1 [GENESCO LOGO] - ----------------------------------------------------------------------------------------------------------------------------------- (Mark One) FORM 10-K [X] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended February 3, 2001 [ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 Securities and Exchange Commission Washington, D.C. 20549 Commission File No. 1-3083 -------------------------------------------------------------- GENESCO INC. A Tennessee Corporation I.R.S. No. 62-0211340 Genesco Park 1415 Murfreesboro Road Nashville, Tennessee 37217-2895 Telephone 615/367-7000 -------------------------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT EXCHANGES ON WHICH TITLE REGISTERED Common Stock, $1.00 par value New York and Chicago Preferred Share Purchase Rights New York and Chicago 5 1/2% Convertible Subordinated Notes due 2005 New York --------------------------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT Subordinated Serial Preferred Stock, Series 1 Employees' Subordinated Convertible Preferred Stock --------------------------------------------------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] --------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the June 27, 2001 annual meeting of shareholders are incorporated into Part III by reference. --------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X| No [ ] - ------------------------------------------------------------------ Common Shares Outstanding April 27, 2001 - 21,901,895 Aggregate market value on April 27, 2001 of the voting stock held by nonaffiliates of the registrant was approximately $604,000,000.
2 TABLE OF CONTENTS Page PART I Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 28 Item 8. Financial Statements and Supplementary Data 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68 PART III Item 10. Directors and Executive Officers of the Registrant 68 Item 11. Executive Compensation 68 Item 12. Security Ownership of Certain Beneficial Owners and Management 68 Item 13. Certain Relationships and Related Transactions 70 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 71 2
3 PART I ITEM 1, BUSINESS GENERAL Genesco is a leading retailer and wholesaler of branded footwear with net sales for Fiscal 2001 of $680.2 million. During Fiscal 2001, the Company operated five reportable business segments (not including corporate): Journeys; Jarman, comprised primarily of the Jarman and Underground Station retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy retail stores, direct marketing and wholesale distribution; Licensed Brands, comprised of Dockers and Nautica Footwear; and Leather. The Company sold certain assets of its Volunteer Leather business on June 19, 2000, and has discontinued all Leather segment operations. The Company has also ended its license agreement with Nautica Apparel, Inc. to market Nautica footwear effective January 31, 2001. The Company will continue to sell Nautica-branded footwear for the first six months of Fiscal 2002 in order to fill existing customer orders and sell existing inventory. At February 3, 2001, the Company operated 836 retail stores and leased footwear departments throughout the United States and Puerto Rico. It currently plans to open a total of approximately 167 new retail stores in Fiscal 2002. At February 3, 2001, Journeys operated 425 stores; Jarman operated 207 stores, including 57 Underground Station stores; Johnston & Murphy operated 147 stores and factory stores and Nautica retail operated 57 leased departments. The following table sets forth certain additional information concerning the Company's retail stores and leased departments during the five most recent fiscal years: FISCAL FISCAL FISCAL FISCAL FISCAL 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ Retail Stores and Leased Departments Beginning of year 434 475 561 674 679 Opened during year 55 102 162 113 181 Closed during year (14) (16) (49) (108) (24) ---- ---- ---- ---- ---- End of year 475 561 674 679 836 ==== ==== ==== ==== ==== The Company also designs, sources, markets and distributes footwear under its own and licensed brands, including Johnston & Murphy and Dockers, to more than 1,500 retail accounts in the United States, including a number of leading department, discount, and specialty stores. Reference to Fiscal 2001 refers to the Company's fiscal year ended February 3, 2001. Reference to Fiscal 2000 refers to the Company's fiscal year ended January 29, 2000. Reference to Fiscal 1999 refers to the Company's fiscal year ended January 30, 1999. Reference to Fiscal 1998 refers to the Company's fiscal year ended January 31, 1998. Reference to Fiscal 1997 refers to the Company's fiscal year ended February 1, 1997. For further information on the Company's business segments, see Note 18 to the Consolidated Financial Statements included in Item 8 and Management's Discussion and Analysis of Financial Condition and Results of Operations. All information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations which is referred to in Item 1 of this report is incorporated by such reference in Item 1. 3
4 This report contains forward-looking statements. Actual results may turn out materially different from the expectations reflected in these statements. For a discussion of some of the factors that may lead to different results, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." SEGMENTS Journeys The Journeys segment accounted for approximately 44% of the Company's net sales in Fiscal 2001. Operating income attributable to Journeys was $41.9 million in Fiscal 2001, with an operating margin of 13.9%. The Company believes its innovative store formats, mix of well-known brands, new product introductions, and experienced management team provide a significant competitive advantage. At February 3, 2001, Journeys operated 425 stores, averaging approximately 1,500 square feet, throughout the United States and Puerto Rico, selling footwear for young men and women. Journeys added 102 net new stores in Fiscal 2001 and achieved a comparable store sales increase of 12% from the prior fiscal year. Journeys stores, located primarily in the Southeast, Midwest, California, Texas, and Puerto Rico, target customers in the 12-19 year age group through the use of youth-oriented decor and popular music videos. Journeys stores carry predominately branded merchandise of other footwear companies across a spectrum of prices including leading brand names such as Dr. Martens, Skechers, Timberland, adidas, Vans and Steve Madden. From a base of 176 Journeys stores at the end of Fiscal 1998, the Company opened 82 net new Journeys stores in Fiscal 1999, 65 net new stores in Fiscal 2000 and 102 net new stores in Fiscal 2001 and plans to open approximately 100 net new Journeys stores in Fiscal 2002. The Company introduced a new concept, named "Journeys Kidz" in Fiscal 2001. Journeys Kidz is an offshoot of Journeys and is aimed at the "tween" customer, ages five to 12. Journeys Kidz stores will carry predominately branded merchandise of other footwear companies including leading brand names such as Dr. Martens, Skechers, Timberland, adidas and Converse. The Company has opened four Journeys Kidz stores in the first quarter of Fiscal 2002. The Company plans to open approximately 12 Journeys Kidz stores in Fiscal 2002. Jarman The Jarman segment accounted for approximately 16% of the Company's net sales in Fiscal 2001. Operating income attributable to Jarman was $8.4 million in Fiscal 2001, with an operating margin of 7.6%. At February 3, 2001, Jarman operated 207 stores, including 57 Underground Station stores, averaging approximately 1,400 square feet, throughout the United States, selling footwear primarily for men. Jarman achieved a comparable store sales increase of 6% from the prior fiscal year. Jarman stores are located primarily in urban and suburban areas in the Southeast and Midwest, target male consumers in the 20-35 age group and sell footwear in the mid-price range ($50 to $100). The Jarman stores which operate under the name Underground Station are located primarily in urban 4
5 areas. For Fiscal 2001, most of the footwear sold in Jarman stores was branded merchandise of national brands other than the Company's, with the remainder made up of Genesco and private label brands. The product mix at each Jarman store is tailored to match local customer preferences and competitive dynamics. The Company opened 46 net new Jarman stores, including 36 net new Underground Station stores, in Fiscal 2001, increasing the total number of stores to 207. The Company plans to open approximately 37 net new Jarman stores in Fiscal 2002, including approximately 52 net new Underground Station stores. Going forward, the Company will not open any new Jarman stores. All new store openings in this segment will be Underground Station stores and many of the existing Jarman stores will be converted to Underground Station stores. Johnston & Murphy The Johnston & Murphy segment accounted for approximately 28% of the Company's net sales in Fiscal 2001. Operating income attributable to Johnston & Murphy was $24.6 million in Fiscal 2001, with an operating margin of 13.1%. All of the Johnston & Murphy wholesale sales are of the Genesco-owned Johnston & Murphy brand and approximately 90% of the Johnston & Murphy retail sales are of Genesco-owned brands. At February 3, 2001, Johnston & Murphy operated 147 retail stores and factory stores, averaging approximately 1,425 square feet, throughout the United States selling footwear for men. Johnston & Murphy Wholesale Operations. In its nearly 150-year history as a high-quality men's footwear label, Johnston & Murphy has come to symbolize superior craftsmanship, quality materials, and classic styling. The Company has taken these brand attributes to the growing casual lifestyle market by expanding the product line to include a wide selection of dress casual and casual styles. The Company has also introduced a line of contemporary, European-influenced dress and dress casual footwear. In addition to sales through Company-owned Johnston & Murphy retail shops and factory stores, Johnston & Murphy footwear is sold primarily through better department and independent specialty stores. Johnston & Murphy Retail Operations. Johnston & Murphy retail shops are located primarily in better malls nationwide and sell a broad range of men's dress and casual footwear and accessories. Johnston & Murphy stores target business and professional consumers primarily between the ages of 25 and 54. Retail prices for Johnston & Murphy footwear generally range from $130 to $240. To capitalize upon the trend toward more casual business attire, Johnston & Murphy retail shops have increased their selection of casual and dress casual products, which accounted for 55% of total Johnston & Murphy retail sales in Fiscal 2001. The Company has been repositioning the brand to appeal to a broader market and estimates it has lowered the average age of the Johnston & Murphy customer by ten years since the initiative was launched. Johnston & Murphy comparable store sales were up 3% from the prior fiscal year. Licensed Brands The Licensed Brands segment accounted for approximately 12% of the Company's net sales in Fiscal 2001. Operating income attributable to Licensed Brands was $4.7 million in Fiscal 2001, with an operating margin of 5.8%. Substantially all of the Licensed Brands sales are of footwear marketed under brands for which Genesco has an exclusive footwear license. See "Trademarks and Licenses." 5
6 Dockers. In 1991, Levi Strauss & Co. granted the Company the exclusive license to market men's footwear under the Dockers brand name in the United States. The Dockers brand name is well recognized in the men's casual fashion industry. The Company uses the Dockers brand name to market a line of comfortable, moderately-priced, casual lifestyle footwear. Dockers footwear is marketed through many of the same national retail chains that carry Dockers slacks and sportswear. Suggested retail prices for Dockers footwear generally range from $50 to $84. Nautica. The Company ended its license agreement with Nautica Apparel, Inc. to market Nautica footwear effective January 31, 2001. For additional information on Nautica, see Note 2 to the Consolidated Financial Statements included in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Leather During Fiscal 2001, the Company sold certain assets of its Volunteer Leather business and discontinued all Leather segment operations. For additional information on the Leather segment, see Note 2 to the Consolidated Financial Statements included in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANUFACTURING AND SOURCING The Company relies primarily on independent third-party manufacturers for production of its footwear products. The Company sources footwear products from foreign manufacturers located in China, Italy, Mexico, Brazil, Indonesia, Taiwan and the United Kingdom. During Fiscal 2001, Genesco manufactured Johnston & Murphy footwear in one facility in Nashville, Tennessee, but shoes manufactured in the Johnston & Murphy factory have not accounted for a significant portion of its sales of footwear products. COMPETITION Competition is intense in the footwear industry. The Company's retail footwear competitors range from small, locally owned shoe stores to regional and national department stores, discount stores, and specialty chains. The Company competes with hundreds of footwear wholesale and manufacturing operations in the United States and throughout the world, most of which are relatively small, specialized operations, but some of which are large, more diversified companies. Some of the Company's competitors have certain resources that are not available to the Company. The Company's success depends upon its ability to remain competitive with respect to the key factors of style, price, quality, comfort, brand loyalty, and customer service. The location and atmosphere of the Company's retail stores is an additional competitive factor for the Company's retail operations. Any failure by the Company to remain competitive with respect to such key factors could have a material adverse effect on the Company's business, financial condition, or results of operations. TRADEMARKS AND LICENSES The Company owns its Johnston & Murphy footwear brand. The Nautica and Dockers brand footwear lines, introduced in Fiscal 1993, are sold under license agreements. The Nautica license agreement was cancelled effective January 31, 2001. The Dockers license agreement expires on December 31, 2004 with an option to renew through December 31, 2008. Net sales of Nautica and Dockers products were approximately $82 million in Fiscal 2001 and approximately $75 million in 6
7 Fiscal 2000. The Company licenses certain of its footwear brands, mostly in foreign markets. License royalty income was not material in Fiscal 2001. RAW MATERIALS Genesco is not dependent upon any single source of supply for any major raw material. In Fiscal 2001 the Company experienced no significant shortages of raw materials in its principal businesses. The Company considers its available raw material sources to be adequate, although the effects of disruptions because of foot and mouth, "Mad Cow" and other diseases affecting cattle or of other unforeseen disruptions are unpredictable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." BACKLOG Most of the Company's orders are for delivery within 90 days. Therefore, the backlog at any one time is not necessarily indicative of future sales for an extended period of time. As of March 31, 2001, the Company's wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to approximately $35.0 million, compared to approximately $27.2 million on March 25, 2000. The backlog is somewhat seasonal, reaching a peak in spring. The Company maintains in-stock programs for selected anticipated high volume sales. EMPLOYEES Genesco had approximately 4,700 employees at February 3, 2001, approximately 4,610 of whom were employed in footwear and 90 in corporate staff departments. Retail footwear stores employ a substantial number of part-time employees during peak selling seasons and approximately 2,065 of the Company's employees were part-time during such seasons. PROPERTIES At February 3, 2001, the Company operated 836 retail stores and leased departments throughout the United States and Puerto Rico. New shopping center store leases typically are for a term of approximately 10 years and new factory outlet leases typically are for a term of approximately five years. Both typically provide for rent based on a percentage of sales against a fixed minimum rent based on the square footage leased. The Company's leased departments are operated under agreements which are generally terminable by department stores upon short notice. The Company operates one manufacturing facility (which is leased) and four warehousing facilities (two of which are owned and two of which are leased) aggregating approximately 795,000 square feet. All of the facilities are located in Tennessee. The Company's executive offices and the offices of its footwear operations, which are leased, are in Nashville, Tennessee where Genesco occupies approximately 60% of a 295,000 square foot building. Leases on the Company's Nashville, Tennessee, plant, offices, and warehouses expire in 2007, including renewal options. The Company believes that all leases (other than the long-term Nashville leases) of properties that are material to its operations may be renewed on terms not materially less favorable to the Company than existing leases. ENVIRONMENTAL MATTERS The Company's manufacturing operations are subject to numerous federal, state, and local laws and regulations relating to human health and safety and the environment. These laws and regulations address and regulate, among other matters, wastewater discharge, air quality and the generation, handling, storage, treatment, disposal, and transportation of solid and hazardous wastes and releases of hazardous substances into the environment. In addition, third parties and governmental agencies 7
8 in some cases have the power under such laws and regulations to require remediation of environmental conditions and, in the case of governmental agencies, to impose fines and penalties. The Company makes capital expenditures from time to time to stay in compliance with applicable laws and regulations. Several of the facilities owned or operated by the Company (currently or in the past) are located in industrial areas and have historically been used for extensive periods for industrial operations such as tanning, dyeing, and manufacturing. Some of these operations used materials and generated wastes that would be considered regulated substances under current environmental laws and regulations. The Company currently is involved in several administrative and judicial environmental proceedings relating to the Company's former and current facilities. See "Legal Proceedings." ITEM 2, PROPERTIES See Item 1. ITEM 3, LEGAL PROCEEDINGS New York State Environmental Proceedings The Company is a defendant in a civil action filed by the State of New York against the City of Gloversville, New York, and 33 other private defendants. The action arose out of the alleged disposal of certain hazardous material directly or indirectly into a municipal landfill and seeks recovery under a federal environmental statute and certain common law theories for the costs of investigating and performing remedial actions and damage to natural resources. The environmental authorities have selected a plan of remediation for the site with a total estimated cost of approximately $12.0 million. The Company was allocated liability for a 1.31% share of the remediation cost in non-binding mediation with other defendants and the State of New York. The State has offered to release the Company from further liability related to the site in exchange for payment of its allocated share plus a small premium, and the Company has accepted. Assuming the settlement is completed as proposed, the Company believes it has fully provided for its liability in connection with the site. 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 8
9 that voluntarily assumed by the consent order will have a material effect on its financial condition or results of operations. Whitehall Environmental Sampling Pursuant to a work plan approved by the Michigan Department of Environmental Quality ("MDEQ") the Company has performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at the Company's Volunteer Leather Company facility in Whitehall, Michigan. On June 29, 1999, the Company submitted a 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. 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 9
10 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 contested the citations; ultimately, the monetary penalties were reduced to $7,600, which the Company has paid. 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. In February 2001, the Company reached a settlement of the action, which was funded by insurance. The Company does not expect any additional material effects related to the accident. 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. ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of Fiscal 2001. 10
11 EXECUTIVE OFFICERS OF GENESCO The officers of the Company are generally elected at the first meeting of the board of directors following the annual meeting of shareholders and hold office until their successors have been chosen and qualify. The name, age and office of each of the Company's executive officers and certain information relating to the business experience of each are set forth below: BEN T. HARRIS, 57, Chairman and Chief Executive Officer of Genesco. Mr. Harris joined the Company in 1967 and in 1980 was named manager of the leased department division of the Jarman Shoe Company. In 1991, he was named president of the Jarman Shoe Company and in 1995 was named president of Retail Footwear, which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe Warehouse. Mr. Harris was named executive vice president - operations in January 1996. He was named president and chief operating officer and a director of the Company as of November 1, 1996 and was named chief executive officer as of February 1, 1997. Mr. Harris was named chairman as of November 4, 1999. HAL N. PENNINGTON, 63, President and Chief Operating Officer. Mr. Pennington has served in various roles during his 39 year tenure with Genesco. He was vice president-wholesale for Johnston & Murphy from 1990 until his appointment as president of Dockers Footwear in August 1995. He was named president of Johnston & Murphy in February 1997 and named senior vice president in June 1998. Mr. Pennington was named executive vice president, chief operating officer and a director of the Company as of November 4, 1999. Mr. Pennington was named president of the Company as of November 1, 2000. He will assume responsibility for operational support functions including human resources and information systems, in addition to his existing oversight of the Company's operating divisions. JAMES S. GULMI, 55, Senior Vice President - Finance and Chief Financial Officer. Mr. Gulmi was employed by Genesco in 1971 as a financial analyst, appointed assistant treasurer in 1974 and named treasurer in 1979. He was elected a vice president in 1983 and assumed the responsibilities of chief financial officer in 1986. He was again elected treasurer in February 1995. Mr. Gulmi was appointed senior vice president - finance in January 1996. JAMES W. BOSCAMP, 51, Senior Vice President. Mr. Boscamp joined the Company in 1991 as president of Nautica Footwear. He was appointed senior vice president of the Company in January 1996. He was appointed president of Jarman, overseeing the Jarman retail chain, in March 1999. Before joining the Company, Mr. Boscamp was executive vice president, marketing at Munsingwear. JAMES C. ESTEPA, - 49, Senior Vice President. Mr. Estepa joined the Company in 1985 and in February 1996 was named vice president operations of Genesco Retail, which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe Warehouse. Mr. Estepa was named senior vice president operations of Genesco Retail in June 1998. He was named president of Journeys in March 1999. Mr. Estepa was named senior vice president of the Company in April 2000. 11
12 JOHN W. CLINARD, 53, Vice President - Administration and Human Resources. Mr. Clinard has served in various human resources capacities during his 28 year tenure with Genesco. He was named vice president - human resources in June 1997. He was named vice president administration and human resources in November 2000. ROGER G. SISSON, 37, Secretary and General Counsel. Mr. Sisson joined the Company in January 1994 as assistant general counsel and was elected secretary in February 1994. He was named general counsel in January 1996. Before joining the Company, Mr. Sisson was associated with the firm of Boult, Cummings, Conners & Berry for approximately six years. MATTHEW N. JOHNSON, 36, Treasurer. Mr. Johnson joined the Company in April 1993 as manager, corporate finance and was elected assistant treasurer in December 1993. He was elected treasurer in June 1996. Prior to joining the Company, Mr. Johnson was a vice president in the corporate and institutional banking division of The First National Bank of Chicago. PAUL D. WILLIAMS, 46, Chief Accounting Officer. Mr. Williams joined the Company in 1977, was named director of corporate accounting and financial reporting in 1993 and chief accounting officer in April 1995. 12
13 PART II ITEM 5, MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange (Symbol: GCO) and the Chicago Stock Exchange. The following table sets forth for the periods indicated the high and low sales prices of the common stock as shown in the New York Stock Exchange Composite Transactions listed in the Wall Street Journal. Fiscal Year ended January 29 High Low ---------- ---------- 2000 1st Quarter 12 7 1/16 2nd Quarter 15 10 5/8 3rd Quarter 13 5/8 10 1/16 4th Quarter 14 9 Fiscal Year ended February 3 2001 1st Quarter 14 1/4 8 1/4 2nd Quarter 18 12 1/4 3rd Quarter 18 1/2 13 7/16 4th Quarter 26 1/2 15 3/4 There were approximately 6,200 common shareholders of record on February 3, 2001. See Notes 10 and 12 to the Consolidated Financial Statements included in Item 8 for information regarding restrictions on dividends and redemptions of capital stock. 13
14 ITEM 6, SELECTED FINANCIAL DATA FINANCIAL SUMMARY FISCAL YEAR END IN THOUSANDS EXCEPT PER COMMON SHARE DATA, ----------------------------------------------------------- FINANCIAL STATISTICS AND OTHER DATA 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS DATA Net sales $680,166 $553,032 $532,164 $506,889 $426,565 Depreciation and amortization 13,200 10,514 9,691 8,893 7,747 Earnings before interest and taxes 60,187 46,969 37,101 16,396 15,761 Pretax earnings 52,987 40,982 30,490 7,534 7,020 Earnings before discontinued operations and extraordinary loss 32,831 25,335 54,558 7,494 7,442 Discontinued operations (3,233) 587 815 1,326 2,962 Loss on early retirement of debt (net of tax) -0- -0- 2,245 169 -0- - ------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 29,598 $ 25,922 $ 53,128 $ 8,651 $ 10,404 =============================================================================================================================== PER COMMON SHARE DATA Earnings before discontinued operations and extraordinary loss Basic $ 1.51 $ 1.12 $ 2.13 $ .28 $ .29 Diluted 1.35 1.03 1.87 .27 .28 Discontinued operations Basic (.15) .03 .03 .05 .12 Diluted (.12) .02 .03 .05 .12 Extraordinary loss Basic .00 .00 (.09) .00 .00 Diluted .00 .00 (.07) (.01) .00 Net earnings Basic 1.36 1.14 2.07 .33 .41 Diluted 1.23 1.05 1.83 .31 .39 =============================================================================================================================== BALANCE SHEET DATA Total assets $352,163 $301,165 $307,198 $246,817 $221,654 Long-term debt 103,500 103,500 103,500 75,000 75,000 Capital leases 28 34 36 279 1,485 Non-redeemable preferred stock 7,721 7,882 7,918 7,945 7,944 Common shareholders' equity 130,504 100,360 108,661 64,019 45,846 Additions to plant, equipment and capital leases 34,735 22,312 23,512 24,725 14,640 =============================================================================================================================== FINANCIAL STATISTICS Earnings before interest and taxes as a percent of net sales 8.8% 8.5% 7.0% 3.2% 3.7% Book value per share $ 6.02 $ 4.73 $ 4.56 $ 2.43 $ 1.82 Working capital $144,926 $138,007 $155,778 $119,313 $108,795 Current ratio 2.5 2.8 3.1 2.6 2.6 Percent long-term debt to total capitalization 42.8% 48.9% 47.0% 51.1% 58.7% =============================================================================================================================== OTHER DATA (END OF YEAR) Number of retail outlets* 836 679 674 587 504 Number of employees 4,700 4,250 3,650 4,300 4,050 =============================================================================================================================== *Includes 78 Jarman Leased departments in Fiscal 1999 which were divested during the first quarter of Fiscal 2000 and 26 Boot Factory stores in Fiscal 1998 and 29 Boot Factory stores in Fiscal 1997 which were divested during the second quarter of Fiscal 1999. Also includes Nautica Retail leased departments of 57, 47, 24 and 4 in Fiscal 2001, 2000, 1999 and 1998, respectively. Reflected in the earnings for Fiscal 1999 was a tax benefit of $24.1 million. See Note 13 to the Consolidated Financial Statements for additional information. Reflected in the earnings for Fiscal 2001, 1999, 1998 and 1997 were restructuring and other charges of $4.4 million, ($2.4) million, $17.7 million and $1.7 million, respectively. See Note 2 to the Consolidated Financial Statements for additional information regarding these charges. Also reflected in the earnings for Fiscal 1997 was a $6.7 million litigation settlement. Long-term debt and capital leases include current payments. On April 9, 1998, the Company issued $103.5 million of 5 1/2% convertible subordinated notes due 2005. The Company used $80 million of the proceeds to repay all of its 10 3/8% senior notes including interest and expenses incurred in connection therewith. The Company has not paid dividends on its Common Stock since 1973. See Note 12 to the Consolidated Financial Statements for a description of limitations on the Company's ability to pay dividends. 14
15 ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and the notes to the Consolidated Financial Statements include certain forward-looking statements. Actual results could differ materially from those reflected by the forward-looking statements in this discussion and a number of factors may adversely affect future results, liquidity and capital resources. These factors include changes in consumer demand or tastes that affect sales at retail or wholesale, changes in buying patterns by significant wholesale customers and risks associated with a softening economy, including erosion of revenues or margins caused by weakening consumer demand and deterioration in the collectibility of trade accounts receivable. These factors also include disruptions in product supply or distribution, including disruptions or price increases in the leather market related to foot and mouth or other cattle diseases, changes in business strategies by the Company's competitors, the Company's ability to open or convert, staff and support additional retail stores on schedule and at acceptable expense levels, failure of new retail ventures to meet expectations and the outcome of litigation and environmental matters and the adequacy of related reserves, including those discussed in Note 17 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 Nautica Footwear License Cancellation The Company entered into an agreement with Nautica Apparel, Inc. to end its license to market footwear under the Nautica label, effective January 31, 2001. The Company will continue to sell Nautica - branded footwear for the first six months of Fiscal 2002 in order to fill existing customer orders and sell existing inventory. In connection with the termination of the Nautica Footwear license agreement, the Company recorded a pretax charge to earnings of $4.4 million ($2.7 million net of tax) in the fourth quarter of Fiscal 2001. The charge includes contractual obligations to Nautica Apparel for the license cancellation and other costs, primarily severance. Included in the charge is a $1.0 million inventory write-down which is reflected in gross margin on the income statement. All of these costs are expected to be incurred in the next twelve months. 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 on 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 $2.3 million are expected to be incurred in the next twelve months. As of February 3, 2001, $1.1 million of such other costs had been incurred. Other costs include primarily 15
16 employee severance and facility shutdown costs. The approximately $1.3 million of 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 February 3, 2001, the Company had repurchased 6.4 million shares at a cost of $60.5 million pursuant to all authorizations. Workforce Reduction In connection with the exit of the western boot business and the closing of the Jarman Leased departments, the Company reviewed the structure and level of staffing in all of its operations during the third and fourth quarters of Fiscal 1999. Upon completion of the review, the Company recorded a $1.3 million charge to earnings, included in selling and administrative expenses, during the fourth quarter of Fiscal 1999 for a workforce reduction of 66 positions, of which substantially all were eliminated by January 29, 2000. Twenty-six of the positions eliminated related to the Jarman Leased departments business, with the remainder being primarily employed at corporate headquarters. BUSINESS SEGMENTS The Company currently operates four reportable business segments (not including corporate): Journeys; Jarman, comprised primarily of the Jarman and Underground Station retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy retail stores, direct marketing and wholesale distribution; and Licensed Brands, comprised of Dockers and Nautica Footwear. The Company has ended the license agreement with Nautica Apparel, Inc. to market Nautica footwear effective January 31, 2001. In Fiscal 2000 the Company operated 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 on June 19, 2000 and has discontinued all Leather segment operations. RESULTS OF OPERATIONS - FISCAL 2001 COMPARED TO FISCAL 2000 The Company's net sales for Fiscal 2001 (53 weeks) increased 23.0% to $680.2 million from $553.0 million in Fiscal 2000 (52 weeks). Total retail sales attributable to the extra week were $9.4 million. Excluding net sales attributable to the divested Other Retail business from last year, the Company's net sales increased 25.0% to $680.2 million in Fiscal 2001 from $544.2 million in Fiscal 2000. Gross margin increased 25.9% to $322.5 million in Fiscal 2001 from $256.3 million in Fiscal 2000 and increased as a percentage of net sales from 46.3% to 47.4%. Selling and administrative expenses in Fiscal 2001 increased 23.7% from Fiscal 2000 and increased as a percentage of net sales from 37.8% to 38.1%. Selling and administrative expenses were reduced $1.4 million in Fiscal 2001, reflecting a reduction in pension expense to $0.3 million from $1.7 million in Fiscal 2000. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs. 16
17 Earnings before income taxes and discontinued operations ("pretax earnings") for Fiscal 2001 were $53.0 million compared to $41.0 million for Fiscal 2000. Pretax earnings for Fiscal 2001 included a restructuring charge of $4.4 million related to the termination of the Nautica Footwear license. Net earnings for Fiscal 2001 were $29.6 million ($1.23 diluted earnings per share) compared to $25.9 million ($1.05 diluted earnings per share) for Fiscal 2000. Net earnings for Fiscal 2001 included a $3.0 million ($.11 diluted earnings per share) charge to earnings (net of tax) related to the divestiture of the Company's Volunteer Leather business. Net earnings for Fiscal 2000 include a gain from discontinued operations, net of tax, of $0.6 million ($0.02 diluted earnings per share). The Company recorded an effective federal income tax rate of 38.0% for Fiscal 2001. Journeys Fiscal Year Ended -------------------------- % 2001 2000 Change ----------- ----------- ------ (dollars in thousands) Net sales............................................... $ 300,758 $ 215,318 39.7% Operating income........................................ $ 41,869 $ 29,719 40.9% Operating margin........................................ 13.9% 13.8% 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 year divided by thirteen) and a 12% increase in comparable store sales, net sales from Journeys increased 39.7% for Fiscal 2001 compared to Fiscal 2000. The average price per pair of shoes increased 1% in Fiscal 2001, primarily reflecting changes in product mix, and unit sales increased 38% during the same period. The store count for Journeys was 425 stores at the end of Fiscal 2001 compared to 323 stores at the end of Fiscal 2000. Journeys' operating income for Fiscal 2001 increased 40.9% to $41.9 million compared to $29.7 million for Fiscal 2000. 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. Jarman Fiscal Year Ended -------------------------- % 2001 2000 Change ----------- ----------- ------ (dollars in thousands) Net sales............................................... $ 109,791 $ 86,897 26.3% Operating income........................................ $ 8,395 $ 4,336 93.6% Operating margin........................................ 7.6% 5.0% Primarily due to a 17% increase in average stores operated and a 6% increase in comparable store sales, net sales from the Jarman division (including Underground Station stores) increased 26.3% for Fiscal 2001 compared to Fiscal 2000. The increase in sales and comparable store sales was driven primarily by Underground Station stores. The average price per pair of shoes increased 2% in Fiscal 2001, primarily reflecting changes in product mix, and unit sales increased 22% during the same period. Jarman operated 207 stores at the end of Fiscal 2001, including 57 Underground Station stores. Going forward, the Company will not open any new Jarman stores. All new store openings in 17
18 this segment will be Underground Station stores, and many of the existing Jarman stores will be converted to Underground Station stores. It had operated 161 stores at the end of Fiscal 2000, including 21 Underground Station stores. Jarman operating income for Fiscal 2001 was $8.4 million compared to $4.3 million for Fiscal 2000 and increased as a percent of sales to 7.6% from 5.0% in Fiscal 2000. 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 to decreased expenses as a percentage of sales. Johnston & Murphy Fiscal Year Ended -------------------------- % 2001 2000 Change ----------- ----------- ------ (dollars in thousands) Net sales............................................... $ 188,060 $ 167,459 12.3% Operating income........................................ $ 24,636 $ 22,187 11.0% Operating margin........................................ 13.1% 13.2% Johnston & Murphy net sales increased 12.3% to $188.1 million for Fiscal 2001 from $167.5 million for Fiscal 2000. Johnston & Murphy retail sales increased 14%. The increase reflects primarily a 3% increase in comparable store sales and a 6% increase in average Johnston & Murphy retail stores operated. Retail operations accounted for 64% of Johnston & Murphy segment sales in Fiscal 2001, up from 63% in Fiscal 2000. The store count for Johnston & Murphy retail operations at the end of Fiscal 2001 included 147 Johnston & Murphy stores and factory stores compared to 143 Johnston & Murphy stores and factory stores at the end of Fiscal 2000. The average price per pair of shoes for Johnston & Murphy retail decreased 1% in Fiscal 2001, primarily due to increased markdowns, while unit sales increased 10% during the same period. There was a 10% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy wholesale business increased 15% in 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 Fiscal 2001 increased 11.0% from $22.2 million for Fiscal 2000 to $24.6 million, primarily due to increased sales. Licensed Brands Fiscal Year Ended -------------------------- % 2001 2000 Change ----------- ----------- ------ (dollars in thousands) Net sales............................................... $ 81,557 $ 74,518 9.4% Operating income........................................ $ 4,695 $ 2,488 88.7% Operating margin......................................... 5.8% 3.3% Licensed Brands net sales increased 9.4% to $81.6 million for Fiscal 2001 from $74.5 million for Fiscal 2000. The sales increase reflected a 36% increase in net sales of Dockers Footwear, offset by declining sales of Nautica Footwear. Unit sales for the Licensed Brands wholesale businesses 18
19 increased 9% for Fiscal 2001, while the average price per pair of shoes decreased 2% for the same period, reflecting increased promotional activities in the Nautica business and changes in product mix. Licensed Brands operating income for Fiscal 2001 increased 88.7% from $2.5 million for Fiscal 2000 to $4.7 million, primarily due to increased sales and decreased expenses as a percentage of sales. For additional information regarding the Company's decision to exit the Nautica Footwear business, see "Significant Developments -- Nautica Footwear License Cancellation." Net sales for Nautica footwear were $18.8 million and $28.4 million for Fiscal 2001 and Fiscal 2000, respectively, while operating losses were $2.5 million and $2.2 million for Fiscal 2001 and Fiscal 2000, respectively. Other Retail Fiscal Year Ended -------------------------- % 2001 2000 Change ----------- ----------- ------- (dollars in thousands) Net sales............................................... $ -0- $ 8,840 (100.0%) Operating loss..........................................$ -0- $ (500) NA Operating margin........................................ NA (5.7%) 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 Fiscal 2001 were $14.9 million compared to $10.9 million for Fiscal 2000 (exclusive of a restructuring charge of $4.4 million and other charges of $0.1 million, primarily litigation and severance charges, in Fiscal 2001 and other charges of $0.4 million, primarily litigation and severance charges, in Fiscal 2000), an increase of 37.3%. The increase in corporate expenses in Fiscal 2001 is attributable primarily to increased bonus accruals based upon the improved financial performance of the Company. Interest expense increased 5.7% from $8.2 million in Fiscal 2000 to $8.6 million in Fiscal 2001, 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 34% from $2.2 million in Fiscal 2000 to $1.4 million in Fiscal 2001 due to decreases in average short-term investments. There were no borrowings under the Company's revolving credit facility during either Fiscal 2001 or Fiscal 2000. RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999 The Company's net sales for Fiscal 2000 increased 3.9% to $553.0 million from $532.2 million in Fiscal 1999. Excluding net sales attributable to the divested Other Retail and western boot businesses from both periods, the Company's net sales increased 18.5% to $544.2 million in Fiscal 2000 from $459.4 million in Fiscal 1999. Gross margin increased 5.2% to $256.3 million in Fiscal 2000 from $243.5 million in Fiscal 1999 and increased as a percentage of net sales from 45.8% in Fiscal 1999 to 46.3% in Fiscal 2000. Selling and administrative expenses in Fiscal 2000 were flat with Fiscal 1999 but decreased as a percentage of net sales from 39.2% in Fiscal 1999 to 37.8% in Fiscal 2000. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs. 19
20 Earnings before income taxes, discontinued operations and extraordinary loss ("pretax earnings") for Fiscal 2000 were $41.0 million compared to $30.5 million for Fiscal 1999. Pretax earnings for Fiscal 1999 included a restructuring gain of $2.4 million primarily relating to the Boot Divestiture and $2.0 million of other charges, primarily litigation and severance charges, including the fourth quarter $1.3 million workforce reduction charge discussed under "Significant Developments--Workforce Reduction." Net earnings in Fiscal 2000 were $25.9 million ($1.05 diluted earnings per share) compared to $53.1 million ($1.83 diluted earnings per share) for Fiscal 1999. Net earnings for Fiscal 2000 include a gain from discontinued operations, net of tax, of $0.6 million ($0.02 diluted earnings per share). In addition to the adjustments to earnings discussed above, Fiscal 1999 earnings included a tax benefit of $24.1 million, a gain from discontinued operations, net of tax, of $0.8 million ($0.03 diluted earnings per share) and an extraordinary charge, net of tax, of $2.2 million ($0.07 diluted earnings per share) for the early retirement of debt. The Company recorded an effective federal income tax rate of 38.2% for Fiscal 2000. The Fiscal 1999 tax benefit of $24.1 million related to reversal of valuation reserves on deferred tax assets in the fourth quarter of Fiscal 1999. The reversal resulted from the reassessment by the Company of the levels of valuation allowances. The Company concluded it was more likely than not that the increased levels of deferred tax assets will be realized due to increased levels of profitability, future income projections and the substantial removal of uncertainties surrounding the Company's divestitures. Journeys Fiscal Year Ended -------------------------- % 2000 1999 Change ----------- ----------- ------- (dollars in thousands) Net sales............................................... $ 215,318 $ 159,965 34.6% Operating income........................................ $ 29,719 $ 21,704 36.9% Operating margin........................................ 13.8% 13.6% Reflecting both a 28% increase in average Journeys stores operated and a 13% increase in comparable store sales, net sales from Journeys increased 34.6% for Fiscal 2000 compared to Fiscal 1999. The average price per pair of shoes increased 3% in Fiscal 2000 and unit sales increased 31% during the same period. The store count for Journeys included 323 stores at the end of Fiscal 2000 compared to 258 stores at the end of Fiscal 1999. Journeys operating income for Fiscal 2000 was up 36.9% to $29.7 million compared to $21.7 million in Fiscal 1999. The increase was due to increased sales both from store openings and a comparable store sales increase and decreased expenses as a percentage of sales. 20
21 Jarman Fiscal Year Ended ---------------------- % 2000 1999 Change -------- -------- ------ (dollars in thousands) Net sales............................................... $ 86,897 $83,315 4.3% Operating income........................................ $ 4,336 $ 2,983 45.4% Operating margin........................................ 5.0% 3.6% Primarily due to an 8% increase in comparable store sales, net sales from Jarman increased 4.3% for Fiscal 2000 compared to Fiscal 1999. The increase in sales was driven primarily by Underground Station stores. The average price per pair of shoes increased 7% in Fiscal 2000 while unit sales decreased 4% during the same period. Jarman operated 161 stores at the end of Fiscal 2000, including 21 Underground Station stores. It had operated 166 stores at the end of Fiscal 1999, including 17 Underground Station stores. Jarman operating income for Fiscal 2000 was up 45.4% to $4.3 million compared to $3.0 million in Fiscal 1999 and increased as a percent of sales to 5.0% from 3.6% in Fiscal 1999. The increase was due to increased sales, increased gross margin in dollars and as a percentage of sales due primarily to lower markdowns, and to decreased expenses as a percentage of sales. Other Retail Fiscal Year Ended ----------------------- % 2000 1999 Change -------- -------- ------ (dollars in thousands) Net sales............................................... $ 8,840 $ 56,184 (84.3%) Operating income (loss)................................. $ (500) $ 2,214 NA Operating margin........................................ (5.7%) 3.9% The Jarman Leased departments business was closed in the first quarter of Fiscal 2000. Primarily because of the loss of sales from the Jarman Leased departments business and a 14% decrease in comparable store sales for General Shoe Warehouse, net sales from Other Retail decreased 84.3% for Fiscal 2000 compared to Fiscal 1999. Other Retail operating income for Fiscal 2000 was down $2.7 million from Fiscal 1999 as a result of the decreased sales and decreased gross margins as a percentage of sales. As of January 29, 2000, only five Other Retail stores were open, which were General Shoe Warehouse stores, compared to 94 Other Retail stores operated at the end of Fiscal 1999. In the first quarter of Fiscal 2001, four of the General Shoe Warehouse stores were transferred to the Jarman operating segment and one was transferred to the Johnston & Murphy operating segment. The Company will no longer report results from the Other Retail segment. 21
22 Johnston & Murphy Fiscal Year Ended ------------------------ % 2000 1999 Change --------- ---------- ------ (dollars in thousands) Net sales............................................... $ 167,459 $ 148,380 12.9% Operating income........................................ $ 22,187 $ 19,708 12.6% Operating margin........................................ 13.2% 13.3% Johnston & Murphy net sales increased 12.9% to $167.5 million in Fiscal 2000 from $148.4 million in Fiscal 1999, reflecting primarily a 4% increase in comparable store sales and a 9% increase in average Johnston & Murphy retail stores operated. Retail operations accounted for 63% of Johnston & Murphy segment sales in Fiscal 2000 and 62% of Johnston & Murphy segment sales in Fiscal 1999. The store count for Johnston & Murphy retail operations at the end of Fiscal 2000 included 143 Johnston & Murphy stores and factory stores compared to 132 Johnston & Murphy stores and factory stores at the end of Fiscal 1999. The average price per pair of shoes for Johnston & Murphy retail increased 1% in Fiscal 2000 and unit sales increased 11% during the same period. There was a 10% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy wholesale business increased 12% in Fiscal 2000, while the average price per pair of shoes decreased 3% for the same period, reflecting increased promotional activities and mix changes. Johnston & Murphy operating income for Fiscal 2000 increased 12.6% from $19.7 million in Fiscal 1999 to $22.2 million in Fiscal 2000, primarily due to increased sales and decreased expenses as a percentage of sales from increased leverage. Licensed Brands Fiscal Year Ended ----------------------- % 2000 1999 Change -------- --------- ------ (dollars in thousands) Net sales............................................... $ 74,518 $ 67,760 10.0% Operating income........................................ $ 2,488 $ 2,435 2.2% Operating margin........................................ 3.3% 3.6% Licensed Brands net sales increased 10.0% to $74.5 million in Fiscal 2000 from $67.8 million in Fiscal 1999, reflecting primarily a 9% increase in Licensed Brands wholesale sales. Unit sales for the Licensed Brands wholesale businesses increased 16% in Fiscal 2000, while the average price per pair of shoes decreased 6% for the same period, reflecting increased promotional activities. Licensed Brands operating income for Fiscal 2000 increased 2.2% from $2.4 million in Fiscal 1999 to $2.5 million in Fiscal 2000, primarily due to increased sales and decreased expenses as a percentage of sales. 22
23 Corporate and Interest Expenses Corporate and other expenses for Fiscal 2000 were $10.9 million compared to $11.0 million for Fiscal 1999 (exclusive of other charges of $0.4 million, primarily litigation and severance charges, in Fiscal 2000 and a restructuring gain of $2.4 million and other charges of $2.0 million, primarily litigation and severance charges, in Fiscal 1999), a decrease of 1.3%. The decrease in corporate expenses in Fiscal 2000 is attributable primarily to decreased professional fees. Interest expense decreased 11.9% from $9.3 million in Fiscal 1999 to $8.2 million in Fiscal 2000, primarily due to the decrease in interest rates on the Company's long-term debt from 10 3/8% on $75 million in borrowings as a result of the notes being redeemed in Fiscal 1999 to 5 1/2% on $103.5 million of convertible notes issued in Fiscal 1999. Interest income decreased 18% from $2.6 million in Fiscal 1999 to $2.2 million in Fiscal 2000, due to decreases in general marketplace interest rates. There were no borrowings under the Company's revolving credit facility during either Fiscal 2000 or Fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES The following table sets forth certain financial data at the dates indicated. Feb. 3, Jan. 29, Jan. 30, 2001 2000 1999 ------- -------- -------- (dollars in millions) ------------------- Cash and short-term investments.............................................. $ 60.4 $ 57.9 $ 58.7 Working capital.............................................................. $ 144.9 $ 138.0 $ 155.8 Long-term debt (includes current maturities)................................. $ 103.5 $ 103.5 $ 103.5 Current ratio................................................................ 2.5x 2.8x 3.1x Working Capital The Company's business is somewhat seasonal, with the Company's investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Cash flow from operations is generated principally in the fourth quarter of each fiscal year. Cash provided by operating activities was $36.1 million in Fiscal 2001 compared to $47.2 million in Fiscal 2000. The $11.1 million decrease in cash flow from operating activities reflects primarily a $3.1 million increase in accounts receivable due to increased wholesale sales and extended terms, increased inventory and a $6.8 million increase in taxes paid. The $25.8 million increase in inventories at February 3, 2001 from January 29, 2000 levels reflects increases in retail inventory to support the net increase of 147 stores, excluding Nautica Leased departments, in Fiscal 2001 as well as increases to support the Company's continued growth. Cash provided by operating activities was $47.2 million in Fiscal 2000 compared to $9.4 million in Fiscal 1999. The $37.7 million increase in cash flow from operating activities reflected primarily improved earnings, a much smaller increase in inventory for Fiscal 2000 compared to Fiscal 1999 and an increase in accrued liabilities for increased bonus accruals and income taxes to be paid in Fiscal 2001. The $0.3 million increase in inventories at January 29, 2000 from January 30, 1999 levels 23
24 reflects planned increases in retail inventory to support the net increase of 60 stores, excluding Jarman Leased and Nautica Leased departments, in Fiscal 2000. Accounts receivable at January 29, 2000 decreased $0.7 million compared to January 30, 1999, primarily due to exiting the Jarman Leased departments business, also contributing to the cash flow improvement. The Company's earnings before income taxes, discontinued operations and extraordinary loss for Fiscal 2000 improved by $10.5 million over the prior year. Federal income taxes paid for Fiscal 2000 increased by only $2.6 million from the prior year, as the Company utilized its remaining net operating loss carryforwards. Cash provided (or used) due to changes in accounts payable and accrued liabilities are as follows: Fiscal Year Ended ----------------------------------- 2001 2000 1999 -------- -------- -------- (in thousands) Accounts payable................................................... $ 4,635 $ (348) $ (634) Accrued liabilities................................................ 10,468 4,385 (3,107) -------- -------- -------- $ 15,103 $ 4,037 $ (3,741) ======== ======== ======== The fluctuations in accounts payable for Fiscal 2001 from Fiscal 2000 and for Fiscal 2000 from Fiscal 1999 are due to changes in payment terms negotiated with individual vendors, inventory levels and buying patterns. The change in accrued liabilities in Fiscal 2001 as well as Fiscal 2000 was due primarily to increased bonus accruals and income tax accruals. There were no revolving credit borrowings during Fiscal 2001, 2000 or 1999, as cash generated from operations and cash on hand funded seasonal working capital requirements and capital expenditures. Capital Expenditures Capital expenditures were $34.7 million, $22.3 million and $23.5 million for Fiscal 2001, 2000 and 1999, respectively. The $12.4 million increase in Fiscal 2001 capital expenditures as compared to Fiscal 2000 resulted primarily from an increase in retail store capital expenditures due to the increase in new stores. The $1.2 million decrease in Fiscal 2000 capital expenditures as compared to Fiscal 1999 resulted primarily from a decrease of capital expenditures connected with new system initiatives related to the year 2000, which more than offset the increase in retail store capital expenditures due to the increase in new stores. Total capital expenditures in Fiscal 2002 are expected to be approximately $54.6 million. These include expected retail expenditures of $29.1 million to open approximately 101 Journeys stores, 12 Journeys Kidz stores, 8 Johnston & Murphy stores and factory stores, and 46 Underground Station stores, and to complete 29 major store renovations. Capital expenditures for wholesale and manufacturing operations and other purposes, including a new distribution center, are expected to be approximately $25.5 million, including approximately $1.9 million for new computer systems to improve customer service and support the Company's growth and approximately $22.0 million for a new distribution center. Due to the Company's retail growth, the Company has begun studies for a new distribution center. The Company does not know the size or location of the facility, but expects it to be located in the Middle Tennessee area. The Company expects the Fiscal 2002 cost of the facility to be in the range of $22.0 24
25 million to $24.0 million. The Company's current bank agreement has been amended in order to facilitate the additional capital expenditure for the new distribution center. ENVIRONMENTAL AND OTHER CONTINGENCIES The Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Note 17 to the Company's Consolidated Financial Statements. The Company has made provisions for certain of these contingencies, including approximately $2.6 million reflected in Fiscal 2001 and $472,000 reflected in Fiscal 2000. The Company monitors these matters on an ongoing basis and at least quarterly management reviews the Company's reserves and accruals in relation to each of them, adjusting provisions as management deems necessary in view of changes in available information. Changes in estimates of liability are reported in the periods when they occur. Consequently, management believes that its reserve in relation to each proceeding is a reasonable estimate of the probable loss connected to the proceeding, or in cases in which no reasonable estimate is possible, the minimum amount in the range of estimated losses, based upon its analysis of the facts and circumstances as of the close of the most recent fiscal quarter. Because of uncertainties and risks inherent in litigation generally and in 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 2002. The approximately $8.7 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 $60.5 million out of authorizations totaling $6.8 million during Fiscal 1999, Fiscal 2000 and Fiscal 2001. There were $9.8 million of letters of credit outstanding under the revolving credit agreement at February 3, 2001, leaving availability under the revolving credit agreement of $55.2 million. The Company's revolving credit agreement restricts the payment of dividends and other payments with respect to capital stock. At February 3, 2001, $30.7 million was available for such payments. The aggregate of annual dividend requirements on the Company's Subordinated Serial Preferred Stock, $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative Preferred Stock is $294,000. 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 25
26 interest rates. The fair value of the Company's long-term debt was $129.9 million at February 3, 2001 based on a dealer quote. Cash and Short-Term Investments - The Company's cash and short-term investment balances are invested in financial instruments with original maturities of three months or less. The Company does not have significant exposure to changing interest rates on invested cash at February 3, 2001. As a result, the interest rate market risk implicit in these investments at February 3, 2001, 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 gain on contracts outstanding at February 3, 2001 was $1.3 million from current spot rates. At February 3, 2001, the Company had $31.3 million of foreign exchange contracts for Italian Lira and Euro. As of February 3, 2001, a 10% adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts by approximately $1.7 million. Summary - Based on the Company's overall market interest rate and foreign currency rate exposure at February 3, 2001, 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, results 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 are recorded each period in current earnings or in other comprehensive income depending on the intended use of the derivative and the resulting designation. Management of the Company anticipates that, due to the Company's limited use of derivative instruments, the adoption of SFAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. In July 2000, the Emerging Issues Task Force issued EITF: Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." The new pronouncement requires shipping and handling billings to customers be recorded as revenue. Amounts for shipping and handling costs can no longer be netted with related shipping and handling billings. The Company has restated its financial statements for Fiscal 2001, 2000 and 1999 to reflect the change in accounting for shipping and handling fees and costs. 26
27 OUTLOOK This "Outlook" section in this Form 10-K contains a number of forward-looking statements relating to sales, earnings per share, capital expenditures and store opening expectations for Fiscal 2002. These forward-looking statements are based on the Company's expectations as of May 4, 2001. All of the forward-looking statements are based on management's current expectations and are inherently uncertain. Actual results could differ materially from those reflected by the forward-looking statements in this discussion and a number of factors may adversely affect future results, liquidity and capital resources. These factors include changes in consumer demand or tastes that affect sales at retail or wholesale, changes in buying patterns by significant wholesale customers and risks associated with a softening economy, including erosion of revenues or margins caused by weakening consumer demand and deterioration in the collectibility of trade accounts receivable. These factors also include disruptions in product supply or distribution, including disruptions or price increases in the leather market related to foot and mouth or other cattle diseases, changes in business strategies by the Company's competitors, the Company's ability to open or convert, staff and support additional retail stores on schedule and at acceptable expense levels, failure of new retail ventures to meet expectations and the outcome of litigation and environmental matters and the adequacy of related reserves, including those discussed in Note 17 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. The Company expects net sales growth in the range of 15-20% for Fiscal 2002, with an overall same store sales increase in the mid-single digit range. In connection with the termination of the Nautica Footwear license agreement, the Company will fill customer orders and sell existing inventory for the first half of Fiscal 2002. The Company anticipates Nautica sales of between $6.5 and $8.0 million and operating losses in the range of $1.0 - $1.8 million in the first half of Fiscal 2002. The Company's expectations for Nautica are subject to uncertainties including the risk that existing orders may be cancelled or that existing inventory may not be sold or may require greater that planned markdowns. The Company is comfortable that it can meet First Call earnings expectations of $1.70 per share for Fiscal 2002. It expects the earnings improvement from Fiscal 2001 to be primarily attributable to net sales growth and to selling, general and administrative expense leverage related to same store sales growth. The Company expects capital expenditures for Fiscal 2002 to be approximately $54.6 million. The Company plans to open 101 Journeys stores, 12 Journeys Kidz stores, 46 Underground Station stores and 8 Johnston & Murphy stores and factory stores. The Company also plans to build a new distribution center with current year expenditures of approximately $22.0 - $24.0 million. INFLATION The Company does not believe inflation has had a material impact on sales or operating results during periods covered in this discussion. 27
28 ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company incorporates by reference the information regarding market risk to appear under the heading "Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations. 28
29 ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants 30 Consolidated Balance Sheet, February 3, 2001 and January 29, 2000 31 Consolidated Earnings, each of the three fiscal years ended 2001, 2000 and 1999 32 Consolidated Cash Flows, each of the three fiscal years ended 2001, 2000 and 1999 33 Consolidated Shareholders' Equity, each of the three fiscal years ended 2001, 2000 and 1999 34 Notes to Consolidated Financial Statements 35 29
30 To the Board of Directors and Shareholders of Genesco Inc. Report of Independent Accountants In our opinion, the consolidated financial statements listed in the index appearing under Item 14 on page 71, presents fairly, in all material respects, the financial position of Genesco Inc. and its subsidiaries (the "Company") at February 3, 2001 and January 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended February 3, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 on page 71 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP Nashville, Tennessee February 27, 2001 30
31 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheet In Thousands AS OF FISCAL YEAR END - ---------------------------------------------------------------------------------------------- 2001 2000 - ---------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and short-term investments $ 60,382 $ 57,860 Accounts receivable 22,700 23,617 Inventories 134,236 109,815 Deferred income taxes 15,263 14,826 Other current assets 10,806 8,881 Current assets of discontinued operations 359 -0- - ---------------------------------------------------------------------------------------------- Total current assets 243,746 214,999 - ---------------------------------------------------------------------------------------------- Plant, equipment and capital leases 87,747 68,661 Deferred income taxes 3,396 4,184 Other noncurrent assets 16,644 13,321 Plant and equipment of discontinued operations, net 630 -0- - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $ 352,163 $ 301,165 ============================================================================================== - ---------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable and accrued liabilities $ 94,252 $ 74,874 Provision for discontinued operations 4,568 2,118 - ---------------------------------------------------------------------------------------------- Total current liabilities 98,820 76,992 - ---------------------------------------------------------------------------------------------- Long-term debt 103,500 103,500 Other long-term liabilities 7,354 6,368 Provision for discontinued operations 4,264 6,063 - ---------------------------------------------------------------------------------------------- Total liabilities 213,938 192,923 - ---------------------------------------------------------------------------------------------- Contingent liabilities (see Note 17) SHAREHOLDERS' EQUITY Non-redeemable preferred stock 7,721 7,882 Common shareholders' equity: Common stock, $1 par value: Authorized: 80,000,000 shares Issued: 2001 - 22,149,915; 2000 - 21,714,678 22,150 21,715 Additional paid-in capital 95,194 94,784 Retained earnings 31,017 1,718 Treasury shares, at cost (17,857) (17,857) - ---------------------------------------------------------------------------------------------- Total shareholders' equity 138,225 108,242 - ---------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 352,163 $ 301,165 ============================================================================================== The accompanying Notes are an integral part of these Consolidated Financial Statements. 31
32 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED EARNINGS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS FISCAL YEAR ------------------------------ 2001 2000 1999 -------- -------- -------- Net sales................................................... $680,166 $553,032 $532,164 Cost of sales............................................... 357,653 296,772 288,684 Selling and administrative expenses......................... 258,893 209,291 208,782 Restructuring and other charges, net........................ 3,433 -0- (2,403) -------- -------- -------- Earnings from operations before interest.................... 60,187 46,969 37,101 -------- -------- -------- Interest expense.......................................... 8,618 8,152 9,250 Interest income........................................... (1,418) (2,165) (2,639) -------- -------- -------- Total interest expense, net................................. 7,200 5,987 6,611 -------- -------- -------- Earnings before income taxes, discontinued operations and extraordinary loss........................................ 52,987 40,982 30,490 Income taxes (benefit)...................................... 20,156 15,647 (24,068) -------- -------- -------- Earnings before discontinued operations and extraordinary loss...................................................... 32,831 25,335 54,558 Discontinued operations: Operating income (loss)................................... (226) 587 365 Excess provision (provision) for future losses............ (3,007) -0- 450 -------- -------- -------- Earnings before extraordinary loss.......................... 29,598 25,922 55,373 Extraordinary loss from early retirement of debt, net....... -0- -0- (2,245) -------- -------- -------- NET EARNINGS................................................ $ 29,598 $ 25,922 $ 53,128 ======== ======== ======== Basic earnings per common share: Before discontinued operations and extraordinary loss..... $ 1.51 $ 1.12 $ 2.13 Discontinued operations................................... $ (.15) $ .03 $ .03 Extraordinary loss........................................ $ .00 $ .00 $ (.09) Net earnings.............................................. $ 1.36 $ 1.14 $ 2.07 Diluted earnings per common share: Before discontinued operations and extraordinary loss..... $ 1.35 $ 1.03 $ 1.87 Discontinued operations................................... $ (.12) $ .02 $ .03 Extraordinary loss........................................ $ .00 $ .00 $ (.07) Net earnings.............................................. $ 1.23 $ 1.05 $ 1.83 ======== ======== ======== The accompanying Notes are an integral part of these Consolidated Financial Statements 32
33 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Cash Flows In Thousands FISCAL YEAR --------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net earnings $ 29,598 $ 25,922 $ 53,128 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,200 10,514 9,691 Deferred income taxes 351 10,687 (28,762) Provision for losses on accounts receivable 457 434 447 Loss on retirement of debt -0- -0- 3,651 Restructuring charge (gain) 4,433 -0- (2,403) Provision for (gain from) discontinued operations 4,854 -0- (731) Other 467 1,690 2,344 Effect on cash of changes in working capital and other assets and liabilities: Accounts receivable (3,093) 671 (2,814) Inventories (25,772) (282) (12,284) Other current assets (1,925) (2,162) (913) Accounts payable and accrued liabilities 15,103 4,037 (3,741) Other assets and liabilities (1,620) (4,358) (8,195) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 36,053 47,153 9,418 - ------------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Capital expenditures (34,735) (22,312) (23,512) Proceeds from businesses divested and asset sales 3,694 10,069 14,115 - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (31,041) (12,243) (9,397) - ------------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES: Payments on capital leases (6) (2) (243) Stock repurchases (8,778) (39,519) (12,232) Dividends paid (298) (300) (1,502) Exercise of options 6,592 4,028 2,169 Payments of long-term debt -0- -0- (77,220) Long-term borrowings -0- -0- 103,500 Deferred note expense -0- -0- (3,970) Other -0- -0- (1,056) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (2,490) (35,793) 9,446 - ------------------------------------------------------------------------------------------------------------------------------ NET CASH FLOW 2,522 (883) 9,467 Cash and short-term investments at beginning of year 57,860 58,743 49,276 - ------------------------------------------------------------------------------------------------------------------------------ CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 60,382 $ 57,860 $ 58,743 ============================================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION: Net cash paid for: Interest $ 8,043 $ 7,520 $ 11,112 Income taxes 9,398 2,605 23 The accompanying Notes are an integral part of these Consolidated Financial Statements. 33
34 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Shareholders' Equity In Thousands RETAINED ACCUMULATED TOTAL ADDITIONAL EARNINGS OTHER NON-REDEEMABLE COMMON PAID-IN TREASURY (ACCUMULATED COMPREHENSIVE COMPREHENSIVE PREFERRED STOCK STOCK CAPITAL STOCK DEFICIT) INCOME INCOME --------------- ------- ---------- -------- ------------ ------------- ------------- BALANCE JANUARY 31, 1998 $7,945 $26,264 $132,218 $(17,857) $(75,456) $(1,150) ====== ======= ======== ======== ======== ======= ======= Net earnings -0- -0- -0- -0- 53,128 -0- 53,128 Dividends paid -0- -0- -0- -0- (1,576) -0- -0- Exercise of options -0- 230 845 -0- -0- -0- -0- Issue shares -- restricted stock options -0- 67 533 -0- -0- -0- -0- Issue shares -- Employee Stock Purchase Plan -0- 107 387 -0- -0- -0- -0- Tax effect of exercise of stock options -0- -0- 1,887 -0- -0- -0- -0- Stock repurchases -0- (2,343) (9,889) -0- -0- -0- -0- Minimum pension liability adjustment -0- -0- -0- -0- -0- 1,150 1,150 Other (27) 2 114 -0- -0- -0- -0- ------- Comprehensive Income $54,278 ------ ------- -------- -------- -------- ------- ------- BALANCE JANUARY 30, 1999 $7,918 $24,327 $126,095 $(17,857) $(23,904) $ -0- ====== ======= ======== ======== ======== ======= ======= Net earnings -0- -0- -0- -0- 25,922 -0- 25,922 Dividends paid -0- -0- -0- -0- (300) -0- -0- Exercise of options -0- 693 2,796 -0- -0- -0- -0- Issue shares -- Employee Stock Purchase Plan -0- 122 417 -0- -0- -0- -0- Tax effect of exercise of stock options -0- -0- 1,427 -0- -0- -0- -0- Stock repurchases -0- (3,439) (36,080) -0- -0- -0- -0- Other (36) 12 129 -0- -0- -0- -0- ------- Comprehensive Income $25,922 ------ ------- -------- -------- -------- ------- ------- BALANCE JANUARY 29, 2000 $7,882 $21,715 $ 94,784 $(17,857) $ 1,718 $ -0- ====== ======= ======== ======== ======== ======= ======= Net earnings -0- -0- -0- -0- 29,598 -0- 29,598 Dividends paid -0- -0- -0- -0- (299) -0- -0- Exercise of options -0- 1,013 5,017 -0- -0- -0- -0- Issue shares -- Employee Stock Purchase Plan -0- 55 508 -0- -0- -0- -0- Tax effect of exercise of stock options -0- -0- 2,758 -0- -0- -0- -0- Stock repurchases -0- (646) (8,131) -0- -0- -0- -0- Other (161) 13 258 -0- -0- -0- -0- ------- Comprehensive Income $29,598 ------ ------- -------- -------- -------- ------- ------- BALANCE FEBRUARY 3, 2001 $7,721 $22,150 $ 95,194 $(17,857) $ 31,017 $ -0- ====== ======= ======== ======== ======== ======= ======= TOTAL SHAREHOLDERS' EQUITY ------------- BALANCE JANUARY 31, 1998 $ 71,964 ======== Net earnings 53,128 Dividends paid (1,576) Exercise of options 1,075 Issue shares -- restricted stock options 600 Issue shares -- Employee Stock Purchase Plan 494 Tax effect of exercise of stock options 1,887 Stock repurchases (12,232) Minimum pension liability adjustment 1,150 Other 89 Comprehensive Income -------- BALANCE JANUARY 30, 1999 $116,579 ======== Net earnings 25,922 Dividends paid (300) Exercise of options 3,489 Issue shares -- Employee Stock Purchase Plan 539 Tax effect of exercise of stock options 1,427 Stock repurchases (39,519) Other 105 Comprehensive Income -------- BALANCE JANUARY 29, 2000 $108,242 ======== Net earnings 29,598 Dividends paid (299) Exercise of options 6,030 Issue shares -- Employee Stock Purchase Plan 563 Tax effect of exercise of stock options 2,758 Stock repurchases (8,777) Other 110 Comprehensive Income -------- BALANCE FEBRUARY 3, 2001 $138,225 ======== The accompanying Notes are an integral part of these Consolidated Financial Statements. 34
35 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company's businesses include the manufacture or sourcing, marketing and distribution of footwear principally under the Johnston & Murphy and Dockers brands and the operation at February 3, 2001 of 779 Jarman, Journeys, Johnston & Murphy and Underground Station retail footwear stores and leased departments. The Company entered into an agreement with Nautica Apparel, Inc. to end its license to market footwear under the Nautica label, effective January 31, 2001. The Company will continue to sell Nautica - branded footwear for the first six months of Fiscal 2002 in order to fill existing customer orders and sell existing inventory. (See Note 2). The Company also sold certain assets of its Volunteer Leather business on June 19, 2000, and has discontinued all Leather segment operations. (See Note 2). Because of the acquisition of Mercantile by Dillards Inc., the Company ended its operation of the Jarman Leased departments in Fiscal 2000. The Company had 78 Jarman Leased departments at January 30, 1999. The Company transferred the remaining Jarman Leased departments to Dillards Inc. and Saks Inc. during the first quarter ended May 1, 1999. The Jarman Leased departments business contributed sales of approximately $1.2 million and $47.4 million and operating earnings (loss) of $(0.3) million and $2.1 million in Fiscal 2000 and 1999, respectively. BASIS OF PRESENTATION All subsidiaries are included in the consolidated financial statements. All significant intercompany transactions and accounts have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to January 31. As a result, Fiscal 2001 was a 53-week year with 371 days and Fiscal 2000 and 1999 were 52-week years with 364 days. Fiscal Year 2001 ended on February 3, 2001, Fiscal Year 2000 ended on January 29, 2000 and Fiscal Year 1999 ended on January 30, 1999. 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 February 3, 2001 and January 29, 2000, are short-term investments of $53.3 million and $47.1 million, respectively. Short-term investments are highly-liquid debt instruments having an original maturity of three months or less. 35
36 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INVENTORIES Inventories of wholesaling and manufacturing companies are stated at the lower of cost or market, with cost determined principally by the first-in, first-out method. Retail inventories are determined by the retail method. PLANT, EQUIPMENT AND CAPITAL LEASES Plant, equipment and capital leases are recorded at cost and depreciated or amortized over the estimated useful life of related assets. Depreciation and amortization expense are computed principally by the straight-line method over estimated useful lives: Buildings And building equipment 20-45 years Machinery, furniture and fixtures 3-15 years Leasehold improvements and properties under capital leases are amortized on the straight-line method over the shorter of their useful lives or their related lease terms. IMPAIRMENT OF LONG-TERM ASSETS The Company periodically assesses the realizability of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than carrying amount. HEDGING CONTRACTS In order to reduce exposure to foreign currency exchange rate fluctuations in connection with inventory purchase commitments, the Company enters into foreign currency forward exchange contracts for Italian Lira and Euro. At February 3, 2001 and January 29, 2000, the Company had approximately $31.3 million and $30.1 million, respectively, of such contracts outstanding. Forward exchange contracts have an average term of approximately four and one half months. The gain from these contracts for Fiscal 2001 was $1.3 million and the loss from these contracts for Fiscal 2000 was $2.5 million. The Company monitors the credit quality of the major national and regional financial institutions with whom it enters into such contracts. 36
37 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's financial instruments at February 3, 2001 and January 29, 2000 are: FAIR VALUES - ------------------------------------------------------------------------------ IN THOUSANDS 2001 2000 - ------------------------------------------------------------------------------ CARRYING FAIR Carrying Fair AMOUNT VALUE Amount Value - ------------------------------------------------------------------------------ Liabilities Long-term Debt $103,500 $129,893 $103,500 $77,801 Carrying amounts reported on the balance sheet for cash, short-term investments, receivables and accounts payable approximate fair value due to the short-term maturity of these instruments. The fair value of the Company's long-term debt was based on dealer prices on the respective balance sheet dates. POSTRETIREMENT BENEFITS Substantially all full-time employees are covered by a defined benefit pension plan. The Company also provides certain former employees with limited medical and life insurance benefits. The Company funds at least the minimum amount required by the Employee Retirement Income Security Act. The Company implemented Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in the fourth quarter of Fiscal 1999. This statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful (see Note 14). REVENUE RECOGNITION Retail sales are recorded net of actual returns, and exclude all taxes, while wholesale revenue is recorded net of estimated returns when the related goods have been shipped and legal title has passed to the customer. PREOPENING COSTS Costs associated with the opening of new stores are expensed as incurred. 37
38 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ADVERTISING COSTS Advertising costs are predominantly expensed as incurred. Advertising costs were $23.0 million, $19.1 million and $19.4 million for Fiscal 2001, 2000 and 1999, respectively. ENVIRONMENTAL COSTS Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated and are evaluated independently of any future claims for recovery. Generally, the timing of these accruals coincides with completion of a feasibility study or the Company's commitment to a formal plan of action. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. INCOME TAXES Deferred income taxes are provided for all temporary differences and operating loss and tax credit carryforwards limited, in the case of deferred tax assets, to the amount the Company believes is more likely than not to be realized in the foreseeable future. EARNINGS PER COMMON SHARE Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities to issue common stock were exercised or converted to common stock. (see Note 15). COMPREHENSIVE INCOME The Company implemented Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income" in the first quarter of Fiscal 1999. This statement establishes standards for reporting and display of comprehensive income. SFAS 130 requires, among other things, the Company's minimum pension liability adjustment to be included in other comprehensive income. BUSINESS SEGMENTS The Company implemented Statement of Financial Accounting Standards (SFAS) 131, "Disclosures about Segments of an Enterprise and Related Information" in the fourth quarter of Fiscal 1999. The standard requires that companies disclose "operating segments" based on the way management disaggregates the company for making internal operating decisions. (see Notes 2 and 18). 38
39 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 RESTRUCTURINGS Nautica Footwear License Cancellation The Company entered into an agreement with Nautica Apparel, Inc. to end its license to market footwear under the Nautica label, effective January 31, 2001. The Company will continue to sell Nautica - branded footwear for the first six months of Fiscal 2002 in order to fill existing customer orders and sell existing inventory. In connection with the termination of the Nautica Footwear license agreement, the Company recorded a pretax charge to earnings of $4.4 million ($2.7 million net of tax) in the fourth quarter of Fiscal 2001. The charge includes contractual obligations to Nautica Apparel for the license cancellation and other costs, primarily severance. Included in the charge is a $1.0 million inventory write-down which is reflected in gross margin on the income statement. All of these costs are expected to be incurred in the next twelve months. The Nautica footwear business contributed sales of approximately $18.8 million, $28.4 million and $29.7 million and operating losses of ($2.5) million, ($2.2) million and ($0.3) million in Fiscal 2001, 2000 and 1999, respectively. 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 on 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 for asset write-downs and $3.6 million for other costs, of which $2.3 million are expected to be incurred in the next twelve months. As of February 3, 2001, $1.1 million of such other costs had been incurred. Other costs include primarily employee severance and facility shutdown costs. The approximately $1.3 million of 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. 39
40 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 RESTRUCTURINGS, CONTINUED The operating results of the leather segment are shown below: - --------------------------------------------------------------------------------- PERIOD ENDED -------------------------------------- FEB. 3, JAN. 29, JAN. 30, IN THOUSANDS 2001* 2000 1999 - --------------------------------------------------------------------------------- Net sales $ 6,545 $22,203 $18,934 Cost of sales and expenses 6,917 21,242 18,338 - --------------------------------------------------------------------------------- Pretax earnings (loss) (372) 961 596 Income tax expense (benefit) (146) 374 231 - --------------------------------------------------------------------------------- NET EARNINGS (LOSS) $ (226) $ 587 $ 365 ================================================================================= * Results for the four months ended May 2000. Discontinued operations' sales subsequent to the decision to discontinue were $0.8 million for Fiscal 2001. Workforce Reduction In connection with the exit of the western boot business and the closing of the Jarman Leased departments, the Company reviewed the structure and level of staffing in all of its operations during the third and fourth quarters of Fiscal 1999. Upon completion of the review, the Company recorded a $1.3 million charge to earnings, included in selling and administrative expenses, during the fourth quarter of Fiscal 1999 for a workforce reduction of 66 positions, of which substantially all were eliminated by January 29, 2000. Twenty-six of the positions eliminated related to the Jarman Leased departments business, with the remainder being primarily employed at corporate headquarters. 40
41 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 ACCOUNTS RECEIVABLE - -------------------------------------------------------------------- IN THOUSANDS 2001 2000 - -------------------------------------------------------------------- Trade accounts receivable $ 23,146 $ 25,125 Miscellaneous receivables 3,454 1,679 - -------------------------------------------------------------------- Total receivables 26,600 26,804 Allowance for bad debts (1,303) (926) Other allowances (2,597) (2,261) - -------------------------------------------------------------------- NET ACCOUNTS RECEIVABLE $ 22,700 $ 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 slightly less than 20% of the Company's trade receivables balance as of February 3, 2001 and no other customer accounted for more than 10% of the Company's trade receivables balance as of February 3, 2001. NOTE 4 INVENTORIES - -------------------------------------------------------------------- IN THOUSANDS 2001 2000 - -------------------------------------------------------------------- Raw materials $ 1,408 $ 3,098 Work in process 609 2,146 Finished goods 34,551 31,513 Retail merchandise 97,668 73,058 - -------------------------------------------------------------------- TOTAL INVENTORIES $134,236 $109,815 ==================================================================== 41
42 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 7 OTHER NONCURRENT ASSETS - ------------------------------------------------------------------------ IN THOUSANDS 2001 2000 - ------------------------------------------------------------------------ Other noncurrent assets: Prepaid pension cost $ 12,212 $ 8,554 Investments and long-term receivables 2,033 1,761 Deferred note expense 2,399 3,006 - ------------------------------------------------------------------------ TOTAL OTHER NONCURRENT ASSETS $ 16,644 $ 13,321 ======================================================================== NOTE 8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - ------------------------------------------------------------------------ IN THOUSANDS 2001 2000 - ------------------------------------------------------------------------ Trade accounts payable $ 37,592 $ 32,957 Accrued liabilities: Employee compensation 19,031 14,222 Income taxes 9,246 3,621 Rent 6,004 4,476 Taxes other than income taxes 5,371 5,635 Insurance 2,226 1,756 Interest 1,802 1,832 Other 12,980 10,375 - ------------------------------------------------------------------------ TOTAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 94,252 $ 74,874 ======================================================================== At February 3, 2001 and January 29, 2000, outstanding checks drawn on certain domestic banks exceeded book cash balances by approximately $3.8 million and $7.8 million, respectively. These amounts are included in trade accounts payable. 42
43 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 9 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 (2,695) (158) (67) (2,920) - --------------------------------------------------------------------------------------------------- Balance February 3, 2001 6,549 1,924 359 8,832 Current portion 2,669 1,540 359 4,568 - --------------------------------------------------------------------------------------------------- TOTAL NONCURRENT PROVISION FOR DISCONTINUED OPERATIONS $ 3,880 $ 384 $-0- $ 4,264 =================================================================================================== * 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 Nautica restructuring 517 -0- 2,866 3,383 Charges and adjustments, net (64) (269) 138 (195) - ------------------------------------------------------------------------------------------------------------------------- Balance February 3, 2001 517 167 3,531 4,215 Current portion (included in accounts payable and accrued liabilities) 517 127 3,531 4,175 - ------------------------------------------------------------------------------------------------------------------------- TOTAL NONCURRENT RESTRUCTURING RESERVES (INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 40 $ -0- $ 40 ========================================================================================================================= 43
44 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 LONG-TERM DEBT - ------------------------------------------------------------------------------------------- IN THOUSANDS 2001 2000 - ------------------------------------------------------------------------------------------- 5 1/2% convertible subordinated notes due April 2005 $103,500 $103,500 - ------------------------------------------------------------------------------------------- Total long-term debt 103,500 103,500 Current portion -0- -0- - ------------------------------------------------------------------------------------------- TOTAL NONCURRENT PORTION OF LONG-TERM DEBT $103,500 $103,500 =========================================================================================== REVOLVING CREDIT AGREEMENT: On September 24, 1997, the Company entered into a revolving credit agreement with three banks providing for loans or letters of credit of up to $65 million which, as amended, expires September 24, 2002. This agreement replaced a $35 million revolving credit agreement providing for loans or letters of credit. Outstanding letters of credit at February 3, 2001 were $9.8 million; no loans were outstanding at that date. Under the revolving credit agreement, the Company may borrow at the prime rate or LIBOR plus 1.25% which may be changed if the Company's pricing ratio (as defined in the credit agreement) changes. Facility fees are 0.375% per annum on $65.0 million and also vary based on the pricing ratio. The revolving credit agreement requires the Company to meet certain financial ratios and covenants, including minimum tangible net worth, fixed charge coverage and debt to equity ratios. The Company is required by the credit agreement to reduce the outstanding principal balance of the revolving loans to zero for 30 consecutive days during each period beginning on December 15 of any fiscal year and ending on April 15 of the following fiscal year. The revolving credit agreement, as amended, contains other covenants which restrict the payment of dividends and other payments with respect to capital stock. In addition, annual capital expenditures are limited to $36.0 million for Fiscal 2001 and thereafter, subject to possible carryforwards from the previous year of up to $3.0 million if less is spent in the current year. The Company was in compliance with the financial covenants contained in the revolving credit agreement at February 3, 2001. 10 3/8% SENIOR NOTES DUE 2003: On February 1, 1993, the Company issued $75 million of 10 3/8% senior notes due February 1, 2003. These notes were redeemed on May 8, 1998, resulting in a $3.7 million extraordinary loss ($2.2 million net of tax) for early retirement of debt recognized in the second quarter of Fiscal 1999. 44
45 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 LONG-TERM DEBT, CONTINUED 5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2005: On April 9, 1998, the Company issued $103.5 million of 5 1/2% convertible subordinated notes due April 15, 2005. The notes are convertible into 47.5172 shares of common stock per $1,000 principal amount of Notes (equivalent to a conversion price of $21.045 per share of common stock), subject to adjustment. During the second quarter of Fiscal 1999 the Company used: 1) $79.9 million of the proceeds to repay all of the Company's 10 3/8% senior notes including interest and expenses incurred in connection therewith, resulting in an extraordinary loss of $3.7 million ($2.2 million net of tax), 2) $1.3 million of the proceeds to pay preferred dividends in arrears because of certain covenants in the indenture relating to the senior notes, and 3) the remaining proceeds for general corporate purposes. Expenses incurred relating to the issuance were capitalized and are being amortized over the term of the notes. The indenture pursuant to which the convertible subordinated notes were issued does not restrict the incurrence of Senior Debt by the Company or other indebtedness or liabilities by the Company or any of its subsidiaries. 45
46 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 11 COMMITMENTS UNDER LONG-TERM LEASES OPERATING LEASES Rental expense under operating leases of continuing operations was: - ------------------------------------------------------------------------ IN THOUSANDS 2001 2000 1999 - ------------------------------------------------------------------------ Minimum rentals $44,292 $34,814 $30,121 Contingent rentals 4,569 3,517 10,598 Sublease rentals (1,390) (1,039) (993) - ------------------------------------------------------------------------ TOTAL RENTAL EXPENSE $47,471 $37,292 $39,726 ======================================================================== Minimum rental commitments payable in future years are: - ----------------------------------------------------------------------- FISCAL YEARS IN THOUSANDS - ----------------------------------------------------------------------- 2002 $ 50,233 2003 50,042 2004 48,029 2005 46,257 2006 44,983 Later years 155,139 - ----------------------------------------------------------------------- TOTAL MINIMUM RENTAL COMMITMENTS $394,683 ======================================================================= Most leases provide for the Company to pay real estate taxes and other expenses and contingent rentals based on sales. Approximately 6% of the Company's leases contain renewal options. 46
47 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 SHAREHOLDERS' EQUITY NON-REDEEMABLE PREFERRED STOCK COMMON NUMBER OF SHARES AMOUNTS IN THOUSANDS CONVER- NO. SHARES --------------------------- ------------------------ TIBLE OF CLASS (IN ORDER OF PREFERENCE) AUTHORIZED 2001 2000 1999 2001 2000 1999 RATIO VOTES - ----------------------------------------------------------------------------------------------------------------------------------- Subordinated Serial Preferred (Cumulative) $2.30 Series 1 64,368 36,958 37,116 37,128 $ 1,478 $ 1,484 $1,485 .83 1 $4.75 Series 3 40,449 18,163 19,369 19,369 1,816 1,937 1,937 2.11 2 $4.75 Series 4 53,764 16,412 16,412 16,412 1,641 1,641 1,641 1.52 1 Series 6 400,000 -0- -0- -0- -0- -0- -0- 100 $1.50 Subordinated Cumulative Preferred 5,000,000 30,017 30,017 30,017 901 901 901 - ----------------------------------------------------------------------------------------------------------------------------------- 101,550 102,914 102,926 5,836 5,963 5,964 Employees' Subordinated Convertible Preferred 5,000,000 70,091 72,066 73,696 2,103 2,162 2,211 1.00* 1 - ----------------------------------------------------------------------------------------------------------------------------------- Stated Value of Issued Shares 7,939 8,125 8,175 Employees' Preferred Stock Purchase Accounts (218) (243) (257) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL NON-REDEEMABLE PREFERRED STOCK $ 7,721 $ 7,882 $7,918 ================================================================================================================================== * Also convertible into one share of $1.50 Subordinated Cumulative Preferred Stock. PREFERRED STOCK TRANSACTIONS IN THOUSANDS EMPLOYEES' NON-REDEEMABLE PREFERRED TOTAL NON-REDEEMABLE EMPLOYEES' STOCK NON-REDEEMABLE PREFERRED PREFERRED PURCHASE PREFERRED STOCK STOCK ACCOUNTS STOCK - ------------------------------------------------------------------------------------------------------------------------------ Balance January 31, 1998 $5,964 $2,409 $(428) $7,945 - ------------------------------------------------------------------------------------------------------------------------------ Other -0- (198) 171 (27) - ------------------------------------------------------------------------------------------------------------------------------ Balance January 30, 1999 5,964 2,211 (257) 7,918 - ------------------------------------------------------------------------------------------------------------------------------ Other (1) (49) 14 (36) - ------------------------------------------------------------------------------------------------------------------------------ Balance January 29, 2000 5,963 2,162 (243) 7,882 - ------------------------------------------------------------------------------------------------------------------------------ Other (127) (59) 25 (161) - ------------------------------------------------------------------------------------------------------------------------------ BALANCE FEBRUARY 3, 2001 $5,836 $2,103 $ (218) $7,721 ============================================================================================================================== SUBORDINATED SERIAL PREFERRED STOCK (CUMULATIVE): Stated and redemption values for Series 1 are $40 per share and for Series 3 and 4 are each $100 per share; liquidation value for Series 1--$40 per share plus accumulated dividends and for Series 3 and 4--$100 per share plus accumulated dividends. 47
48 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 SHAREHOLDERS' EQUITY, CONTINUED The Company's shareholders' rights plan grants to common shareholders the right to purchase, at a specified exercise price, a fraction of a share of subordinated serial preferred stock, Series 6, in the event of an acquisition of, or an announced tender offer for, 15% or more of the Company's outstanding common stock. Upon any such event, each right also entitles the holder (other than the person making such acquisition or tender offer) to purchase, at the exercise price, shares of common stock having a market value of twice the exercise price. In the event the Company is acquired in a transaction in which the Company is not the surviving corporation, each right would entitle its holder to purchase, at the exercise price, shares of the acquiring company having a market value of twice the exercise price. The rights expire in August 2010, are redeemable under certain circumstances for $.01 per right and are subject to exchange for one share of common stock or an equivalent amount of preferred stock at any time after the event which makes the rights exercisable and before a majority of the Company's common stock is acquired. $1.50 SUBORDINATED CUMULATIVE PREFERRED STOCK: Stated and liquidation values and redemption price--$30 per share. EMPLOYEES' SUBORDINATED CONVERTIBLE PREFERRED STOCK: Stated and liquidation values--$30 per share. COMMON STOCK: Common stock-$1 par value. Authorized: 80,000,000 shares; issued: February 3, 2001--22,149,915 shares; January 29, 2000--21,714,678 shares. There were 488,464 shares held in treasury at February 3, 2001 and January 29, 2000 not considering the shares repurchased in Fiscal 2001, 2000 and 1999. Each outstanding share is entitled to one vote. At February 3, 2001, common shares were reserved as follows: 163,992 shares for conversion of preferred stock; 147,738 shares for the 1987 Stock Option Plan; 1,344,899 shares for the 1996 Stock Option Plan; 188,714 shares for the Restricted Stock Plan for Directors; and 403,117 shares for the Genesco Employee Stock Purchase Plan. For the year ended February 3, 2001, 1,067,347 shares of common stock were issued for the exercise of stock options and 14,190 shares were issued as part of the Directors Restricted Stock Plan. In addition, the Company repurchased 646,300 shares of common stock. An additional 371,600 shares may be repurchased under stock buy back programs announced in August 1998, January 1999 and February 2000. For the year ended January 29, 2000, 815,084 shares of common stock were issued for the exercise of stock options and 11,785 shares were issued as part of the Directors Restricted Stock Plan. In addition the Company repurchased 3,439,300 shares of common stock. For the year ended January 30, 1999, 403,343 shares of common stock were issued for the exercise of stock options and 2,457 shares were issued as part of the Directors Restricted Stock Plan. In addition, the Company repurchased 2,342,800 shares of common stock. 48
49 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 SHAREHOLDERS' EQUITY, CONTINUED RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS OF CAPITAL STOCK: The Company's charter provides that no dividends may be paid and no shares of capital stock acquired for value if there are dividend or redemption arrearages on any senior or equally ranked stock. Exchanges of subordinated serial preferred stock for common stock or other stock junior to such exchanged stock are permitted. The Company's revolving credit agreement restricts the payment of dividends and other payments with respect to capital stock. At February 3, 2001, $30.7 million was available for such payments. The April 9, 1998 indenture, under which the Company's 5 1/2% convertible subordinated notes due 2005 were issued, does not restrict the payment of dividends. Dividends declared for Fiscal 2001 for the Company's Subordinated Serial Preferred Stock, $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and the Company's $1.50 Subordinated Cumulative Preferred Stock were $299,000. 49
50 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 SHAREHOLDERS' EQUITY, CONTINUED CHANGES IN THE SHARES OF THE COMPANY'S CAPITAL STOCK NON- REDEEMABLE EMPLOYEES' COMMON PREFERRED PREFERRED STOCK STOCK STOCK - --------------------------------------------------------------------------------------------- Issued at January 31, 1998 26,264,109 102,926 80,313 Exercise of options 296,543 -0- -0- Issue shares - Employee Stock Purchase Plan 106,800 -0- -0- Stock Repurchase (2,342,800) -0- -0- Other 2,457 -0- (6,617) - --------------------------------------------------------------------------------------------- Issued at January 30, 1999 24,327,109 102,926 73,696 Exercise of options 692,722 -0- -0- Issue shares - Employee Stock Purchase Plan 122,362 -0- -0- Stock Repurchase (3,439,300) -0- -0- Other 11,785 (12) (1,630) - --------------------------------------------------------------------------------------------- Issued at January 29, 2000 21,714,678 102,914 72,066 Exercise of options 1,012,765 -0- -0- Issue shares - Employee Stock Purchase Plan 54,582 -0- -0- Stock Repurchase (646,300) -0- -0- Other 14,190 (1,364) (1,975) - --------------------------------------------------------------------------------------------- Issued at February 3, 2001 22,149,915 101,550 70,091 Less treasury shares 488,464 -0- -0- - --------------------------------------------------------------------------------------------- OUTSTANDING AT FEBRUARY 3, 2001 21,661,451 101,550 70,091 ============================================================================================= 50
51 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13 INCOME TAXES Income tax expense (benefit) from continuing operations is comprised of the following: - ----------------------------------------------------------------------------------------------------- IN THOUSANDS 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- Current U.S. federal $17,702 $ 3,198 $ 1,587 Foreign 587 615 76 State 1,565 600 19 Deferred U.S. federal 217 10,224 (22,335) Foreign 67 77 (237) State 18 933 (3,178) - ----------------------------------------------------------------------------------------------------- TOTAL INCOME TAX EXPENSE (BENEFIT) $20,156 $15,647 $(24,068) ===================================================================================================== Deferred tax assets and liabilities are comprised of the following: - --------------------------------------------------------------------------------------------------------------- FEBRUARY 3, January 29, IN THOUSANDS 2001 2000 - --------------------------------------------------------------------------------------------------------------- Pensions $ (4,956) $ (3,681) - --------------------------------------------------------------------------------------------------------------- Gross deferred tax liabilities (4,956) (3,681) - --------------------------------------------------------------------------------------------------------------- Net capital loss carryforwards -0- 7,726 Provisions for discontinued operations and restructurings 6,602 4,202 Inventory valuation 1,938 2,068 Expense accruals 7,458 5,885 Allowances for bad debts and notes 1,115 907 Uniform capitalization costs 2,832 2,374 Depreciation 1,498 3,142 Other 1,799 2,095 Tax credit carryforwards 373 2,377 - --------------------------------------------------------------------------------------------------------------- Gross deferred tax assets 23,615 30,776 - --------------------------------------------------------------------------------------------------------------- Deferred tax asset valuation allowance -0- (8,085) - --------------------------------------------------------------------------------------------------------------- NET DEFERRED TAX ASSETS $ 18,659 $ 19,010 =============================================================================================================== 51
52 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13 INCOME TAXES, CONTINUED The Company establishes valuation allowances in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes." The Company continually reviews the adequacy of the valuation allowance and is recognizing these benefits only as the Company believes that it is more likely than not that the benefits will be realized. The Company previously limited the recognition of deferred tax assets to an amount no greater than the amount of tax refunds the Company could claim as loss carrybacks. In the fourth quarter of Fiscal 1999, due to increased levels of profitability, future income projections and the substantial removal of uncertainties surrounding the Company's divestitures, the valuation allowance was reduced by a net $40.0 million resulting in a net tax benefit of $24.1 million. In Fiscal 2000, the valuation allowance related primarily to the Company's capital loss carryforward which could only be used to offset capital gains. The expiration and partial use of the Company's capital loss carryforward in Fiscal 2001 eliminated the need for the valuation allowance. Reconciliation of the United States federal statutory rate to the Company's effective tax rate is as follows: - ------------------------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------- U. S. federal statutory rate of tax 35.00% 35.00% 34.00% State taxes (net of federal tax benefit) 2.90 3.73 4.50 Release of deferred tax valuation allowance (.40) (.21) (117.63) Other .50 (.34) .19 - ------------------------------------------------------------------------------------------------- EFFECTIVE TAX RATE 38.00% 38.18% (78.94%) ================================================================================================= 52
53 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 RETIREMENT AND OTHER BENEFIT PLANS The Company sponsors a non-contributory, defined benefit pension plan. Effective January 1, 1996, the Company amended the plan to change the pension benefit formula to a cash balance formula from the existing benefit calculation based upon years of service and final average pay. The benefits accrued under the old formula were frozen as of December 31, 1995. Upon retirement, the participant will receive this accrued benefit payable as an annuity. In addition, the participant will receive as a lump sum (or annuity if desired) the amount credited to their cash balance account under the new formula. Under the amended plan, beginning January 1, 1996, the Company credits each participants' account annually with an amount equal to 4% of the participant's compensation plus 4% of the participant's compensation in excess of the Social Security taxable wage base. Beginning December 31, 1996 and annually thereafter, the account balance of each active participant will be credited with 7% interest calculated on the sum of the balance as of the beginning of the plan year and 50% of the amounts credited to the account, other than interest, for the plan year. The account balance of each participant who is inactive will be credited with interest at the lesser of 7% or the 30 year Treasury interest rate. The Company provides health care benefits for early retirees and life insurance benefits for certain retirees not covered by collective bargaining agreements. Under the health care plan, early retirees are eligible for limited benefits until age 65. Employees who meet certain requirements are eligible for life insurance benefits upon retirement. The Company accrues such benefits during the period in which the employee renders service. 53
54 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED ASSETS AND OBLIGATIONS The following table sets forth the change in benefit obligation for the respective fiscal year: - --------------------------------------------------------------------------------------------------------------------- Pension Benefits Other Benefits ---------------------------- ------------------------------ IN THOUSANDS 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Benefit obligation at beginning of year $ 87,873 $ 98,263 $ 1,831 $ 2,775 Service cost 1,181 1,893 61 71 Interest cost 7,265 6,509 128 122 Plan participants' contributions -0- -0- 116 126 Benefits paid (7,925) (7,574) (661) (375) Actuarial (gain) or loss 7,951 (11,218) 464 (888) - --------------------------------------------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR $ 96,345 $ 87,873 $ 1,939 $ 1,831 ===================================================================================================================== The following table sets forth the change in plan assets for the respective fiscal year: - --------------------------------------------------------------------------------------------------------------------- Pension Benefits Other Benefits --------------------------- ----------------------- IN THOUSANDS 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at beginning of year $ 100,278 $ 92,190 $ -0- $ -0- Actual return (loss) on plan assets (1,805) 10,158 -0- -0- Employer contributions 3,928 5,504 510 249 Plan participants' contributions -0- -0- 116 126 Benefits paid (7,925) (7,574) (626) (375) - --------------------------------------------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 94,476 $ 100,278 $ -0- $ -0- ===================================================================================================================== At February 3, 2001 and January 29, 2000, there were no Company related assets in the plan. The pension plan assets are invested primarily in common stocks, mutual funds, domestic bond funds and cash equivalent securities. 54
55 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED The following table sets forth the funded status of the plans for the respective fiscal year: - -------------------------------------------------------------------------------------------------------------------------- Pension Benefits Other Benefits ---------------------------- ------------------------- IN THOUSANDS 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation $(93,766) $ (84,257) $(1,939) $(1,831) Future pay increases (2,579) (3,616) -0- -0- - -------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation (96,345) (87,873) (1,939) (1,831) Assets 94,476 100,278 -0- -0- - -------------------------------------------------------------------------------------------------------------------------- Over (under) funded projected benefit obligation (1,869) 12,405 (1,939) (1,831) Transition obligation 824 1,649 -0- -0- Prior service cost (949) (1,072) -0- -0- Cumulative net (gains)/losses 14,206 (4,428) 154 (288) - -------------------------------------------------------------------------------------------------------------------------- (ACCRUED BENEFIT LIABILITY)/PREPAID BENEFIT COST $ 12,212 $ 8,554 $(1,785) $(2,119) =========================================================================================================================== The amounts recognized in the balance sheet consist of: - -------------------------------------------------------------------------------------------------------- Pension Benefits Other Benefits -------------------------- ------------------------- IN THOUSANDS 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------- Prepaid benefit cost $ 12,212 $ 8,554 $ -0- $ -0- Accrued benefit liability -0- -0- (1,785) (2,119) Intangible asset -0- -0- -0- -0- Accumulated other comprehensive income -0- -0- -0- -0- - ------------------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED ON BALANCE SHEET $ 12,212 $ 8,554 $ (1,785) $ (2,119) ======================================================================================================= ASSUMPTIONS - ----------------------------------------------------------------------------------------------- Pension Benefits Other Benefits ----------------------- ------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------- Discount rate 7.875% 8.00% 8.00% 8.00% Expected return on plan assets 9.50% 9.50% -- -- Rate of compensation increase 4.50% 5.00% -- -- The weighted average discount rate used to measure the benefit obligation for the pension plan decreased from 8.00% to 7.875% from Fiscal 2000 to Fiscal 2001. The decrease in the rate increased the accumulated benefit obligation by $1.2 million and increased the projected benefit obligation by $1.2 million. The weighted average discount rate used to measure the benefit obligation for the pension plan increased from 6.75% to 8.00% from Fiscal 1999 to Fiscal 2000. The increase in the rate decreased the accumulated benefit obligation by $11.3 million and decreased the projected benefit obligation by $12.4 million. 55
56 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 RETIREMENT AND OTHER BENEFIT PLANS, CONTINUED For measurement purposes, a 7.50% increase in the health care cost trend rate was used for Fiscal 2001. The trend rate is assumed to decrease gradually to 5.00% by Fiscal 2013. The effect on disclosure information of one percentage point change in the assumed health care cost trend rate for each future year is shown below. 1% DECREASE 1% INCREASE (IN THOUSANDS) IN RATES IN RATES --------------- -------------- Aggregated service and interest cost $ (19) $ 23 Accumulated postretirement benefit obligation $ (111) $ 127 PENSION EXPENSE - ------------------------------------------------------------------------------------------------------------------------------ Pension Benefits Other Benefits ------------------------------------------- --------------------------------- IN THOUSANDS 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ Service cost $ 1,181 $ 1,893 $ 1,575 $ 61 $ 71 $ 84 Interest cost 7,265 6,509 6,460 128 122 180 Expected return on plan assets (8,877) (7,900) (7,171) -0- -0- -0- Amortization: Transition obligation 825 825 825 -0- -0- -0- Prior service cost (123) (123) (123) -0- -0- -0- Losses -0- 473 476 22 28 62 - ------------------------------------------------------------------------------------------------------------------------------ Net amortization 702 1,175 1,178 22 28 62 - ------------------------------------------------------------------------------------------------------------------------------ NET PERIODIC BENEFIT COST $ 271 $ 1,677 $ 2,042 $211 $221 $326 ============================================================================================================================== SECTION 401(K) SAVINGS PLAN The Company has a Section 401(k) Savings Plan available to employees who have completed one full year of service and are age 21 or older. Concurrent with the January 1, 1996 amendment to the pension plan (discussed previously), the Company amended the 401(k) savings plan to make matching contributions equal to 50% of each employee's contribution of up to 5% of salary. Matching funds vest after five years of service with the Company. Years of service earned prior to the adoption of this change contribute toward the vesting requirement. The contribution expense to the Company for the matching program was approximately $0.9 million for Fiscal 2001 and $1.0 million for Fiscal 2000 and 1999. 56
57 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 EARNINGS PER SHARE - ------------------------------------------------------------------------------------------------------------------ FOR THE YEAR ENDED FOR THE YEAR ENDED FEB. 3, 2001 JAN. 29, 2000 -------------------------------------- ------------------------------------- (IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT - ------------------------------------------------------------------------------------------------------------------ Earnings before discontinued operations and extraordinary loss $ 32,831 $25,335 Less: Preferred stock dividends (299) (300) - ------------------------------------------------------------------------------------------------------------------ BASIC EPS Income available to common shareholders 32,532 21,513 $ 1.51 25,035 22,392 $ 1.12 ====== ========= EFFECT OF DILUTIVE SECURITIES Options 522 644 5 1/2% convertible subordinated notes 3,881 4,918 3,787 4,918 Contingent Options(1) -0- -0- Employees' Preferred Stock(2) 70 73 - ------------------------------------------------------------------------------------------------------------------ DILUTED EPS Income available to common shareholders plus assumed conversions $ 36,413 27,023 $ 1.35 $28,822 28,027 $ 1.03 ================================================================================================================== - ----------------------------------------------------------------------------- FOR THE YEAR ENDED JAN. 30, 1999 ----------------------------------------------- (IN THOUSANDS, EXCEPT INCOME SHARES PER-SHARE PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT - --------------------------------------------------------------------------- Earnings before discontinued operations and extraordinary loss $54,558 Less: Preferred stock dividends (300) - --------------------------------------------------------------------------- BASIC EPS Income available to common shareholders 54,258 25,461 $ 2.13 ======= EFFECT OF DILUTIVE SECURITIES Options 1,042 5 1/2% convertible subordinate notes 3,124 3,969 Contingent Options(1) 67 Employees' Preferred Stock(2) 78 - --------------------------------------------------------------------------- DILUTED EPS Income available to common shareholders plus assumed conversions $57,382 30,617 $ 1.87 =========================================================================== (1) These options are contingent upon service to the Company and the Company's common stock trading at various prices. See Note 16 to the Consolidated Financial Statements under "Restricted Stock Options." (2) The Company's Employees' Subordinated Convertible Preferred Stock is convertible one for one to the Company's common stock. Because there are no dividends paid on this stock, these shares are assumed to be converted. The amount of the dividend on the convertible preferred stock per common share obtainable on conversion of the convertible preferred is higher than basic earnings per share for the period. Therefore, conversion of the convertible preferred stock is not reflected in diluted earnings per share, because it would have been antidilutive. The shares convertible to common stock for Series 1, 3 and 4 preferred stock would have been 30,675, 38,324 and 24,946, respectively. There were no options excluded from the computation of diluted earnings per share for Fiscal 2001 because all the options' exercise prices were lower than the average market price of the common shares. Options to purchase 343,500 shares of common stock at $13.19 per share, 123,000 shares of common stock at $12.75 per share, 28,000 shares of common stock at $13.69 per share and 10,000 shares of common stock at $13.06 per share were outstanding at the end of Fiscal 2000 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. Options to purchase 284,000 shares of common stock at $11.00 per share, 157,250 shares of common stock at $12.75 per share and 250,000 shares of common stock at $6.06 per share were outstanding at the end of Fiscal 1999 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. 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 February 3, 2001. 57
58 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 STOCK OPTION PLANS The Company's stock-based compensation plans, as of February 3, 2001, are described below. The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized other than for its restricted stock options. The compensation cost that has been charged against income for its restricted plans was $3.8 million, $0.6 million and $1.1 million for Fiscal 2001, 2000 and 1999, respectively. The compensation cost that has been charged against shareholders' equity for its directors' restricted stock plan was $110,000, $105,000 and $89,000 for Fiscal 2001, 2000 and 1999, respectively. Had compensation cost for all of the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methodology prescribed by FAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: Fiscal Years ---------------------------------------- (In thousands, except per share amounts) 2001 2000 1999 ------- ------- ------- Net Income As reported $29,598 $25,922 $53,128 Pro forma $28,422 $24,839 $52,464 Diluted EPS As reported $ 1.23 $ 1.05 $ 1.83 Pro forma $ 1.18 $ 1.01 $ 1.81 Basic EPS As reported $ 1.36 $ 1.14 $ 2.07 Pro forma $ 1.31 $ 1.10 $ 2.05 FIXED STOCK OPTION PLANS The Company has two fixed option plans. Under the 1987 Stock Option Plan, the Company may grant options to its management personnel for up to 2.2 million shares of common stock. Under the 1996 Stock Incentive Plan, the Company may grant options to its officers and other key employees of and consultants to the Company for up to 2.3 million shares of common stock, which excludes 200,000 shares reserved for issuance to outside directors. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. Options granted under both plans vest 25% at the end of each year with the exception of shares granted February 20, 1995 which vest 20% at the end of each year. 58
59 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 STOCK OPTION PLANS, CONTINUED With regard to the 200,000 shares reserved for issuance to outside directors, an automatic grant of restricted stock will be given to outside directors on the date of the annual meeting of shareholders at which an outside director is first elected. The outside director restricted stock shall vest with respect to one-third of the shares each year as long as the director is still serving as a director. Once the shares have vested, the director is restricted from selling, transferring, pledging or assigning the shares for an additional two years. There were 926 shares and 1,139 shares of restricted stock issued to directors for Fiscal 2001 and 2000, respectively. There were no shares issued in Fiscal 1999. An outside director may elect irrevocably to receive all or a specified portion of his annual retainers for board membership and any committee chairmanship for the following fiscal year in a number of shares of restricted stock (the "Retainer Stock"). Shares of the Retainer Stock shall be granted as of the first business day of the fiscal year as to which the election is effective, subject to forfeiture to the extent not earned upon the Outside Director's ceasing to serve as a director or committee chairman during such fiscal year. Once the shares are earned, the director is restricted from selling, transferring, pledging or assigning the shares for an additional four years. There were 9,116 shares, 9,157 shares and 4,555 shares of Retainer Stock issued to directors for Fiscal 2001, 2000 and 1999, respectively. Annually on the date of the annual meeting of shareholders, each outside director shall receive the automatic grant of options to purchase 4,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of grant. These stock options become exercisable six months after their respective dates of grant, and expire in ten years. There were 32,000 and 28,000 shares of stock options issued to directors for Fiscal 2001 and 2000, respectively. The weighted-average fair value of each option granted in the fixed stock option plans described above is estimated on the date of grant using the Black-Scholes option-pricing model -average assumptions used for grants in Fiscal 2001, 2000 and 1999, respectively: expected volatility of 62, 62 and 62 percent; risk-free interest rates of 5.3, 6.7 and 5.0 percent; and expected lives of 6.7, 7.6 and 7.0 years, respectively. 59
60 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 STOCK OPTION PLANS, CONTINUED A summary of the status of the Company's fixed stock option plans as of February 3, 2001, January 29, 2000 and January 30, 1999 and changes during the years ended on those dates is presented below: 2001 2000 1999 ----------------------------- ----------------------------- ----------------------------- WEIGHTED-AVERAGE Weighted-Average Weighted-Average FIXED OPTIONS SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price - ------------- ---------- ---------------- ---------- ---------------- ---------- ---------------- Outstanding at beginning of year 1,917,990 $ 7.87 2,271,389 $ 5.76 2,528,655 $ 5.88 Granted 337,000 16.85 387,500 13.23 268,000 6.06 Exercised (894,316) 5.57 (591,711) 3.13 (229,876) 4.21 Forfeited (99,250) 11.13 (149,188) 8.54 (295,390) 8.29 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of year 1,261,424 $ 11.69 1,917,990 $ 7.87 2,271,389 $ 5.76 ========== ========== ========== ========== ========== ========== Options exercisable at year-end 568,424 1,238,989 1,279,034 Weighted-average fair value of options granted during the year $ 11.07 $ 9.27 $ 4.02 The following table summarizes information about fixed stock options outstanding at February 3, 2001: Options Outstanding Options Exercisable -------------------------------------------------- ------------------------------ NUMBER Weighted-Average NUMBER Range of OUTSTANDING Remaining Weighted-Average EXERCISABLE Weighted-Average Exercise Prices AT 2/3/01 Contractual Life Exercise Price AT 2/3/01 Exercise Price - --------------- ----------- ----------------- ---------------- ----------- ---------------- $1.875 - 2.75 19,725 3.8 years $ 2.39 19,725 $ 2.39 3.375 - 5.00 153,321 4.8 4.66 153,321 4.66 5.50 - 7.75 140,671 7.5 6.06 37,421 6.07 9.00 - 12.75 283,780 6.2 11.03 252,405 10.84 13.00 - 17.75 658,927 9.2 14.99 105,552 14.04 18.00 - 24.25 5,000 9.9 24.06 -0- -0- --------- --- ------- ------- ------- $1.875 - 24.25 1,261,424 7.8 $ 11.69 568,424 $ 9.16 ========= === -====== ======= ======= RESTRICTED STOCK OPTIONS On January 10, 1997, 200,000 shares of restricted stock were granted to the chairman of the board under the 1996 Stock Incentive Plan. The stock price at the date of grant was $9 per share. The restrictions lapsed for one third of the shares (66,667 shares) on January 31, 1998 and the second one third of the shares on January 31, 1999. The restrictions would lapse for the last one third of the shares on January 31, 2000 if (1) the chairman remains on the board of the Company and serves as chairman or in such other capacity as the board may request through that date and (2) the Company's common stock trades at or above $15.00 per share for 20 consecutive trading days during Fiscal 2000. The chairman resigned in the fourth quarter of Fiscal 2000. The last one third of the shares were not issued since the above conditions were not met. There was compensation income of $0.5 million for these options in Fiscal 2000. Compensation cost charged against income for these options was $0.8 million in Fiscal 1999. As of the beginning of the first quarter of Fiscal 1999, a three year long term incentive plan was approved for the president - CEO (at that time) which covered Fiscal 1999 through Fiscal 2001. The incentive plan provides a maximum of 300,000 performance shares of stock to be awarded based on cumulative revenue growth, cumulative earnings before income taxes to sales ratio and cumulative assets to sales ratio. There were 118,449 and 34,344 shares issued in Fiscal 2001 and 2000, respectively. Compensation cost charged against income for these options was $3.7 million, $1.1 million and $0.4 million in Fiscal 2001, 2000 and 1999, respectively. 60
61 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 16 STOCK OPTION PLANS, CONTINUED On October 16, 2000, another three year long term incentive plan was approved for the Chairman and CEO which covers Fiscal 2002 through Fiscal 2004. The incentive plan provides a target payout of $470,000 in stock if the Company's total return to shareholders equals the average of two published indices, the Bloomberg U.S. Apparel Index and the S & P 500 Consumer Cyclical Index. The number of shares to be issued is based on the closing price of the stock on October 16, 2000 or $16.63 per share which totals 28,262 shares. These shares vest 100% at the end of three years as long as the Chairman and CEO has either remained an employee or director, or (if he has retired) has not violated the terms of a non-compete provision. Compensation cost charged against income for these options was $39,000 in Fiscal 2001. EMPLOYEE STOCK PURCHASE PLAN Under the Employee Stock Purchase Plan, the Company is authorized to issue up to 1.0 million shares of common stock to those full-time employees whose total annual base salary is less than $100,000. Under the terms of the Plan, employees can choose each year to have up to 15 percent of their annual base earnings withheld to purchase the Company's common stock. The purchase price of the stock is 85 percent of the closing market price of the stock on either the exercise date or the grant date, whichever is less. Under the Plan, the Company sold 54,582 shares, 122,362 shares and 106,800 shares to employees in Fiscal 2001, 2000 and 1999, respectively. Compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions for Fiscal 2001, 2000 and 1999, respectively: an expected life of 1 year for all years; expected volatility of 58, 47 and 82 percent; and risk-free interest rates of 5.1, 6.1 and 4.6 percent. The weighted-average fair value of those purchase rights granted in Fiscal 2001, 2000 and 1999 was $6.86, $4.26 and $2.47, respectively. STOCK PURCHASE PLANS Stock purchase accounts arising out of sales to employees prior to 1972 under certain employee stock purchase plans amounted to $226,000 and $250,000 at February 3, 2001 and January 29, 2000, respectively, and were secured at February 3, 2001, by 12,107 employees' preferred shares. Payments on stock purchase accounts under the stock purchase plans have been indefinitely deferred. No further sales under these plans are contemplated. 61
62 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 17 LEGAL PROCEEDINGS New York State Environmental Proceedings The Company is a defendant in a civil action filed by the State of New York against the City of Gloversville, New York, and 33 other private defendants. The action arose out of the alleged disposal of certain hazardous material directly or indirectly into a municipal landfill and seeks recovery under a federal environmental statute and certain common law theories for the costs of investigating and performing remedial actions and damage to natural resources. The environmental authorities have selected a plan of remediation for the site with a total estimated cost of approximately $12.0 million. The Company was allocated liability for a 1.31% share of the remediation cost in non-binding mediation with other defendants and the State of New York. The State has offered to release the Company from further liability related to the site in exchange for payment of its allocated share plus a small premium, and the Company has accepted. Assuming the settlement is completed as proposed, the Company believes it has fully provided for its liability in connection with the site. 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. 62
63 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 17 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. 63
64 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 17 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 contested the citations; ultimately, the monetary penalties were reduced to $7,600, which the Company has paid. 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. In February 2001, the Company reached a settlement of the action, which was funded by insurance. The Company does not expect any additional material effects related to the accident. 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. 64
65 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 18 BUSINESS SEGMENT INFORMATION The Company currently operates four reportable business segments (not including corporate): Journeys; Jarman, comprised primarily of the Jarman and Underground Station retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy retail stores, direct marketing and wholesale distribution; and Licensed Brands, comprised of Dockers and Nautica Footwear. The Company has ended the license agreement with Nautica Apparel, Inc. to market Nautica footwear effective January 31, 2001. In Fiscal 2000 the Company operated 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 on 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, restructuring gains and losses, interest expense, interest income, and other charges. Other includes severance, litigation and environmental charges. - --------------------------------------------------------------------------------------------------------------------------- JOHNSTON LICENSED FISCAL 2001 JOURNEYS JARMAN & MURPHY BRANDS LEATHER CORPORATE CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------------- Sales $300,758 $109,791 $188,152 $85,262 $ -0- $ -0- $683,963 Intercompany sales -0- -0- (92) (3,705) -0- -0- (3,797) - --------------------------------------------------------------------------------------------------------------------------- NET SALES TO EXTERNAL CUSTOMERS 300,758 109,791 188,060 81,557 -0- -0- 680,166 - --------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 41,869 8,395 24,636 4,695 -0- (15,921) 63,674 Restructuring charge -0- -0- -0- -0- -0- 3,433 3,433 Interest expense -0- -0- -0- -0- -0- 8,618 8,618 Interest income -0- -0- -0- -0- -0- 1,418 1,418 Other -0- -0- -0- -0- -0- (54) (54) - --------------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 41,869 8,395 24,636 4,695 -0- (26,608) 52,987 - --------------------------------------------------------------------------------------------------------------------------- Total assets 93,761 37,468 71,359 28,658 989 119,928 352,163 Depreciation 5,070 2,334 2,890 99 149 2,658 13,200 Capital expenditures 17,133 9,433 4,917 399 -0- 2,853 34,735 65
66 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 BUSINESS SEGMENT INFORMATION, CONTINUED - ---------------------------------------------------------------------------------------------------------------------------------- Other Johnston Licensed Fiscal 2000 Journeys Jarman Retail & Murphy Brands Leather Corporate Consolidated - ---------------------------------------------------------------------------------------------------------------------------------- Sales $215,318 $86,897 $ 8,840 $ 167,822 $78,818 $ -0- $ -0- $ 557,695 Intercompany sales -0- -0- -0- (363) (4,300) -0- -0- (4,663) - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES TO EXTERNAL CUSTOMERS 215,318 86,897 8,840 167,459 74,518 -0- -0- 553,032 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 29,719 4,336 (500) 22,187 2,488 -0- (10,869) 47,361 Interest expense -0- -0- -0- -0- -0- -0- 8,152 8,152 Interest income -0- -0- -0- -0- -0- -0- 2,165 2,165 Other -0- -0- -0- -0- -0- -0- (392) (392) - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 29,719 4,336 (500) 22,187 2,488 -0- (17,248) 40,982 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 65,256 23,910 992 61,693 28,678 9,670 110,966 301,165 Depreciation 3,382 1,724 155 2,763 213 460 1,817 10,514 Capital expenditures 12,338 2,600 99 3,604 89 47 3,535 22,312 - ---------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Other Johnston Licensed Western Fiscal 1999 Journeys Jarman Retail & Murphy Brands Leather Boot Corporate Consolidated - ------------------------------------------------------------------------------------------------------------------------------- Sales $159,965 $83,315 $56,184 $ 149,661 $72,337 $ -0- $ 16,560 $ -0- $538,022 Intercompany sales -0- -0- -0- (1,281) (4,577) -0- -0- -0- (5,858) - ------------------------------------------------------------------------------------------------------------------------------- NET SALES TO EXTERNAL CUSTOMERS 159,965 83,315 56,184 148,380 67,760 -0- 16,560 -0- 532,164 - ------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 21,704 2,983 2,214 19,708 2,435 -0- (1,309) (11,007) 36,728 Restructuring gain -0- -0- -0- -0- -0- -0- -0- (2,403) (2,403) Interest expense -0- -0- -0- -0- -0- -0- -0- 9,250 9,250 Interest income -0- -0- -0- -0- -0- -0- -0- 2,639 2,639 Other -0- -0- -0- -0- -0- -0- -0- (2,030) (2,030) - ------------------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS 21,704 2,983 2,214 19,708 2,435 -0- (1,309) (17,245) 30,490 - ------------------------------------------------------------------------------------------------------------------------------- Total assets 52,125 25,395 15,772 59,925 28,873 8,759 -0- 116,349 307,198 Depreciation 2,591 1,676 469 2,423 238 556 336 1,402 9,691 Capital expenditures 9,330 3,468 598 4,351 93 157 -0- 5,515 23,512 66
67 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 19 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 1ST QUARTER 2ND QUARTER (IN THOUSANDS, EXCEPT ---------------------- ------------------------- PER SHARE AMOUNTS) 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------- Net sales $146,644 $123,766 $143,243 $121,308 Gross margin 68,306 57,467 68,966 56,520 Pretax earnings 10,190 6,611 9,041 6,968 Earnings before discontinued operations 6,193 3,945 5,531 4,223 Net earnings 5,961 4,067 2,562(1) 4,176 Diluted earnings per common share: Before discontinued operations .26 .16 .24 .18 Net earnings .25 .16 .13 .17 ============================================================================================= - ------------------------------------------------------------------------------------------------------------------------- 3RD QUARTER 4TH QUARTER FISCAL YEAR (IN THOUSANDS, EXCEPT ---------------------- ------------------------- ---------------------- PER SHARE AMOUNTS) 2001 2000 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- Net sales $176,086 $140,309 $124,193 $167,649 $680,166 $553,032 Gross margin 82,662 65,167 102,579 77,106 322,513 256,260 Pretax earnings 14,340 9,707 19,416(2) 17,696 52,987 40,982 Earnings before discontinued operations 8,785 5,857 12,322 11,310 32,831 25,335 Net earnings 8,785 6,204 12,290 11,475 29,598 25,922 Diluted earnings per common share: Before discontinued operations .36 .25 .49 .45 1.35 1.03 Net earnings .36 .26 .49 .45 1.23 1.05 ========================================================================================================================= (1) Includes a loss of $3.0 million, net of tax, from discontinued operations (see Note 2). (2) Includes a restructuring charge of $4.4 million (see Note 2). 67
68 ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company incorporates by reference the (i) information regarding directors of the Company appearing under the heading "Information Concerning Nominees" to be included in the Company's proxy statement relating to the annual meeting of shareholders scheduled for June 27, 2001 (the "Proxy Statement") and (ii) information regarding compliance by persons subject to Section 16(a) of the Securities Exchange Act of 1934 appearing under the heading "Compliance with Beneficial Ownership Reporting Rules" to be included in the Proxy Statement. Information regarding the executive officers of the Company appears under the heading "Executive Officers of Genesco" in this report following Item 4 of Part I. ITEM 11, EXECUTIVE COMPENSATION The Company incorporates by reference the (i) information regarding the compensation of directors of the Company to appear under the heading "Director Compensation" in the Proxy Statement and (ii) information regarding the compensation of the Company's executive officers to appear under the heading "Executive Compensation" in the Proxy Statement. ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding beneficial ownership of the Company's voting securities by (i) the Company's directors, (ii) certain executive officers and (iii) the officers and directors of the Company as a group is incorporated by reference to the Proxy Statement. The following information regarding beneficial ownership on March 31, 2001 (except as indicated) of the Company's voting securities is furnished with respect to each person or group of persons acting together who, as of such date, was known by the Company to be the beneficial owner of more than five percent of any class of the Company's voting securities. Beneficial ownership of the shares consists of sole voting and investment power except as otherwise noted. CLASS OF NO. OF PERCENT OF NAME AND ADDRESS STOCK* SHARES CLASS -------- ----------- ---------- AIM Management Group Inc. Common 1,134,640(1) 5.2 11 Greenway Plaza, Suite 100 Houston, TX 77046 JP Morgan Chase & Co. Common 1,404,465(2) 6.4 270 Park Avenue New York, NY 10017 68
69 Jeannie Bussetti Series 1 3,000 8.1 12 Carteret Drive Pomona, NY 10970 Joseph Bussetti Series 1 2,000 5.4 52 South Lilburn Drive Garnerville, NY 10923 Ronald R. Bussetti Series 1 2,000 5.4 12 Carteret Drive Pomona, NY 10970 S. Robert Weltz, Jr. Series 1 2,308 6.2 415 Hot Springs Road Santa Barbara, CA 93108 Empire & Co. Series 1 5,889 15.9 P. O. Box 426 Exchange Place Station 69 Montgomery St. Jersey City, NJ 07803 Empire & Co. Series 3 4,226 23.3 P. O. Box 426 Exchange Place Station 69 Montgomery St. Jersey City, NJ 07803 Hazel Grossman Series 3 1,074 5.9 30 Argyle Ave., Apt. 209 Riverside, RI 02915 Jack Rubens Series 3 1,514 8.3 5114 Windsor Parke Dr. Boca Raton, FL 33496 Barbara F. Grossman Wasserspring Series 3 933 5.1 75 Cooper Drive Great Neck, NY 11023 Melissa Evins Series 4 2,893 17.6 417 East 57th Street New York, NY 10022 69
70 Reed Evins Series 4 2,418 14.7 417 East 57th Street Apt. 32B New York, NY 10022 James H. Cheek, Jr. Subordinated 2,413 8.0 Apt. 407 Cumulative 11 Burton Hills Blvd. Preferred Nashville, TN 37215 - -------------- * See Note 12 to the Consolidated Financial Statements included in Item 8 and under the heading "Voting Securities" included in the Company's Proxy Statement for a more complete description of each class of stock. (1) This information is from Schedule 13G dated February 9, 2001. (2) This information is from Schedule 13G dated February 14, 2001. ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company incorporates by reference any information appearing under the heading "Certain Relationships and Related Transactions" included in the Company's Proxy Statement. 70
71 PART IV ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS The following are included in Item 8. Report of Independent Accountants Consolidated Balance Sheet, February 3, 2001 and January 29, 2000 Consolidated Earnings, each of the three fiscal years ended 2001, 2000 and 1999 Consolidated Cash Flows, each of the three fiscal years ended 2001, 2000 and 1999 Consolidated Shareholders' Equity, each of the three fiscal years ended 2001, 2000 and 1999 Notes to Consolidated Financial Statements FINANCIAL STATEMENT SCHEDULES II -Reserves, each of the three fiscal years ended 2001, 2000 and 1999 All other schedules are omitted because the required information is either not applicable or is presented in the financial statements or related notes. These schedules begin on page 76. EXHIBITS - -------- (3) a. By-laws of Genesco Inc. Incorporated by reference to Exhibit (3)a to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995. b. Restated Charter of Genesco Inc. Incorporated by reference to Exhibit (3)b to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. Amendment to Restated Charter of Genesco Inc. dated as of June 17, 1998. Incorporated by reference to Exhibit (3)b to the Company's Quarterly Report on Form 10-Q for the quarter ended August 1, 1998. (4) Indenture dated as of April 9, 1998 between the Company and United States Trust Company of New York relating to 5 1/2% Convertible Subordinated Notes due 2005. Incorporated by reference to Registration Statement on Form S-3 filed November 9, 1998 (File No. 333-58541). (10) a. Form of Split-Dollar Insurance Agreement with Executive Officers. Incorporated by reference to Exhibit (10)a to the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1997. b. Form of Officers and Key Executives Change-in-Control Employment Agreement. Incorporated by reference to Exhibit (10)d to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. 71
72 c. 1987 Stock Option Plan and Form of Stock Option Agreement. Incorporated by reference to Exhibit (10)e to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. d. 1996 Stock Incentive Plan. Incorporated by reference to Registration Statement on Form S-8 filed July 19, 1996 (File No. 33-08463). e. 2001 EVA Incentive Compensation Plan. Incorporated by reference to Exhibit (10)f to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. f. 2002 EVA Incentive Compensation Plan. g. Form of Indemnification Agreement For Directors. Incorporated by reference to Exhibit (10)m to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. h. Modified and Restated Loan Agreement dated as of September 24, 1997 among the Company and Bank One, N.A. and Bank of America, N.A. Incorporated by reference to Exhibit (10)l to the Company's Quarterly Report on Form 10-Q for the quarter ended November 1, 1997. First Amendment to Modified and Restated Loan Agreement dated as of January 30, 1998 and Second Amendment to Modified and Restated Loan Agreement dated as of March 31, 1998. Incorporated by reference to Exhibit (10)i to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. Third Amendment to Modified and Restated Loan Agreement dated as of August 1, 1998 and Fourth Amendment to Modified and Restated Loan Agreement dated as of December 11, 1998. Incorporated by reference to Exhibit (10)i to the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 1999. Fifth Amendment to Modified and Restated Loan Agreement dated as of November 5, 1999. Incorporated by reference to Exhibit (10)h to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. Sixth Amendment to Modified and Restated Loan Agreement dated as of October 4, 2000. Incorporated by reference to Exhibit (10)h to the Company's Quarterly Report on Form 10-Q for the quarter ended October 28, 2000. i. Supplemental Pension Agreement dated as of October 18, 1988 between the Company and William S. Wire II, as amended January 9, 1993. Incorporated by reference to Exhibit (10)p to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. j. Deferred Compensation Trust Agreement dated as of February 27, 1991 between the Company and NationsBank of Tennessee for the benefit of William S. Wire, II, as amended January 9, 1993. Incorporated by reference to Exhibit (10)q to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993. 72
73 k. Shareholder Rights Agreement dated as of August 8, 1990 between the Company and Chicago Trust Company of New York. First Amendment to the Rights Agreement dated as of August 8, 1990. Incorporated by reference to Registration Statement on Form 8-A filed August 15, 1990 (File No. 1-3083). Second Amendment to the Rights Agreement dated as of March 24, 1998. Incorporated by reference to Registration Statement on Form 8-A filed March 25, 1998 (File No. 1-3083). Third Amendment to the Rights Agreement dated as of November 9, 1998. Incorporated by reference to Registration Statement on Form 8-K filed November 19, 1998 (File No. 1-3083). Amended and Restated Shareholders Rights Agreement dated as of August 28, 2000. Incorporated by reference to Registration Statement on Form 8-K filed August 30, 2000 (File No. 1-3083). l. Form of Employment Protection Agreement between the Company and certain executive officers dated as of February 26, 1997. Incorporated by reference to Exhibit (10)p to the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1997. (21) Subsidiaries of the Company. (23) Consent of Independent Accountants included on page 74. (24) Power of Attorney (99) Financial Statements and Report of Independent Accountants with respect to the Genesco Employee Stock Purchase Plan being filed herein in lieu of filing Form 11-K pursuant to Rule 15d-21. Exhibits (10)a through (10)f and (10)k are Management Contracts or Compensatory Plans or Arrangements required to be filed as Exhibits to this Form 10-K. - --------------- A copy of any of the above described exhibits will be furnished to the shareholders upon written request, addressed to Director, Corporate Relations, Genesco Inc., Genesco Park, Room 498, P.O. Box 731, Nashville, Tennessee 37202-0731, accompanied by a check in the amount of $15.00 payable to Genesco Inc. REPORTS ON FORM 8-K The Company filed current reports on Form 8-K on January 4, 2001, January 30, 2001, February 21, 2001 and March 1, 2001 disclosing Regulation FD disclosures. 73
74 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-8 (Nos. 33-15835, 33-30828, 33-35329, 33-50248, 33-62653 and 33-08463) of Genesco Inc. of our report dated February 27, 2001 relating to the consolidated financial statements and consolidated financial statement schedule, which appears in this Form 10-K. We also consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-62653) of Genesco Inc. of our report dated April 6, 2001 relating to the February 3, 2001 financial statements of the Genesco Employee Stock Purchase Plan, which appears in an exhibit to this Form 10-K. /s/PricewaterhouseCoopers LLP Nashville, Tennessee May 4, 2001 74
75 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENESCO INC. By: /s/James S. Gulmi -------------------------------- James S. Gulmi Senior Vice President - Finance Date: May 4, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the fourth day of May, 2001. /s/Ben T. Harris Chairman and Chief Executive Officer - ----------------------------------------------------- and a Director Ben T. Harris /s/Hal N. Pennington President and Chief Operating Officer - ----------------------------------------------------- and a Director Hal N. Pennington /s/James S. Gulmi Senior Vice President - Finance - ----------------------------------------------------- (Principal Financial Officer) James S. Gulmi /s/Paul D. Williams - ----------------------------------------------------- Chief Accounting Officer Paul D. Williams Directors: Leonard L. Berry* Kathleen Mason* Robert V. Dale* William A. Williamson, Jr.* W. Lipscomb Davis, Jr.* William S. Wire, II* Joel C. Gordon* Gary M. Witkin* *By /s/Roger G. Sisson -------------------------------- Roger G. Sisson Attorney-In-Fact 75
76 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Financial Statement Schedule February 3, 2001 76
77 SCHEDULE 2 GENESCO INC. AND CONSOLIDATED SUBSIDIARIES Reserves - --------------------------------------------------------------------------------------------------------------- YEAR ENDED FEBRUARY 3, 2001 - --------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------ CHARGED CHARGED BEGINNING TO PROFIT TO OTHER INCREASES ENDING IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE - --------------------------------------------------------------------------------------------------------------- Reserves deducted from assets in the balance sheet: Allowance for bad debts $ 926 477 -0-(1) (97)(2) $ 1,306 Allowance for cash discounts -0- -0- -0- -0- (3) -0- Allowance for sales returns 935 -0- -0- 241 (4) 1,176 Allowance for customer deductions 831 -0- -0- 105 (5) 936 Allowance for co-op advertising 495 -0- -0- (10)(6) 485 - --------------------------------------------------------------------------------------------------------------- TOTALS $ 3,187 477 -0- 239 $ 3,903 =============================================================================================================== YEAR ENDED JANUARY 29, 2000 - --------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------ CHARGED CHARGED BEGINNING TO PROFIT TO OTHER INCREASES ENDING IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE - --------------------------------------------------------------------------------------------------------------- Reserves deducted from assets in the balance sheet: Allowance for bad debts $ 1,075 247 -0-(1) (396)(2) $ 926 Allowance for cash discounts -0- -0- -0- -0- (3) -0- Allowance for sales returns 292 -0- -0- 643 (4) 935 Allowance for customer deductions 511 -0- -0- 320 (5) 831 Allowance for co-op advertising 400 -0- -0- 95 (6) 495 - --------------------------------------------------------------------------------------------------------------- TOTALS $ 2,278 247 -0- 662 $ 3,187 =============================================================================================================== YEAR ENDED JANUARY 30, 1999 - --------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------ CHARGED CHARGED BEGINNING TO PROFIT TO OTHER INCREASES ENDING IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE - --------------------------------------------------------------------------------------------------------------- Reserves deducted from assets in the balance sheet: Allowance for bad debts $ 988 1,028 15(1) (956)(2) $ 1,075 Allowance for cash discounts 2 -0- -0- (2)(3) -0- Allowance for sales returns 365 -0- -0- (73)(4) 292 Allowance for customer deductions 1,006 -0- -0- (495)(5) 511 Allowance for co-op advertising 389 -0- -0- 11 (6) 400 - --------------------------------------------------------------------------------------------------------------- TOTALS $ 2,750 1,028 15 (1,515) $ 2,278 =============================================================================================================== Note: Most subsidiaries and branches charge credit and collection expense directly to profit and loss. Adding such charges of $20,000 in 2001, $32,000 in 2000 and $74,000 in 1999 to the addition above, the total bad debt expense amounted to $497,000 in 2001, $279,000 in 2000 and $1,102,000 in 1999. (1) Bad debt recoveries. (2) Bad debt charged to reserve and transfers to operations to be divested. (3) Adjustment of allowance for estimated discounts to be allowed subsequent to period end on receivables at same date and transfers to operations to be divested. (4) Adjustment of allowance for sales returns to be allowed subsequent to period end on receivables at same date and transfers to operations to be divested. (5) Adjustment of allowance for customer deductions to be allowed subsequent to period end on receivables at same date and transfers to operations to be divested. (6) Adjustment of allowance for estimated co-op advertising to be allowed subsequent to period end on receivables at same date and transfers to operations to be divested. See Note 3 to the Consolidated Financial Statements included in Item 8. 77
1 EXHIBIT (10)F. GENESCO INC. EVA INCENTIVE COMPENSATION PLAN 1. PURPOSE. The purposes of the Genesco Inc. EVA Incentive Compensation Plan ("the Plan") are to motivate and reward excellence and teamwork in achieving maximum improvement in shareholder value; to provide attractive and competitive total cash compensation opportunities for exceptional corporate and business unit performance; to reinforce the communication and achievement of the mission, objectives and goals of the Company; to motivate managers to think strategically (long term) as well as tactically (short term); and to enhance the Company's ability to attract, retain and motivate the highest caliber management team. The purposes of the Plan shall be carried out by payment to eligible participants of annual incentive cash awards, subject to the terms and conditions of the Plan and the discretion of the Compensation Committee of the board of directors of the Company. 2. AUTHORIZATION. On October 27, 1998, the Compensation Committee approved the Plan. 3. SELECTION OF PARTICIPANTS. Participants shall be selected annually by the Chief Executive Officer from among full-time employees of the Company who serve in operational, administrative, professional or technical capacities. The participation and target bonus amounts of Company officers and employees whose annual base compensation is $125,000 or more shall be approved by the Compensation Committee with the advice of the Chief Executive Officer. The Chief Executive Officer shall not be eligible to participate in the Plan. The Chief Executive Officer shall annually assign participants to a Business Unit. For participants whose Business Unit consists of more than one profit center, the Chief Executive Officer shall determine in advance the relative weight to be given to the performance of each profit center in the calculation of awards. If a participant is transferred to a different business unit during the Plan Year he or she shall be eligible to receive a bonus for each of the Business Units to which the participant was assigned during the Plan Year, prorated for the amount of time worked in each assignment, unless the Chief Executive Officer determines that a different proration is warranted in the circumstances. In the event of another significant change in the responsibilities and duties of a participant during a Plan Year, the Chief Executive Officer shall have the authority, in his sole discretion, to terminate 1
2 the participant's participation in the Plan, if such change results in diminished responsibilities, or to make such changes as he deems appropriate in (i) the target award the participant is eligible to earn, (ii) the participant's applicable goal(s) and (iii) the period during which the participant's applicable award applies. 4. PARTICIPANTS ADDED DURING PLAN YEAR. A person selected for participation in the Plan after the beginning of a Plan Year will be eligible to earn a prorated portion of the award the participant might have otherwise earned for a full year's service under the Plan during that Plan Year, provided the participant is actively employed as a participant under the Plan for at least 120 days during the Plan Year. The amount of the award, if any, earned by such participant for such Plan Year shall be based on the number of full months of the Plan Year during which the employee participated in the Plan. 5. DISQUALIFICATION FOR UNSATISFACTORY PERFORMANCE. Any participant whose performance is found to be unsatisfactory or who shall have violated in any material respect the Company's Policy on Legal Compliance and Ethical Business Practices shall not be eligible to receive an award under the Plan in the current Plan Year. The participant shall be eligible to be considered by the Chief Executive Officer for reinstatement to the Plan in subsequent Plan Years. Any determination of unsatisfactory performance or of violation of the Company's Policy on Legal Compliance and Ethical Business Practices shall be made by the Chief Executive Officer. Participants who are found ineligible for participation in a Plan Year due to unsatisfactory performance will be so notified in writing prior to October 31 of the Plan Year. 6. TERMINATION OF EMPLOYMENT. A participant whose employment is terminated voluntarily or involuntarily, except by reason of death, medical disability or voluntary retirement, prior to the end of a Plan Year shall not be eligible to receive an award under the Plan. A participant who voluntarily retires, is on medical leave of absence or the estate of a participant who dies during the Plan Year will be eligible to receive the sum of a prorated portion of the award (positive or negative) the participant would have otherwise received for a full year's service under the Plan, provided the participant is actively employed as a participant under the Plan for at least 120 days during the Plan Year, and the participant's bonus bank (positive or negative). The amount of any award payable to such disabled or retired participant or the estate of such deceased participant shall be based on the number of full months of the Plan Year during which the disabled, retired or deceased employee was classified in the Company's payroll system as an active employee. A participant who has received or is receiving severance pay at the end of the Plan Year shall be considered a terminated employee and shall not be eligible to receive an award under the Plan. 2
3 7. ECONOMIC VALUE ADDED ("EVA") CALCULATION EVA for a Business Unit or the entire Company, as applicable, shall be the result of a Business Unit's or the Company's net operating profit after taxes less a charge for capital employed by that Business Unit or the Company. The Company will track the change in EVA by Business Unit over each Plan Year for the purpose of determining bonus as further described below. 8. AMOUNT OF AWARDS. Participants are eligible to earn cash awards based on (i) change in EVA for a Business Unit and (ii) achievement of individual Performance Plan Goals to be approved by the Chief Executive Officer prior to March 31 of each Plan Year. Prior to the beginning of each Plan Year, the Chief Executive Officer will establish for each Business Unit and for the Company as a whole target levels of expected changes in EVA for each Business Unit and for the Company for such Plan Year and a range of multiples to be applied to the participant's target bonus based on actual performance for the Plan Year. The multiple related to Business Unit performance is referred to as the "Business Unit Multiple." If a participant's Business Unit is comprised of more than one profit center, the Chief Executive Officer shall determine the relative weight to be assigned to each profit center's Business Unit Multiple. The Business Unit Multiple for such participant shall be the weighted average of the Business Unit Multiples for each profit center comprising the participant's Business Unit. The multiple related to the performance of the Company as a whole is referred to as the "Corporate Multiple." The Corporate Multiple and Business Unit Multiples may be positive or negative and may consist of whole numbers or fractions. Not later than March 31 the Plan Year, the participant and the participant's supervisor shall agree on a set of strategic performance objectives for the participant for the Plan Year (the "Performance Plan Goals"). The "Declared Bonus" shall be determined as follows: For participants who are Business Unit Presidents, the Declared Bonus shall equal the sum of (A) the Business Unit Multiple times one-half the participant's target bonus plus (B) the Corporate Multiple times one-quarter of the participant's target bonus plus (C) the percentage of the participant's achievement of his or her Performance Plan Goals determined by the participant's supervisor (the "Performance Plan Percentage") times one-quarter of the participant's target bonus times the Business Unit Multiple; provided, however that if the Business Unit Multiple is a negative number, the Performance Plan Percentage shall be 100%. For other Business Unit participants, the Declared Bonus shall equal the sum of (A) the Business Unit Multiple times 75% of the participant's target bonus plus (B) the Business Unit Multiple times 25% of the participant's target bonus times the Performance Plan Percentage; provided, however 3
4 that if the Business Unit Multiple is a negative number, the Performance Plan Percentage shall be 100%. For the Corporate Staff participants, the Declared Bonus shall equal the sum of (A) the Corporate Multiple times 75% of the participant's target bonus plus (B) the Corporate Multiple times 25% of the participant's target bonus times the Performance Plan Percentage; provided that, if the Corporate Multiple is a negative number, the Performance Plan Percentage shall be 100%. Each participant shall have a balance in a "Bonus Bank" consisting of the cumulative total since the first year of such participant's participation in the Plan of (i) all of the participant's negative Declared Bonuses and (ii) all of participant's positive Declared Bonuses not distributed because of payout limitations. The sum of the participant's Declared Bonus for the current Plan Year and the participant's Bonus Bank balance (positive or negative) will constitute the "Available Bonus." A participant's Bonus Payout at the end of the Plan Year shall be equal to the lesser of (A) the Available Bonus or (B) the sum of (i) the Declared Bonus, up to three times the participant's target bonus for the Plan Year plus (ii) one-third of the participant's Bonus Bank balance, if positive, after the addition to the Bonus Bank of any amount by which the Declared Bonus exceeds three times the target bonus. Any positive balance in the Bonus Bank shall be payable without interest promptly upon the Company's termination of the participant's employment without "Cause," or upon the participant's death or retirement. "Cause" for termination for purposes of this Plan means any act of dishonesty involving the Company, any violation of the Policy on Legal Compliance and Ethical Business Practices as then in effect, any breach of fiduciary duty owed to the Company, persistent or flagrant failure to follow the lawful directives of the board of directors or of the executive to whom the participant reports or conviction of a felony. Nothing in this Plan (including but not limited to the foregoing definition of Cause) shall in any manner alter the participant's status as an employee at will or limit the Company's right or ability to terminate the participant's employment for any reason or for no reason at all. Upon termination for Cause or voluntary termination at the participant's instance, any unpaid portion of the "Bonus Bank" will be forfeited by the participant. 9. PAYMENT OF AWARDS. Any awards payable under the Plan (including awards with respect to participants who die, are placed on medical leave of absence or voluntarily retire during the Plan Year), other than the amount, if any, to be credited to the Bonus Bank, will be made in cash, net of applicable withholding taxes, as soon as reasonably practicable after the end of the Plan Year, but in no event prior to the date on which the Company's audited financial statements for the Plan Year are reviewed by the audit committee of the Company's board of directors. The positive Bonus Bank 4
5 balance will be paid in cash, net of applicable withholding taxes, as soon as reasonably practicable after the date on which it becomes payable. 10. PLAN ADMINISTRATION. The Chief Executive Officer shall have final authority to interpret the provisions of the Plan. Interpretations by the Chief Executive Officer which are not patently inconsistent with the express provisions of the Plan shall be conclusive and binding on all participants and their designated beneficiaries. It is the responsibility of the Vice President Human Resources (i) to cause each person selected to participate in the Plan to be furnished with a copy of the Plan and to be notified in writing of such selection, the applicable goals and the range of the awards for which the participant is eligible; (ii) to cause the awards to be calculated in accordance with the Plan; and (iii) except to the extent reserved to the Chief Executive Officer or the Compensation Committee hereunder, to administer the Plan consistent with its express provisions. 11. NON-ASSIGNABILITY. A participant may not at any time encumber, transfer, pledge or otherwise dispose of or alienate any present or future right or expectancy that the participant may have at any time to receive any payment under the Plan. Any present or future right or expectancy to any such payment is non-assignable and shall not be subject to execution, attachment or similar process. 12. MISCELLANEOUS. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any participant's employment or to change any participant's duties and responsibilities, nor confer upon any participant the right to be selected to participate in any incentive compensation plans for future years. Neither the Chief Executive Officer, the Vice President Human Resources, nor the Compensation Committee shall have any liability for any action taken or determination made under the Plan in good faith. 13. BINDING ON SUCCESSORS. The obligations of the Company under the Plan shall be binding upon any organization which shall succeed to all or substantially all of the assets of the Company, and the term Company, whenever used in the Plan, shall mean and include any such organization after the succession. If the subject matter of this Section 13 is covered by a change-in-control agreement or similar agreement which is more favorable to the participant than this Section 13, such other agreement shall govern to the extent applicable and to the extent inconsistent herewith. 5
6 14. DEFINITIONS. "EVA" means the economic value added to the Company during the Plan Year as determined by the net operating profit in a particular Business Unit as reflected on the Company's books for internal reporting purposes, reduced by the cost of capital. "BUSINESS UNIT" means any of the Company's profit centers or any combination of two or more of the profit centers, which comprise Genesco Inc. The "CHIEF EXECUTIVE OFFICER" means the president and chief executive officer of the Company. The "COMPANY" means Genesco Inc. The "COMPENSATION COMMITTEE" means the compensation committee of the board of directors of the Company. "THE "PLAN" means this EVA Incentive Compensation Plan for the Plan Year. "PLAN YEAR" means the fiscal year of the Company ending January 31, 2002. The "VICE PRESIDENT HUMAN RESOURCES" means the vice president Human Resources of Genesco Inc. 6
1 EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE COMPANY: - --------------------------------------------------------------------------------------------- PLACE OF PERCENT OF VOTING SECURITIES NAMES OF SUBSIDIARY INCORPORATION OWNED BY REGISTRANT - --------------------------------------------------------------------------------------------- Beagen Street Corporation Delaware 100 Flagg Bros. of Puerto Rico, Inc. Delaware 100 GCO Properties, Inc. Tennessee 100 Genesco Brands, Inc. Delaware 100 Genesco Global, Inc. Delaware 100 Genesco Merger Company Inc. Tennessee 100 Genesco Netherlands BV Netherlands 100 Genesco Virgin Islands Virgin Islands 100 Genesco World Apparel, Ltd. Delaware 100 =============================================================================================
1 EXHIBIT (24) POWER OF ATTORNEY The undersigned, certain of the officers and directors of Genesco Inc., a Tennessee corporation ("Genesco"), do hereby constitute and appoint Roger G. Sisson and James S. Gulmi, and any one of them, to act severally as attorneys-in-fact for and in their respective names, places and steads, with full power of substitution, to execute, sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of Genesco for the fiscal year ended February 3, 2001, and any and all amendments thereto; granting to said attorneys-in-fact, and each of them, full power and authority to do and perform every act and thing whatsoever requisite or necessary to be done in and about the premises as fully to all intents and purposes as the undersigned or any of them might or could do if personally present, and the undersigned do hereby ratify and confirm all that said attorney-in-fact or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED as of this 28th day of February, 2001. /s/ Ben T. Harris /s/ James S. Gulmi - --------------------------------------- ---------------------------------------------- Ben T. Harris, Chairman and James S. Gulmi, Senior Vice President-Finance Chief Executive Officer and a Director (Principal Financial Officer) /s/ Hal Pennington /s/ Kathleen Mason - --------------------------------------- ---------------------------------------------- Hal N. Pennington, President and Kathleen Mason, Director Chief Operating Officer and a Director /s/ Leonard L. Berry /s/ William A. Williamson, Jr. - --------------------------------------- ---------------------------------------------- Leonard L. Berry, Director William A. Williamson, Jr., Director /s/ Robert V. Dale /s/ William S. Wire II - --------------------------------------- ---------------------------------------------- Robert V. Dale, Director William S. Wire II, Director /s/ W. Lipscomb Davis, Jr. /s/ Gary M. Witkin - --------------------------------------- ---------------------------------------------- W. Lipscomb Davis, Jr., Director Gary M. Witkin, Director /s/ Joel C. Gordon - --------------------------------------- Joel C. Gordon, Director
1 EXHIBIT (99) GENESCO EMPLOYEE STOCK PURCHASE PLAN Financial Statements February 3, 2001 and January 29, 2000
2 To the Participants and Administrator of the Genesco Employee Stock Purchase Plan Report of Independent Accountants In our opinion, the accompanying statements of financial condition and the related statements of changes in plan equity present fairly, in all material respects, the financial condition of the Genesco Employee Stock Purchase Plan (the "Plan") at February 3, 2001 and January 29, 2000, and the changes in plan equity for each of the three years in the period ended February 3, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP Nashville, Tennessee April 6, 2001
3 GENESCO EMPLOYEE STOCK PURCHASE PLAN Statements of Financial Condition - --------------------------------------------------------------------- FEBRUARY 3, JANUARY 29, ASSETS 2001 2000 - --------------------------------------------------------------------- Due from Genesco Inc. $219,816 $209,817 - --------------------------------------------------------------------- TOTAL ASSETS $219,816 $209,817 ===================================================================== LIABILITIES AND PLAN EQUITY - --------------------------------------------------------------------- Payable to withdrawn participants $ 4,340 $ 1,506 Plan equity 215,476 208,311 - --------------------------------------------------------------------- TOTAL LIABILITIES AND PLAN EQUITY $219,816 $209,817 ===================================================================== The accompanying Notes are an integral part of these Financial Statements. -2-
4 GENESCO EMPLOYEE STOCK PURCHASE PLAN Statements of Changes in Plan Equity - -------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED ----------------------------------------------- FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 - -------------------------------------------------------------------------------------------------- Employee contributions $ 622,667 $ 576,081 $ 586,814 Options exercised (562,522) (539,494) (493,630) Distributions to withdrawn participants (52,980) (31,831) (118,157) - -------------------------------------------------------------------------------------------------- Net increase (decrease) in plan equity 7,165 4,756 (24,973) Plan equity at beginning of period 208,311 203,555 228,528 - -------------------------------------------------------------------------------------------------- PLAN EQUITY AT END OF PERIOD $ 215,476 $ 208,311 $ 203,555 ================================================================================================== The accompanying Notes are an integral part of these Financial Statements. -3-
5 GENESCO EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The records of the Genesco Employee Stock Purchase Plan (the "Plan") are maintained on the accrual basis of accounting. All expenses incurred in administration of the Plan are paid by Genesco Inc. (the "Company") and are excluded from these financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. NOTE 2 THE PLAN BACKGROUND AND SUMMARY The following description of the Plan provides only general information. Participants should refer to the Plan prospectus for a more complete description of the Plan's provisions. The Plan became effective October 1, 1995 to advance the interests of the Company and its shareholders by attracting and retaining qualified employees and by encouraging them to identify with shareholder interests through the acquisition of shares of the Company's common stock. ELIGIBILITY Each employee whose total annual base salary is less than $100,000 and whose customary employment is greater that 20 hours per week and greater than five months per year is eligible to participate in the Plan if the employee has been employed by the Company for at least six months prior to the grant date. The Plan excludes statutory insiders and five percent shareholders. CONTRIBUTIONS Contributions to the Plan are solely from participating employees of the Company who, through after-tax payroll deductions, may use their contributions to purchase common stock of the Company at the end of a one-year option period. The maximum number of shares available to any participant is the lesser of 2,000 a year or that number of shares equal to $10,000 divided by the closing market price of the common stock on the grant date or the exercise date. The maximum contribution is the lesser of $8,500 a year or 15% of the participant's base pay as of October 1. The minimum contribution is $250 per participant per year. Shares will be purchased September 30 of the year following the October 1 grant date with the initial grant date being October 1, 1995. -4-
6 GENESCO EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements NOTE 2 THE PLAN, CONTINUED An option enables the participant to purchase shares of the Company's common stock at the lesser of 85% of the market value on the grant date or the exercise date. Options are to be granted each year through and including October 1, 2004, unless the board of directors, at its discretion, determines in advance that no options are to be granted. The cumulative number of shares which may be purchased under the Plan is 1,000,000. The options granted and rights thereto may not be sold, assigned, pledged or otherwise transferred and may be exercised during the lifetime of the participant only by the participant. PARTICIPANT ACCOUNTS Periodically throughout the year, each participant is provided with statements reflecting the value of their account. Participant contributions are held by Genesco Inc., which has an unfunded and unsecured obligation to the Plan. At the exercise date, the Company issues stock that is transferred to a brokerage firm and allocated among the participants according to the number of options exercised by each participant. VESTING Participants are 100% vested in the value of their account and may withdraw from the Plan at any time except during the period September 15 through September 30 which is the time that preparations are made for the issuance of the stock each year. If a participant is terminated for any reason other than retirement or death, the participant's involvement in the Plan and any unexercised options automatically terminate, and the participant will receive the account balance in cash. TERMINATION OF THE PLAN The Company reserves the right to terminate the Plan at any time. In the event of Plan termination, the balance of each participant's account shall be paid in cash as soon as is reasonably practical. PLAN ADMINISTRATOR The Plan is to be administered by the compensation committee of the board of directors or another designee of the board of directors. REGULATORY MATTERS The Plan is intended to qualify as an Employee Stock Purchase Plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended. Accordingly, no income will result for federal income tax purposes when an option is granted or exercised; however, income may result upon disposition of the stock. The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974 (ERISA). -5-
7 GENESCO EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements NOTE 3 - ------------------------------------------------------------------------------------------------------------ OPTION PERIOD --------------------------------------- 10/01/00 10/01/99 10/01/98 TO TO TO OPTIONS TO PURCHASE COMPANY STOCK TOTAL 09/30/01 09/30/00 09/30/99 - ------------------------------------------------------------------------------------------------------------ Estimated options granted - October 1, 1998 143,852 -0- -0- 143,852 Additional options granted at exercise date -0- -0- -0- -0- Options exercised -0- -0- -0- -0- Options withdrawn (10,676) -0- -0- (10,676) - ------------------------------------------------------------------------------------------------------------ Options outstanding, January 30, 1999 133,176 -0- -0- 133,176 - ------------------------------------------------------------------------------------------------------------ Estimated options granted - October 1, 1999 59,763 -0- 59,763 -0- Additional options granted at exercise date 1,649 -0- -0- 1,649 Options exercised (122,362) -0- -0- (122,362) Options withdrawn (13,245) -0- (782) (12,463) - ------------------------------------------------------------------------------------------------------------ Options outstanding, January 29, 2000 58,981 -0- 58,981 -0- - ------------------------------------------------------------------------------------------------------------ Estimated options granted - October 1, 2000 43,141 43,141 -0- -0- Additional options granted at exercise date 1,337 -0- 1,337 -0- Options exercised (54,582) -0- (54,582) -0- Options withdrawn (7,217) (1,481) (5,736) -0- - ------------------------------------------------------------------------------------------------------------ Options outstanding, February 3, 2001 41,660 41,660 -0- -0- ============================================================================================================ The cumulative options exercised as of February 3, 2001 are 482,840. OPTION PERIOD ----------------------------------- 10/01/00 10/01/99 10/01/98 TO TO TO 09/30/01 09/30/00 09/30/99 ----------------------------------- 85% of fair market value of stock at date of grant $ 14.88 $ 10.31 $ 4.41 Date of grant 10/1/00 10/1/99 10/1/98 85% of fair market value of stock at date of exercise N/A $ 14.40 $ 10.63 Exercise date 9/30/01 9/30/00 9/30/99 At the beginning of each option period, the Company estimates the number of options to be granted based on participant contributions and the current stock price. At the end of the option period, the Company grants options to each plan participant. In the event plan contributions, withdrawals or stock price are different than originally estimated, additional or fewer options may be granted at the end of the option period (exercise date). -6-
8 GENESCO EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements NOTE 3, CONTINUED OPTION PERIOD ----------------------------------- 10/01/00 10/01/99 10/01/98 TO TO TO NUMBER OF PARTICIPANTS TOTAL 09/30/01 09/30/00 09/30/99 ------------------------------------------------------------------------------------------------------------------- Enrollment - October 1, 1998 350 -0- -0- 350 Exercised options -0- -0- -0- -0- Withdrawn (25) -0- -0- (25) ------------------------------------------------------------------------------------------------------------------- Active, January 30, 1999 325 -0- -0- 325 ------------------------------------------------------------------------------------------------------------------- Enrollment - October 1, 1999 349 -0- 349 -0- Exercised options (287) -0- -0- (287) Withdrawn (46) -0- (8) (38) ------------------------------------------------------------------------------------------------------------------- Active, January 29, 2000 341 -0- 341 -0- ------------------------------------------------------------------------------------------------------------------- Enrollment - October 1, 2000 383 383 -0- -0- Exercised options (273) -0- (273) -0- Withdrawn (81) (13) (68) -0- ------------------------------------------------------------------------------------------------------------------- Active, February 3, 2001 370 370 -0- -0- =================================================================================================================== -7-