922 -0- 25,922 25,922
Dividends paid -0- -0- -0- -0- (300) -0- -0- (300)
Exercise of options -0- 693 2,796 -0- -0- -0- -0- 3,489
Issue shares - Employee Stock
Purchase Plan -0- 122 417 -0- -0- -0- -0- 539
Tax effect of exercise of stock
options -0- -0- 1,427 -0- -0- -0- -0- 1,427
Stock repurchases -0- (3,439) (36,080) -0- -0- -0- -0- (39,519)
Other (36) 12 129 -0- -0- -0- -0- 105
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Comprehensive Income $ 25,922
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BALANCE JANUARY 29, 2000 $7,882 $21,715 $ 94,784 $ (17,857) $ 1,718 $ -0- $108,242
===================================================================================================================================
Net earnings -0- -0- -0- -0- 8,523 -0- 8,523 8,523
Dividends paid -0- -0- -0- -0- (149) -0- -0- (149)
Exercise of options -0- 660 3,027 -0- -0- -0- -0- 3,687
Tax effect of exercise of stock
options -0- -0- 1,128 -0- -0- -0- -0- 1,128
Stock repurchases -0- (443) (4,916) -0- -0- -0- -0- (5,359)
Other (39) 11 89 -0- -0- -0- -0- 61
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Comprehensive Income $ 8,523
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BALANCE JULY 29, 2000 $7,843 $21,943 $ 94,112 $ (17,857) $ 10,092 $ -0- $116,133
===================================================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM STATEMENTS
The consolidated financial statements contained in this report are unaudited but
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods of the
fiscal year ending February 3, 2001 ("Fiscal 2001") and of the fiscal year ended
January 29, 2000 ("Fiscal 2000"). The results of operations for any interim
period are not necessarily indicative of results for the full year. The
financial statements should be read in conjunction with the financial statements
and notes thereto included in the annual report on Form 10-K.
NATURE OF OPERATIONS
The Company's businesses include the manufacture or sourcing, marketing and
distribution of footwear principally under the Johnston & Murphy, Dockers and
Nautica brands and the operation at July 29, 2000 of 765 Jarman, Journeys,
Johnston & Murphy, Underground Station, Stone & Co. and Nautica retail footwear
stores and leased departments. The Company sold certain assets of its Volunteer
Leather business on June 19, 2000 and has discontinued all Leather segment
operations. (see Note 2).
BASIS OF PRESENTATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to the
current presentation.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at January 29, 2000 and July 29,
2000, are short-term investments of $47.1 million and $25.1 million,
respectively. Short-term investments are highly-liquid debt instruments having
an original maturity of three months or less.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, with cost determined principally by the first-in, first-out
method. Retail inventories are determined by the retail method.
PLANT, EQUIPMENT AND CAPITAL LEASES
Plant, equipment and capital leases are recorded at cost and depreciated or
amortized over the estimated useful life of related assets. Depreciation and
amortization expense are computed principally by the straight-line method over
estimated useful lives:
Buildings and building equipment 20-45 years
Machinery, furniture and fixtures 3-15 years
Leasehold improvements and properties under capital leases are amortized on the
straight-line method over the shorter of their useful lives or their related
lease terms.
IMPAIRMENT OF LONG-TERM ASSETS
The Company periodically assesses the realizability of its long-lived assets and
evaluates such assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Asset
impairment is determined to exist if estimated future cash flows, undiscounted
and without interest charges, are less than carrying amount.
HEDGING CONTRACTS
In order to reduce exposure to foreign currency exchange rate fluctuations in
connection with inventory purchase commitments, the Company enters into foreign
currency forward exchange contracts for Italian Lira and Euro. Gains and losses
from these transactions are included in the cost of the underlying purchases. At
January 29, 2000 and July 29, 2000, the Company had approximately $30.1 million
and $26.6 million, respectively, of such contracts outstanding. Forward exchange
contracts have an average term of approximately three and a half months. The
loss from spot rates at January 29, 2000 and July 29, 2000 under these contracts
was $2.5 million and $1.7 million, respectively. The Company monitors the credit
quality of the major national and regional financial institutions with whom it
enters into such contracts.
POSTRETIREMENT BENEFITS
Substantially all full-time employees are covered by a defined benefit pension
plan. The Company also provides certain former employees with limited medical
and life insurance benefits. The Company funds at least the minimum amount
required by the Employee Retirement Income Security Act.
REVENUE RECOGNITION
Retail sales are recorded net of actual returns, and exclude all taxes, while
wholesale revenue is recorded net of estimated returns when the related goods
have been shipped and legal title has passed to the customer.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PREOPENING COSTS
Costs associated with the opening of new stores are expensed as incurred.
ADVERTISING COSTS
Advertising costs are predominantly expensed as incurred. Advertising costs were
$10.6 million and $9.4 million for the first six months of Fiscal 2001 and 2000,
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 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 8).
COMPREHENSIVE INCOME
The Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income" requires, among other things, the Company's minimum
pension liability adjustment to be included in other comprehensive income.
BUSINESS SEGMENTS
The Statement of Financial Accounting Standards (SFAS) 131, "Disclosures about
Segments of an Enterprise and Related Information" requires that companies
disclose "operating segments" based on the way management disaggregates the
company for making internal operating decisions. (see Notes 2 and 10).
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10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
VOLUNTEER LEATHER DIVESTITURE
On May 22, 2000, the Company's board of directors approved a plan to sell its
Volunteer Leather finishing business and liquidate its tanning business, to
allow the Company to be more focused on the retailing and marketing of branded
footwear.
Certain assets of the Volunteer Leather business were sold June 19, 2000. The
plan resulted in a pretax charge to second quarter earnings of $4.9 million
($3.0 million net of tax). Because Volunteer Leather constitutes the entire
Leather segment of the Company's business, the charge to earnings is treated for
financial reporting purposes as a provision for discontinued operations.
The provision for discontinued operations includes $1.3 million in asset
write-downs and $3.6 million of other costs, of which $3.2 million are expected
to be incurred in the next twelve months. Other costs include primarily employee
severance and facility shutdown costs. Other costs expected to be incurred
beyond twelve months are classified as long-term liabilities in the consolidated
balance sheet. The Volunteer Leather business employed approximately 160 people.
The operating results of the leather segment are shown below:
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THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 29, JULY 31, JULY 29, JULY 31,
IN THOUSANDS 2000* 1999 2000** 1999
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Net sales $1,550 $ 4,899 $ 6,545 $10,191
Cost of sales and expenses 1,542 4,976 6,917 10,068
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Pretax earnings (loss) 8 (77) (372) 123
Income tax expense (benefit) 2 (30) (146) 48
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NET EARNINGS (LOSS) $ 6 $ (47) $ (226) $ 75
================================================================================
* Results for the month of May.
** Results for the four months ended May 2000.
Discontinued operations' sales subsequent to the decision to discontinue were
$0.8 million for Fiscal 2001.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE
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JULY 29, JANUARY 29,
IN THOUSANDS 2000 2000
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Trade accounts receivable $ 25,991 $ 25,125
Miscellaneous receivables 1,418 1,679
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Total receivables 27,409 26,804
Allowance for bad debts (1,059) (926)
Other allowances (2,393) (2,261)
- --------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 23,957 $ 23,617
==============================================================
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.
One customer accounted for more than 13% of the Company's trade receivables
balance as of July 29, 2000 and no other customer accounted for more than 10% of
the Company's trade receivables balance as of July 29, 2000.
NOTE 4
INVENTORIES
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JULY 29, JANUARY 29,
IN THOUSANDS 2000 2000
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Raw materials $ 1,295 $ 3,098
Work in process 643 2,146
Finished goods 26,897 31,513
Retail merchandise 111,727 73,058
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TOTAL INVENTORIES $ 140,562 $ 109,815
==============================================================
11
12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5
CURRENT ASSETS OF DISCONTINUED OPERATIONS
- --------------------------------------------------------------
JULY 29,
IN THOUSANDS 2000
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Accounts Receivable, net of allowance of $59 $5,358
Inventory 874
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TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS $6,232
==============================================================
NOTE 6
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
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JULY 29, JANUARY 29,
IN THOUSANDS 2000 2000
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Plant and equipment:
Land $ 301 $ 302
Buildings and building equipment 1,128 2,726
Machinery, furniture and fixtures 49,399 50,345
Construction in progress 10,942 7,116
Improvements to leased property 65,504 58,962
Capital leases:
Buildings 276 305
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Plant, equipment and capital leases, at cost 127,550 119,756
Accumulated depreciation and amortization:
Plant and equipment (47,665) (50,794)
Capital leases (276) (301)
- ---------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 79,609 $ 68,661
=================================================================================
12
13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
PROVISION FOR DISCONTINUED OPERATIONS
- ----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS* COSTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------
Balance January 29, 2000 $ 8,181 $ -0- $-0- $ 8,181
Volunteer Leather provision 1,063 2,082 426 3,571
Charges and adjustments, net (1,145) (57) 190 (1,012)
- ----------------------------------------------------------------------------------------------
Balance July 29, 2000 8,099 2,025 616 10,740
Current portion 3,041 1,636 616 5,293
- ----------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 5,058 $ 389 $-0- $ 5,447
==============================================================================================
* Includes $7.1 million of apparel union pension withdrawal liability.
RESTRUCTURING RESERVES
- ----------------------------------------------------------------------------------------------
EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------
Balance January 29, 2000 $ 64 $ 436 $ 527 $ 1,027
Charges and adjustments, net (40) (63) (54) (157)
- ----------------------------------------------------------------------------------------------
Balance July 29, 2000 24 373 473 870
Current portion (included in accounts
payable and accrued liabilities) 24 284 473 781
- ----------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $-0- $ 89 $-0- $ 89
==============================================================================================
13
14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
EARNINGS PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JULY 29, 2000 JULY 31, 1999
-------------------------------------- --------------------------------------
(IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before discontinued operations $ 5,531 $ 4,223
Less: Preferred stock dividends (75) (75)
- ---------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 5,456 21,496 $ .25 4,148 22,428 $ .18
====== ======
EFFECT OF DILUTIVE SECURITIES
Options 529 1,200
5 1/2% convertible subordinated notes 947 4,918 -0- -0-
Employees' preferred stock(1) 71 73
- ---------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 6,403 27,014 $ .24 $ 4,148 23,701 $ .18
===========================================================================================================================
(1) The Company's Employees' Subordinated Convertible Preferred Stock is
convertible one for one to the Company's common stock. Because there are no
dividends paid on this stock, these shares are assumed to be converted.
The amount of the dividend on the convertible preferred stock per common share
obtainable on conversion of the convertible preferred stock is higher than basic
earnings per share for the period. Therefore, conversion of the convertible
preferred stock is not reflected in diluted earnings per share, because it would
have been antidilutive. The shares convertible to common stock for Series 1, 3
and 4 preferred stock would have been 30,779, 40,605 and 24,946, respectively.
The weighted shares outstanding reflects the effect of the stock buy back
program of up to 6.8 million shares announced by the Company in Fiscal 1999,
2000 and 2001. The Company has repurchased 6.2 million shares as of July 29,
2000.
14
15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
EARNINGS PER SHARE, CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 29, 2000 JULY 31, 1999
-------------------------------------- --------------------------------------
(IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before discontinued operations $ 11,724 $ 8,168
Less: Preferred stock dividends (150) (150)
- ---------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 11,574 21,542 $ .54 8,018 23,011 $ .35
====== ======
EFFECT OF DILUTIVE SECURITIES
Options 472 1,081
5 1/2% convertible subordinated notes 1,894 4,918 -0- -0-
Employees' preferred stock(1) 72 73
- ---------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 13,468 27,004 $ .50 $ 8,018 24,165 $ .33
===========================================================================================================================
(1) The Company's Employees' Subordinated Convertible Preferred Stock is
convertible one for one to the Company's common stock. Because there are no
dividends paid on this stock, these shares are assumed to be converted.
The amount of the dividend on the convertible preferred stock per common share
obtainable on conversion of the convertible preferred stock is higher than basic
earnings per share for the period. Therefore, conversion of the convertible
preferred stock is not reflected in diluted earnings per share, because it would
have been antidilutive. The shares convertible to common stock for Series 1, 3
and 4 preferred stock would have been 30,779, 40,605 and 24,946, respectively.
The weighted shares outstanding reflects the effect of the stock buy back
program of up to 6.8 million shares announced by the Company in Fiscal 1999,
2000 and 2001. The Company has repurchased 6.2 million shares as of July 29,
2000.
15
16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
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
remediation costs and insurance coverage available to the various defendants,
the applicability of joint and several liability and the basis for contribution
claims among the defendants, management is unable to predict the outcome of the
action. However, management does not presently expect the action to have a
material effect on the Company's financial condition or results of operations.
The Company has received notice from the New York State Department of
Environmental Conservation (the "Department") that it deems remedial action to
be necessary with respect to certain contaminants in the vicinity of a knitting
mill operated by a former subsidiary of the Company from 1965 to 1969, and that
it considers the Company a potentially responsible party. In August 1997, the
Department and the Company entered into a consent order whereby the Company
assumed responsibility for conducting a remedial investigation and feasibility
study ("RIFS") and implementing an interim remediation measure with regard to
the site, without admitting liability or accepting responsibility for any future
remediation of the site. In conjunction with the consent order, the Company
entered into an agreement with the owner of the site providing for a release
from liability for property damage and for necessary access to the site, for
payments totaling $400,000. The Company estimates that the cost of conducting
the RIFS and implementing the interim remedial measure will be in the range of
$2.2 million to $2.6 million. 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.
16
17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
Whitehall Environmental Sampling
Pursuant to a work plan approved by the Michigan Department of Environmental
Quality ("MDEQ") the Company has performed sampling and analysis of soil,
sediments, surface water, groundwater and waste management areas at the
Company's Volunteer Leather Company facility in Whitehall, Michigan. On June 29,
1999, the Company submitted a remedial action plan (the "Plan") for the site to
MDEQ. The Plan proposed no direct remedial action with respect to soils at the
site, which are in compliance with applicable regulatory standards, or lake
sediments, which the Company believes do not pose a threat to human health or
the environment and do not violate any applicable regulatory standard. The Plan
included the filing of certain restrictive covenants encumbering the tannery
property to prevent activities disturbing the lake sediments and uses of the
property inconsistent with the applicable regulatory standards. The Company,
with the approval of MDEQ, previously installed horizontal wells to capture
groundwater from a portion of the site and treat it by air sparging. The Plan
proposed continued operation of this system for an indefinite period and
monitoring of groundwater samples to ensure that the system is functioning as
intended. The Plan is subject to MDEQ approval. In December 1999, MDEQ responded
to the Plan with a request for further information.
On June 30, 1999, the City of Whitehall filed an action against the Company in
the circuit court for the City of Muskegon alleging that the Company's and its
predecessors' past wastewater management practices have adversely affected the
environment, and seeking injunctive relief under Parts 17 and 201 of the
Michigan Natural Resources Environmental Protection Act ("MNREPA") to require
the Company to correct the alleged pollution. Further, the City alleges
violations of City ordinances prohibiting blight and litter, and that the
Whitehall Volunteer Leather plant constitutes a public nuisance. The Company
filed an answer denying the material allegations of the complaint and asserting
affirmative defenses and counterclaims against the City. The Company also moved
to join the State of Michigan as a party to the action, since it has primary
responsibility for administration of the environmental statutes underlying most
of the City's claims. The State moved to dismiss the Company's action against it
and to intervene in the case on a limited basis, seeking declaratory and
injunctive relief regarding the restrictive covenants on the property, the
State's jurisdiction under MNREPA Part 201 and its right of access to the
property. On May 5, 2000, the court dismissed the Company's action against the
State; the cross actions between the City and the Company remain.
In connection with its decision during the second quarter of Fiscal 2001 to exit
the leather business and to shut down the Whitehall facility, the Company
formally proposed a compromise remediation plan (the "Compromise Proposal"),
including limited sediment removal and additional upland remediation to bring
the property into compliance with regulatory standards for non-industrial uses.
The Company estimated that the Compromise Proposal would include incremental
costs of approximately $2.2 million, which were fully provided for during the
quarter.
17
18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
If the Compromise Proposal is approved and the litigation's outcome does not
require additional remediation of the site, the Company does not expect
remediation to have a material impact on its financial condition or results of
operations. However, there can be no assurance that the Compromise Proposal will
be approved, and the Company is unable to predict whether any further
remediation that may ultimately be required will have a material effect on its
financial condition or results of operations.
Whitehall Accident
On June 4, 1999, a truck driver working under contact with a carrier for a
chemical vendor died after inhaling a toxic vapor produced when he deposited a
chemical compound that he was delivering to the Company's Whitehall, Michigan
leather tannery into a tank containing another chemical solution. Regulatory
authorities, including the National Transportation Safety Board and the Michigan
Occupational Safety and Health Administration, investigated the incident. The
Michigan agency issued six citations alleging regulatory infractions identified
in the course of a general compliance review following the accident. Proposed
monetary penalties associated with the citations total $15,100. The Company is
contesting the citations. On March 14, 2000, the estate of the deceased truck
driver brought an action against the Company in Michigan state court alleging
that the Company's negligent acts and omissions caused his death and seeking
unspecified damages. The Company is currently unable to predict the extent of
its liability, if any, in connection with the accident and how liability, if
found, would be allocated among other potential defendants, including the
chemical vendor and the common carrier, and whether such liability, if any,
would have a material effect on its financial condition or results of
operations. The Company's insurance carrier is defending the Company in the
action, subject to a standard reservation of rights to deny coverage.
Threatened Contribution Claim
The Company has been advised by the current owner of an adhesives manufacturing
business formerly owned by the Company that the owner has been named a
third-party defendant in a suit brought under CERCLA relating to an Alabama
solvent recycling facility allegedly used by the business. According to the
owner, it would in turn seek contribution from the Company against any portion
of its liability arising out of the Company's operation of the business prior to
its 1986 divestiture. The current owner has advised the Company that available
information on volumes of contaminants at the site indicates that the entire
share of liability related to the adhesives business is de minimis, not likely
to exceed $50,000. Based on information concerning its relative contribution of
wastes to the site the Company has agreed to accept 17% of up to $50,000 in
liability imposed on the adhesives business and the current owner and one other
former owner have agreed to accept the balance of such liability up to $50,000.
The Company does not expect this threatened claim to have a material adverse
effect on its financial condition or results of operations.
18
19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
BUSINESS SEGMENT INFORMATION
The Company currently operates four reportable business segments (not including
corporate): Journeys; Jarman, comprised of the Jarman, Underground Station and
Stone & Co. retail footwear chains; Johnston & Murphy, comprised of Johnston &
Murphy retail stores and wholesale distribution; and Licensed Brands, comprised
of Dockers and Nautica Footwear. The Company operated in Fiscal 2000 the Other
Retail segment, comprised of General Shoe Warehouse and the Jarman Leased
departments, both of which were closed in Fiscal 2000. All the Company's
segments sell footwear products at either retail or wholesale. The Company also
operated the Leather segment in Fiscal 2000 and some of Fiscal 2001. The Company
sold certain assets of its Volunteer Leather business June 19, 2000 and has
discontinued all Leather segment operations.
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. Journeys and Jarman sells primarily branded products from
other companies while Johnston & Murphy and Licensed Brands 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, interest expense, interest income, and other charges. Other
includes severance, litigation and environmental charges.
- -------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JOHNSTON LICENSED
JULY 29, 2000 JOURNEYS JARMAN & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------------
Sales $ 59,726 $20,498 $44,169 $ 19,216 $ -0- $ -0- $ 143,609
Intercompany sales -0- -0- 20 (886) -0- -0- (866)
- -------------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 59,726 20,498 44,189 18,330 -0- -0- 142,743
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 6,569 450 5,632 974 -0- (2,752) 10,873
Interest expense -0- -0- -0- -0- -0- 2,093 2,093
Interest income -0- -0- -0- -0- -0- 261 261
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 6,569 450 5,632 974 -0- (4,584) 9,041
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 101,113 37,319 68,792 24,667 6,901 91,385 330,177
Depreciation 1,199 518 652 28 91 650 3,138
Capital expenditures 5,217 2,764 1,291 19 -0- 988 10,279
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
BUSINESS SEGMENT INFORMATION, CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OTHER JOHNSTON LICENSED
JULY 31, 1999 JOURNEYS JARMAN RETAIL & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $ 44,937 $ 18,168 $ 2,170 $ 37,865 $ 19,070 $ -0- $ -0- $ 122,210
Intercompany sales -0- -0- -0- (148) (1,058) -0- -0- (1,206)
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 44,937 18,168 2,170 37,717 18,012 -0- -0- 121,004
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 5,888 (288) 143 4,721 885 -0- (2,920) 8,429
Interest expense -0- -0- -0- -0- -0- -0- 2,041 2,041
Interest income -0- -0- -0- -0- -0- -0- 580 580
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 5,888 (288) 143 4,721 885 -0- (4,381) 6,968
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 71,389 25,774 3,047 57,957 26,295 8,150 99,967 292,579
Depreciation 771 393 26 671 59 114 404 2,438
Capital expenditures 3,138 406 5 1,010 1 11 900 5,471
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JOHNSTON LICENSED
JULY 29, 2000 JOURNEYS JARMAN & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
Sales $117,743 $ 41,518 $ 88,486 $ 42,525 $ -0- $ -0- $ 290,272
Intercompany sales -0- -0- (211) (1,304) -0- -0- (1,515)
- ----------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 117,743 41,518 88,275 41,221 -0- -0- 288,757
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) 13,081 1,193 11,305 2,607 -0- (5,271) 22,915
Interest expense -0- -0- -0- -0- -0- 4,194 4,194
Interest income -0- -0- -0- -0- -0- 680 680
Other -0- -0- -0- -0- -0- (170) (170)
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 13,081 1,193 11,305 2,607 -0- (8,955) 19,231
- ----------------------------------------------------------------------------------------------------------------------
Total assets 101,113 37,319 68,792 24,667 6,901 91,385 330,177
Depreciation 2,294 987 1,344 59 201 1,292 6,177
Capital expenditures 9,347 5,257 2,889 36 -0- 1,700 19,229
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED OTHER JOHNSTON LICENSED
JULY 31, 1999 JOURNEYS JARMAN RETAIL & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $ 84,387 $ 36,742 $ 5,399 $ 78,194 $ 42,301 $ -0- $ -0- $ 247,023
Intercompany sales -0- -0- -0- (156) (2,499) -0- -0- (2,655)
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 84,387 36,742 5,399 78,038 39,802 -0- -0- 244,368
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 9,576 (261) (51) 10,011 2,420 -0- (5,193) 16,502
Interest expense -0- -0- -0- -0- -0- -0- 4,037 4,037
Interest income -0- -0- -0- -0- -0- -0- 1,241 1,241
Other -0- -0- -0- -0- -0- -0- (127) (127)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 9,576 (261) (51) 10,011 2,420 -0- (8,116) 13,579
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 71,389 25,774 3,047 57,957 26,295 8,150 99,967 292,579
Depreciation 1,508 824 87 1,332 116 229 782 4,878
Capital expenditures 5,956 340 100 2,108 23 20 1,669 10,216
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
This discussion and the notes to the Consolidated Financial Statements include
certain forward-looking statements. Actual results could differ materially from
those reflected by the forward-looking statements in this discussion and a
number of factors may adversely affect future results, liquidity and capital
resources. These factors include changes in consumer demand or tastes that
affect sales at retail or wholesale, changes in buying patterns by significant
wholesale customers, disruptions in product supply, changes in business
strategies by the Company's competitors, the Company's ability to open, staff
and support additional retail stores on schedule and at acceptable expense
levels and the outcome of litigation and environmental matters and the adequacy
of related reserves, including those discussed in Note 9 to the Consolidated
Financial Statements. Although the Company believes it has an appropriate
business strategy and the resources necessary for its operations, future revenue
and margin trends cannot be reliably predicted and the Company may alter its
business strategies to address changing conditions.
SIGNIFICANT DEVELOPMENTS
Volunteer Leather Divestiture
On May 22, 2000, the Company's board of directors approved a plan to sell its
Volunteer Leather finishing business and liquidate its tanning business, to
allow the Company to be more focused on the retailing and marketing of branded
footwear.
Certain assets of the Volunteer Leather business were sold June 19, 2000. The
plan resulted in a pretax charge to second quarter earnings of $4.9 million
($3.0 million net of tax). Because Volunteer Leather constitutes the entire
Leather segment of the Company's business, the charge to earnings is treated for
financial reporting purposes as a provision for discontinued operations.
The provision for discontinued operations includes $1.3 million in asset
write-downs and $3.6 million of other costs, of which $3.2 million are expected
to be incurred in the next twelve months. Other costs include primarily employee
severance and facility shutdown costs. Other costs expected to be incurred
beyond twelve months are classified as long-term liabilities in the consolidated
balance sheet. The Volunteer Leather business employed approximately 160 people.
Share Repurchase Program
In total, the Company's board of directors has authorized the repurchase of 6.8
million shares of the Company's common stock since the third quarter of Fiscal
1999. This total includes the authorization in February of 2000 of an additional
1.0 million shares. The purchases may be made on the open market or in privately
negotiated transactions. As of July 29, 2000, the Company had repurchased 6.2
million shares at a cost of $57.1 million from all authorizations.
21
22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Business Segments
The Company currently operates four reportable business segments (not including
corporate): Journeys; Jarman, comprised of the Jarman, Underground Station and
Stone & Co. retail footwear chains; Johnston & Murphy, comprised of Johnston &
Murphy retail stores and wholesale distribution; and Licensed Brands, comprised
of Dockers and Nautica Footwear. The Company operated in Fiscal 2000 the Other
Retail segment, comprised of General Shoe Warehouse and the Jarman Leased
departments, both of which were closed in Fiscal 2000. The Company also operated
the Leather segment in Fiscal 2000 and some of Fiscal 2001. The Company sold
certain assets of its Volunteer Leather business June 19, 2000 and has
discontinued all Leather segment operations.
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales in the second quarter ended July 29, 2000 increased
18.0% to $142.7 million from $121.0 million in the second quarter ended July 31,
1999. Excluding net sales attributable to the divested Other Retail business
from last year, the Company's net sales increased 20.1% to $142.7 million in the
second quarter ended July 29, 2000 from $118.8 million in the same period last
year. Gross margin increased 21.8% to $68.5 million in the second quarter this
year from $56.2 million in the same period last year and increased as a
percentage of net sales from 46.5% to 48.0%. Selling and administrative expenses
in the second quarter this year increased 20.5% from the second quarter last
year and increased as a percentage of net sales from 39.5% to 40.3%. Selling and
administrative expenses were reduced $0.3 million in the second quarter this
year for a reduction in pension expense. Explanations of the changes in results
of operations are provided by business segment in discussions following this
introductory paragraph.
Pretax earnings for the second quarter ended July 29, 2000 were $9.0 million
compared to $7.0 million for the second quarter ended July 31, 1999.
Net earnings for the second quarter ended July 29, 2000 were $2.6 million ($.13
diluted earnings per share) compared to $4.2 million ($.17 diluted earnings per
share) for the second quarter ended July 31, 1999. Net earnings for the second
quarter ended July 29, 2000 included a $3.0 million ($.11 diluted earnings per
share) charge to earnings (net of tax) for the divestiture of the Company's
Volunteer Leather business.
Journeys
Three Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ........ $59,726 $44,937 32.9%
Operating income.. $ 6,569 $ 5,888 11.6%
Operating margin.. 11.0% 13.1%
22
23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Reflecting both a 30% increase in average Journeys stores operated (i.e., the
sum of the number of stores open on the first day of the fiscal quarter and the
last day of each fiscal month during the quarter divided by four) and an 8%
increase in comparable store sales, net sales from Journeys increased 32.9% for
the second quarter ended July 29, 2000 compared to the same period last year.
The average price per pair of shoes decreased 1% in the second quarter of Fiscal
2001 while unit sales increased 33% during the same period. The store count for
Journeys was 377 stores at the end of the second quarter of Fiscal 2001 compared
to 287 stores at the end of the second quarter last year.
Journeys operating income for the second quarter ended July 29, 2000 was up
11.6% to $6.6 million compared to $5.9 million for the second quarter ended July
31, 1999. The increase was due to increased sales both from store openings and a
comparable store sales increase and increased gross margin as a percentage of
sales. Journeys operating income decreased as a percentage of sales from 13.1%
for the second quarter last year to 11.0% for the second quarter this year due
to higher marketing expenses and costs associated with rapid store expansion.
Jarman
Three Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ............. $20,498 $ 18,168 12.8%
Operating income (loss) $ 450 $ (288) NA
Operating margin ...... 2.2% (1.6%)
Primarily due to a 13% increase in average Jarman stores operated and a 2%
increase in comparable store sales, net sales from Jarman increased 12.8% for
the second quarter ended July 29, 2000 compared to the same period last year.
The increase in sales was driven primarily by Underground Station stores. The
average price per pair of shoes increased 7% in the second quarter of Fiscal
2001 and unit sales increased 2% during the same period. Jarman operated 186
stores at the end of the second quarter of Fiscal 2001, including 33 Underground
Station stores and nine Stone & Co. stores. It had operated 158 stores at the
end of the second quarter last year, including 17 Underground Station stores and
one Stone & Co. store.
Jarman operating income for the second quarter ended July 29, 2000 was $0.5
million compared to ($0.3) million for the second quarter ended July 31, 1999
and increased as a percent of sales to 2.2% from (1.6%) for the same period last
year. The increase was due to increased sales, increased gross margin in dollars
and as a percentage of sales due primarily to lower markdowns and changes in
product mix.
23
24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Johnston & Murphy
Three Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ........ $44,189 $37,717 17.2%
Operating income.. $ 5,632 $ 4,721 19.3%
Operating margin.. 12.7% 12.5%
Johnston & Murphy net sales increased 17.2% to $44.2 million for the second
quarter ended July 29, 2000 from $37.7 million for the second quarter ended July
31, 1999. The increase reflects primarily a 5% increase in comparable store
sales for Johnston & Murphy retail operations and a 9% increase in average
Johnston & Murphy retail stores operated. Retail operations accounted for 65% of
Johnston & Murphy segment sales in the second quarter this year, up from 63% in
the second quarter last year. There was an 11% increase in Johnston & Murphy
wholesale sales. The store count for Johnston & Murphy retail operations at the
end of the second quarter of Fiscal 2001 included 152 Johnston & Murphy stores
and factory stores compared to 138 Johnston & Murphy stores and factory stores
at the end of the second quarter of Fiscal 2000. The average price per pair of
shoes for Johnston & Murphy retail increased 1% in the second quarter this year
and unit sales increased 15% during the same period. Unit sales for the Johnston
& Murphy wholesale business increased 16% in the second quarter of Fiscal 2001,
while the average price per pair of shoes decreased 6% for the same period,
reflecting increased promotional activities and mix changes.
Johnston & Murphy operating income for the second quarter ended July 29, 2000
increased 19.3% from $4.7 million for the second quarter ended July 31, 1999 to
$5.6 million, primarily due to increased sales and increased gross margin as a
percentage of sales.
Licensed Brands
Three Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ........ $18,330 $18,012 1.8%
Operating income.. $ 974 $ 885 10.1%
Operating margin.. 5.3% 4.9%
24
25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Licensed Brands net sales increased 1.8% to $18.3 million for the second quarter
ended July 29, 2000 from $18.0 million for the second quarter ended July 31,
1999, reflecting primarily a 2% increase in Licensed Brands wholesale sales.
Unit sales for the Licensed Brands wholesale businesses increased 7% for the
second quarter this year, while the average price per pair of shoes decreased 5%
for the same period, reflecting increased promotional activities and changes in
product mix.
Licensed Brands operating income for the second quarter ended July 29, 2000
increased 10.1% from $0.9 million for the second quarter ended July 31, 1999 to
$1.0 million, primarily due to increased sales and increased gross margin as a
percentage of sales.
Other Retail
Three Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ...... $ -0- $2,170 (100.0%)
Operating income $ -0- $ 143 NA
Operating margin NA 6.6%
The Jarman Leased departments business was closed in the first quarter of Fiscal
2000 and the remaining five Other Retail stores, which were General Shoe
Warehouse stores, were transferred to the Jarman and Johnston & Murphy operating
segments during the first quarter of Fiscal 2001. The Company will no longer
report results from the Other Retail segment.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for the second quarter ended July 29, 2000 were
$2.7 million compared to $2.9 million for the second quarter ended July 31, 1999
or a decrease of 5.9%. The decrease in corporate expenses in the second quarter
this year is attributable primarily to $0.3 million of investment income.
Interest expense increased 2.5% from $2.0 million in the second quarter ended
July 31, 1999 to $2.1 million for the second quarter ended July 29, 2000,
primarily due to increased bank activity fees due to the increase in the number
of individual bank accounts because of increased new store openings.
Interest income decreased 55% from $0.6 million in the second quarter last year
to $0.3 million in the second quarter this year due to decreases in average
short-term investments. There were no borrowings under the Company's revolving
credit facility during the three months ended July 29, 2000 or July 31, 1999.
25
26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS - SIX MONTHS FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales in the first six months ended July 29, 2000 increased
18.2% to $288.8 million from $244.4 million in the first six months ended July
31, 1999. Excluding net sales attributable to the divested Other Retail business
from last year, the Company's net sales increased 20.8% to $288.8 million in the
first six months ended July 29, 2000 from $239.0 million in the same period last
year. Gross margin increased 20.2% to $136.1 million in the first six months
this year from $113.3 million in the same period last year and increased as a
percentage of net sales from 46.4% to 47.1%. Selling and administrative expenses
in the first six months this year increased 17.0% from the first six months last
year but decreased as a percentage of net sales from 39.7% to 39.3%. Selling and
administrative expenses were reduced $0.7 million in the first six months this
year for a reduction in pension expense as total pension expense for Fiscal 2001
is expected to be $0.3 million versus $1.7 million in Fiscal 2000. Explanations
of the changes in results of operations are provided by business segment in
discussions following this introductory paragraph.
Pretax earnings for the first six months ended July 29, 2000 were $19.2 million
compared to $13.6 million for the first six months ended July 31, 1999.
Net earnings for the first six months ended July 29, 2000 were $8.5 million
($.38 diluted earnings per share) compared to $8.2 million ($.33 diluted
earnings per share) for the first six months ended July 31, 1999. Net earnings
for the first six months ended July 29, 2000 included a $3.0 million ($.12
diluted earnings per share) charge to earnings (net of tax) for the divestiture
of the Company's Volunteer Leather business.
Journeys
Six Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ................. $117,743 $84,387 39.5%
Operating income .......... $ 13,081 $ 9,576 36.6%
Operating margin .......... 11.1% 11.3%
Reflecting both a 30% increase in average Journeys stores operated (i.e., the
sum of the number of stores open on the first day of the fiscal year and the
last day of each fiscal month during the six months divided by seven) and a 14%
increase in comparable store sales, net sales from Journeys increased 39.5% for
the first six months ended July 29, 2000 compared to the same period last year.
The average price per pair of shoes decreased 1% in the first six months of
Fiscal 2001 while unit sales increased 40% during the same period. The store
count for Journeys was 377 stores at the end of the first six months of Fiscal
2001 compared to 287 stores at the end of the first six months last year.
26
27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Journeys operating income for the first six months ended July 29, 2000 was up
36.6% to $13.1 million compared to $9.6 million for the first six months ended
July 31, 1999. The increase was due to increased sales both from store openings
and a comparable store sales increase. Journeys operating income decreased as a
percentage of sales from 11.3% for the first six months last year to 11.1% for
the first six months this year due to higher marketing expenses and costs
associated with rapid store expansion.
Jarman
Six Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ................. $41,518 $36,742 13.0%
Operating income (loss) ... $ 1,193 $ (261) NA
Operating margin .......... 2.9% (0.7%)
Primarily due to a 7% increase in average Jarman stores operated for the six
months and a 5% increase in comparable store sales, net sales from Jarman
increased 13.0% for the first six months ended July 29, 2000 compared to the
same period last year. The increase in sales was driven primarily by Underground
Station stores. The average price per pair of shoes increased 8% in the first
six months of Fiscal 2001 and unit sales increased 2% during the same period.
Jarman operated 186 stores at the end of the first six months of Fiscal 2001,
including 33 Underground Station stores and nine Stone & Co. stores. It had
operated 158 stores at the end of the first six months last year, including 17
Underground Station stores and one Stone & Co. store.
Jarman operating income for the first six months ended July 29, 2000 was $1.2
million compared to ($0.3) million for the first six months ended July 31, 1999
and increased as a percent of sales to 2.9% from (0.7%) for the same period last
year. The increase was due to increased sales, increased gross margin in dollars
and as a percentage of sales due primarily to lower markdowns combined with
changes in product mix and decreased expenses as a percentage of sales.
27
28
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Johnston & Murphy
Six Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ................. $88,275 $78,038 13.1%
Operating income .......... $11,305 $10,011 12.9%
Operating margin .......... 12.8% 12.8%
Johnston & Murphy net sales increased 13.1% to $88.3 million for the first six
months ended July 29, 2000 from $78.0 million for the first six months ended
July 31, 1999. The increase reflects primarily a 5% increase in comparable store
sales for Johnston & Murphy retail operations and a 9% increase in average
Johnston & Murphy retail stores operated. Retail operations accounted for 64% of
Johnston & Murphy segment sales in the first six months this year and 62% of
Johnston & Murphy segment sales in the first six months last year. There was a
7% increase in Johnston & Murphy wholesale sales. The store count for Johnston &
Murphy retail operations at the end of the first six months of Fiscal 2001
included 152 Johnston & Murphy stores and factory stores compared to 138
Johnston & Murphy stores and factory stores at the end of the first six months
of Fiscal 2000. The average price per pair of shoes for Johnston & Murphy retail
was flat in the first six months this year while unit sales increased 14% during
the same period. Unit sales for the Johnston & Murphy wholesale business
increased 13% in the first six months of Fiscal 2001, while the average price
per pair of shoes decreased 5% for the same period, reflecting increased
promotional activities and mix changes.
Johnston & Murphy operating income for the first six months ended July 29, 2000
increased 12.9% from $10.0 million for the first six months ended July 31, 1999
to $11.3 million, primarily due to increased sales.
Licensed Brands
Six Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ................. $41,221 $39,802 3.6%
Operating income .......... $ 2,607 $ 2,420 7.7%
Operating margin .......... 6.3% 6.1%
28
29
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Licensed Brands net sales increased 3.6% to $41.2 million for the first six
months ended July 29, 2000 from $39.8 million for the first six months ended
July 31, 1999, reflecting primarily a 3% increase in Licensed Brands wholesale
sales. Unit sales for the Licensed Brands wholesale businesses increased 6% for
the first six months this year, while the average price per pair of shoes
decreased 5% for the same period, reflecting increased promotional activities
and changes in product mix.
Licensed Brands operating income for the first six months ended July 29, 2000
increased 7.7% from $2.4 million for the first six months ended July 31, 1999 to
$2.6 million, primarily due to increased sales and decreased expenses as a
percentage of sales.
Other Retail
Six Months Ended
--------------------
July 29, July 31, %
2000 1999 Change
------- ------- ------
(dollars in thousands)
Net sales ................. -0- $ 5,399 (100.0%)
Operating income .......... -0- $ (51) NA
Operating margin .......... NA (0.9%)
The Jarman Leased departments business was closed in the first quarter of Fiscal
2000 and the remaining five Other Retail stores, which were General Shoe
Warehouse stores, were transferred to the Jarman and Johnston & Murphy operating
segments during the first quarter of Fiscal 2001. The Company will no longer
report results from the Other Retail segment.
Corporate, Interest Expenses and Other Charges
Corporate and other expenses for the first six months ended July 29, 2000 were
essentially flat with last year at $5.3 million.
Interest expense increased 3.9% from $4.0 million in the first six months ended
July 31, 1999 to $4.2 million for the first six months ended July 29, 2000,
primarily due to increased bank activity fees due to the increase in the number
of individual bank accounts because of increased new store openings.
Interest income decreased 45% from $1.2 million in the first six months last
year to $0.7 million in the first six months this year due to decreases in
average short-term investments. There were no borrowings under the Company's
revolving credit facility during the six months ended July 29, 2000 or July 31,
1999.
29
30
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
July 29, July 31,
2000 1999
-------- --------
(dollars in millions)
Cash and short-term investments ............ $ 38.3 $ 49.1
Working capital ............................ $ 134.0 $ 134.8
Long-term debt (includes current maturities) $ 103.5 $ 103.5
Current ratio .............................. 2.4x 2.8x
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 $1.1 million in the first six months
of Fiscal 2001 compared to $16.2 million in the first six months of Fiscal 2000.
The $15.1 million decrease in cash flow from operating activities reflects
primarily increased accounts receivable due to increased wholesale sales and
extended terms and increased inventory due to increased new store openings and
planned seasonal increases. Contributing to the inventory change was an increase
in net stores and leased departments of 86 this year compared to a net decline
of 39 last year.
The $32.0 million increase in inventories at July 29, 2000 from January 29, 2000
levels reflects increases in retail inventory to support the net increase of 86
stores in the first six months this year as well as planned seasonal increases.
Accounts receivable at July 29, 2000 increased $5.9 million compared to January
29, 2000 primarily due to increased wholesale sales and lengthening of days
sales outstanding due to changes in promotional activities.
30
31
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Cash provided (or used) due to changes in accounts payable and accrued
liabilities are as follows:
Six Months Ended
---------------------------
July 29, July 31,
2000 1999
---------- -----------
(in thousands)
Accounts payable ...... $ 24,911 $ 8,315
Accrued liabilities.... (6,225) (4,904)
---------- -----------
$ 18,686 $ 3,411
========== ===========
The fluctuations in accounts payable for the first six months this year from the
first six months last year are due to changes in buying patterns, payment terms
negotiated with individual vendors and changes in inventory levels. The change
in accrued liabilities for the first six months this year was due primarily to
payment of incentive compensation accruals.
There were no revolving credit borrowings during the first six months ended July
29, 2000 and July 31, 1999, as cash generated from operations and cash on hand
funded seasonal working capital requirements and capital expenditures.
Capital Expenditures
Total capital expenditures in Fiscal 2001 are expected to be approximately $33.1
million. These include expected retail expenditures of $29.4 million to open
approximately 100 Journeys stores, 15 Johnston & Murphy stores and factory
stores, and 54 Jarman Retail stores which includes 33 Underground Station stores
and three Stone & Co. stores, and to complete 34 major store renovations.
Capital expenditures for wholesale and manufacturing operations and other
purposes are expected to be approximately $3.7 million, including approximately
$2.0 million for new computer systems to improve customer service and support
the Company's growth.
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 9 to the
Company's Consolidated Financial Statements. The Company has made provisions for
certain of these contingencies, including approximately $2.4 million reflected
in Fiscal 2001 and $472,000 reflected in Fiscal 2000. The Company monitors these
matters on an ongoing basis and at least quarterly management reviews the
Company's reserves and accruals in relation to each of them, adjusting
provisions as management deems necessary in view of changes in available
information. Changes in estimates of liability are reported in the periods when
they occur. Consequently, management believes that its reserve in relation to
each proceeding is a reasonable estimate of the probable loss connected to the
proceeding, or in cases in which no reasonable estimate is possible, the minimum
amount in the range of estimated losses, based upon its analysis of the facts
and circumstances as of the close of the most recent fiscal quarter. Because of
uncertainties and risks inherent in litigation generally and in
31
32
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
environmental proceedings in particular, however, there can be no assurance that
future developments will not require additional reserves to be set aside, that
some or all reserves may not be adequate or that the amounts of any such
additional reserves or any such inadequacy will not have a material adverse
effect upon the Company's financial condition or results of operations.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be
sufficient to fund all of its capital expenditures through Fiscal 2001, although
the Company may borrow from time to time to support seasonal working capital
requirements. The approximately $6.1 million of costs associated with the prior
restructurings and discontinued operations that are expected to be incurred
during the next twelve months are also expected to be funded from cash on hand.
In February of 2000, the Company authorized the additional repurchase, from time
to time, of up to 1.0 million shares of the Company's common stock. These
purchases will be funded from available cash. The Company has repurchased a
total of 6.2 million shares at a cost of $57.1 million from all authorizations
for Fiscal 1999, Fiscal 2000 and Fiscal 2001.
There were $8.9 million of letters of credit outstanding under the revolving
credit agreement at July 29, 2000, leaving availability under the revolving
credit agreement of $56.1 million.
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At July 29, 2000, $30.7 million
was available for such payments. The aggregate of annual dividend requirements
on the Company's Subordinated Serial Preferred Stock, $2.30 Series 1, $4.75
Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative Preferred
Stock is $300,000.
FINANCIAL MARKET RISK
The following discusses the Company's exposure to financial market risk related
to changes in interest rates and foreign currency exchange rates.
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.
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 July 29, 2000. As a result, the interest rate
market risk implicit in these investments at July 29, 2000, if any, is low.
Foreign Currency Exchange Rate Risk - Most purchases by the Company from foreign
sources are denominated in U.S. dollars. To the extent that import transactions
are denominated in other currencies, it is the Company's practice to hedge its
risks through the purchase of forward foreign
32
33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
exchange contracts. Gains and losses from these transactions are included in the
cost of the underlying purchases. The loss on contracts outstanding at July 29,
2000 was $1.7 million from current spot rates. At July 29, 2000, the Company had
$26.6 million of foreign exchange contracts for Italian Lira and Euro. As of
July 29, 2000, a 10% adverse change in foreign currency exchange rates from
market rates would decrease the fair value of the contracts by approximately
$4.0 million.
Summary - Based on the Company's overall market interest rate and foreign
currency rate exposure at July 29, 2000, the Company believes that the effect,
if any, of reasonably possible near-term changes in interest rates or
fluctuations in foreign currency exchange rates on the Company's consolidated
financial position, result of operations or cash flows for Fiscal 2001 would not
be material.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. The Financial Accounting Standards Board issued SFAS No. 137 in
July 1999 to delay the effective date of SFAS No. 133 for one year, to fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires an entity to recognize all derivatives as either assets or liabilities
in the consolidated balance sheet and to measure those instruments at fair
value. Under certain conditions, a derivative may be specifically designated as
a fair value hedge or a cash flow hedge. The accounting for changes in the fair
value of a derivative will depend on the intended use of the derivative and the
resulting designation. At this time, the impact of adopting the provisions of
this statement is not currently estimable and will depend on the financial
position of the Company and the nature and purpose of the derivative instruments
in use at that time.
33
34
PART II - OTHER INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information regarding market risk to
appear under the heading "Financial Market Risk" in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on June 28, 2000, shares
representing a total of 21,775,663 votes were outstanding and entitled to vote.
At the meeting, shareholders of the Company:
(1) elected ten directors nominated by the board of directors by the
following votes:
Votes
Votes "For" "Withheld"
----------- ----------
Leonard L. Berry 17,547,428 340,510
Robert V. Dale 17,534,224 353,714
W. Lipscomb Davis, Jr 17,544,595 343,343
Joel C. Gordon 17,545,291 342,647
Ben T. Harris 14,473,867 3,414,071
Kathleen Mason 17,548,029 339,909
Hal N. Pennington 17,548,031 339,907
William A. Williamson, Jr 17,545,980 341,958
William S. Wire II 17,545,850 342,088
Gary M. Witkin 17,525,016 362,922
(2) approved an amendment to the Company's 1996 Stock Incentive Plan by a
vote of 18,355,609 for, 1,653,666 against, with 66,749 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(27) Financial Data Schedule (for SEC use only)
- --------------
REPORTS ON FORM 8-K
None
34
35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
James S. Gulmi
Chief Financial Officer
September 12, 2000
35
5
1,000
6-MOS
FEB-03-2001
JAN-30-2000
JUL-29-2000
13,213
25,062
23,598
1,059
140,562
233,006
127,550
47,941
330,177
98,989
103,500
0
7,843
21,943
86,347
330,177
288,757
288,757
152,616
152,616
0
358
4,194
19,231
7,507
11,724
(3,201)
0
0
8,523
0.39
0.38
