1
[GENESCO LOGO]
(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
October 28, 2000
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
-----------------------------------
GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
-----------------------------------
Indicate by check mark whether the
registrant (1) has filed all
reports required to be filed by
Section 13 or 15(d) of the
Securities Exchange Act of 1934
during the preceding 12 months (or
such shorter period that the
registrant was required to file
such reports with the commission)
and (2) has been subject to such
filing requirements for the past 90
days.
Yes [X] No [ ]
- -------------------------------------------------------
Common Shares Outstanding December 1, 2000 - 21,452,134
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INDEX
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PAGE
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Part 1 - Financial Information 3
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Consolidated Balance Sheet - October 28, 2000, January 29, 2000 and
October 30, 1999 3
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Consolidated Earnings - Three Months Ended and Nine Months Ended
October 28, 2000 and October 30, 1999 4
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Consolidated Cash Flows - Three Months Ended and Nine Months Ended
October 28, 2000 and October 30, 1999 5
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Consolidated Shareholders' Equity - Year Ended
January 29, 2000 and Nine Months Ended October 28, 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
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OCTOBER 28, JANUARY 29, OCTOBER 30,
2000 2000 1999
- -----------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and short-term investments $ 16,060 $ 57,860 $ 38,543
Accounts receivable 30,493 23,617 25,996
Inventories 154,101 109,815 129,787
Deferred income taxes 14,826 14,826 10,775
Other current assets 9,977 8,881 5,984
Current assets of discontinued operations 3,834 -0- -0-
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Total current assets 229,291 214,999 211,085
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Plant, equipment and capital leases, net 85,386 68,661 64,850
Deferred income taxes 4,184 4,184 10,370
Other noncurrent assets 14,302 13,321 10,117
Plant and equipment of discontinued operations, net 563 -0- -0-
===============================================================================================
TOTAL ASSETS $ 333,726 $ 301,165 $ 296,422
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 92,159 $ 74,874 $ 73,817
Provision for discontinued operations 4,385 2,118 2,083
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Total current liabilities 96,544 76,992 75,900
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Long-term debt 103,500 103,500 103,500
Other long-term liabilities 6,018 6,368 6,373
Provision for discontinued operations 4,860 6,063 6,615
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Total liabilities 210,922 192,923 192,388
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Contingent liabilities (see Note 9)
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,827 7,882 7,884
Common shareholders' equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued: October 28, 2000 - 21,881,715;
January 29, 2000 - 21,714,678;
October 30, 1999 - 22,282,538 21,882 21,715 22,282
Additional paid-in capital 92,151 94,784 101,407
Retained earnings (accumulated deficit) 18,801 1,718 (9,682)
Accumulated other comprehensive income -0- -0- -0-
Treasury shares, at cost (17,857) (17,857) (17,857)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 122,804 108,242 104,034
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 333,726 $ 301,165 $ 296,422
===============================================================================================
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
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THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
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Net sales $ 175,593 $ 139,902 $ 464,350 $ 384,270
Cost of sales 93,425 75,143 246,041 206,229
Selling and administrative expenses 65,748 53,398 179,144 150,305
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Earnings from operations before interest 16,420 11,361 39,165 27,736
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Interest expense 2,274 2,058 6,468 6,095
Interest income (194) (404) (874) (1,645)
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Total interest expense, net 2,080 1,654 5,594 4,450
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Earnings before income taxes
and discontinued operations 14,340 9,707 33,571 23,286
Income taxes 5,555 3,850 13,062 9,261
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Earnings before discontinued operations 8,785 5,857 20,509 14,025
Discontinued operations (net of tax):
Operating income (loss) -0- 347 (226) 422
Provision for discontinued operations -0- -0- (2,975) -0-
- ---------------------------------------------------------------------------------------------------
NET EARNINGS $ 8,785 $ 6,204 $ 17,308 $ 14,447
===================================================================================================
Basic earnings per common share:
Before discontinued operations $ .41 $ .27 $ .94 $ .61
Discontinued operations $ .00 $ .01 $ (.15) $ .02
Net earnings $ .41 $ .28 $ .79 $ .63
Diluted earnings per common share:
Before discontinued operations $ .36 $ .25 $ .86 $ .59
Discontinued operations $ .00 $ .01 $ (.12) $ .01
Net earnings $ .36 $ .26 $ .74 $ .60
===================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
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THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net earnings $ 8,785 $ 6,204 $ 17,308 $ 14,447
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 3,380 2,626 9,557 7,504
Deferred income taxes -0- 3,766 -0- 8,552
Provision for losses on accounts receivable (67) 377 164 545
Provision for discontinued operations -0- -0- 4,854 -0-
Other 138 163 635 790
Effect on cash of changes in working capital and other assets
and liabilities:
Accounts receivable (7,102) (4,241) (13,030) (1,819)
Inventories (12,665) (10,567) (44,638) (20,253)
Other current assets (822) (116) (1,096) 734
Accounts payable and accrued liabilities (2,445) (142) 16,241 3,269
Other assets and liabilities (1,782) (1,787) (1,496) (1,284)
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Net cash provided by (used in) operating activities (12,580) (3,717) (11,501) 12,485
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (9,430) (5,087) (28,659) (15,303)
Proceeds from businesses divested and asset sales 2,262 11 2,650 10,066
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Net cash used in investing activities (7,168) (5,076) (26,009) (5,237)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Stock repurchase (3,308) (2,497) (8,667) (30,761)
Payments on capital leases (4) (1) (5) (2)
Dividends paid (75) (75) (225) (225)
Exercise of options 920 830 4,607 3,540
- --------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,467) (1,743) (4,290) (27,448)
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NET CASH FLOW (22,215) (10,536) (41,800) (20,200)
Cash and short-term investments at
beginning of period 38,275 49,079 57,860 58,743
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 16,060 $ 38,543 $ 16,060 $ 38,543
====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for:
Interest $ 3,612 $ 3,417 $ 7,490 $ 7,015
Income taxes 968 195 8,379 1,847
====================================================================================================================
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
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
----------
Comprehensive Income $ 25,922
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 29, 2000 $ 7,882 $21,715 $ 94,784 $(17,857) $ 1,718 $ -0- $ 108,242
=================================================================================================================================
Net earnings -0- -0- -0- -0- 17,308 -0- 17,308 17,308
Dividends paid -0- -0- -0- -0- (225) -0- -0- (225)
Exercise of options -0- 740 3,305 -0- -0- -0- -0- 4,045
Issue shares - Employee Stock
Purchase Plan -0- 55 508 -0- -0- -0- -0- 563
Tax effect of exercise of
stock options -0- -0- 1,452 -0- -0- -0- -0- 1,452
Stock repurchases -0- (639) (8,028) -0- -0- -0- -0- (8,667)
Other (55) 11 130 -0- -0- -0- -0- 86
--------
Comprehensive Income $ 17,308
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 28, 2000 $ 7,827 $21,882 $ 92,151 $(17,857) $ 18,801 $ -0- $122,804
=================================================================================================================================
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 October 28, 2000 of 815 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 October 28,
2000, are short-term investments of $47.1 million and $7.1 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. Gains and losses from
these transactions are included in the cost of the underlying purchases. At
January 29, 2000 and October 28, 2000, the Company had approximately $30.1
million and $28.2 million, respectively, of such contracts outstanding. Forward
exchange contracts have an average term of approximately four and a half months.
The loss from spot rates at January 29, 2000 and October 28, 2000 under these
contracts was $2.5 million and $2.8 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
$16.8 million and $14.5 million for the first nine 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).
9
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 included $1.3 million in asset
write-downs and $3.6 million of other costs, of which $2.2 million are expected
to be incurred in the next twelve months. As of October 28, 2000, $1.2 million
of such other costs had been incurred. 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:
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- -----------------------
OCT. 28, OCT. 30, OCT. 28, OCT. 30,
IN THOUSANDS 2000 1999 2000* 1999
- ---------------------------------------------------------------------------------------------------------
Net sales $ -0- $6,067 $6,545 $16,257
Cost of sales and expenses -0- 5,499 6,917 15,566
- ---------------------------------------------------------------------------------------------------------
Pretax earnings (loss) -0- 568 (372) 691
Income tax expense (benefit) -0- 221 (146) 269
- ---------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ -0- $ 347 $ (226) $ 422
=========================================================================================================
* Results for the four months ended May 2000.
Discontinued operations' sales subsequent to the decision to discontinue were
$0.9 million for Fiscal 2001.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE
OCTOBER 28, JANUARY 29,
IN THOUSANDS 2000 2000
- --------------------------------------------------------------------
Trade accounts receivable $ 32,136 $ 25,125
Miscellaneous receivables 1,468 1,679
- --------------------------------------------------------------------
Total receivables 33,604 26,804
Allowance for bad debts (1,028) (926)
Other allowances (2,083) (2,261)
- --------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 30,493 $ 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 16% of the Company's trade receivables
balance as of October 28, 2000 and no other customer accounted for more than 12%
of the Company's trade receivables balance as of October 28, 2000.
NOTE 4
INVENTORIES
OCTOBER 28, JANUARY 29,
IN THOUSANDS 2000 2000
- --------------------------------------------------------------------
Raw materials $ 1,211 $ 3,098
Work in process 618 2,146
Finished goods 27,263 31,513
Retail merchandise 125,009 73,058
- --------------------------------------------------------------------
TOTAL INVENTORIES $ 154,101 $ 109,815
====================================================================
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12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5
CURRENT ASSETS OF DISCONTINUED OPERATIONS
OCTOBER 28,
IN THOUSANDS 2000
- -----------------------------------------------------------------------------
Accounts Receivable, net of allowance of $3 $3,834
Inventory -0-
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS $3,834
=============================================================================
NOTE 6
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
OCTOBER 28, JANUARY 29,
IN THOUSANDS 2000 2000
- -----------------------------------------------------------------------------
Plant and equipment:
Land $ 291 $ 302
Buildings and building equipment 1,128 2,726
Machinery, furniture and fixtures 53,071 50,345
Construction in progress 8,932 7,116
Improvements to leased property 72,056 58,962
Capital leases:
Buildings 20 305
- -----------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 135,498 119,756
Accumulated depreciation and amortization:
Plant and equipment (50,105) (50,794)
Capital leases (7) (301)
- -----------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 85,386 $ 68,661
=============================================================================
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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 (2,289) (157) (61) (2,507)
- -----------------------------------------------------------------------------------------------------
Balance October 28, 2000 6,955 1,925 365 9,245
Current portion 2,514 1,506 365 4,385
- -----------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 4,441 $ 419 $ -0- $ 4,860
=====================================================================================================
* Includes $6.5 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 (64) (23) (69) (156)
- -----------------------------------------------------------------------------------------------------
Balance October 28, 2000 -0- 413 458 871
Current portion (included in accounts
payable and accrued liabilities) -0- 348 458 806
- -----------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 65 $ -0- $ 65
=====================================================================================================
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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
OCTOBER 28, 2000 OCTOBER 30, 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 $8,785 $5,857
Less: Preferred stock dividends (75) (75)
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 8,710 21,470 $.41 5,782 21,786 $.27
==== ====
Plus: Interest on 5 1/2% convertible
subordinated notes (net of tax) 947 962
EFFECT OF DILUTIVE SECURITIES
Options 518 695
5 1/2% convertible subordinated notes 4,918 4,918
Employees' preferred stock(1) 71 72
- ---------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $9,657 26,977 $.36 $6,744 27,471 $.25
=================================================================================================================================
(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 6.4 million shares as of October 28,
2000.
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15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
EARNINGS PER SHARE, CONTINUED
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
OCTOBER 28, 2000 OCTOBER 30, 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 $20,509 $14,025
Less: Preferred stock dividends (225) (225)
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to
common shareholders 20,284 21,518 $.94 13,800 22,603 $.61
==== ====
Plus: Interest on 5 1/2% convertible
subordinated notes (net of tax) 2,840 2,887
EFFECT OF DILUTIVE SECURITIES
Options 488 692
5 1/2% convertible subordinated notes 4,918 4,918
Employees' preferred stock(1) 71 73
- ---------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $23,124 26,995 $.86 $16,687 28,286 $.59
=================================================================================================================================
(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 6.4 million shares as of October 28,
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 approximately 40% 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 and interest income.
THREE MONTHS ENDED JOHNSTON LICENSED
OCTOBER 28, 2000 JOURNEYS JARMAN & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------
Sales $ 78,680 $27,531 $ 46,861 $ 23,458 $ -0- $ -0- $ 176,530
Intercompany sales -0- -0- (3) (934) -0- -0- (937)
- -------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 78,680 27,531 46,858 22,524 -0- -0- 175,593
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 10,886 1,870 5,720 1,535 -0- (3,591) 16,420
Interest expense -0- -0- -0- -0- -0- 2,274 2,274
Interest income -0- -0- -0- -0- -0- 194 194
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 10,886 1,870 5,720 1,535 -0- (5,671) 14,340
- -------------------------------------------------------------------------------------------------------------------------
Total assets 107,561 45,990 72,910 31,608 4,397 71,260 333,276
Depreciation 1,336 602 773 29 -0- 640 3,380
Capital expenditures 4,604 3,557 795 13 -0- 461 9,430
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
BUSINESS SEGMENT INFORMATION, CONTINUED
THREE MONTHS ENDED OTHER JOHNSTON LICENSED
OCTOBER 28, 1999 JOURNEYS JARMAN RETAIL & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Sales $56,068 $20,861 $ 1,986 $ 42,604 $ 19,657 $ -0- $ -0- $ 141,176
Intercompany sales -0- -0- -0- (141) (1,133) -0- -0- (1,274)
- ---------------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 56,068 20,861 1,986 42,463 18,524 -0- -0- 139,902
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 7,903 1,280 (194) 4,832 488 -0- (2,948) 11,361
Interest expense -0- -0- -0- -0- -0- -0- 2,058 2,058
Interest income -0- -0- -0- -0- -0- -0- 404 404
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 7,903 1,280 (194) 4,832 488 -0- (4,602) 9,707
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 79,224 28,413 2,281 62,025 28,307 9,209 86,963 296,422
Depreciation 840 381 24 722 50 114 495 2,626
Capital expenditures 2,850 941 -0- 757 51 17 471 5,087
NINE MONTHS ENDED JOHNSTON LICENSED
OCTOBER 28, 2000 JOURNEYS JARMAN & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Sales $196,423 $69,049 $ 135,222 $ 66,538 $ -0- $ -0- $ 467,232
Intercompany sales -0- -0- (89) (2,793) -0- -0- (2,882)
-------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 196,423 69,049 135,133 63,745 -0- -0- 464,350
-------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 23,967 3,063 17,025 4,142 -0- (9,032) 39,165
Interest expense -0- -0- -0- -0- -0- 6,468 6,468
Interest income -0- -0- -0- -0- -0- 874 874
-------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 23,967 3,063 17,025 4,142 -0- (14,626) 33,571
-------------------------------------------------------------------------------------------------------------------------
Total assets 107,561 45,990 72,910 31,608 4,397 71,260 333,726
Depreciation 3,630 1,589 2,117 88 149 1,984 9,557
Capital expenditures 13,951 8,814 3,684 49 -0- 2,161 28,659
NINE MONTHS ENDED OTHER JOHNSTON LICENSED
OCTOBER 28, 1999 JOURNEYS JARMAN RETAIL & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Sales $140,455 $57,603 $ 7,385 $ 120,795 $ 61,947 $ -0- $ -0- $ 388,185
Intercompany sales -0- -0- -0- (294) (3,621) -0- -0- (3,915)
- -------------------------------------------------------------------------------------------------------------------------------
NET SALES TO EXTERNAL CUSTOMERS 140,455 57,603 7,385 120,501 58,326 -0- -0- 384,270
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 17,479 1,019 (245) 14,843 2,908 -0- (8,268) 27,736
Interest expense -0- -0- -0- -0- -0- -0- 6,095 6,095
Interest income -0- -0- -0- -0- -0- -0- 1,645 1,645
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 17,479 1,019 (245) 14,843 2,908 -0- (12,718) 23,286
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 79,224 28,413 2,281 62,025 28,307 9,209 86,963 296,422
Depreciation 2,348 1,205 111 2,054 166 343 1,277 7,504
Capital expenditures 8,806 1,281 100 2,865 74 37 2,140 15,303
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, particularly with respect to fourth quarter
prospects in case of unexpected demand weakness in the holiday shopping season,
changes in buying patterns by significant wholesale customers, and risks
associated with a softening economy, including the collectibility of trade
accounts receivable. These factors also include 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 included $1.3 million in asset
write-downs and $3.6 million of other costs, of which $2.2 million are expected
to be incurred in the next twelve months. As of October 28, 2000, $1.2 million
of such other costs had been incurred. 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 October 28, 2000, the Company had repurchased 6.4
million shares at a cost of $60.4 million from all authorizations.
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
21
22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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 - THIRD QUARTER FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales in the third quarter ended October 28, 2000 increased
25.5% to $175.6 million from $139.9 million in the third quarter ended October
30, 1999. Gross margin increased 26.9% to $82.2 million in the third quarter
this year from $64.8 million in the same period last year and increased as a
percentage of net sales from 46.3% to 46.8%. Selling and administrative expenses
in the third quarter this year increased 23.1% from the third quarter last year
but decreased as a percentage of net sales from 38.2% to 37.4%. Selling and
administrative expenses were reduced $0.3 million in the third 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 third quarter ended October 28, 2000 were $14.3 million
compared to $9.7 million for the third quarter ended October 30, 1999.
Net earnings for the third quarter ended October 28, 2000 were $8.8 million
($.36 diluted earnings per share) compared to $6.2 million ($.26 diluted
earnings per share) for the third quarter ended October 30, 1999.
Journeys
Three Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales........................ $78,680 $ 56,068 40.3%
Operating income................. $10,886 $ 7,903 37.7%
Operating margin................. 13.8% 14.1%
Reflecting both a 32% 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 a 14%
increase in comparable store sales, net sales from Journeys
22
23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
increased 40.3% for the third quarter ended October 28, 2000 compared to the
same period last year. The average price per pair of shoes increased 4% in the
third quarter of Fiscal 2001 and unit sales increased 35% during the same
period. The store count for Journeys was 407 stores at the end of the third
quarter of Fiscal 2001 compared to 307 stores at the end of the third quarter
last year.
Journeys' operating income for the third quarter ended October 28, 2000
increased 37.7% to $10.9 million compared to $7.9 million for the third quarter
ended October 30, 1999. The increase was due to increased sales from both 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 14.1% for the third quarter last year to 13.8% for the third quarter
this year due to higher marketing expenses and costs associated with rapid store
expansion.
Jarman
Three Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ 27,531 $20,861 32.0%
Operating income................ $ 1,870 $ 1,280 46.1%
Operating margin................ 6.8% 6.1%
Primarily due to a 23% increase in average Jarman stores operated and a 9%
increase in comparable store sales, net sales from Jarman increased 32.0% for
the third quarter ended October 28, 2000 compared to the same period last year.
The average price per pair of shoes decreased 1% in the third quarter of Fiscal
2001 while unit sales increased 27% during the same period. Jarman operated 205
stores at the end of the third quarter of Fiscal 2001, including 50 Underground
Station stores and ten Stone & Co. stores. It had operated 159 stores at the end
of the third quarter last year, including 17 Underground Station stores and five
Stone & Co. stores.
Jarman operating income for the third quarter ended October 28, 2000 was $1.9
million compared to $1.3 million for the third quarter ended October 30, 1999
and increased as a percent of sales to 6.8% from 6.1% for the same period last
year. The increase was due to increased sales and increased gross margin in
dollars and as a percentage of sales, due primarily to changes in product mix
and lower markdowns.
23
24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Johnston & Murphy
Three Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ 46,858 $42,463 10.4%
Operating income................ $ 5,720 $ 4,832 18.4%
Operating margin................ 12.2% 11.4%
Johnston & Murphy net sales increased 10.4% to $46.9 million for the third
quarter ended October 28, 2000 from $42.5 million for the third quarter ended
October 30, 1999. Johnston & Murphy retail sales increased 11%. The increase
reflects primarily a 2% increase in comparable store sales and a 6% increase in
average Johnston & Murphy retail stores operated. Retail operations accounted
for 60% of Johnston & Murphy segment sales in the third quarter this year, up
from 59% in the third quarter last year. The store count for Johnston & Murphy
retail operations at the end of the third quarter of Fiscal 2001 included 147
Johnston & Murphy stores and factory stores compared to 143 Johnston & Murphy
stores and factory stores at the end of the third quarter of Fiscal 2000. The
average price per pair of shoes for Johnston & Murphy retail increased 1% in the
third quarter this year and unit sales increased 5% during the same period.
There was an 8% increase in Johnston & Murphy wholesale sales. Unit sales for
the Johnston & Murphy wholesale business increased 10% in the third quarter of
Fiscal 2001, while the average price per pair of shoes decreased 3% for the same
period, reflecting increased promotional activities and mix changes.
Johnston & Murphy operating income for the third quarter ended October 28, 2000
increased 18.4% from $4.8 million for the third quarter ended October 30, 1999
to $5.7 million, primarily due to increased sales and decreased expenses as a
percentage of sales.
Licensed Brands
Three Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ 22,524 $ 18,524 21.6%
Operating income................ $ 1,535 $ 488 214.6%
Operating margin................. 6.8% 2.6%
24
25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Licensed Brands net sales increased 21.6% to $22.5 million for the third quarter
ended October 28, 2000 from $18.5 million for the third quarter ended October
30, 1999. The sales increase reflected strength in the Dockers Footwear
business, which more than offset declining sales of Nautica Footwear. Unit sales
for the Licensed Brands wholesale businesses increased 25% for the third quarter
this year, while the average price per pair of shoes decreased 4% for the same
period, reflecting increased promotional activities in the Nautica business.
Licensed Brands operating income for the third quarter ended October 28, 2000
increased 214.6% from $0.5 million for the third quarter ended October 30, 1999
to $1.5 million, primarily due to increased sales and decreased expenses as a
percentage of sales.
Other Retail
Three Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ -0- $ 1,986 (100.0%)
Operating income (loss)......... $ -0- $ (194) NA
Operating margin................ NA (9.8%)
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 and Interest Expenses
Corporate and other expenses for the third quarter ended October 28, 2000 were
$3.6 million compared to $2.9 million for the third quarter ended October 30,
1999 or an increase of 21.8%. The increase in corporate expenses in the third
quarter this year is attributable primarily to increased compensation,
including increased bonus accruals and increased professional fees.
Interest expense increased 10.5% from $2.1 million in the third quarter ended
October 30, 1999 to $2.3 million for the third quarter ended October 28, 2000,
primarily due to increased bank activity fees related to the increase in the
number of individual bank accounts because of new store openings.
Interest income decreased 52% from $0.4 million in the third quarter last year
to $0.2 million in the third 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 October 28, 2000 or October 30,
1999.
25
26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS FISCAL 2001 COMPARED TO FISCAL 2000
The Company's net sales in the nine months ended October 28, 2000 increased
20.8% to $464.4 million from $384.3 million in the nine months ended October 30,
1999. Excluding net sales attributable to the divested Other Retail business
from last year, the Company's net sales increased 23.2% to $464.4 million in the
nine months ended October 30, 2000 from $376.9 million in the same period last
year. Gross margin increased 22.6% to $218.3 million in the first nine months
this year from $178.0 million in the same period last year and increased as a
percentage of net sales from 46.3% to 47.0%. Selling and administrative expenses
in the first nine months this year increased 19.2% from the first nine months
last year but decreased as a percentage of net sales from 39.1% to 38.6%.
Selling and administrative expenses were reduced $1.1 million in the first nine
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 nine months ended October 28, 2000 were $33.6 million
compared to $23.3 million for the nine months ended October 30, 1999.
Net earnings for the nine months ended October 28, 2000 were $17.3 million ($.74
diluted earnings per share) compared to $14.4 million ($.60 diluted earnings per
share) for the nine months ended October 30, 1999. Net earnings for the nine
months ended October 28, 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
Nine Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales...................... $ 196,423 $ 140,455 39.8%
Operating income............... $ 23,967 $ 17,479 37.1%
Operating margin............... 12.2% 12.4%
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 nine months divided by ten) and a 14%
increase in comparable store sales, net sales from Journeys increased 39.8% for
the nine months ended October 28, 2000 compared to the same period last year.
The average price per pair of shoes increased 1% in the first nine months of
Fiscal 2001 while unit sales increased 38% during the same period. The store
count for Journeys was 407 stores at the end
26
27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
of the first nine months of Fiscal 2001 compared to 307 stores at the end of the
first nine months last year.
Journeys' operating income for the nine months ended October 28, 2000 increased
37.1% to $24.0 million compared to $17.5 million for the nine months ended
October 30, 1999. The increase was due to increased sales from both store
openings and a comparable store sales increase. Journeys operating income
decreased as a percentage of sales from 12.4% for the first nine months last
year to 12.2% for the first nine months this year due to higher marketing
expenses and costs associated with rapid store expansion.
Jarman
Nine Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ 69,049 $ 57,603 19.9%
Operating income............... $ 3,063 $ 1,019 200.6%
Operating margin................ 4.4% 1.8%
Primarily due to a 13% increase in average Jarman stores operated and a 7%
increase in comparable store sales, net sales from Jarman increased 19.9% for
the nine months ended October 28, 2000 compared to the same period last year.
The increase in sales and comparable store sales was driven primarily by
Underground Station stores. The average price per pair of shoes increased 5% in
the first nine months of Fiscal 2001 and unit sales increased 10% during the
same period. Jarman operated 205 stores at the end of the first nine months of
Fiscal 2001, including 50 Underground Station stores and ten Stone & Co. stores.
It had operated 159 stores at the end of the first nine months last year,
including 17 Underground Station stores and five Stone & Co. stores.
Jarman operating income for the nine months ended October 28, 2000 was $3.1
million compared to $1.0 million for the nine months ended October 30, 1999 and
increased as a percent of sales to 4.4% from 1.8% for the same period last year.
The increase was due to increased sales and increased gross margin in dollars
and as a percentage of sales, due primarily to 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
Nine Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales...................... $ 135,133 $ 120,501 12.1%
Operating income............... $ 17,025 $ 14,843 14.7%
Operating margin............... 12.6% 12.3%
Johnston & Murphy net sales increased 12.1% to $135.1 million for the nine
months ended October 28, 2000 from $120.5 million for the nine months ended
October 30, 1999. Johnston & Murphy retail sales increased 15%. The increase
reflects primarily a 4% increase in comparable store sales and an 8% increase in
average Johnston & Murphy retail stores operated. Retail operations accounted
for 62% of Johnston & Murphy segment sales in the first nine months this year,
up from 61% in the first nine months last year. The store count for Johnston &
Murphy retail operations at the end of the first nine months of Fiscal 2001
included 147 Johnston & Murphy stores and factory stores compared to 143
Johnston & Murphy stores and factory stores at the end of the first nine months
of Fiscal 2000. The average price per pair of shoes for Johnston & Murphy retail
was flat in the first nine months this year while unit sales increased 11%
during the same period. There was a 7% increase in Johnston & Murphy wholesale
sales. Unit sales for the Johnston & Murphy wholesale business increased 12% in
the first nine months of Fiscal 2001, while the average price per pair of shoes
decreased 4% for the same period, reflecting increased promotional activities
and mix changes.
Johnston & Murphy operating income for the nine months ended October 28, 2000
increased 14.7% from $14.8 million for the nine months ended October 30, 1999 to
$17.0 million, primarily due to increased sales.
28
29
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Licensed Brands
Nine Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ 63,745 $ 58,326 9.3%
Operating income................ $ 4,142 $ 2,908 42.4%
Operating margin................. 6.5% 5.0%
Licensed Brands net sales increased 9.3% to $63.7 million for the nine months
ended October 28, 2000 from $58.3 million for the nine months ended October 30,
1999. The sales increase reflected strength in the Dockers Footwear business,
which more than offset declining sales of Nautica footwear. Unit sales for the
Licensed Brands wholesale businesses increased 11% for the first nine months
this year, while the average price per pair of shoes decreased 5% for the same
period, reflecting increased promotional activities in the Nautica business and
changes in product mix.
Licensed Brands operating income for the nine months ended October 28, 2000
increased 42.4% from $2.9 million for the nine months ended October 30, 1999 to
$4.1 million, primarily due to increased sales and decreased expenses as a
percentage of sales.
Other Retail
Nine Months Ended
--------------------
Oct. 28, Oct. 30, %
2000 1999 Change
------- -------- ----
(dollars in thousands)
Net sales....................... $ -0- $7,385 (100.0%)
Operating income (loss)......... $ -0- $ (245) NA
Operating margin................ NA (3.3%)
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 and Interest Expenses
Corporate and other expenses for the nine months ended October 28, 2000 were
$9.0 million compared to $8.3 million for the nine months ended October 30, 1999
or an increase of 9.2%. The increase in corporate expenses for the first nine
months this year is attributable primarily to increased bonus accruals.
29
30
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Interest expense increased 6.1% from $6.1 million in the nine months ended
October 30, 1999 to $6.5 million for the nine months ended October 28, 2000,
primarily due to increased bank activity fees related to the increase in the
number of individual bank accounts because of new store openings.
Interest income decreased 47% from $1.6 million in the first nine months last
year to $0.9 million in the first nine months this year due to decreases in
average short-term investments. There were no borrowings under the Company's
revolving credit facility during the nine months ended October 28, 2000 or
October 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
Oct. 28, Oct. 30,
2000 1999
-------- --------
(dollars in millions)
Cash and short-term investments ............ $ 16.1 $ 38.5
Working capital ............................ $ 132.7 $ 135.2
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 used in operating activities was $11.5 million in the first nine months of
Fiscal 2001 compared to $12.5 million of cash provided by operating activities
in the first nine months of Fiscal 2000. The $24.0 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 and a $6.5 million
increase in taxes paid. Contributing to the inventory change was an increase in
net stores and leased departments of 136 this year compared to a net decline of
9 last year.
The $44.6 million increase in inventories at October 28, 2000 from January 29,
2000 levels reflects increases in retail inventory to support the net increase
of 136 stores in the first nine months this year as well as planned seasonal
increases.
30
31
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Accounts receivable at October 28, 2000 increased $13.0 million compared to
January 29, 2000 primarily due to increased wholesale sales and lengthening of
days sales outstanding due to changes in payment terms related to promotional
programs.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities are as follows:
Nine Months Ended
-----------------------
Oct. 28, Oct. 30,
2000 1999
-------- -------
(in thousands)
Accounts payable ..... $ 16,766 $ 7,207
Accrued liabilities... (525) (3,938)
-------- -------
$ 16,241 $ 3,269
======== ======
The fluctuations in accounts payable for the first nine months this year from
the first nine months last year are due to changes in payment terms negotiated
with individual vendors, inventory levels and buying patterns.
There were no revolving credit borrowings during the nine months ended October
28, 2000 and October 30, 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 $34.8
million. These include expected retail expenditures of $31.1 million to open
approximately 101 Journeys stores, 15 Johnston & Murphy stores and factory
stores, and 52 Jarman Retail stores which includes 32 Underground Station stores
and three Stone & Co. stores, and to complete 39 major store renovations.
Capital expenditures for wholesale and manufacturing operations and other
purposes are expected to be approximately $3.7 million, including approximately
$1.9 million for new computer systems to improve customer service and support
the Company's growth. Total capital expenditures for the nine months ended
October 28, 2000 were $28.7 million. The revolving credit agreement, as amended
October 4, 2000, limits capital expenditures to $36 million for Fiscal 2001.
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
31
32
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
relation to each proceeding is a reasonable estimate of the probable loss
connected to the proceeding, or in cases in which no reasonable estimate is
possible, the minimum amount in the range of estimated losses, based upon its
analysis of the facts and circumstances as of the close of the most recent
fiscal quarter. Because of uncertainties and risks inherent in litigation
generally and in environmental proceedings in particular, however, there can be
no assurance that future developments will not require additional reserves to be
set aside, that some or all reserves may not be adequate or that the amounts of
any such additional reserves or any such inadequacy will not have a material
adverse effect upon the Company's financial condition or results of operations.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be
sufficient to fund all of its capital expenditures through Fiscal 2001. The
approximately $5.2 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 6.4 million shares
at a cost of $60.4 million from all authorizations for Fiscal 1999, Fiscal 2000
and Fiscal 2001.
There were $7.2 million of letters of credit outstanding under the revolving
credit agreement at October 28, 2000, leaving availability under the revolving
credit agreement of $57.8 million.
The Company's revolving credit agreement restricts the payment of dividends and
other payments with respect to capital stock. At October 28, 2000, $32.2 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 October 28, 2000.
32
33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
As a result, the interest rate market risk implicit in these investments at
October 28, 2000, if any, is low.
Foreign Currency Exchange Rate Risk - Most purchases by the Company from foreign
sources are denominated in U.S. dollars. To the extent that import transactions
are denominated in other currencies, it is the Company's practice to hedge its
risks through the purchase of forward foreign exchange contracts. Gains and
losses from these transactions are included in the cost of the underlying
purchases. The loss on contracts outstanding at October 28, 2000 was $2.8
million from current spot rates. At October 28, 2000, the Company had $28.2
million of foreign exchange contracts for Italian Lira. As of October 28, 2000,
a 10% adverse change in foreign currency exchange rates from market rates would
decrease the fair value of the contracts by approximately $5.2 million.
Summary - Based on the Company's overall market interest rate and foreign
currency rate exposure at October 28, 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 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(10)h. Sixth Amendment to Modified and Restated Loan Agreement dated as of
October 4, 2000.
(27) Financial Data Schedule (for SEC use only)
- --------------
REPORTS ON FORM 8-K
The Company filed current reports on Form 8-K on November 14, 2000 and December
4, 2000 disclosing Regulation FD disclosures.
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
December 12, 2000
35
1
EXHIBIT (10)h.
SIXTH AMENDMENT TO MODIFIED
AND RESTATED LOAN AGREEMENT
THIS SIXTH AMENDMENT TO MODIFIED AND RESTATED LOAN AGREEMENT (the
"Sixth Amendment") dated as of October 4, 2000, is to that Modified and Restated
Loan Agreement dated as of September 24, 1997, as amended January 30, 1998,
March 31, 1998, August 1, 1998, December 11, 1998 and November 5, 1999
(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"), BANK ONE, NA (formerly
known as The First National Bank of Chicago), as Co-Agent for the Banks (the
"Co-Agent"), and BANK OF AMERICA, N.A. (formerly known as 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. The Loan Agreement is amended and modified in the following
respects:
(1) Section 7.5.4 shall be amended in its entirety so that
such Section now reads as follows:
7.5.4 Capital Expenditures. The Borrower will not,
and will not permit any of its Subsidiaries to, purchase or
otherwise acquire, or commit to purchase or otherwise acquire,
any fixed or capital asset or otherwise make or incur
obligations for Capital Expenditures by the expenditure of
cash or the incurrence of Indebtedness, the cost of which (or,
in the case of any acquisition not in the nature of an
ordinary purchase, the book value of the consideration given
for which), when aggregated with the costs of all other such
assets purchased or otherwise acquired by the Borrower and its
Subsidiaries taken as a whole during such Fiscal Year, would
exceed $36,000,000 during any Fiscal Year (commencing with the
Fiscal Year ending January 31, 2001); provided, that, if
during any Fiscal Year Capital Expenditures are less than
$36,000,000, the lesser of (i) the difference between
$36,000,000 and the actual Capital Expenditures for such
Fiscal
2
Year, or (ii) $3,000,000 (such lesser amount being referred to
as the "Excess Capital Expenditures Allowance") shall be
carried forward so as to increase the maximum Capital
Expenditures which may be made in accordance with this
Subsection 7.5.4 for the immediately succeeding Fiscal Year,
but not for any other subsequent Fiscal Year, except to the
extent permitted by the next succeeding sentence. Capital
Expenditures made in any such succeeding Fiscal Year shall be
applied first to the Excess Capital Expenditures Allowance
carried forward until such Allowance is exhausted and shall
then be applied to the maximum Capital Expenditures specified
above for such Fiscal Year in determining whether an Excess
Capital Expenditure Allowance is available to be carried
forward to the next succeeding Fiscal Year in the manner
described in this Subsection 7.5.4.
(2) Section 7.6 shall be amended in its entirety so that such
Section now reads as follows:
7.6 Restrictions on Fundamental Changes. The Borrower
will not, and will not permit any of its Subsidiaries to (i)
enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or (ii) convey, sell, lease,
transfer or otherwise dispose of subsequent to the Closing
Date, in one or more transactions, all or any portion of its
business, properties or assets (real and personal, tangible
and intangible) or any stock or other Securities of any of its
Subsidiaries, whether now owned or hereafter acquired,
constituting in the aggregate for all of such transactions
consummated on or after the end of the second fiscal quarter
of Fiscal Year 2001 more than 10% of Consolidated Tangible
Assets as of the end of the second fiscal quarter of Fiscal
Year 2001; provided, that, so long as no Event of Default or
Potential Default has occurred and is continuing or would
occur as a result thereof, (x) any Subsidiary of the Borrower
may be merged or consolidated with or into the Borrower or any
direct wholly-owned Subsidiary of the Borrower, or be
liquidated, wound up or dissolved, or all or substantially all
of its business, properties or assets (real and personal,
tangible and intangible) may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a
series of transactions, to the Borrower or any direct
wholly-owned Subsidiary of the Borrower; and (y) the Borrower
or any of its Subsidiaries may acquire any Person by merger or
consolidation, provided that the Borrower or such Subsidiary
is the corporation surviving such merger or consolidation, in
any transaction that would not cause an Event of Default or
Potential Default under this Loan Agreement.
B. The Borrower hereby represents and warrants that:
2
3
(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 Sixth Amendment; and
(ii) No Default or Potential Default currently exists and is
continuing under the Loan Agreement simultaneously with the execution
of this Sixth Amendment.
C. The Borrower will execute such additional documents as are
reasonably requested by the Agent to reflect the terms and conditions of this
Sixth Amendment.
D. Except as modified hereby and except for necessary
modifications to exhibits to bring such exhibits in conformity with the terms of
this Sixth Amendment, all of the terms and provisions of the Loan Agreement (and
Exhibits) remain in full force and effect.
E. The Borrower agrees to pay all reasonable costs and expenses
in connection with the preparation, execution and delivery of this Sixth
Amendment, including without limitation the reasonable fees and expenses of the
Agent's legal counsel.
F. This Sixth 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 Sixth Amendment
to produce or account for more than one such counterpart.
G. This Sixth 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]
3
4
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Sixth 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:
BANK OF AMERICA, N.A.,
individually in its capacity as a
Bank and in its capacity as Agent
By /s/ Timothy H. Spanos
-----------------------------------------
Title Managing Director
--------------------------------------
BANK ONE, NA (Main Office - Chicago,
formerly known as 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
--------------------------------------
4
5
1,000
9-MOS
FEB-03-2001
JAN-30-2000
OCT-28-2000
9,003
7,057
30,053
1,028
154,101
229,291
135,498
50,112
333,726
96,544
103,500
0
7,827
21,882
93,095
333,726
464,350
464,350
246,041
246,041
0
261
6,468
33,571
13,062
20,509
(3,201)
0
0
17,308
.79
.74
