Grupo Catalana Occidente
Annual Report 2008

Plain-text annual report

G e n e s c o 2 0 0 8 A n n uA l R e p o R t t h e B u s i n e s s o f G e n e s c o Founded in 1924, nashville, Tennessee-based Genesco Inc. (nYse: Gco) is a leading retailer of branded footwear, licensed and branded headwear and wholesaler of branded footwear. It operates more than 2,150 footwear and headwear retail stores in the United states, Puerto Rico and canada, principally under the names Journeys®, Journeys Kidz®, shi by Journeys™, Johnston & Murphy®, Underground station®, Hat World®, Lids®, Hat shack®, Hat Zone®, Head Quarters, cap connection™ and Lids Kids™. Genesco also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers® brand. Genesco relies on independent third party manufacturers for the production of its footwear products sold at wholesale. Table of Contents Business of Genesco Securities Information Total Return to Shareholders Financial Highlights Shareholders’ Message Brand Profiles Management’s Discussion and Analysis of Financial Condition and Results of Operations Financial Summary Management’s Responsibility for Financial Statements Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Consolidated Balance Sheets Consolidated Statements of Earnings Consolidated Statements of Cash Flows Consolidated Statements of Shareholders’ Equity Notes to Consolidated Financial Statements Corporate Information Board of Directors Corporate Officers Genesco’s Retail Network 1 2 2 3 4 6 20 38 39 40 41 42 43 44 45 46 83 84 84 85 cReDITs: coveR ILLUsTRaTIon: anDReW ZbIHLYJ. ReTaIL PHoTos: ©cHUn Y. LaI. aLL RIGHTs ReseRveD. PeRMIssIon Is ReQUIReD FoR anY oTHeR RePRoDUcTIon oR DIsTRIbUTIon. LIFesTYLe anD PRoDUcT sHoTs PRovIDeD bY Genesco oPeRaTInG DIvIsIons. PaGe 4 PHoTo: Dana THoMas  S e c u r i t i e s I n f o r m a t i o n C o m m o n S t o C k : n e w Y o r k a n d C h i C a g o S t o C k e x C h a n g e S Quarter ended may 4 Quarter ended august 3 Quarter ended november 2 Quarter ended February 2 Fiscal 2008 Fiscal 2007 Fiscal 2006 High 51.30 54.15 52.06 45.67 Low 34.57 47.09 41.00 24.98 high 42.60 43.72 38.73 42.5 Low 37.33 25.50 26.05 35.46 high 3.50 4.0 40.27 42.89 Low 25.6 25.80 33.4 35.6 Approximate number of common shareholders of record: 4,800 as of March 21, 2008 Total Return To Shareholders inCLudeS reinveStment oF dividendS the graph below compares the cumulative total shareholder return on the Company’s common stock for the last five fiscal years with the cumulative total return of (i) the S&P 500 index and (ii) the S&P 500 Footwear index. the graph assumes the investment of $00 in the Company’s common stock, the S&P 500 index and the S&P 500 Footwear index at the market close on February , 2003 and the reinvestment monthly of all dividends. Comparison of 5 Year Cumulative Total Return 3 5 0 3 0 0 2 5 0 2 0 0 1 5 0 1 0 0 5 0 0 FYE 03 geneSCo inC. S&P 500 index S&P 500 Footwear index FYE 04 FYE 05 FYE 06 FYE 07 FYE 08 Base Period Index Returns Years Ended genesco inc. S&P 500 index S&P 500 Footwear index* * The S&P 1500 Footwear Index consists of Crocs Inc., Deckers Outdoor Corp., Iconix Brand Group, Inc., K-Swiss Inc., Skechers U.S.A. Inc., Wolverine World Wide, Nike Inc. and Timberland Co. FYE 04 $ 04.03 36.34 5.78 FYE 05 $ 69.57 43.4 89.40 FYE 06 $ 230.9 59.60 97.4 FYE 07 $ 245.70 83.24 246.02 FYE 03 $ 00.00 00.00 00.00 FYE 08 $ 20.32 80.04 286.69 2 this annual report contains certain forward-looking statements. actual results could be materially different. For discussion of some of the factors that could adversely affect future results, please see “management’s discussion and analysis of Financial Condition and results of operations” and the material under the caption “risk Factors” in the Company’s annual report on form 0-k for Fiscal 2008 filed with the Securities and exchange Commission. F i n a n c i a l H i g h l i g h t s FoR THE YEaR: net Sales earnings From Continuing operations net earnings diluted earnings Per Common Share From Continuing operations diluted net earnings Per Share aT YEaR End: working Capital Long-term debt Shareholders’ equity Shares outstanding Book value Per Share approximate number of Common Shareholders of record 2008 2007 %Change $ 1,502,119,000 8,488,000 $ 6,885,000 $ $ $ 0.36 0.29 $ 238,093,000 $ 155,220,000 $ 421,415,000 22,796,000 18.25 $ $ ,460,478,000 68,247,000 $ 67,646,000 $ $ $ $ $ $ $ 2.6 2.59 200,330,000 09,250,000 405,226,000 22,742,000 7.53 3 % (88)% (90)% (86)% (89)% 9 % 42 % 4 % 0 % 4 % 4,800 4,900 3 S H a R E H o L d E R S ’ M E S S a g E bob De n n Is (Le FT) an D HaL Pe n n I nGTon To our shareholders: Fiscal 2008 was in many ways a challenging year for Genesco. The effects of a difficult retail environment on our operating results were magnified by the distraction and expense of an unsolicited takeover attempt followed by a negotiated transaction that ended in litigation, which we settled in March. While we cannot pretend to be pleased with our performance during this past year, we are proud of the resilience of our fellow employees and encouraged by the renewed commitment and excitement about our potential that we sense as we begin the next chapter in the Genesco story. “We are fortunate to have the same talented When we reported to you a year ago, we outlined management team, executing the same long- term strategies in the same industry-leading businesses that we celebrated last year.” an optimistic vision and talked about the basis of our optimism: “We are operating from a strong base, more than 2,000 stores, each focused on bringing our customers the products they want in shopping environments that reflect their tastes and lifestyles. Most of all, we have a strong team – more than 12,500 people in stores, distribution centers and offices, united in their commitment to help us reach our goals.” none of that has changed. We are fortunate to have the same talented management team, executing the same long-term strategies in the same industry-leading businesses that we celebrated last year. In fact, we believe that our recent experience has sharpened our focus, heightened our appreciation for the inherent strengths of our company, and increased our determination to realize its potential. 4 Many apparel and footwear retailers felt the effects of weakening consumer demand in the course of last year, reflecting a combination of macroeconomic factors and a lack of fashion direction in significant market segments. our retail divisions were no exception; comparable sales for the year decreased in the Journeys, Hat World and Underground station groups. on the branded side of our business, both Johnston & Murphy and Dockers Footwear were bright spots, with increased sales and double-digit operating margins, confirming the success of their product and marketing strategies and illustrating the benefits to the company of a diversified portfolio of businesses. Looking ahead, while we expect the consumer environment to remain “For the longer term, our years of challenging for the near-term and have been prudent in our planning for Fiscal 2009, we have responded to our markets in ways that we expect to produce an improving performance trend in the course of the year. For the longer term, our years of experience in a cyclical business have taught us that strong companies emerge from periods experience in a cyclical business have taught us that strong companies emerge from periods of challenge even stronger, and of challenge even stronger, and we expect to do just that. we expect to do just that.” We continue to plan for a promising future, drawing on the talent of all our Genesco associates and the strategic strength of our businesses to lay the foundation for continued growth. We look forward to reporting to you on our progress. Hal n. Pennington chairman and chief executive officer Robert J. Dennis President and chief operating officer eva® Genesco has been an eva company since 1999. eva advances the analysis of operating performance one step beyond profitability by taking efficiency in capital usage into account. essentially, eva recognizes that companies create the most wealth for their shareholders by making the greatest possible profit with the fewest possible net assets. In fiscal 2008 we did not exceed our annual eva improvement goal. because everyone at Genesco recognizes the link between eva improvement, shareholders wealth creation (and, not insignificantly, our own incentive compensation), we are committed to continue growing earnings while tightly managing assets, to meet or exceed our eva improvement goals. EVA is a registered trademark of Stern Stewart & Co 5 Journeys is a leader in the teen retail scene, with more than 800 stores across the united States, including Puerto rico and the u.S. virgin islands. Journeys uses fashion savvy and merchandising science to keep in step with the fast-paced footwear and accessories market for 3- to 22-year-old men and women. Journeys sells a wide variety of hot teen brands including vans, Converse, dC and Puma. the Journeys store is more than a retail environment; it’s an extension of the customer’s lifestyle. From cool lighting to in-store television monitors playing fresh content and the latest music videos, to employees whose lifestyle and self-image match their customers’, the Journeys retail environment is designed to reflect its customers’ tastes and attitudes every bit as much as the merchandise selection. in addition, Journeys reaches its customers through a direct mail catalog, through the internet at www.journeys.com and through strategic cross-promotions. 6 7 Launched in 200 as an extension of the highly successful Journeys footwear retail concept, Journeys kidz is a unique branded kids footwear retailer, targeting customers five to 2 years old with trendy footwear styles and accessories from brands including dC, Puma, Converse and nike. whether it’s the skateboard-style footwear display, the Playstation terminals, or the television monitors playing cartoons and music, Journeys kidz, which operates 5 stores, has a visually exciting atmosphere that is both fun for kids and functional for parents. in addition, Journeys kidz reaches its customers through its own website www.journeyskidz.com offering an interactive ecommerce option or “big kidz shoes in little kidz sizes.” 8 •P hoto i s a prof essi onal athl ete and protective gear should be worn for safety when skateboardi ng. 9 underground Station is a mall-based retail concept with stores located across the united States. underground Station markets trendy footwear and apparel to a brand-conscious consumer with a high-fashion mindset who values cutting-edge styles and the latest brands. with more than 75 stores, the division also markets through its website www.undergroundstation.com. underground Station offers the latest footwear and accessories from brands like Baby Phat, apple Bottoms, Pastry, ed hardy, Puma, Converse and rocawear. underground Station targets 20- to 35-year-old, culturally diverse, urban male and female customers. underground Station’s up-to-date merchandising entices customers to view the store as a destination to find out about the latest arrivals from the hottest brands. 0  Craftsmanship, innovation and style are the hallmarks of the Johnston & murphy brand. Johnston & murphy continues to appeal to successful, affluent men with a broad array of footwear and accessories appropriate for professional working environments. the brand strives to position itself in international airports or at stores in better malls across america. at Johnston & murphy, world-class service is the defining element of the shopping experience, combining a warm and inviting store environment with a commitment to understand the needs of our consumers and continually exceed their expectations in both product and service. the brand also sells merchandise and promotes its stores through a direct mail catalog, the internet at www.johnstonmurphy.com and through premier specialty and department stores nationwide as well as internationally. 2 3 Shi by Journeys is the Company’s newest concept, a brand extension from genesco’s successful Journeys division. Shi by Journeys caters to fashionable women from their early 20s to mid 30s, and is designed to continue to serve the Journeys female customer as she matures and her fashion tastes evolve. this specialty store features fashionable branded and private label footwear and accessories relevant to the lifestyle of its trendy customer. 4 5 Founded in 995, hat world inc. is comprised of more than 850 mall-based, airport, street level and factory outlet stores nationwide, and in Puerto rico and Canada, operating primarily under the Lids and hat world retail brands. indianapolis- based hat world inc. is recognized as a leading specialty retail leader of officially licensed and branded headwear. hat world also operates smaller retail brands hat Shack, hat Zone, head Quarters and Cap Connection. the stores offer a vast assortment of officially-licensed and branded college, mLB, nBa, nFL and nhL teams, as well as other specialty fashion categories all in the latest styles and colors. Select stores also offer a strong complementary line of licensed apparel and custom embroidery capability. the company serves the core sports fan and fashion-conscious, trend-savvy mid-teen to mid-20s customer. hat world also sells products and promotes the stores through the internet sites lids.com™ and lidskids.com.™ in october 2006, hat world launched Lids kids, a retail concept offering licensed and branded headwear, apparel, accessories and custom embroidery for the younger sports fan and fashion forward youth up to 0 years old. there were 4 Lids kids stores in operation as of the end of the fiscal year with plans to grow the concept. 6 7 dockers Footwear fills another important niche by offering men aged 30 to 55 superior styling, quality and value in moderately priced casual fashion. marketed under license from Levi Strauss & Co., dockers remains one of the nation’s most recognized brand names. offerings range from business casual to weekend casual. this lifestyle brand is readily available through many of the same national chains that carry dockers apparel, and in shoe chains and shoe stores across the country. 8 9 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S F o r w a r d - lo o k I n G s TaT e m e n T s this discussion and the notes to the Consolidated Financial Statements, as well as item , Business, include certain forward-looking statements, which include statements regarding our intent, belief or expectations and all statements other than those made solely with respect to historical fact. actual results could differ materially from those reflected by the forward-looking statements in this discussion and a number of factors may adversely affect the forward-looking statements and the Company’s future results, liquidity, capital resources or prospects. these include continuing weakness in the consumer economy, fashion trends that affect the sales or product margins of the Company’s retail product offerings, changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons, changes in buying patterns by significant wholesale customers, disruptions in product supply or distribution, further unfavorable trends in fuel costs, foreign currency exchange rates, foreign labor and material costs, and other factors affecting the cost of products, and competition in the Company’s markets. additional factors that could affect the Company’s prospects and cause differences from expectations include the ability to open, staff and support additional retail stores on schedule and at acceptable expense levels and to renew leases in existing stores on schedule and at acceptable expense levels, the ability to negotiate acceptable lease terminations and otherwise to execute the previously announced store closing plans on schedule and at expected expense levels, unexpected changes to the market for our shares, variations from expected pension-related charges caused by conditions in the financial markets, and the outcome of litigation, investigations and environmental matters involving the Company. For a discussion of additional risk factors, See item a, risk Factors, in the Company’s annual report on Form 0-k. o v e r v i e w d e s c r I p T I o n o F B u s I n e s s the Company is a leading retailer of branded footwear and of licensed and branded headwear, operating 2,75 retail footwear and headwear stores throughout the united States and Puerto rico including 34 headwear stores in Canada as of February 2, 2008. the Company also designs, sources, markets and distributes footwear under its own Johnston & murphy brand and under the licensed dockers® brand to more than 975 retail accounts in the united States, including a number of leading department, discount, and specialty stores. the Company operates five reportable business segments (not including corporate): Journeys group, comprised of the Journeys, Journeys kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; underground Station group, comprised of the underground Station and Jarman retail footwear chains and e-commerce operations; hat world group, comprised of the hat world, Lids, hat Shack, hat Zone, head Quarters, Cap Connection and Lids kids retail headwear chains and e-commerce operations; Johnston & murphy group, comprised of Johnston & murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of dockers® Footwear sourced and marketed under a license from Levi Strauss & Company. the Journeys retail footwear stores sell footwear and accessories primarily for 3- to 22-year-old men and women. the stores average approximately ,875 square feet. the Journeys kidz retail footwear stores sell footwear primarily for younger children, ages five to 2. these stores average approximately ,400 square feet. Shi by Journeys retail footwear stores, the first of which opened in november 2005, sell footwear and accessories to a target customer group consisting of fashion-conscious women in their early 20’s to mid 30’s. these stores average approximately 2,25 square feet. the underground Station group retail footwear stores sell footwear and accessories primarily for men and women in the 20 to 35 age group. the underground Station group stores average approximately ,775 square feet. in may of 2007, the Company announced a plan to close or convert up to 57 underperforming stores, including 49 underground Station stores, due to the deterioration in the urban market. Previously, in the fourth quarter of Fiscal 2004, the Company made the strategic decision to close 34 Jarman stores not suitable for conversion to underground Station stores subject to its ability to negotiate lease terminations. the Company intends to convert or close the remaining Jarman stores as quickly as it is financially feasible, subject to landlord approval. during Fiscal 2008, 2 Jarman stores were closed and two Jarman stores were converted to underground Station stores. during Fiscal 2007, 6 Jarman stores were closed and three were converted. 20 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS the hat world, Lids, hat Shack, hat Zone, head Quarters and Cap Connection retail stores and kiosks sell licensed and branded headwear to men and women primarily in the early-teens to mid-20’s age group. hat world also operates Lids kids, offering licensed and branded headwear, apparel and accessories to children up to 0 years old. the hat world group locations average approximately 775 square feet and are primarily in malls, airports, street level stores and factory outlet stores throughout the united States, Puerto rico and in Canada. Johnston & murphy retail shops sell a broad range of men’s footwear and accessories. these shops average approximately ,400 square feet and are located primarily in better malls nationwide. Johnston & murphy shoes are also distributed through the Company’s wholesale operations to better department and independent specialty stores. in addition, the Company sells Johnston & murphy footwear and accessories in factory stores located in factory outlet malls. these stores average approximately 2,350 square feet. the Company entered into an exclusive license with Levi Strauss and Company to market men’s footwear in the united States under the dockers® brand name in 99. Levi Strauss & Co. and the Company have subsequently added additional territories, including Canada and mexico. the dockers license agreement was renewed november , 2006. the dockers license agreement, as amended, expires on december 3, 2009 with a Company option to renew through december 3, 202, subject to certain conditions. the Company uses the dockers name to market casual and dress casual footwear to men aged 30 to 55 through many of the same national retail chains that carry dockers slacks and sportswear and in department and specialty stores across the country. s T r aT e G y the Company’s strategy has been to seek long-term, organic growth by: ) increasing the Company’s store base, 2) increasing retail square footage, 3) improving comparable store sales, 4) increasing operating margin and 5) enhancing the value of its brands. our future results are subject to various risks, uncertainties and other challenges, including those discussed under the caption “Forward-Looking Statements,” above and those discussed in item a, risk Factors, in the Company’s annual report on Form 0-k. generally, the Company attempts to develop strategies to help mitigate the risks it views as material, including those discussed in item a, risk Factors. among the most important of these factors are those related to consumer demand. Conditions in the external economy can affect demand, resulting in changes in sales and, as prices are adjusted to drive sales and manage inventories, in gross margins. Because fashion trends influencing many of the Company’s target customers (particularly customers of Journeys group, underground Station group and hat world group) can change rapidly, the Company believes that its ability to react quickly to those changes has been important to its success. even when the Company succeeds in aligning its merchandise offerings with consumer preferences, those preferences may affect results by, for example, driving sales of products with lower average selling prices. moreover, economic factors, such as current, high fuel prices and the possibility of recession, may reduce the consumer’s disposable income or his or her willingness to purchase discretionary items, and thus may reduce demand for the Company’s merchandise, regardless of the Company’s skill in detecting and responding to fashion trends. the Company believes its experience and discipline in merchandising and the buying power associated with its relative size in the industry are important to its ability to mitigate risks associated with changing customer preferences and other reductions in consumer demand. also important to the Company’s long-term prospects are the availability and cost of appropriate locations for the Company’s retail concepts. the Company is opening stores in airports and on streets in major cities and tourist venues, among other locations, in an effort to broaden its selection of locations for additional stores beyond the malls that have traditionally been the dominant venue for its retail concepts. s u m m a r y o F o p e r aT I n G r e s u lT s the Company’s net sales increased 2.9% during Fiscal 2008 compared to Fiscal 2007. the increase was driven primarily by an 8% increase in Licensed Brands sales, an % increase in hat world group sales, a 3% increase in Johnston & murphy group sales and a 2% increase in Journeys group sales offset by a 20% decrease in underground Station group sales. gross margin was flat as a percentage of net sales for Fiscal 2008. Selling and administrative expenses increased as a percentage of net sales during Fiscal 2008, reflecting increases as a percentage of net sales in Journeys group, underground Station group, hat world group and Johnston & murphy group, as well as an additional $27.6 million of expense associated with the Company’s now terminated merger with the Finish Line, inc. and related litigation with the Finish Line and its investment bankers. the Company recorded an effective tax rate of 74.% for Fiscal 2008 2 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S compared to 38.6% for Fiscal 2007 as a result of the non-deductible expenses incurred in connection with the now terminated merger. earnings from operations decreased as a percentage of net sales during Fiscal 2008, primarily due to decreased earnings from operations in the Journeys group, underground Station group and hat world group, as a result of a difficult retail environment, particularly in footwear, partially offset by an increase in earnings from operations in the Johnston & murphy group and Licensed Brands, and as a result of the merger-related expense. S i g n i f i c a n t d e v e l o p m e n t s T e r m I n aT e d m e r G e r a G r e e m e n T the Company announced in June 2007 that the boards of directors of both genesco and the Finish Line, inc. had unanimously approved a definitive merger agreement under which the Finish Line would acquire all of the outstanding common shares of genesco at $54.50 per share in cash (the “Proposed merger”). the Finish Line breached the merger agreement and litigation ensued. the Proposed merger was terminated in march 2008 in connection with an agreement to settle the litigation with the Finish Line and its investment bankers for a cash payment of $75.0 million to the Company and a 2% equity stake in the Finish Line, which the Company has received. the Company will distribute to its shareholders 6,58,97 shares of Class a Common Stock of the Finish Line, inc. the Company is required to distribute the shares to its shareholders as soon as practicable once Finish Line registers the shares with the SeC and lists them on naSdaQ. the Company expects to set the record date for the distribution soon after the registration and listing process is complete. during Fiscal 2008, the Company expensed $27.6 million in merger-related costs and litigation expenses. as of march 25, 2008, the Company had expensed an additional $6. million of such costs and expenses in the first quarter of Fiscal 2009. the Company believes that most of the $27.6 million in merger-related costs and litigation expenses will be tax deductible in Fiscal 2009. For additional information, see the “merger-related Litigation” section in note 4 to the Consolidated Financial Statements. h aT s h a c k a c q u I s I T I o n on January , 2007, hat world acquired 00% of the outstanding stock of hat Shack, inc., which operated 49 hat Shack retail headwear stores located primarily in the southeastern united States, for a purchase price of $6.6 million plus debt assumed of $2.2 million funded from cash on hand. r e s T r u c T u r I n G a n d o T h e r c h a r G e s the Company recorded a total pretax charge to earnings of $0.6 million ($6.4 million net of tax) in Fiscal 2008. the charge reflected in restructuring and other, net included $8.7 million of charges for retail store asset impairments and $.5 million for lease terminations, offset by $0.5 million in excise tax refunds and an antitrust settlement. the asset impairments reflected deterioration in the urban market as well as underperforming stores in some of the Company’s other markets. also included in the charge was $0.9 million in excess markdowns related to the underground Station group store lease terminations which is reflected in cost of sales on the Consolidated Statements of earnings. the Company recorded a pretax charge to earnings of $. million ($0.7 million net of tax) in Fiscal 2007. the charge included $2.2 million of charges for asset impairments and the early termination of a license agreement offset by $. million of gift card related income and a favorable litigation settlement. the Company recorded a pretax charge to earnings of $2.3 million ($.4 million net of tax) in Fiscal 2006. the charge included $.7 million for the settlement of a California employment class action and $0.6 million for retail store asset impairments and lease terminations of 3 Jarman stores pursuant to the plan announced by the Company in Fiscal 2004 to close or convert into other retail concepts all remaining Jarman stores. p o s T r e T I r e m e n T B e n e F I T l I a B I l I T y a d j u s T m e n T s the return on pension plan assets was a gain of $9.2 million for Fiscal 2008 compared to a gain of $9.5 million in Fiscal 2007. the interest rate used to measure benefit obligations increased from 5.75% to 5.875% in Fiscal 2008. as a result of the increase in return on plan assets and the increase in the discount rate, the pension liability was reduced to $6.6 million on the Consolidated Balance Sheets compared to $4.3 million in Fiscal 2007. there was a decrease in the pension liability adjustment of $4. million (net of tax) in accumulated other comprehensive loss in shareholders’ equity. depending upon future interest rates and returns on plan assets, and other known and unknown factors, there can be no assurance that additional adjustments in future periods will not be required. 22 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS s h a r e r e p u r c h a s e p r o G r a m in march 2008, the board authorized up to $00.0 million in stock repurchases primarily funded with the after-tax cash proceeds of the settlement of the merger-related litigation discussed above under the heading “terminated merger agreement.” d I s c o n T I n u e d o p e r aT I o n s For the year ended February 2, 2008, the Company recorded an additional charge to earnings of $2.6 million ($.6 million net of tax) reflected in discontinued operations, including $2.9 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0.3 million gain for excess provisions to prior discontinued operations. For additional information, see note 4 to the Consolidated Financial Statements. For the year ended February 3, 2007, the Company recorded an additional charge to earnings of $.0 million ($0.6 million net of tax) reflected in discontinued operations, including $. million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0. million gain for excess provisions to prior discontinued operations. For additional information, see note 4 to the Consolidated Financial Statements. For the year ended January 28, 2006, the Company recorded a credit to earnings of $0. million ($0. million net of tax) reflected in discontinued operations, including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company. For additional information, see note 4 to the Consolidated Financial Statements. C r i t i c a l a c c o u n t i n g Po l i c i e s I n v e n T o r y v a l u aT I o n as discussed in note  to the Consolidated Financial Statements, the Company values its inventories at the lower of cost or market. in its wholesale operations, cost is determined using the first-in, first-out (FiFo) method. market is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders. the Company provides reserves when the inventory has not been marked down to market based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the Company. in its retail operations, other than the hat world segment, the Company employs the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories. inherent in the retail inventory method are subjective judgments and estimates including merchandise mark-on, markups, markdowns, and shrinkage. these judgments and estimates, coupled with the fact that the retail inventory method is an averaging process, could produce a range of cost figures. to reduce the risk of inaccuracy and to ensure consistent presentation, the Company employs the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyzes markdown requirements at the stock number level based on factors such as inventory turn, average selling price, and inventory age. in addition, the Company accrues markdowns as necessary. these additional markdown accruals reflect all of the above factors as well as current agreements to return products to vendors and vendor agreements to provide markdown support. in addition to markdown provisions, the Company maintains provisions for shrinkage and damaged goods based on historical rates. a change of 0 percent from the recorded amounts for all such provisions would have changed inventory by $.3 million at February 2, 2008. the hat world segment employs the moving average cost method for valuing inventories and applies freight using an allocation method. the Company provides a valuation allowance for slow-moving inventory based on negative margins and estimated shrink based on historical experience and specific analysis, where appropriate. inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends, and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value. 23 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S I m pa I r m e n T o F lo n G - l I v e d a s s e T s as discussed in note  to the Consolidated Financial Statements, 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 the carrying amount. inherent in the analysis of impairment are subjective judgments about future cash flows. Failure to make appropriate conclusions regarding these judgments may result in an overstatement or understatement of the value of long-lived assets. e n v I r o n m e n Ta l a n d o T h e r c o n T I n G e n c I e s the Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in note 4 to the Company’s Consolidated Financial Statements. the Company has made provisions for certain of these contingencies, including approximately $2.9 million reflected in Fiscal 2008, $. million reflected in Fiscal 2007 and $0.8 million reflected in Fiscal 2006. the Company monitors these matters on an ongoing basis and, on a quarterly basis, 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 best estimate of probable loss connected to the proceeding, or in cases in which no best 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. however, because of uncertainties and risks inherent in litigation generally and in environmental proceedings in particular, there can be no assurance that future developments will not require additional reserves to be set aside, that some or all reserves will 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. r e v e n u e r e c o G n I T I o n retail sales are recorded at the point of sale and are net of estimated returns and exclude sales taxes. Catalog and internet sales are recorded at time of delivery to the customer and are net of estimated returns. wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Shipping and handling costs charged to customers are included in net sales. estimated returns are based on historical returns and claims. actual amounts of markdowns have not differed materially from estimates. actual returns and claims in any future period may differ from historical experience. I n c o m e Ta x e s as part of the process of preparing Consolidated Financial Statements, the Company is required to estimate its income taxes in each of the tax jurisdictions in which it operates. this process involves estimating actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. these temporary differences result in deferred tax assets and liabilities, which are included within the Consolidated Balance Sheets. the Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income. actual results could differ from this assessment if adequate taxable income is not generated in future periods. to the extent the Company believes that recovery of an asset is at risk, valuation allowances are established. to the extent valuation allowances are established or increase the allowances in a period, the Company includes an expense within the tax provision in the Consolidated Statements of operations. income tax reserves are determined using the methodology established by FaSB interpretation 48, accounting for uncertainty in income taxes—an interpretation of FaSB Statement 09 (“Fin 48”). Fin 48, which was adopted by the Company as of February 4, 2007, requires companies to assess each income tax position taken using a two step process. a determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. if the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely 24 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS to be realized upon ultimate settlement of the respective tax position. uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. if the Company’s determinations and estimates prove to be inaccurate, the resulting adjustments could be material to its future financial results. See note 9 to the Consolidated Financial Statements for additional information regarding income taxes. p o s T r e T I r e m e n T B e n e F I T s p l a n a c c o u n T I n G Substantially all full-time employees, who also had ,000 hours of service in Calendar 2004, except employees in the hat world segment, are covered by a defined benefit pension plan. the Company froze the defined benefit pension plan effective January , 2005. 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. in September 2006, the FaSB issued SFaS no. 58, which requires companies to recognize the overfunded or underfunded status of postretirement benefit plans as an asset or liability in its Consolidated Balance Sheets and to recognize changes in that funded status in accumulated other comprehensive loss, net of tax, in the year in which the changes occur. this statement did not change the accounting for plans required by SFaS no. 87, “employers’ accounting for Pensions” (“SFaS no. 87”) and it did not eliminate any of the expanded disclosures required by SFaS no. 32(r). on February 3, 2007, the Company adopted the recognition and disclosure provisions of SFaS no. 58. as a result of the adoption of SFaS no. 58, the Company recognized a $0.8 million (net of tax) cumulative adjustment in accumulated other comprehensive loss in shareholders’ equity for Fiscal 2007 related to the Company’s post-retirement medical and life insurance benefits. SFaS no. 58 also requires companies to measure the funded status of a plan as of the date of its fiscal year end. this requirement of SFaS no. 58 is not effective for the Company until Fiscal 2009. the Company does not believe the adoption of the measurement date will have a material impact of the Company’s results of operations or financial position. the Company accounts for the defined benefit pension plans using SFaS no. 87, as amended. as permitted under SFaS no. 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. the calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate, as well as the recognition of actuarial gains and losses. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. L o n g te r m r a t e o f r e t u r n a s s u m p t i o n – Pension expense increases as the expected rate of return on pension plan assets decreases. the Company estimates that the pension plan assets will generate a long-term rate of return of 8.25%. to develop this assumption, the Company considered historical asset returns, the current asset allocation and future expectations of asset returns. the expected long-term rate of return on plan assets is based on a long-term investment policy of 50% u.S. equities, 3% international equities, 35% u.S. fixed income securities and 2% cash equivalents. For Fiscal 2008, if the expected rate of return had been decreased by %, net pension expense would have increased by $.0 million, and if the expected rate of return had been increased by %, net pension expense would have decreased by $.0 million. d i s c o u n t r a t e – Pension liability and future pension expense increase as the discount rate is reduced. the Company discounted future pension obligations using a rate of 5.875%, 5.75%, and 5.50% for Fiscal 2008, 2007 and 2006, respectively. the discount rate is determined based on the current yields on a portfolio of high quality long-term bonds. For Fiscal 2008, if the discount rate had been increased by 0.5%, net pension expense would have decreased by $0.6 million, and if the discount rate had been decreased by 0.5%, net pension expense would have increased by $0.6 million. in addition, if the discount rate had been increased by 0.5%, the projected benefit obligation would have decreased by $5.4 million and the accumulated benefit obligation would have decreased by $5.4 million. if the discount rate had been decreased by 0.5%, the projected benefit obligation would have been increased by $5.9 million and the accumulated benefit obligation would have increased by $5.9 million. 25 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S a m o r t i z a t i o n o f g a i n s a n d L o s s e s – the significant declines experienced in the financial markets have unfavorably impacted pension asset performance. the Company utilizes a calculated value of assets, which is an averaging method that recognizes changes in the fair values of assets over a period of five years. at the end of Fiscal 2008, the Company had unrecognized actuarial losses of $28.0 million. accounting principles generally accepted in the united States require that the Company recognize a portion of these losses when they exceed a calculated threshold. these losses might be recognized as a component of pension expense in future years and would be amortized over the average future service of employees, which is currently five and a half years. Future changes in plan asset returns, assumed discount rates and various other factors related to the pension plan will impact future pension expense and liabilities, including increasing or decreasing unrecognized actuarial gains and losses. the Company recognized expense for its defined benefit pension plans of $3. million, $3.4 million and $3.7 million in Fiscal 2008, 2007 and 2006, respectively. the Company’s board of directors approved freezing the Company’s defined pension benefit plan effective January , 2005. the Company’s pension expense is expected to decrease in Fiscal 2009 by approximately $.6 million due to the net effect of an increase in the discount rate from 5.75% to 5.875% and a smaller actuarial loss to be amortized. s h a r e - B a s e d c o m p e n s aT I o n the Company has share-based compensation plans covering certain members of management and non-employee directors. Prior to January 29, 2006, the Company accounted for these plans under the recognition and measurement provisions of aPB no. 25, “accounting for Stock issued to employees,” and related interpretations, as permitted by SFaS no. 23. accordingly, no compensation expense was recognized for fixed option plans in Fiscal 2006 because the exercise prices of employee stock options equaled or exceeded the market prices of the underlying stock on the date of grant. Pursuant to SFaS no. 23 (revised 2004), “Share-Based Payment” (“SFaS no. 23(r)”), adopted on the first day of Fiscal 2007, the Company recognizes compensation expense for share-based payments based on the fair value of the awards. For Fiscal 2008 and 2007, share-based compensation was $3.2 million and $4. million, respectively. For Fiscal 2008 and 2007, restricted stock expense was $4.6 million and $3.4 million, respectively. the benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. the Company estimates the fair value of each option award on the date of grant using a Black-Scholes option pricing model. the application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense, including expected stock price volatility. the Company bases expected volatility on historical term structures. the Company bases the risk free rate on an interest rate for a bond with a maturity commensurate with the expected term estimate. the Company estimates the expected term of stock options using historical exercise and employee termination experience. the Company does not currently pay a dividend on common stock. the fair value of employee restricted stock is determined based on the closing price of the Company’s stock on the date of the grant. in addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation (which is based on historical experience for similar options) is a critical assumption, as it reduces expense ratably over the vesting period. Shared-based compensation expense is recorded based on a 2% expected forfeiture rate and is adjusted annually for actual forfeitures. the Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience. the Company believes its estimates are reasonable in the context of actual (historical) experience. See note 2 to the Consolidated Financial Statements for additional information regarding the Company’s share-based compensation plans. C o m p a r a b l e S a l e s Comparable store sales begin in the fifty-third week of a store’s operation. temporarily closed stores are excluded from the comparable store sales calculation for every full week of the store closing. expanded stores are excluded from the comparable store sales calculation until the fifty-third week of operation in the expanded format. e-commerce and catalog sales are excluded from comparable store sales calculations. 26 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS a d j u s t m e n t t o P r e v i o u s l y r e p o r t e d m e r g e r- r e l a t e d e x p e n s e s after issuing its press release on march 3, 2008, reporting fourth quarter and Fiscal 2008 operating results, the Company received late invoices totaling $865,000 for services rendered prior to February 2, 2008 in connection with litigation over the Company’s now-terminated merger agreement with the Finish Line, inc. the Company determined that in accordance with u.S. generally accepted accounting principles, such services should be expensed in the fourth quarter of Fiscal 2008. accordingly, as reflected in the Consolidated Financial Statements and as discussed in this report, earnings from continuing operations, net earnings and other financial measures, as applicable, for the fourth quarter and Fiscal 2008 have been adjusted from the amounts reported in the march 3, 2008, earnings release by the amount of the additional expense. r e s u l t s o f o p e r a t i o n s – F i s c a l 2 0 0 8 C o m p a r e d t o F i s c a l 2 0 0 7 the Company’s net sales for Fiscal 2008 (52 weeks) increased 2.9% to $.50 billion from $.46 billion in Fiscal 2007 (53 weeks). net sales for the 53rd week of Fiscal 2007 are estimated at $24.7 million, based on actual retail sales and estimated wholesales sales. wholesale sales are recognized upon shipment. the Company believes that a portion of the shipments that occurred in the final week would have occurred during the quarter even if it had not included the final week. its estimate of the amount of such sales is excluded from the estimate of sales for the 53rd week. excluding the 53rd week in Fiscal 2007, the net sales increase from the adjusted 52-week period last year was approximately 5%. the increase in net sales was a result of a higher number of stores in operation offset by a decrease in comparable store sales in the Journeys group, underground Station group and hat world group, reflecting generally challenging economic conditions and a difficult retail environment, especially in footwear. gross margin increased 2.8% to $75.2 million in Fiscal 2008 from $730.8 million in Fiscal 2007 but was flat as a percentage of net sales at 50.0%. Selling and administrative expenses in Fiscal 2008 increased 4.4% from Fiscal 2007 and increased as a percentage of net sales from 4.7% to 46.4% including $27.6 million of expenses relating to the now-terminated merger agreement with the Finish Line, which accounted for 84 basis points of the increase. the Company records buying and merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs. earnings before income taxes from continuing operations (“pretax earnings”) for Fiscal 2008 were $32.7 million compared to $. million for Fiscal 2007. Pretax earnings for Fiscal 2008 included restructuring and other charges of $0.6 million, including $8.7 million of charges for asset impairments and $.5 million for lease terminations, offset by $0.5 million in excise tax refunds and an antitrust settlement. also included in the charge was $0.9 million in excess markdowns related to the underground Station group store lease terminations which is reflected in cost of sales on the Consolidated Statements of earnings. Pretax earnings for Fiscal 2008 also included $27.6 million in expenses relating to the merger agreement with the Finish Line and a $0.5 million gain from insurance proceeds relating to hurricane katrina. Pretax earnings for Fiscal 2007 included restructuring and other charges of $. million, including $2.2 million of charges for asset impairments and the termination of a small license agreement offset by $. million of income for gift card breakage and a favorable litigation settlement. net earnings for Fiscal 2008 were $6.9 million ($0.29 diluted earnings per share) compared to $67.6 million ($2.59 diluted earnings per share) for Fiscal 2007. net earnings for Fiscal 2008 included $.6 million ($0.07 diluted earnings per share) charge to earnings (net of tax), including $.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0.2 million gain for excess provisions to prior discontinued operations. net earnings for Fiscal 2007 included $0.6 million ($0.02 diluted earnings per share) charge to earnings (net of tax), including $0.7 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0. million gain for excess provisions to prior discontinued operations. the Company recorded an effective federal income tax rate of 74.% for Fiscal 2008 compared to 38.6% for Fiscal 2007. the variance in the effective tax rate for Fiscal 2008 compared to Fiscal 2007 is primarily attributable to non-deductible expenses incurred in connection with merger-related expenses and to Fin 48 adjustments. the merger agreement was terminated on march 3, 2008 and the Company believes that most of the $27.6 million in merger related costs and litigation expenses will be tax deductible in Fiscal 2009. See notes 9 and 4 to the Consolidated Financial Statements for additional information. 27 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Journeys group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 8 2 0 0 7 $ 7 1 3 , 3 6 6 $ 6 9 6 , 8 8 9 $ 5 1 , 0 9 7 $ 8 3 , 8 3 5  2 . 0 % 7 . 2 % C H a n g E 2 . 4 % ( 3 9 . ) % net sales from Journeys group increased 2.4% to $73.4 million for Fiscal 2008 from $696.9 million for Fiscal 2007. the increase reflects a 3% 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) offset by a 4% decrease in comparable store sales. the comparable store sales decrease reflects a 2% decrease in footwear unit comparable sales and a 3% decrease in average price per pair of shoes. the average price decrease primarily reflects changes in product mix and increased markdowns. total unit sales increased 5% during the same period. the store count for Journeys group was 967 stores at the end of Fiscal 2008, including 5 Journeys kidz stores and 47 Shi by Journeys stores, compared to 853 Journeys group stores at the end of Fiscal 2007, including 73 Journeys kidz stores and 2 Shi by Journeys stores. Journeys group earnings from operations for Fiscal 2008 decreased 39.% to $5. million, compared to $83.8 million for Fiscal 2007. the decrease was primarily attributable to increased expenses as a percentage of net sales, reflecting negative comparable store sales and increases in (i) rent expense related to relocation from smaller sized, volume-constrained locations to bigger stores in order to offer a broader selection of products, new stores and lease renewals, and (ii) employee expenses due to higher minimum wage costs combined with decreased gross margin as a percentage of net sales reflecting increased markdowns. underground Station group d o L L a R S I n T H o u S a n d S n e t s a l e s ( L o s s ) e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d 2 0 0 8 2 0 0 7 $ 1 2 4 , 0 0 2 $  5 5 , 0 6 9 3 , 8 4 4 $ ( 7 , 7 1 0 ) $ 2 . 5 % ( 6 . 2 ) % P E R C E n T C H a n g E ( 2 0 . 0 ) % n m net sales from the underground Station group decreased 20.0% to $24.0 million for Fiscal 2008 from $55. million for Fiscal 2007. Sales for underground Station stores decreased 6% for Fiscal 2008. Sales for Jarman retail stores decreased 4% for Fiscal 2008, reflecting a 39% decrease in the average number of Jarman stores operated related to the Company’s strategy of closing Jarman stores or converting them to underground Station stores. Comparable store sales decreased 6% for the underground Station group, 7% for underground Station stores and 0% for Jarman stores. the decrease in comparable store sales was primarily due to the weak urban market, ongoing softness in athletic shoes and the absence this year of the chain’s formerly most popular athletic brand from its product offering. the average price per pair of shoes for underground Station group decreased 0% for Fiscal 2008 and unit sales decreased 0% during the same period. the average price per pair of shoes at underground Station stores decreased % during the year, primarily reflecting changes in product mix and increased markdowns. unit sales decreased 4% during Fiscal 2008. underground Station group operated 92 stores at the end of Fiscal 2008, including 76 underground Station stores. during Fiscal 2008, two Jarman stores were converted to underground Station stores. the Company had operated 223 underground Station group stores at the end of Fiscal 2007, including 93 underground Station stores. underground Station group loss from operations for Fiscal 2008 was $(7.7) million compared to earnings from operations of $3.8 million for the same period last year. the decrease was due to decreased net sales, increased expenses as a percentage of net sales reflecting negative leverage in expenses, particularly in store-related expenses from negative comparable store sales, and decreased gross margin as a percentage of net sales reflecting increased markdowns. 28 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS hat world group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d 2 0 0 8 2 0 0 7 $ 3 7 8 , 9 1 3 $ 3 4 2 , 6 4  $ 3 1 , 9 8 7 $ 4  , 3 5 9 8 . 4 %  2 .  % P E R C E n T C H a n g E  0 . 6 % ( 2 2 . 7 ) % net sales from the hat world group increased 0.6% to $378.9 million for Fiscal 2008 from $342.6 million for Fiscal 2007. the increase reflects primarily a 20% increase in average stores operated offset by a 2% decrease in comparable store sales. the comparable store sales were impacted by a challenging urban market among other factors, partially offset by strength in Core major League Baseball products and branded action headwear. hat world group operated 862 stores at the end of Fiscal 2008, including 34 stores in Canada and 4 Lids kids stores, compared to 785 stores at the end of Fiscal 2007, including 26 stores in Canada and three Lids kids stores. hat world group earnings from operations for Fiscal 2008 decreased 22.7% to $32.0 million compared to $4.4 million for Fiscal 2007. the decrease in operating income was primarily due to increased expenses as a percentage of net sales, resulting from store growth and negative leverage in store-related expenses from negative comparable store sales, increased rent from lease renewals as well as decreased gross margin as a percentage of net sales reflecting increased promotional activity. Johnston & murphy group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 8 2 0 0 7 $ 1 9 2 , 4 8 7 $  8 6 , 9 7 9 $ 1 9 , 8 0 7 $  5 , 3 3 7 8 . 2 % 1 0 . 3 % C H a n g E 2 . 9 % 2 9 .  % Johnston & murphy group net sales increased 2.9% to $92.5 million for Fiscal 2008 from $87.0 million for Fiscal 2007, reflecting a 2% increase in comparable store sales combined with a 4% increase in average stores operated for Johnston & murphy retail operations and a 4% increase in Johnston & murphy wholesale sales. unit sales for the Johnston & murphy wholesale business increased 2% in Fiscal 2008, and the average price per pair of shoes increased 2% for the same period. retail operations accounted for 74.2% of Johnston & murphy group sales in Fiscal 2008, down slightly from 74.3% in Fiscal 2007 primarily due to increased wholesale sales. the average price per pair of shoes for Johnston & murphy retail increased 4% (6% in the Johnston & murphy shops) in Fiscal 2008, primarily due to changes in product mix and increased prices in certain styles, while unit sales decreased 6% during the same period. the store count for Johnston & murphy retail operations at the end of Fiscal 2008 included 54 Johnston & murphy stores and factory stores compared to 48 Johnston & murphy stores and factory stores at the end of Fiscal 2007. Johnston & murphy earnings from operations for Fiscal 2008 increased 29.% to $9.8 million from $5.3 million for Fiscal 2007, primarily due to increased gross margin as a percentage of net sales, reflecting fewer markdowns, increased prices and better sourcing in both the retail and wholesale businesses and lower off-priced sales in the wholesale business as well as increased net sales. the Company believes the gross margins in Fiscal 2008 reflect most of the gains from better sourcing as weakness in the dollar is putting price pressures on the cost of products. Licensed Brands d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 8 2 0 0 7 $ 9 2 , 7 0 6 $ 7 8 , 4 2 2 6 , 7 7 7 $ 1 0 , 9 7 6 $ 1 1 . 8 % 8 . 6 % C H a n g E  8 . 2 % 6 2 .0 % Licensed Brands’ net sales increased 8.2% to $92.7 million for Fiscal 2008 from $78.4 million for Fiscal 2007. the sales increase reflects a 4% increase in sales of dockers Footwear and incremental sales from the initial rollout of a new line of footwear that the Company is sourcing exclusively for kohl’s department stores. unit sales for dockers Footwear increased 0% for Fiscal 2008 and the average price per pair of shoes increased 3% for the same period. 29 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Licensed Brands’ earnings from operations for Fiscal 2008 increased 62.0%, from $6.8 million for Fiscal 2007 to $.0 million, primarily due to increased gross margin as a percentage of net sales, increased net sales and decreased expenses as a percentage of net sales. the Company believes the sales gains will moderate in Fiscal 2009 due to both the economic environment and limited opportunity to continue to grow the business with existing accounts. c o r p o r aT e , I n T e r e s T e x p e n s e s a n d o T h e r c h a r G e s Corporate and other expenses for Fiscal 2008 were $6.0 million compared to $30. million for Fiscal 2007. Corporate expenses in Fiscal 2008 included $27.6 million in merger-related expenses and a $0.5 million gain from insurance proceeds relating to hurricane katrina. Corporate and other expenses for Fiscal 2008 also included $9.7 million of restructuring and other charges, primarily for asset impairments and lease terminations offset by excise tax refunds and an antitrust settlement. Corporate and other cost of sales for Fiscal 2008 included $0.9 million in excess markdowns related to underground Station group lease terminations. Corporate and other expenses for Fiscal 2007 included $. million of restructuring and other charges, primarily for asset impairments and the termination of a small licensing agreement offset by income for gift card breakage and a favorable litigation settlement. interest expense increased 9.9% from $0.5 million in Fiscal 2007 to $2.6 million in Fiscal 2008, primarily due to the increase in the average revolver borrowings from $6.8 million in Fiscal 2007 to $65.9 million this year due to decreased net earnings and increased seasonal borrowings. interest income decreased 74.3% from $0.6 million in Fiscal 2007 to $0. million in Fiscal 2008, due to the decrease in average short-term investments. R e s u l t s o f o p e r a t i o n s — F i s c a l 2 0 0 7 C o m p a r e d t o F i s c a l 2 0 0 6 the Company’s net sales for Fiscal 2007 (53 weeks) increased 3.8% to $.5 billion from $.3 billion in Fiscal 2006 (52 weeks). net sales for the 53rd week of Fiscal 2007 were $24.7 million based on actual retail sales and estimated wholesale sales. wholesale sales are recognized upon shipment. the Company believes that a portion of the shipments that occurred in the final week would have occurred during the quarter even if it had not included the final week. its estimate of the amount of such sales is excluded from the estimate of sales for the 53rd week. excluding the 53rd week in Fiscal 2007, the net sales increase from the comparable 52-week period in Fiscal 2006 was approximately 2%. gross margin increased 2.0% to $730.8 million in Fiscal 2007 from $652.4 million in Fiscal 2006 but decreased as a percentage of net sales from 50.8% to 50.0%. Selling and administrative expenses in Fiscal 2007 increased 3.3% from Fiscal 2006 but decreased as a percentage of net sales from 4.9% to 4.7%. the Company records buying and merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs. Pretax earnings for Fiscal 2007 were $. million compared to $02.5 million for Fiscal 2006. Pretax earnings for Fiscal 2007 included restructuring and other charges of $. million, including $2.2 million of charges for asset impairments and the termination of a small license agreement offset by $. million of income for gift card breakage and a favorable litigation settlement. Pretax earnings for Fiscal 2006 included restructuring and other charges of $2.3 million, including $.7 million for settlement of a previously announced class action lawsuit (see note 4 to the Consolidated Financial Statements), retail store asset impairments and lease terminations of 3 Jarman stores. these lease terminations are the continuation of a plan announced by the Company in Fiscal 2004 to close or convert into other retail concepts all remaining Jarman stores. net earnings for Fiscal 2007 were $67.6 million ($2.59 diluted earnings per share) compared to $62.7 million ($2.38 diluted earnings per share) for Fiscal 2006. net earnings for Fiscal 2007 included $0.6 million ($0.02 diluted earnings per share) charge to earnings (net of tax), including $0.7 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0. million gain for excess provisions to prior discontinued operations. net earnings for Fiscal 2006 included $0. million ($0.00 diluted earnings per share) credit to earnings (net of tax), including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company. the Company recorded an effective federal income tax rate of 38.6% for Fiscal 2007 compared to 38.9% for Fiscal 2006. 30 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS Journeys group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 7 2 0 0 6 $ 6 9 6 , 8 8 9 $ 5 9 3 , 5  6 $ 8 3 , 8 3 5 $ 7 3 , 3 4 6  2 . 0 %  2 . 4 % C H a n g E  7 . 4 %  4 . 3 % net sales from Journeys group increased 7.4% to $696.9 million for Fiscal 2007 from $593.5 million for Fiscal 2006. the increase reflects a 3% increase in average Journeys stores operated and a 6% increase in comparable store sales. the comparable store sales increase reflects an % increase in footwear unit comparable sales, offset by a 4% decrease in average price per pair of shoes. the average price decrease primarily reflects changes in product mix. total unit sales increased 25% during the same period. the store count for Journeys was 853 stores at the end of Fiscal 2007, including 73 Journeys kidz stores and 2 Shi by Journeys stores, compared to 76 Journeys stores at the end of Fiscal 2006, including 50 Journeys kidz stores and one Shi by Journeys store. Journeys group earnings from operations for Fiscal 2007 increased 4.3% to $83.8 million, compared to $73.3 million for Fiscal 2006, primarily attributable to the increase in sales and decreased expenses as a percentage of net sales, reflecting lower bonus accruals. underground Station group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d 2 0 0 7 2 0 0 6 $  5 5 , 0 6 9 $  6 4 , 0 5 4 3 , 8 4 4 $  0 , 8 9 0 $ 2 . 5 % 6 . 6 % P E R C E n T C H a n g E ( 5 . 5 ) % ( 6 4 . 7 ) % net sales from the underground Station group (comprised of underground Station and Jarman retail stores) decreased 5.5% to $55. million for Fiscal 2007 from $64. million for Fiscal 2006. Sales for underground Station stores increased % for Fiscal 2007. Sales for Jarman retail stores decreased 29% for Fiscal 2007, reflecting a 29% decrease in the average number of Jarman stores operated related to the Company’s strategy of closing Jarman stores or converting them to underground Station stores. Comparable store sales decreased 0% for the underground Station group, 9% for underground Station stores and 2% for Jarman stores. the decrease in comparable store sales was primarily due to generally weak demand for athletic shoes, exacerbated in the second half of the year by the loss of the chain’s most popular athletic brand from its product offering and what management believes was an overall softness in the urban market. the average price per pair of shoes for underground Station group decreased 4% for Fiscal 2007 and unit sales decreased 2% during the same period. the average price per pair of shoes at underground Station stores decreased 5% during Fiscal 2007, primarily reflecting changes in product mix and increased markdowns. unit sales increased 6% during Fiscal 2007. underground Station group operated 223 stores at the end of Fiscal 2007, including 93 underground Station stores. during Fiscal 2007, three Jarman stores were converted to underground Station stores. the Company had operated 229 stores at the end of Fiscal 2006, including 80 underground Station stores. underground Station group earnings from operations for Fiscal 2007 decreased 64.7% to $3.8 million from $0.9 million for the same period of Fiscal 2006. the decrease was due to decreased net sales, to decreased gross margin as a percentage of net sales, reflecting increased markdowns, and to increased expenses as a percentage of net sales from negative leverage in the store related expenses due to the negative comparable store sales. hat world group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 7 2 0 0 6 $ 3 4 2 , 6 4  $ 2 9 7 , 2 7  $ 4  , 3 5 9 $ 4 0 ,  3 3  2 .  %  3 . 5 % C H a n g E  5 . 3 % 3 .  % 3 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S net sales from hat world group increased 5.3% to $342.6 million for Fiscal 2007 from $297.3 million for Fiscal 2006. the increase reflects primarily a 6% increase in average stores operated. hat world group comparable store sales decreased % for Fiscal 2007. the Company believes the comparable store sales were impacted by decreased demand in the urban market, which the Company believes is the primary market served by approximately 0 stores in the hat world group. this was partially offset by strength in core and fashion-oriented major League Baseball products, as well as branded action and performance headwear. hat world group operated 785 stores at Fiscal 2007, including 26 stores in Canada, three Lids kids and 49 hat Shack stores acquired in January 2007, compared to 64 stores at the end of Fiscal 2006, including 8 stores in Canada. hat world group earnings from operations for Fiscal 2007 increased 3.% to $4.4 million compared to $40. million for Fiscal 2006. the increase in operating income was primarily due to increased net sales and to decreased expenses as a percentage of net sales, offset by decreased gross margin as a percentage of net sales reflecting increased promotional activity. Johnston & murphy group d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 7 2 0 0 6 $  8 6 , 9 7 9 $  7 0 , 0  5 $  5 , 3 3 7 $  0 , 3 9 6 8 . 2 % 6 .  % C H a n g E  0 . 0 % 4 7 . 5 % Johnston & murphy group net sales increased 0.0% to $87.0 million for Fiscal 2007 from $70.0 million for Fiscal 2006, reflecting a 3% increase in comparable store sales, a 3% increase in average retail stores operated and a 4% increase in Johnston & murphy wholesale sales. unit sales for the Johnston & murphy wholesale business increased 3% in Fiscal 2007, and the average price per pair of shoes increased % for Fiscal 2006. retail operations accounted for 74.3% of Johnston & murphy group sales in Fiscal 2007, down slightly from 75.2% in Fiscal 2006 primarily due to increased wholesale sales. the average price per pair of shoes for Johnston & murphy retail decreased 2% (2% in the Johnston & murphy shops) in Fiscal 2007, primarily due to changes in product mix, while footwear unit sales increased 8% during Fiscal 2006. the store count for Johnston & murphy retail operations at the end of Fiscal 2007 included 48 Johnston & murphy stores and factory stores compared to 42 Johnston & murphy stores and factory stores at the end of Fiscal 2006. Johnston & murphy earnings from operations for Fiscal 2007 increased 47.5% to $5.3 million from $0.4 million for Fiscal 2006, primarily due to increased net sales, to increased gross margin as a percentage of net sales, reflecting improvement in the retail business due to improved sourcing and lower markdowns, and to decreased expenses as percentage of net sales reflecting operating leverage from the comparable store and wholesale sales increases and decreased advertising expenses. Licensed Brands d o L L a R S I n T H o u S a n d S n e t s a l e s e a r n i n g s f r o m o p e r a t i o n s o p e r a t i n g m a r g i n F I S C a L Y E a R E n d E d P E R C E n T 2 0 0 7 2 0 0 6 $ 7 8 , 4 2 2 $ 5 8 , 7 3 0 4 ,  6 7 $ 6 , 7 7 7 $ 8 . 6 % 7 .  % C H a n g E 3 3 . 5 % 6 2 . 6 % Licensed Brands’ net sales increased 33.5% to $78.4 million for Fiscal 2007 from $58.7 million for Fiscal 2006. the sales increase is primarily attributable to an increase in demand for dockers Footwear, related to retail sell-through, due in part, to increased shelf space in existing accounts. unit sales for dockers Footwear increased 3% for Fiscal 2007 and the average price per pair of shoes increased % for the same period. Licensed Brands’ earnings from operations for Fiscal 2007 increased 62.6%, from $4.2 million for Fiscal 2006 to $6.8 million, primarily due to increased net sales and to decreased expenses as a percentage of net sales. c o r p o r aT e , I n T e r e s T e x p e n s e s a n d o T h e r c h a r G e s Corporate and other expenses for Fiscal 2007 were $30. million compared to $26. million for Fiscal 2006. Corporate and other expenses for Fiscal 2007 included $. million of restructuring and other charges, primarily for asset impairments and the termination of a small licensing agreement offset by income for gift card breakage and a favorable 32 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS litigation settlement. Corporate and other expenses for Fiscal 2006 included $2.3 million of restructuring and other charges, primarily for settlement of a previously announced class action lawsuit, retail store asset impairments and lease terminations of 3 Jarman stores. in addition to the listed items in both periods, the increase in corporate expenses for Fiscal 2007 is attributable primarily to a $6.4 million increase of share-based compensation and restricted stock expense. interest expense decreased 8.7% from $.5 million in Fiscal 2006 to $0.5 million in Fiscal 2007, primarily due to the decrease in the average term loan outstanding. Borrowings under the Company’s revolving credit facility averaged $6.8 million for Fiscal 2007. Borrowings under the Company’s revolving credit facility averaged less than $0. million for Fiscal 2006. interest income decreased 50.% from $. million in Fiscal 2006 to $0.6 million in Fiscal 2007, due to the decrease in average short-term investments. L i q u i d i t y a n d C a p i t a l r e s o u r c e s the following table sets forth certain financial data at the dates indicated. d o L L a R S I n M I L L I o n S C a s h a n d c a s h e q u i v a l e n t s w o r k i n g c a p i t a l L o n g - t e r m d e b t w o r k I n G c a p I Ta l F e B . 2 F e B . 3 J a n . 2 8 2 0 0 8 $ 17.7 $ 238.1 $ 155.2 2 0 0 7 $  6 . 7 $ 2 0 0 . 3 $  0 9 . 3 2 0 0 6 $ 6 0 . 5 $ 85 . 0 $ 06 . 3 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. historically, cash flow from operations has been generated principally in the fourth quarter of each fiscal year. Cash provided by operating activities was $23.9 million in Fiscal 2008 compared to $70.6 million in Fiscal 2007. the $46.7 million decrease in cash flow from operating activities from last year reflects primarily a decrease in cash flow from a decrease in net earnings of $60.8 million and changes in inventory of $.2 million, offset by an increase in cash flow from changes in other accrued liabilities and accounts payable of $.0 million and $8.6 million, respectively, and an increase in impairment of long-lived assets of $6.8 million. the $.2 million decrease in cash flow from inventory was due to increases in retail inventory from a weaker than planned holiday selling season and growth in our retail businesses with a net increase of 66 stores for Fiscal 2008. the $.0 million increase in cash flow from other accrued liabilities was primarily due to a reduction in the change of accrued income and other taxes when compared to Fiscal 2007, combined with an increase in accrued professional fees and expenses relating to the merger agreement, and subsequent litigation, with the Finish Line. the $8.6 million increase in cash flow from accounts payable was due to changes in buying patterns and payment terms negotiated with individual vendors. the $39.5 million increase in inventories at February 2, 2008 from February 3, 2007 levels reflects a weaker than planned holiday selling season in retail and inventory purchased to support the net increase of 66 stores in Fiscal 2008. accounts receivable at February 2, 2008 increased $0.3 million compared to February 3, 2007. Cash provided by operating activities was $70.6 million in Fiscal 2007 compared to $05.0 million in Fiscal 2006. the $34.4 million decrease in cash flow from operating activities reflects primarily a decrease in cash flow from changes in other accrued liabilities of $29.3 million and a decrease in cash flow from changes in accounts payable of $7.8 million offset by an increase in cash flow from an increase in net earnings of $5.0 million. the $29.3 million decrease in cash flow from other accrued liabilities was due to an $8.5 million increase in income taxes paid and increased bonus payments combined with lower bonus accruals. the $7.8 million decrease in cash flow from accounts payable was due to changes in buying patterns and payment terms negotiated with individual vendors. the $28.4 million increase in inventories at February 3, 2007 from January 28, 2006 levels reflects inventory purchased to support the net increase of 236 stores in Fiscal 2007 which included 49 hat Shack stores acquired in January 2007. 33 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S accounts receivable at February 3, 2007 increased $3. million compared to January 28, 2006 due primarily to increased wholesale sales. Cash provided (or used) due to changes in accounts payable and accrued liabilities are as follows: F I S C a L Y E a R E n d E d I n T H o u S a n d S a c c o u n t s p a y a b l e a c c r u e d l i a b i l i t i e s $ 2 0 0 8 2 0 0 7 ( 4 3 0 ) $ ( 9 , 0 6 8 ) $ 8 , 7 4 4  7 , 3 5 7 ( 9 2 3 ) (  , 9 6 2 ) 2 0 0 6 $ ( 1, 3 5 3 ) $ ( 2  , 0 3 0 ) $ 2 6 ,  0  the fluctuations in cash provided due to changes in accounts payable for Fiscal 2008 from Fiscal 2007 and for Fiscal 2007 from Fiscal 2006 are due to changes in buying patterns and payment terms negotiated with individual vendors. the change in cash provided due to changes in accrued liabilities for Fiscal 2008 from Fiscal 2007 was due primarily to a reduction in the change in accrued income and other tax accruals and increased accrued professional fees and expenses relating to the merger agreement, and subsequent litigation, with the Finish Line and the change in accrued liabilities for Fiscal 2007 from Fiscal 2006 was due primarily to increased tax payments and increased bonus payments combined with lower bonus accruals. revolving credit borrowings averaged $65.9 million during Fiscal 2008 and $6.8 million during Fiscal 2007, as cash generated from operations did not fund seasonal working capital requirements or its capital expenditures for Fiscal 2008. the Company used cash to acquire hat Shack late in the fourth quarter of Fiscal 2007 for $6.6 million and to pay off $.6 million of the $2.2 million debt assumed in the acquisition, paid off a $20.0 million term loan as well as the lower net earnings the Company experienced in Fiscal 2008 compared to Fiscal 2007, all of which contributed to the need for increased revolver borrowings for Fiscal 2008. the Company has a revolving credit facility entered into on december , 2006, in the aggregate principal amount of $200.0 million, with a $20.0 million swingline loan sublimit and a $70.0 million sublimit for the issuance of standby letters of credit, and has a five-year term (the “Credit Facility”). c o n T r a c T u a l o B l I G aT I o n s the following tables set forth aggregate contractual obligations and commitments as of February 2, 2008. PaY M E n T S d u E BY P E R I o d L e s s t h a n 1 1– 3 3 – 5 M o r e t h a n 5 I n T H o u S a n d S Long-term debt interest on Long-term debt() Capital Lease obligations operating Lease obligations Purchase obligations(2) other Long-term Liabilities Total Contractual obligations(3) c o m m e r c I a l c o m m I T m e n T s $ y e a r y e a r s y e a r s -0- $ -0- $ To t a l 55,220 $ y e a r s 86,220 37,358 22 385,984 -0- 536 $ 1,508,765 $ 367,065 $ 307,343 $ 324 ,237 $ 510,120 55,43 407 ,092,348 204,27 ,520 3,557 76 59,004 204,27 20 7,4 7 247,724 -0- 382 7,4 92 299,636 -0- 40 69,000 $ a M o u n T o F C o M M I T M E n T E x P I R aT I o n P E R P E R I o d I n T H o u S a n d S Letters of Credit Total Commercial Commitments To t a l a m o u n t s L e s s t h a n 1 c o m m i t t e d $ $ 9,052 $ 9,052 $ y e a r 9,052 $ 9,052 $ 1– 3 y e a r s 3 – 5 y e a r s -0- $ -0- $ -0- $ -0- $ M o r e t h a n 5 y e a r s -0- -0- (1) Includes interest to maturity on the $86.2 million 4 1/8% subordinated convertible debentures due June 2023. Excludes interest on revolver borrowings since the line of credit is subject to almost daily repayment or borrowing activity and as such does not readily lend itself to computing anticipated interest expense. (2) Open purchase orders for inventory. (3) Excludes FIN 48 liabilities of $4.9 million due to their uncertain nature in timing of payments. 34 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS c a p I Ta l e x p e n d I T u r e s Capital expenditures were $80.7 million, $73.3 million and $56.9 million for Fiscal 2008, 2007 and 2006, respectively. the $7.4 million increase in Fiscal 2008 capital expenditures as compared to Fiscal 2007 resulted primarily from the increase in retail store capital expenditures due to 229 new store openings in Fiscal 2008 and increased major store renovations. the $6.4 million increase in Fiscal 2007 capital expenditures as compared to Fiscal 2006 resulted primarily from the increase in retail store capital expenditures due to 224 new store openings in Fiscal 2007. total capital expenditures in Fiscal 2009 are expected to be approximately $6. million. these include expected retail capital expenditures of $54.3 million to open approximately 28 Journeys stores, 24 Journeys kidz stores, 3 Shi by Journeys stores, 0 Johnston & murphy shops and factory stores and 40 hat world stores including 0 stores in Canada and to complete 65 major store renovations. the planned amount of capital expenditures in Fiscal 2009 for wholesale operations and other purposes are expected to be approximately $6.8 million, including approximately $2.7 million for new systems to improve customer service and support the Company’s growth. F u T u r e c a p I Ta l n e e d s the Company expects that cash on hand and cash provided by operations will not be sufficient to support seasonal working capital requirements but the Company plans to borrow under the Credit Facility to partially fund its capital expenditures during Fiscal 2009. the Company expects cash flow generated from operations to fund all of its capital expenditures by the end of Fiscal 2009. the approximately $5.8 million of costs associated with discontinued operations that are expected to be incurred during the next 2 months are also expected to be funded from cash on hand and borrowings under the revolving credit facility during Fiscal 2009 but are expected to be paid out of cash flow generated by operations by the end of Fiscal 2009. there were $9. million of letters of credit outstanding and $69.0 million revolver borrowings outstanding under the Credit Facility at February 2, 2008. at the end of Fiscal 2008, the Borrowing Base was $2.2 million. adjusted excess availability is calculated based on the lesser of the $200.0 million facility amount or the Borrowing Base. therefore, gross availability under the Credit Facility was $200.0 million leaving net availability under the Credit Facility of $2.9 million. the Company is not required to comply with any financial covenants unless adjusted excess availability (as defined in the amended and restated Credit agreement) is less than 0% of the total commitments under the Credit Facility (currently $20.0 million). if and during such time as adjusted excess availability is less than such amount, the Credit Facility requires the Company to meet a minimum fixed charge coverage ratio (eBitda less capital expenditures less cash taxes divided by cash interest expense and scheduled payments of principal indebtedness) of .0 to .0. Because adjusted excess availability exceeded $20.0 million, the Company was not required to comply with this financial covenant at February 2, 2008. See note 6 to the Consolidated Financial Statements. the Credit Facility prohibits the payment of dividends and other restricted payments (including stock repurchases) unless after such dividend or restricted payment availability under the Credit Facility exceeds $50.0 million or if availability is between $30.0 million and $50.0 million, the fixed charge coverage must be greater than .0 to .0. the Company’s management does not believe its availability under the Credit Facility will fall below $50.0 million during Fiscal 2009. the aggregate of annual dividend requirements on the Company’s Subordinated Serial Preferred Stock, $2.30 Series , $4.75 Series 3 and $4.75 Series 4, and on its $.50 Subordinated Cumulative Preferred Stock is $98,000. c o mm on sT ock repur c h a s e s in a series of authorizations from Fiscal 999–2003, the Company’s board of directors authorized the repurchase of up to 7.5 million shares of common stock. in June 2006, the board authorized an additional $20.0 million in stock repurchases. in august 2006, the board authorized an additional $30.0 million in stock repurchases. the Company repurchased ,062,400 shares at a cost of $32. million during Fiscal 2007. the Company did not repurchase any shares during Fiscal 2008. in total, the Company has repurchased 8.2 million shares at a cost of $03.4 million from all authorizations as of February 2, 2008. in march 2008, the board authorized up to $00.0 million in stock repurchases primarily funded with the after-tax cash proceeds of the settlement of the merger-related litigation discussed above under the heading “terminated merger agreement.” 35 Genesco Inc. and SuBSidiarieS m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S e n v i r o n m e n t a l a n d o t h e r C o n t i n g e n c i e s the Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in note 4 to the Company’s Consolidated Financial Statements. the Company has made accruals for certain of these contingencies, including approximately $2.9 million reflected in Fiscal 2008, $. million reflected in Fiscal 2007 and $0.8 million reflected in Fiscal 2006. the Company monitors these matters on an ongoing basis and, on a quarterly basis, 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. however, because of uncertainties and risks inherent in litigation generally and in environmental proceedings in particular, 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. F i n a n c i a l m a r k e t r i s k 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 $86.2 million 4 /8% Convertible Subordinated debentures due June 5, 2023 bears interest at a fixed rate. accordingly, there would be no immediate impact on the Company’s interest expense due to fluctuations in market interest rates. the Company also has $69.0 million outstanding under its revolving credit facility at a weighted average interest rate of 5.4%. a 0% adverse change in interest rates would increase interest expense by $0.4 million on the $69.0 million revolving credit debt. C a s h a n d C a s h e q u i v a l e n t s – the Company’s cash and cash equivalent balances are invested in financial instruments with original maturities of three months or less. the Company did not have significant exposure to changing interest rates on invested cash at February 2, 2008. as a result, the Company considers the interest rate market risk implicit in these investments at February 2, 2008 to be low. F o r e i g n C u r r e n c y e x c h a n g e r a t e r i s k - 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. at February 2, 2008, the Company had $2.5 million of forward foreign exchange contracts for euro. the Company’s policy is not to speculate in derivative instruments for profit on the exchange rate price fluctuation and it does not hold any derivative instruments for trading purposes. derivative instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. the unrealized gain on contracts outstanding at February 2, 2008 was $4,000 based on current spot rates. as of February 2, 2008, a 0% adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts by approximately $0.2 million. a c c o u n t s r e c e i v a b l e – the Company’s accounts receivable balance at February 2, 2008 is concentrated in its two wholesale businesses, which sell primarily to department stores and independent retailers across the united States. one customer accounted for 4% of the Company’s trade accounts receivable balance and another customer accounted for % as of February 2, 2008. the Company monitors the credit quality of its customers and establishes an allowance for doubtful accounts based upon factors surrounding credit risk of specific customers, historical trends and other information, as well as customer specific factors; however, credit risk is affected by conditions or occurrences within the economy and the retail industry, as well as company-specific information. Summary – Based on the Company’s overall market interest rate and foreign currency rate exposure at February 2, 2008, the Company believes that the effect, if any, of reasonably possible near-term changes in interest rates or foreign currency exchange rates on the Company’s consolidated financial position, results of operations or cash flows for Fiscal 2009 would not be material. 36 m a n a G e m e n T ’ s d I s c u s s I o n a n d a n a ly s I s o F F i n a n C i a L C o n d i t i o n a n d r e S u Lt S o F o P e r at i o n S Genesco Inc. and SuBSidiarieS n e w a c c o u n t i n g P r i n c i p l e s in September 2006, the FaSB issued SFaS no. 57. SFaS no. 57 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. in december 2007, the FaSB issued proposed FaSB Staff Position no. FaS 57-b, “effective date of FaSB Statement no. 57” (the “proposed FSP”). the proposed FSP would amend SFaS no. 57, to delay the effective date for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). the proposed FSP defers the effective date of SFaS no. 57 to fiscal years beginning after november 5, 2008 (Fiscal 200 for the Company), and interim periods within those fiscal years for items within the scope of the proposed FSP. the Company is subject to the remaining provisions of SFaS no. 57 beginning February 3, 2008. the Company does not believe the adoption of SFaS no. 57 will have a material impact on the Company’s results of operations or financial position. in February 2007, the FaSB issued SFaS no. 59. SFaS no. 59 allows companies to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFaS no. 59 is effective for fiscal years beginning after november 5, 2007 (Fiscal 2009 for the Company). the Company does not believe that the adoption of SFaS no. 59 will have a material impact on the Company’s results of operations or financial position. in december 2007, the FaSB issued SFaS no. 4(r), “Business Combinations” (“SFaS no. 4(r)”). SFaS no. 4(r) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. the statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFaS no. 4(r) is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after december 5, 2008 (Fiscal 200 for the Company). the Company expects the adoption will have an impact on the Consolidated Financial Statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions consummated after the effective date. the Company will assess the impact of this standard on the Consolidated Financial Statements if and when a future acquisition occurs. in december 2007, the FaSB issued SFaS no. 60, “noncontrolling interests in Consolidated Financial Statements–an amendment of arB no. 5” (“SFaS no. 60”). SFaS no. 60 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the Consolidated Financial Statements and separate from the parent’s equity. the amount of net income attributable to the noncontrolling interest will be included in consolidated net earnings on the face of the Statements of earnings. SFaS no. 60 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. in addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFaS no. 60 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFaS no. 60 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after december 5, 2008 (Fiscal 200 for the Company). earlier adoption is prohibited. the Company does not believe that the adoption of SFaS no. 60 will have a material impact on the Company’s results of operations or financial position. i n f l a t i o n the Company does not believe inflation has had a material impact on sales or operating results during periods covered in this discussion. 37 Genesco Inc. and SuBSidiarieS F I n a n c I a l s u m m a r y In THouSandS ExCEPT PER CoMMon SHaRE daTa FInanCIaL STaTISTICS and oTHER daTa R e s u l t s o f o p e r a t i o n s d a t a net Sales depreciation earnings from operations earnings before income taxes from continuing operations earnings from continuing operations (Provisions for) earnings from discontinued operations, net net earnings P e r C o m m o n S h a r e d a t a earnings from continuing operations Basic diluted discontinued operations Basic diluted net earnings Basic diluted B a l a n c e S h e e t d a t a total assets Long-term debt non-redeemable preferred stock Common shareholders’ equity Capital expenditures F i n a n c i a l S t a t i s t i c s earnings from operations as a percent of net sales Book value per share (common shareholders’ equity divided by common shares outstanding) working capital (int thousands) Current ratio Percent long-term debt to total capitalization o t h e r d a t a ( E n d o f Ye a r ) number of retail outlets* number of employees** 2008 2007 2006 2005 2004 FISCaL YEaR End $ 1,502,119 $ ,460,478 $ ,283,876 $ ,2,68 $ 45,114 45,161 32,735 8,488 40,306 2,045 ,8 68,247 34,622 2,827 02,470 62,626 3,266 88,064 77,02 48,460 837,379 24,607 5,649 44,360 29,025 $ $ $ (1,603) 6,885 $ (60) 67,646 $ 60 62,686 $ (2) 48,249 $ (888) 28,37 .37 $ .36 3.00 $ 2.6 2.73 $ 2.38 2.9 $ .92 (.07) (.07) .30 .29 (.02) (.02) 2.98 2.59 .0 .00 2.74 2.38 (.0) (.0) 2.8 .9 .32 .24 (.04) (.04) .28 .20 804,556 $ 155,220 5,338 416,077 80,662 729,373 $ 09,250 6,602 398,624 73,287 686,8 $ 06,250 6,695 342,056 56,946 635,57 $ 6,250 7,474 264,59 39,480 448,33 86,250 7,580 204,665 22,540 3.0% 8.3% 8.8% 7.9% 6.2% $ $ 18.25 $ 238,093 $ 2.6 26.9% 7.53 $ 200,330 $ 2.5 2.2% 4.7 $ 84,986 $ 2.2 23.4% .79 $ 76,245 $ 2.4 37.2% 9.42 97,569 3.4 28.9% 2,175 13,950 2,009 2,750 ,773 ,00 ,68 9,600 ,046 6,200 *Includes 49 Hat Shack stores in Fiscal 2007 acquired January 11, 2007, 486 Hat World stores in Fiscal 2005 acquired April 1, 2004 and 17 Cap Connection stores in Fiscal 2005 acquired July 1, 2004. See Note 2 to the Consolidated Financial Statements. **Includes the addition of over 2,800 Hat World employees in Fiscal 2005 due to the acquisition. Reflected in earnings from continuing operations for Fiscal 2008 were $27.6 million in merger-related costs and litigation expenses. These expenses were not deductible for tax purposes in Fiscal 2008. See Notes 13 and 14 to the Consolidated Financial Statements for additional information regarding these charges. Reflected in earnings from continuing operations for Fiscal 2008, 2007, 2006, 2005 and 2004 were restructuring and other charges of $9.7 million, $1.1 million, $2.3 million, $1.2 million and $1.9 million, respectively. See Note 3 to the Consolidated Financial Statements for additional information regarding these charges. Reflected in earnings from continuing operations for Fiscal 2005 was a favorable tax settlement of $0.5 million and for Fiscal 2005 and Fiscal 2004 were tax benefits of $0.2 million and $1.1 million, respectively, resulting from the reversal of previously accrued income taxes. See Note 9 to the Consolidated Financial Statements for additional information regarding these charges. Long-term debt includes current obligations. In December 2006, the Company entered into an amended and restated credit agreement in the aggregate principal amount of $200.0 million. In April 2004, the Company entered into a credit facility totaling $175.0 million. Included in the facility was a $100.0 million term loan used to fund a portion of the Hat World acquisition. In June 2003, the Company issued $86.3 million of 4 1/8% convertible subordinated debentures due 2023. The Company used the proceeds plus additional cash to pay off $103.2 million of its 5 1/2% convertible subordinated notes which resulted in a $2.6 million loss on the early retirement of debt reflected in earnings from continuing operations for Fiscal 2004. See Note 6 to the Consolidated Financial Statements for additional information regarding the Company’s debt. The Company has not paid dividends on its Common Stock since 1973. See Notes 6 and 8 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Future Capital Needs” for a description of limitations on the Company’s ability to pay dividends. 38 m a n a G e m e n T ’ s r e s p o n s I B I l I T y F o r F i n a n C i a L S tat e m e n t S Genesco Inc. and SuBSidiarieS the consolidated financial statements presented in this report are the responsibility of management and have been prepared in conformity with u.S. generally accepted accounting principles. Some of the amounts included in the financial information are necessarily based on the estimates and judgments of management, which are based on currently available information and management’s view of current conditions and circumstances. an independent registered public accounting firm audits the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting in accordance with the standards established by the Public Company accounting oversight Board. the audit committee of the board of directors, composed entirely of directors who are not employees of the Company, meets regularly with management, internal audit and the independent registered public accounting firm to review accounting, control, auditing and financial reporting matters. internal audit and the independent auditors have full and free access to the audit committee and meet (with and without management present) to discuss appropriate matters. James S. gulmi Senior vice President – Finance and Chief Financial officer Paul d. williams vice President and Chief accounting officer 39 Genesco Inc. and SuBSidiarieS r e p o r T o F I n d e p e n d e n T r e G I s T e r e d p u B l I c a c c o u n T I n G F I r m T h e B o a r d o F d I r e c T o r s a n d s h a r e h o l d e r s G e n e s c o I n c . we have audited the accompanying consolidated balance sheets of genesco inc. and Subsidiaries (the “Company”) as of February 2, 2008 and February 3, 2007, and the related consolidated statements of earnings, shareholders’ equity and cash flows for each of the three fiscal years in the period ended February 2, 2008. these financial statements are the responsibility of the Company’s management. our responsibility is to express an opinion on these financial statements based on our audits. we conducted our audits in accordance with the standards of the Public Company accounting oversight Board (united States). those standards 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. an audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. we believe that our audits provide a reasonable basis for our opinion. in our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of genesco inc. and Subsidiaries at February 2, 2008 and February 3, 2007, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 2, 2008, in conformity with u.S. generally accepted accounting principles. as discussed in notes , 9 and 2 to the consolidated financial statements, in fiscal 2008 the Company changed its method of accounting for income tax contingencies, and in fiscal 2007 the Company changed its method of accounting for shared-based payments and its method of accounting for defined benefit pension and other postretirement benefit plans. we also have audited, in accordance with the standards of the Public Company accounting oversight Board (united States), the Company’s internal control over financial reporting as of February 2, 2008, based on criteria established in internal Control—integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission and our report dated march 3, 2008 expressed an unqualified opinion thereon. nashville, tennessee march 3, 2008 40 Genesco Inc. and SuBSidiarieS r e p o r T o F I n d e p e n d e n T r e G I s T e r e d p u B l I c a c c o u n T I n G F I r m o n i n t e r n a L C o n t r o L o v e r F i n a n C i a L r e P o r t i n g T h e B o a r d o F d I r e c T o r s a n d s h a r e h o l d e r s G e n e s c o I n c . we have audited genesco inc.’s internal control over financial reporting as of February 2, 2008, based on criteria established in internal Control—integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission (the CoSo criteria). genesco inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s report on internal Control over Financial reporting. our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. we conducted our audit in accordance with the standards of the Public Company accounting oversight Board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. we believe that our audit provides a reasonable basis for our opinion. a company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. a company’s internal control over financial reporting includes those policies and procedures that () pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. in our opinion, genesco inc. maintained, in all material respects, effective internal control over financial reporting as of February 2, 2008, based on the CoSo criteria. we also have audited, in accordance with the standards of the Public Company accounting oversight Board (united States), the consolidated balance sheets of genesco inc. as of February 2, 2008 and February 3, 2007, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended February 2, 2008 and our report dated march 3, 2008 expressed an unqualified opinion thereon. nashville, tennessee march 3, 2008 4 Genesco Inc. and SuBSidiarieS c o n s o l I d aT e d B a l a n c e s h e e T s I n T H o u S a n d S , E xC E P T S H a R E a M o u n T S a S S E T S C u r r e n t a s s e t s Cash and cash equivalents accounts receivable, net of allowances of $,767 at February 2, 2008 and $,90 at February 3, 2007 inventories deferred income taxes Prepaids and other current assets To t a l c u r r e n t a s s e t s Property and equipment: Land Buildings and building equipment Computer hardware, software and equipment Furniture and fixtures Construction in progress improvements to leased property Property and equipment, at cost accumulated depreciation Property and equipment, net deferred income taxes goodwill trademarks other intangibles, net of accumulated amortization of $7,426 at February 2, 2008 and $6,096 at February 3, 2007 other noncurrent assets Total assets L I a B I L I T I E S a n d S H a R E H o L d E R S ’ E q u I T Y C u r r e n t L i a b i l i t i e s acounts payable accrued employee compensation accrued other taxes accrued income taxes other accrued liabilities Provision for discontinued operations total current liabilities Long-term debt Pension liability deferred rent and other long-term liabilities Provision for discontinued operations total liabilities Commitments and contingent liabilities Shareholders’ equity non-redeemable preferred stock Common shareholders’ equity: Common stock, $ par value: authorized: 80,000,000 shares issued/outstanding: February 2, 2008 – 23,284,74/22,796,277 February 3, 2007 – 23,230,458/22,74,994 additional paid-in capital retained earnings accumulated other comprehensive loss treasury shares, at cost total shareholders’ equity Total liabilities and shareholders’ equity The accompanying Notes are an integral part of these Consolidated Financial Statements. 42 aS oF FISCaL YEaR End 2008 2 0 0 7 $ 17,703 $ 6,739 24,275 300,548 18,702 22,439 24,084 26,037 2,940 20,266 383,667 335,066 4,861 17,165 76,700 93,703 9,120 263,184 464,733 4,86 7,445 72,404 82,542 2,005 222,493 4,750 (217,492) (89,46) 247,241 222,334 2,641 107,618 51,403 1,486 10,500 -0- 07,65 5,36 2,86 0,45 $ 804,556 $ 729,373 $ 75,302 $ 65,083 13,715 10,576 4,725 35,470 5,786 145,574 155,220 6,572 74,067 1,708 2,954 9,829 7,845 25,570 4,455 34,736 09,250 4,306 64,245 ,60 383,141 324,47 5,338 6,602 23,285 117,629 309,030 (16,010) (17,857) 23,230 07,956 306,622 (2,327) (7,857) 421,415 405,226 $ 804,556 $ 729,373 c o n s o l I d aT e d s TaT e m e n T s o F e a r n I n G s I n T h o u s a n d s , e x c e p T p e r s h a r e a m o u n T s net sales Cost of sales Selling and administrative expenses restructuring and other, net earnings from operations interest expense, net: interest expense interest income total interest expense, net earnings before income taxes from continuing operations income tax expense earnings from continuing operations (Provision for) earnings from discontinued operations, net net earnings Basic earnings per common share: Continuing operations discontinued operations net earnings diluted earnings per common share: Continuing operations discontinued operations net earnings Genesco Inc. and SuBSidiarieS Fiscal Year 2007 $ ,460,478 729,643 608,685 ,05 2,045 0,488 (56) 9,927 ,8 42,87 68,247 (60) 67,646 3.00 (.02) 2.98 2.6 (.02) 2.59 $ $ $ $ $ $ $ 2006 $ ,283,876 63,469 537,327 2,253 2,827 ,482 (,25) 0,357 02,470 39,844 62,626 60 62,686 2.73 .0 2.74 2.38 .00 2.38 $ $ $ $ $ $ $ 2008 $ 1,502,119 750,904 696,352 9,702 45,161 12,570 (144) 12,426 32,735 24,247 8,488 (1,603) 6,885 .37 (.07) .30 .36 (.07) .29 $ $ $ $ $ $ $ the accompanying notes are an integral part of these Consolidated Financial Statements. 43 Genesco Inc. and SuBSidiarieS c o n s o l I d aT e d s TaT e m e n T s o F c a s h F lo w s In THouSandS C a s h F l o w s f r o m o p e r a t i n g a c t i v i t i e s : net earnings tax benefit of stock options exercised adjustments to reconcile net earnings to net cash provided by (used in) operating activities: depreciation deferred income taxes Provision for losses on accounts receivable impairment of long-lived assets Share-based compensation and restricted stock Provision for (earnings from) discontinued operations other effect on cash of changes in working capital and other assets and liabilities, net of acquisitions: accounts receivable inventories Prepaids and other current assets accounts payable other accrued liabilities other assets and liabilities net cash provided by operating activities C a s h F l o w s f r o m I n v e s t i n g a c t i v i t i e s : Capital expenditures acquisitions, net of cash acquired Proceeds from sale of property and equipment net cash used in investing activities C a s h F l o w s f r o m F i n a n c i n g a c t i v i t i e s : Payments of long-term debt Payments of capital leases Borrowings under revolving credit facility Payments on revolving credit facility tax benefit of stock options exercised Shares repurchased Change in overdraft balances dividends paid on non-redeemable preferred stock exercise of stock options and issue shares– employee Stock Purchase Plan Financing costs paid FISCaL YEaR 2008 2007 2006 $ 6,885 $ 67,646 $ 62,686 (694) (2,405) 3,850 45,114 (12,683) 40,306 (6,29) 137 8,722 7,851 2,633 2,643 274 ,92 7,43 988 ,509 34,622 (5,065) 29 376 972 (98) 5,462 (349) (3,080) (3,294) (39,511) (28,357) (23,452) (2,174) (430) (923) 6,722 23,943 ,593 (9,068) (,962) 9,97 (2,220) 8,744 7,357 5,032 70,566 05,00 (80,662) (73,287) (56,946) (34) (6,569) 6 6 -0- 2 (80,690) (89,850) (56,925) -0- (2,600) (55,000) (210) (4) 365,000 262,000 (319,000) (239,000) 694 2,405 -0- (32,088) 10,649 (217) 795 -0- (,477) (256) 6,779 (,87) (358) ,000 (,000) -0- -0- (44) (273) 8,352 -0- net cash provided by (used in) financing activities 57,711 (24,428) (47,693) net Increase (decrease) in cash and cash equivalents 964 (43,72) 383 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year S u p p l e m e n t a l C a s h F l o w I n f o r m a t i o n : net cash paid for: interest income taxes The accompanying Notes are an integral part of these Consolidated Financial Statements. 16,739 60,45 60,068 $ 17,703 $ 6,739 $ 60,45 $ 11,448 $ 9,730 $ 0,368 37,560 5,053 32,50 44 c o n s o l I d aT e d s TaT e m e n T s o F s h a r e h o l d e r s ’ e q u I T y Genesco Inc. and SuBSidiarieS In THouSandS Balance January 29, 2005 net earnings dividends paid on non-redeemable preferred stock exercise of options employee restricted stock issue shares – employee Stock Purchase Plan tax benefit of stock options exercised Conversion of Series 4 preferred stock Loss on foreign currency forward contracts (net of tax benefit of $0.7 million) gain on interest rate swaps (net of tax of $0. million) minimum pension liability adjustment (net of tax of $0.7 million) other Comprehensive income Balance January 28, 2006 net earnings dividends paid on non-redeemable preferred stock exercise of stock options issue shares – employee Stock Purchase Plan Shares repurchased employee and non-employee restricted stock Share-based compensation tax benefit of stock options exercised gain on foreign currency forward contracts (net of tax of $0.6 million) Loss on interest rate swaps Pension liability adjustment (net of tax of $3.2 million) Cumulative adjustment to adopt SFaS no. 58 (net of tax benefit of $0.5 million) Foreign currency translation adjustment other Comprehensive income Balance February 3, 2007 Cumulative effect of change in accounting principle (see note 9) net earnings dividends paid on non-redeemable preferred stock exercise of stock options issue shares – employee Stock Purchase Plan employee and non-employee restricted stock Share-based compensation restricted shares withheld for taxes tax benefit of stock options exercised Conversion of Series 3 preferred stock Conversion of Series 4 preferred stock gain on foreign currency forward contracts (net of tax of $0.0 million) Pension liability adjustment (net of tax of $2.7 million) Postretirement liability adjustment (net of tax of $0.4 million) Foreign currency translation adjustment other Comprehensive income Balance February 2, 2008 total non-redeemable Preferred Stock $ 7,474 Common Stock $ 22,926 additional Paind-in Capital accumulate other retained Comprehensive Loss earnings $09,005 $ 76,89 62,686 -0- Stock $(26,302) $ (7,857) -0- -0- treasury Comprehensive income -0- $ 62,686 total Shareholders’ equity $ 272,065 62,686 -0- -0- -0- -0- -0- 547 229 -0- 8,297 400 (273) -0- -0- -0- 25 483 -0- -0- -0- 3,850 -0- (723)  72 -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (273) 8,844 629 -0- 508 -0- 3,850 -0- -0- -0- -0- -0- -0- -0- -0- -0- (56) -0- 0 -0- 390 -0- (,047) -0- (,047) (,047) -0- -0- -0- 6 ,084 -0- -0- -0- -0- 6 6 ,084 -0- ,084 344 6,695 23,748 23,37 239,232 67,646 -0- -0- $ 62,784 (26,204) (7,857) -0- -0- $ 67,646 348,75 67,646 -0- -0- -0- -0- 357 -0- 6,0 (256) -0- -0- -0- 0 (,062) 3 (3,026) -0- -0- -0- 82 -0- -0- 3,64 4,067 2,405 -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 37 -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (256) 6,458 -0- -0- 32 (32,088) -0- -0- -0- 3,346 4,067 2,405 848 848 (28) (28) 5,094 5,094 -0- (45) -0- (802) (45) (30) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- $ -0- 6,885 (4,260) 6,885 -0- -0- (27) 584 -0- 2 -0- -0- -0- -0- -0- -0- 4,62 3,230 (906) 694 -0- -0- 37 37 4,3 4,3 644 505 -0- $ 2,202 644 505 30 -0- -0- -0- -0- -0- -0- -0- 33 -0- -0- (4,260) 6,885 -0- 55 (27) -0- -0- 5 206 -0- -0- -0- -0- -0- (533) (56) -0- -0- (9) -0-  9 4,62 3,230 (887) 694 522 552 -0- -0- -0- -0- -0- -0- (70) -0- -0- 6 -0- -0- -0- -0- 84 -0- -0- -0- -0- -0- -0- -0- -0- 4,3 -0- -0- -0- 644 505 -0- (net of tax benefit of $0.2 million) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 848 -0- (28) -0- 5,094 -0- -0- (93) -0- -0- (5) -0- -0- (203) -0- -0- -0- (802) (45) -0- 6,602 23,230 07,956 306,622 (2,327) (7,857) 405,226 $ 73,325 The accompanying Notes are an integral part of these Consolidated Financial Statements. 45 $ 5,338 $ 23,285 $ 117,629 $ 309,030 $ (16,010) $ (17,857) $ 421,415 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s n aT u r e o F o p e r aT I o n s the Company’s businesses include the design or sourcing, marketing and distribution of footwear, principally under the Johnston & murphy and dockers brands and the operation at February 2, 2008 of 2,75 Journeys, Journeys kidz, Shi by Journeys, Johnston & murphy, underground Station, Jarman, hat world, Lids, hat Shack, hat Zone, head Quarters, Cap Connection and Lids kids retail footwear and headwear stores. p r I n c I p l e s o F c o n s o l I d aT I o n all subsidiaries are consolidated in the consolidated financial statements. all significant intercompany transactions and accounts have been eliminated. F I s c a l y e a r the Company’s fiscal year ends on the Saturday closest to January 3. as a result, Fiscal 2008 was a 52-week year with 364 days, Fiscal 2007 was a 53-week year with 37 days and Fiscal 2006 was a 52-week year with 364 days. Fiscal 2008 ended on February 2, 2008, Fiscal 2007 ended on February 3, 2007 and Fiscal 2006 ended on January 28, 2006. u s e o F e s T I m aT e s the preparation of financial statements in conformity with u.S. 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. Significant areas requiring management estimates or judgments include the following key financial areas: i n v e n t o r Y v a L u at i o n the Company values its inventories at the lower of cost or market. in its wholesale operations, cost is determined using the first-in, first-out (“FiFo”) method. market is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders. the Company provides reserves when the inventory has not been marked down to market based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the Company. in its retail operations, other than the hat world segment, the Company employs the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories. inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns, and shrinkage. these judgments and estimates, coupled with the fact that the retail inventory method is an averaging process, could produce a range of cost figures. to reduce the risk of inaccuracy and to ensure consistent presentation, the Company employs the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyzes markdown requirements at the stock number level based on factors such as inventory turn, average selling price, and inventory age. in addition, the Company accrues markdowns as necessary. these additional markdown accruals reflect all of the above factors as well as current agreements to return products to vendors and vendor agreements to provide markdown support. in addition to markdown provisions, the Company maintains provisions for shrinkage and damaged goods based on historical rates. the hat world segment employs the moving average cost method for valuing inventories and applies freight using an allocation method. the Company provides a valuation allowance for slow-moving inventory based on negative margins and estimated shrink based on historical experience and specific analysis, where appropriate. 46 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends, and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value. i m Pa i r m e n t o F Lo n g - L i v e d a S S e t S 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 the carrying amount. inherent in the analysis of impairment are subjective judgments about future cash flows. Failure to make appropriate conclusions regarding these judgments may result in an overstatement or understatement of the value of long-lived assets (see note 3). e n v i r o n m e n ta L a n d o t h e r C o n t i n g e n C i e S the Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in note 4. the Company has made provisions for certain of these contingencies, including approximately $2.9 million reflected in Fiscal 2008, $. million reflected in Fiscal 2007 and $0.8 million reflected in Fiscal 2006. the Company monitors these matters on an ongoing basis and, on a quarterly basis, 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 best estimate of probable loss connected to the proceeding, or in cases in which no best 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. however, because of uncertainties and risks inherent in litigation generally and in environmental proceedings in particular, there can be no assurance that future developments will not require additional reserves to be set aside, that some or all reserves will 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. r e v e n u e r e C o g n i t i o n retail sales are recorded at the point of sale and are net of estimated returns and exclude sales taxes. Catalog and internet sales are recorded at time of delivery to the customer and are net of estimated returns. wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Shipping and handling costs charged to customers are included in net sales. estimated returns are based on historical returns and claims. actual amounts of markdowns have not differed materially from estimates. actual returns and claims in any future period may differ from historical experience. i n C o m e ta x e S as part of the process of preparing Consolidated Financial Statements, the Company is required to estimate its income taxes in each of the tax jurisdictions in which it operates. this process involves estimating actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. these temporary differences result in deferred tax assets and liabilities, which are included within the Consolidated Balance Sheets. the Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income. actual results could differ from this assessment if adequate taxable income is not generated in future periods. to the extent the Company believes that recovery of an asset is at risk, valuation allowances are established. to the extent valuation allowances are established or increase the allowances in a period, the Company includes an expense within the tax provision in the Consolidated Statements of operations. 47 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d income tax reserves are determined using the methodology established by Fin 48. Fin 48, which was adopted by the Company as of February 4, 2007, requires companies to assess each income tax position taken using a two step process. a determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. if the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. if the Company’s determinations and estimates prove to be inaccurate, the resulting adjustments could be material to its future financial results. See note 9 for additional information regarding income taxes. P o S t r e t i r e m e n t B e n e F i t S P L a n a C C o u n t i n g Substantially all full-time employees (except employees in the hat world segment), who also had ,000 hours of service in Calendar 2004, are covered by a defined benefit pension plan. the Company froze the defined benefit pension plan effective January , 2005. 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. in September 2006, the FaSB issued SFaS no. 58 which requires companies to recognize the overfunded or underfunded status of postretirement benefit plans as an asset or liability in its Consolidated Balance Sheets and to recognize changes in that funded status in accumulated other comprehensive loss, net of tax, in the year in which the changes occur. this statement did not change the accounting for plans required by SFaS no. 87, and it did not eliminate any of the expanded disclosures required by SFaS no. 32(r). on February 3, 2007, the Company adopted the recognition and disclosure provisions of SFaS no. 58. as a result of the adoption of SFaS no. 58, the Company recognized a $0.8 million (net of tax) cumulative adjustment in accumulated other comprehensive loss in shareholders’ equity for Fiscal 2007 related to the Company’s post-retirement medical and life insurance benefits. SFaS no. 58 also requires companies to measure the funded status of a plan as of the date of its fiscal year end. this requirement of SFaS no. 58 is not effective for the Company until Fiscal 2009. the Company does not believe the adoption of the measurement date will have a material impact on the Company’s results of operations or financial position. the Company accounts for the defined benefit pension plans using SFaS no. 87, as amended. as permitted under SFaS no. 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. the calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate, as well as the recognition of actuarial gains and losses. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. S h a r e - B a S e d C o m P e n S at i o n the Company has share-based compensation plans covering certain members of management and non-employee directors. Pursuant to SFaS no. 23(r), adopted on the first day of Fiscal 2007, the Company recognizes compensation expense for share-based payments based on the fair value of the awards. For Fiscal 2008 and 2007, share-based compensation expense was $3.2 million and $4. million, respectively. For Fiscal 2008 and 2007, restricted stock expense was $4.6 million and $3.4 million, respectively. the benefits of tax deductions in excess of recognized compensation expense are reported as a financing cash flow. the Company estimates the fair value of each option award on the date of grant using a Black-Scholes option pricing model. the application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense, including expected stock price volatility. the Company bases expected volatility on historical term structures. the Company bases the risk free rate on an interest rate for a bond with a maturity commensurate with the expected term estimate. the Company estimates the expected term of stock options using historical exercise and employee termination experience. the Company does not currently pay a dividend on common stock. the fair value of employee restricted stock is determined based on the closing price of the Company’s stock on the date of the grant. 48 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d in addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation (which is based on historical experience for similar options) is a critical assumption, as it reduces expense ratably over the vesting period. Shared-based compensation expense is recorded based on a 2% expected forfeiture rate and is adjusted annually for actual forfeitures. the Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience. the Company believes its estimates are reasonable in the context of actual (historical) experience. See note 2 for additional information regarding the Company’s share-based compensation plans. c a s h a n d c a s h e q u I v a l e n T s included in cash and cash equivalents at February 2, 2008 and February 3, 2007 are cash equivalents of $0.4 million and $0.9 million, respectively. Cash equivalents are highly-liquid financial instruments having an original maturity of three months or less. the majority of payments due from banks for customer credit card transactions process within 24–48 hours and are accordingly classified as cash and cash equivalents. at February 2, 2008 and February 3, 2007 outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $26.4 million and $5.8 million, respectively. these amounts are included in accounts payable. c o n c e n T r aT I o n o F c r e d I T r I s k a n d a l lo w a n c e s o n a c c o u n T s r e c e I v a B l e the Company’s footwear wholesale businesses sell primarily to independent retailers and department stores across the united States. receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry as well as by customer specific factors. one customer accounted for 4% and another customer accounted for % of the Company’s trade receivables balance and no other customer accounted for more than 0% of the Company’s trade receivables balance as of February 2, 2008. the Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information, as well as customer specific factors. the Company also establishes allowances for sales returns, customer deductions and co-op advertising based on specific circumstances, historical trends and projected probable outcomes. p r o p e r T y a n d e q u I p m e n T Property and equipment 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 the following estimated useful lives: BuiLdingS and BuiLding eQuiPment 20–45 YearS ComPuter hardware, SoFtware and eQuiPment 3–0 YearS Furniture and FixtureS 0 YearS l e a s e s 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 and the charge to earnings is included in selling and administrative expenses in the Consolidated Statements of earnings. Certain leases include rent increases during the initial lease term. For these leases, the Company recognizes the related rental expense on a straight-line basis over the term of the lease (which includes any rent holidays and the pre- opening period of construction, renovation, fixturing and merchandise placement) and records the difference between the amounts charged to operations and amounts paid as a rent liability. 49 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d the Company occasionally receives reimbursements from landlords to be used towards construction of the store the Company intends to lease. Leasehold improvements are recorded at their gross costs including items reimbursed by landlords. the reimbursements are amortized as a reduction of rent expense over the initial lease term. G o o d w I l l a n d o T h e r I n Ta n G I B l e s under the provisions of SFaS no. 42, “goodwill and other intangible assets,” (“SFaS no. 42”), goodwill and intangible assets with indefinite lives are not amortized, but are tested at least annually for impairment. SFaS no. 42 also requires that intangible assets with finite lives be amortized over their respective lives to their estimated residual values, and reviewed for impairment in accordance with SFaS no. 44, “accounting for the impairment or disposal of Long-Lived assets” (“SFaS no. 44”). intangible assets of the Company with indefinite lives are primarily goodwill and identifiable trademarks acquired in connection with the acquisition of hat world Corporation on april , 2004 and hat Shack, inc. on January , 2007. the Consolidated Balance Sheets include goodwill for the hat world group of $07.6 million and $07.7 million at February 2, 2008 and February 3, 2007, respectively. the Company tests for impairment of intangible assets with an indefinite life, at a minimum on an annual basis, relying on a number of factors including operating results, business plans and projected future cash flows. the impairment test for identifiable assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying amount. identifiable intangible assets of the Company with finite lives are primarily in-place leases and customer lists. they are subject to amortization based upon their estimated useful lives. Finite-lived intangible assets are evaluated for impairment using a process similar to that used to evaluate other definite-lived long-lived assets, a comparison of the fair value of the intangible asset with its carrying amount. an impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset. Fa I r v a l u e o F F I n a n c I a l I n s T r u m e n T s the carrying amounts and fair values of the Company’s financial instruments at February 2, 2008 and February 3, 2007 are: Fa I r v a l u e s I n T H o u S a n d S Fixed rate Long-term debt 2 0 0 8 2 0 0 7 C a R R Y I n g a M o u n T $ 86,220 Fa I R v a L u E $ 115,489 C a r r Y i n g a m o u n t $ 86,250 Fa i r v a L u e $ 63,634 Carrying amounts reported on the balance sheet for cash, cash equivalents, receivables, foreign currency hedges 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. c o s T o F s a l e s For the Company’s retail operations, the cost of sales includes actual product cost, the cost of transportation to the Company’s warehouses from suppliers and the cost of transportation from the Company’s warehouses to the stores. additionally, the cost of its distribution facilities allocated to its retail operations is included in cost of sales. For the Company’s wholesale operations, the cost of sales includes the actual product cost and the cost of transportation to the Company’s warehouses from suppliers. s e l l I n G a n d a d m I n I s T r aT I v e e x p e n s e s Selling and administrative expenses include all operating costs of the Company excluding (i) those related to the transportation of products from the supplier to the warehouse, (ii) for its retail operations, those related to the transportation of products from the warehouse to the store and (iii) costs of its distribution facilities which are allocated to its retail operations. wholesale and unallocated retail costs of distribution are included in selling and administrative expenses in the amounts of $3.7 million, $4.4 million and $4.5 million for Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively. 50 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d G I F T c a r d s the Company has a gift card program that began in calendar 999 for its hat world operations and calendar 2000 for its footwear operations. the gift cards issued to date do not expire. as such, the Company recognizes income when: (i) the gift card is redeemed by the customer; or (ii) the likelihood of the gift card being redeemed by the customer for the purchase of goods in the future is remote and there are no related escheat laws (referred to as “breakage”). the gift card breakage rate is based upon historical redemption patterns and income is recognized for unredeemed gift cards in proportion to those historical redemption patterns. the Company recognized income of $0.6 million in the fourth quarter of Fiscal 2007 due to the Company’s belief that it had sufficient historical information to support the recognition of gift card breakage after a review of state escheat laws in which it operates. this initial recognition of gift card breakage was included as a reduction in restructuring and other, net on the Consolidated Statements of earnings. effective February 4, 2007, gift card breakage is recognized in revenues each period. gift card breakage recognized as revenue in Fiscal 2008 was $0.3 million. the Consolidated Balance Sheets include an accrued liability for gift cards of $7.5 million and $6.3 million at February 2, 2008 and February 3, 2007, respectively. B u y I n G , m e r c h a n d I s I n G a n d o c c u pa n c y c o s T s the Company records buying, merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. s h I p p I n G a n d h a n d l I n G c o s T s Shipping and handling costs related to inventory purchased from suppliers is included in the cost of inventory and is charged to cost of sales in the period that the inventory is sold. all other shipping and handling costs are charged to cost of sales in the period incurred except for wholesale and unallocated retail costs of distribution, which are included in selling and administrative expenses. p r e o p e n I n G c o s T s Costs associated with the opening of new stores are expensed as incurred, and are included in selling and administrative expenses on the accompanying Consolidated Statements of earnings. s T o r e c lo s I n G s a n d e x I T c o s T s From time to time, the Company makes strategic decisions to close stores or exit locations or activities. if stores or operating activities to be closed or exited constitute components, as defined by SFaS no. 44, and will not result in a migration of customers and cash flows, these closures will be considered discontinued operations when the related assets meet the criteria to be classified as held for sale, or at the cease-use date, whichever occurs first. the results of operations of discontinued operations are presented retroactively, net of tax, as a separate component on the Consolidated Statements of earnings, if material individually or cumulatively. to date, no store closings meeting the discontinued operations criteria have been material individually or cumulatively. assets related to planned store closures or other exit activities are reflected as assets held for sale and recorded at the lower of carrying value or fair value less costs to sell when the required criteria, as defined by SFaS no. 44, are satisfied. depreciation ceases on the date that the held for sale criteria are met. assets related to planned store closures or other exit activities that do not meet the criteria to be classified as held for sale are evaluated for impairment in accordance with the Company’s normal impairment policy, but with consideration given to revised estimates of future cash flows. in any event, the remaining depreciable useful lives are evaluated and adjusted as necessary. exit costs related to anticipated lease termination costs, severance benefits and other expected charges are accrued for and recognized in accordance with SFaS no. 46, “accounting for Costs associated with exit or disposal activities.” 5 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d a d v e r T I s I n G c o s T s advertising costs are predominantly expensed as incurred. advertising costs were $33.7 million, $3. million and $29. million for Fiscal 2008, 2007 and 2006, respectively. direct response advertising costs for catalogs are capitalized in accordance with the american institute of Certified Public accountants (“aiCPa”) Statement of Position no. 93-7, “reporting on advertising Costs.” Such costs are amortized over the estimated future revenues realized from such advertising, not to exceed six months. the Consolidated Balance Sheets include prepaid assets for direct response advertising costs of $.4 million and $. million at February 2, 2008 and February 3, 2007, respectively. c o n s I d e r aT I o n T o r e s e l l e r s the Company does not have any written buy-down programs with retailers, but the Company has provided certain retailers with markdown allowances for obsolete and slow moving products that are in the retailer’s inventory. the Company estimates these allowances and provides for them as reductions to revenues at the time revenues are recorded. markdowns are negotiated with retailers and changes are made to the estimates as agreements are reached. actual amounts for markdowns have not differed materially from estimates. c o o p e r aT I v e a d v e r T I s I n G Cooperative advertising funds are made available to all of the Company’s wholesale customers. in order for retailers to receive reimbursement under such programs, the retailer must meet specified advertising guidelines and provide appropriate documentation of expenses to be reimbursed. the Company’s cooperative advertising agreements require that wholesale customers present documentation or other evidence of specific advertisements or display materials used for the Company’s products by submitting the actual print advertisements presented in catalogs, newspaper inserts or other advertising circulars, or by permitting physical inspection of displays. additionally, the Company’s cooperative advertising agreements require that the amount of reimbursement requested for such advertising or materials be supported by invoices or other evidence of the actual costs incurred by the retailer. the Company accounts for these cooperative advertising costs as selling and administrative expenses, in accordance with emerging issues task Force (“eitF”) issue no. 0-9, “accounting for Consideration given by a vendor to a Customer (including a reseller of the vendor’s Products).” Cooperative advertising costs recognized in selling and administrative expenses were $3.3 million, $2.7 million and $2.2 million for Fiscal 2008, 2007 and 2006, respectively. during Fiscal 2008, 2007 and 2006, the Company’s cooperative advertising reimbursements paid did not exceed the fair value of the benefits received under those agreements. v e n d o r a l lo w a n c e s From time to time, the Company negotiates allowances from its vendors for markdowns taken or expected to be taken. these markdowns are typically negotiated on specific merchandise and for specific amounts. these specific allowances are recognized as a reduction in cost of sales in the period in which the markdowns are taken. markdown allowances not attached to specific inventory on hand or already sold are applied to concurrent or future purchases from each respective vendor. the Company receives support from some of its vendors in the form of reimbursements for cooperative advertising and catalog costs for the launch and promotion of certain products. the reimbursements are agreed upon with vendors and represent specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products. Such costs and the related reimbursements are accumulated and monitored on an individual vendor basis, pursuant to the respective cooperative advertising agreements with vendors. Such cooperative advertising reimbursements are recorded as a reduction of selling and administrative expenses in the same period in which the associated expense is incurred. if the amount of cash consideration received exceeds the costs being reimbursed, such excess amount would be recorded as a reduction of cost of sales. vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $4.3 million, $3.9 million and $3.6 million for Fiscal 2008, 2007 and 2006, respectively. during Fiscal 2008, 2007 and 2006, the Company’s cooperative advertising reimbursements received were not in excess of the costs reimbursed. 52 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d e n v I r o n m e n Ta l c o s T s 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. e a r n I n G s p e r c o m m o n s h a r e 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 ). o T h e r c o m p r e h e n s I v e I n c o m e SFaS no. 30, “reporting Comprehensive income,” requires, among other things, the Company’s pension liability adjustment, postretirement liability adjustment, unrealized gains or losses on foreign currency forward contracts and foreign currency translation adjustments to be included in other comprehensive income net of tax. accumulated other comprehensive loss at February 2, 2008 consisted of $6.7 million of cumulative pension liability adjustments, net of tax and a $0.2 million cumulative postretirement liability adjustment, net of tax, offset by cumulative net gains of $0.3 million on foreign currency forward contracts, net of tax, and a foreign currency translation adjustment of $0.6 million. B u s I n e s s s e G m e n T s SFaS no. 3, “disclosures about Segments of an enterprise and related information,” requires that companies disclose “operating segments” based on the way management disaggregates the Company’s operations for making internal operating decisions (see note 5). d e r I v aT I v e I n s T r u m e n T s a n d h e d G I n G a c T I v I T I e s SFaS no. 33, “accounting for derivative instruments and hedging activities,” SFaS no. 37, “accounting for derivative instruments and hedging activities – deferral of the effective date of SFaS no. 33,” SFaS no. 38, “accounting for Certain derivative instruments and Certain hedging activities” and SFaS no. 49, “amendment of Statement 33 on derivative instruments and hedging activities,” (collectively “SFaS no. 33”) require 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. n e w a c c o u n T I n G p r I n c I p l e s in September 2006, the FaSB issued SFaS no. 57. SFaS no. 57 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. in december 2007, the FaSB issued proposed FaSB Staff Position no. FaS 57-b, “effective date of FaSB Statement no. 57” (the “proposed FSP”). the proposed FSP would amend SFaS no. 57, to delay the effective date for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). the proposed FSP defers the effective date of SFaS no. 57 to fiscal years beginning after november 5, 2008 (Fiscal 200 for the Company), and interim periods within those fiscal years for items within the scope of the proposed FSP. the Company is subject to the remaining provisions of SFaS no. 57 beginning February 3, 2008. the Company does not believe the adoption of SFaS no. 57 will have a material impact on the Company’s results of operations or financial position. 53 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  : S u m m a r y o f S i g n i f i c a n t a c c o u n t i n g Po l i c i e s c o n t i n u e d in February 2007, the FaSB issued SFaS no. 59. SFaS no. 59 allows companies to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFaS no. 59 is effective for fiscal years beginning after november 5, 2007 (Fiscal 2009 for the Company). the Company does not believe that the adoption of SFaS no. 59 will have a material impact on the Company’s results of operations or financial position. in december 2007, the FaSB issued SFaS no. 4(r), “Business Combinations” (“SFaS no. 4(r)”). SFaS no. 4(r) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. the statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFaS no. 4(r) is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after december 5, 2008 (Fiscal 200 for the Company). the Company expects the adoption will have an impact on the Consolidated Financial Statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions consummated after the effective date. the Company will assess the impact of this standard on the Consolidated Financial Statements if and when a future acquisition occurs. in december 2007, the FaSB issued SFaS no. 60, “noncontrolling interests in Consolidated Financial Statements–an amendment of arB no. 5” (“SFaS no. 60”). SFaS no. 60 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the Consolidated Financial Statements and separate from the parent’s equity. the amount of net income attributable to the noncontrolling interest will be included in consolidated net earnings on the face of the Statements of earnings. SFaS no. 60 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. in addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFaS no. 60 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFaS no. 60 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after december 5, 2008 (Fiscal 200 for the Company). earlier adoption is prohibited. the Company does not believe that the adoption of SFaS no. 60 will have a material impact on the Company’s results of operations or financial position. n o t e 2 : a c q u i s i t i o n s h aT s h a c k a c q u I s I T I o n on January , 2007, hat world acquired 00% of the outstanding stock of hat Shack, inc., which operated 49 hat Shack retail headwear stores located primarily in the southeastern united States, for a purchase price of $6.6 million plus debt assumed of $2.2 million funded from cash on hand. the Company allocated $.4 million of the purchase price to goodwill and $3.7 million to tradenames. the goodwill related to the hat Shack acquisition is not deductible for tax purposes. h aT w o r l d a c q u I s I T I o n the trademarks acquired include the concept names and are deemed to have an indefinite life. Finite-lived intangibles include a $0.3 million customer list and an $8.6 million asset to reflect the adjustment of acquired leases to market. the weighted average amortization period for the asset to adjust acquired leases to market is 4.2 years. the amortization of intangibles was $.3 million, $.8 million and $2.3 million for Fiscal 2008, 2007 and 2006, respectively. the amortization of intangibles for Fiscal 2009, 200, 20, 202 and 203 will be $0.7 million, $0.4 million, $0.2 million, $0. million and $0. million, respectively. 54 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e 3 : r e s t r u c t u r i n g a n d o t h e r C h a r g e s a n d d i s c o n t i n u e d o p e r a t i o n s r e s T r u c T u r I n G a n d o T h e r c h a r G e s in accordance with Company policy, assets are determined to be impaired when the revised estimated future cash flows are insufficient to recover the carrying costs. impairment charges represent the excess of the carrying value over the fair value of those assets. asset impairment charges are reflected as a reduction of the net carrying value of property and equipment, and in restructuring and other, net in the accompanying Consolidated Statements of earnings. the Company recorded a total pretax charge to earnings of $0.6 million ($6.4 million net of tax) in Fiscal 2008. the charge reflected in restructuring and other, net included $8.7 million of charges for retail store asset impairments and $.5 million for lease terminations, offset by $0.5 million in excise tax refunds and an antitrust settlement. the asset impairments reflected deterioration in the urban market as well as underperforming stores in some of the Company’s other markets. also included in the charge was $0.9 million in excess markdowns related to the underground Station group store lease terminations which is reflected in cost of sales on the Consolidated Statements of earnings. the Company recorded a pretax charge to earnings of $. million ($0.7 million net of tax) in Fiscal 2007. the charge included $2.2 million of charges for asset impairments and the early termination of a license agreement offset by $. million of gift card related income and a favorable litigation settlement. the Company recorded a pretax charge to earnings of $2.3 million ($.4 million net of tax) in Fiscal 2006. the charge included $.7 million for the settlement of a California employment class action and $0.6 million for retail store asset impairments and lease terminations of 3 Jarman stores pursuant to the plan announced by the Company in Fiscal 2004 to close or convert into other retail concepts all remaining Jarman stores. d I s c o n T I n u e d o p e r aT I o n s For the year ended February 2, 2008, the Company recorded an additional charge to earnings of $2.6 million ($.6 million net of tax) reflected in discontinued operations, including $2.9 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0.3 million gain for excess provisions to prior discontinued operations (see note 4). For the year ended February 3, 2007, the Company recorded an additional charge to earnings of $.0 million ($0.6 million net of tax) reflected in discontinued operations, including $. million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0. million gain for excess provisions to prior discontinued operations (see note 4). For the year ended January 28, 2006, the Company recorded a credit to earnings of $0. million ($0. million net of tax) reflected in discontinued operations, including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company (see note 4). accrued Provision for discontinued operations In THouSandS Balance January 28, 2006 additional provision Fiscal 2007 Charges and adjustments, net Balance February 3, 2007 additional provision Fiscal 2008 Charges and adjustments, net Balance February 2, 2008* current provision for discontinued operations Total noncurrent provision for discontinued operations FaCILITY SHuTdown CoSTS $ 5,70 988 (633) 6,065 2,633 (,204) 7,494 5,786 $ 1,708 oTHER $ 3 -0- (3) -0- -0- -0- -0- -0- $ -0- ToTaL $ 5,73 988 (636) 6,065 2,633 (,204) 7,494 5,786 $ 1,708 *Includes a $7.8 million environmental provision, including $5.7 million in current provision, for discontinued operations. 55 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 4 : i n v e n t o r i e s inventories I n T H o u S a n d S raw materials wholesale finished goods retail merchandise Total Inventories F E B R u a R Y 2 , F e B r u a r Y 3 , $ 2 0 0 8 204 31,081 269,263 $ 300,548 $ 2007 22 29,272 23,553 $ 26,037 n o t e 5 : d e r i v a t i v e i n s t r u m e n t s a n d h e d g i n g a c t i v i t i e s in order to reduce exposure to foreign currency exchange rate fluctuations in connection with inventory purchase commitments for its Johnston & murphy group (primarily the euro), the Company enters into foreign currency forward exchange contracts with a maximum hedging period of twelve months. derivative instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged. the settlement terms of the forward contracts correspond with the payment terms for the merchandise inventories. as a result, there is no hedge ineffectiveness to be reflected in earnings. the notional amount of such contracts outstanding at February 2, 2008 and February 3, 2007 was $2.5 million and $8.0 million, respectively. Forward exchange contracts have an average remaining term of approximately three months. the gain based on spot rates under these contracts at February 2, 2008 was $4,000 and the loss based on spot rates under these contracts at February 3, 2007 was $4,000. For the year ended February 2, 2008, the Company recorded an unrealized gain on foreign currency forward contracts of $0. million in accumulated other comprehensive loss, before taxes. the Company monitors the credit quality of the major national and regional financial institutions with which it enters into such contracts. the Company estimates that the majority of net hedging gains related to forward exchange contracts will be reclassified from accumulated other comprehensive loss into earnings through lower cost of sales over the succeeding year. n o t e 6 : L o n g -te r m d e b t I n T H o u S a n d S 4 /8% convertible subordinated debentures due June 2023 revolver borrowings total long-term debt Current portion Total noncurrent Portion of Long-Term debt 2 0 0 8 2 0 0 7 $ 86,220 $ 86,250 69,000 23,000 155,220 09,250 -0- -0- $ 155,220 $ 09,250 Long-term debt maturing during each of the next five years ending January is as follows: 2009 - $-0-; 200 - $-0-; 20 - $-0-; 202 - $69,000,000, 203 - $-0-; and thereafter - $86,220,000. c r e d I T Fa c I l I T y: on december , 2006, the Company entered into an amended and restated Credit agreement (the “Credit Facility”) by and among the Company, certain subsidiaries of the Company party thereto, as other borrowers, the lenders party thereto and Bank of america, n.a., as administrative agent. the Credit Facility replaced the Company’s $05.0 million revolving credit facility. deferred financing costs incurred of $.2 million related to the Credit Facility were capitalized and are being amortized over four years. these costs are included in other non-current assets on the Consolidated Balance Sheets. the Company had $69.0 million of revolver borrowings outstanding under the Credit Facility at February 2, 2008. the Company had outstanding letters of credit of $9. million under the facility at February 2, 2008. these letters of credit support product purchases and lease and insurance indemnifications. 56 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 6 : L o n g -te r m d e b t c o n t i n u e d the material terms of the Credit Facility are as follows: a v a i L a B i L i t Y the Credit Facility is a revolving credit facility in the aggregate principal amount of $200.0 million, with a $20.0 million swingline loan sublimit and a $70.0 million sublimit for the issuance of standby letters of credit, and has a five-year term. any swingline loans and letters of credit will reduce the availability under the Credit Facility on a dollar-for-dollar basis. in addition, the Company has an option to increase the availability under the Credit Facility by up to $00.0 million (in increments no less than $25.0 million) subject to, among other things, the receipt of commitments for the increased amount. the aggregate amount of the loans made and letters of credit issued under the restated Credit agreement shall at no time exceed the lesser of the facility amount ($200.0 million or, if increased at the Company’s option, up to $300.0 million) or the “Borrowing Base”, which generally is based on 85% of eligible inventory plus 85% of eligible accounts receivable less applicable reserves. C o L L at e r a L the loans and other obligations under the Credit Facility are secured by substantially all of the presently owned and hereafter acquired non-real estate assets of the Company and certain subsidiaries of the Company. i n t e r e S t a n d F e e S the Company’s borrowings under the Credit Facility bear interest at varying rates that, at the Company’s option, can be based on either: • a base rate generally defined as the sum of the prime rate of Bank of america, n.a. and an applicable margin. • a LiBo rate generally defined as the sum of LiBor (as quoted on the British Banking association telerate Page 3750) and an applicable margin. the initial applicable margin for base rate loans is 0.00%, and the initial applicable margin for LiBor loans is .00%. thereafter, the applicable margin will be subject to adjustment based on “excess availability” for the prior quarter. the term “excess availability” means, as of any given date, the excess (if any) of the Borrowing Base over the outstanding credit extensions under the Credit Facility. interest on the Company’s borrowings is payable monthly in arrears for base rate loans and at the end of each interest rate period (but not less often than quarterly) for LiBor loans. the Company is also required to pay a commitment fee on the difference between committed amounts and the aggregate amount (including the aggregate amount of letters of credit) of the credit extensions outstanding under the Credit Facility, which initially is 0.25% per annum, subject to adjustment in the same manner as the applicable margins for interest rates. C e r ta i n C o v e n a n t S the Company is not required to comply with any financial covenants unless adjusted excess availability is less than 0% of the total commitments under the Credit Facility (currently $20.0 million). the term “adjusted excess availability” means, as of any given date, the excess (if any) of (a) the lesser of the total commitments under the Credit Facility and the Borrowing Base over (b) the outstanding credit extensions under the Credit Facility. if and during such time as adjusted excess availability is less than such amount, the Credit Facility requires the Company to meet a minimum fixed charge coverage ratio (eBitda less capital expenditures less cash taxes divided by cash interest expense and scheduled payments of principal indebtedness) of .00 to .00. Because adjusted excess availability exceeded $20.0 million, the Company was not required to comply with this financial covenant at February 2, 2008. in addition, the Credit Facility contains certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, transactions with affiliates, asset dispositions, mergers and consolidations, prepayments or material amendments of other indebtedness and other matters customarily restricted in such agreements. 57 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 6 : L o n g -te r m d e b t c o n t i n u e d C a S h d o m i n i o n the Credit Facility also contains cash dominion provisions that apply in the event that the Company’s adjusted excess availability fails to meet certain thresholds or there is an event of default under the Credit Facility. e v e n t S o F d e Fa u Lt the Credit Facility contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain eriSa events, judgments in excess of specified amounts and change in control. Certain of the lenders under the Credit Facility or their affiliates have provided, and may in the future provide, certain commercial banking, financial advisory, and investment banking services in the ordinary course of business for the Company, its subsidiaries and certain of its affiliates, for which they receive customary fees and commissions. 4 1 / 8 % c o n v e r T I B l e s u B o r d I n aT e d d e B e n T u r e s d u e 2 0 2 3 : on June 24, 2003 and June 26, 2003, the Company issued a total of $86.3 million of 4 /8% Convertible Subordinated debentures (the “debentures”) due June 5, 2023. the debentures are convertible at the option of the holders into shares of the Company’s common stock, par value $.00 per share, if: () the price of its common stock issuable upon conversion of a debenture reaches 20% or more of the initial conversion price ($26.54 or more) for 0 of the last 30 trading days of the immediately preceding fiscal quarter, (2) specified corporate transactions occur or (3) the trading price for the debentures falls below certain thresholds. as of January 3, 2005, the debentures became convertible into shares of common stock at the option of the holders. the Company’s common stock closed at or above $26.54 for at least 0 of the last 30 trading days of the fourth quarter of Fiscal 2005. therefore, the contingency was satisfied. upon conversion, the Company will have the right to deliver, in lieu of its common stock, cash or a combination of cash and shares of its common stock. Subject to the above conditions, each $,000 principal amount of debentures is convertible into 45.2080 shares (equivalent to an initial conversion price of $22.2 per share of common stock) subject to adjustment. there were $30,000 of debentures converted to ,356 shares of common stock during Fiscal 2008. the Company pays cash interest on the debentures at an annual rate of 4.25% of the principal amount at issuance, payable on June 5 and december 5 of each year, commencing on december 5, 2003. the Company will pay contingent interest (in the amounts set forth in the debentures) to holders of the debentures during any six-month period from and including an interest payment date to, but excluding, the next interest payment date, commencing with the six-month period ending december 5, 2008, if the average trading price of the debentures for the five consecutive trading day measurement period immediately preceding the applicable six-month period equals 20% or more of the principal amount of the debentures. the Company may redeem some or all of the debentures for cash at any time on or after June 20, 2008 at 00% of their principal amount, plus accrued and unpaid interest, contingent interest and liquidated damages, if any. each holder of the debentures may require the Company to purchase all or a portion of the holder’s debentures on June 5, 200, 203 or 208, at a price equal to the principal amount of the debentures to be purchased, plus accrued and unpaid interest, contingent interest and liquidated damages, if any, to the purchase date. each holder may also require the Company to repurchase all or a portion of such holder’s debentures upon the occurrence of a change of control (as defined in the debentures). the Company may choose to pay the change of control purchase price in cash or shares of its common stock or a combination of cash and shares. deferred financing costs of $2.9 million relating to the issuance were capitalized and are being amortized over seven years and are included in other non-current assets on the Consolidated Balance Sheets. the indenture pursuant to which the debentures 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. 58 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 7 : C o m m i t m e n t s u n d e r L o n g -te r m L e a s e s o p e r aT I n G l e a s e s the Company leases its office space and all of its retail store locations and transportation equipment under various noncancelable operating leases. the leases have varying terms and expire at various dates through 2023. the store leases typically have initial terms of between 5 and 0 years. generally, most of the leases require the Company to pay taxes, insurance, maintenance costs and contingent rentals based on sales. approximately 3% of the Company’s leases contain renewal options. rental expense under operating leases of continuing operations was: In THouSandS minimum rentals Contingent rentals Sublease rentals Total rental expense minimum rental commitments payable in future years are: FISCaL YEaRS 2009 200 20 202 203 Later years Total minimum rental commitments 2008 $ 145,763 4,221 (806) $ 149,178 2007 $ 26,833 5,320 (744) $ 3,409 2006 $ 0,028 4,668 (768) $ 3,928 In THouSandS $ 59,004 55,37 44,39 30,09 7,705 385,984 $ ,092,348 For leases that contain predetermined fixed escalations of the minimum rentals, the related rental expense is recognized on a straight-line basis and the cumulative expense recognized on the straight-line basis in excess of the cumulative payments is included in deferred rent and other long-term liabilities on the Consolidated Balance Sheets. the Company occasionally receives reimbursements from landlords to be used towards construction of the store the Company intends to lease. Leasehold improvements are recorded at their gross costs including items reimbursed by landlords. the reimbursements are amortized as a reduction of rent expense over the initial lease term. tenant allowances of $25.5 million and $23.7 million for Fiscal 2008 and 2007, respectively, and deferred rent of $26.3 million and $22.3 million for Fiscal 2008 and 2007, respectively, are included in deferred rent and other long-term liabilities on the Consolidated Balance Sheets. 59 n/a  2  00   Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 8 : S h a r e h o l d e r s ’ e q u i t y n o n - r e d e e m a B l e p r e F e r r e d s T o c k Shares number of Shares amounts in thousands Convertible no of Common 2008 2007 2006 2008 2007 2006 Ratio votes Class (in order of preference) authorized Subordinated Serial Preferred (Cumulative) aggregate 3,000,000** - 64,368 33,658 40,449 12,326 3,579 53,764 -0- 800,000 - 36,045 7,660 9,84 -0- - - 36,295 $1,346 1,233 7,660 358 9,84 -0- -0- - $,442 ,766 98 -0- - $,452 ,766 98 -0- n/a .83 2. .52 $2.30 Series  $4.75 Series 3 $4.75 Series 4 Series 6 $.50 Subordinated Cumulative Preferred 5,000,000 30,017 79,580 30,07 92,906 30,07 93,56 900 3,837 900 5,026 90 5,037 employees’ Subordinated Convertible Preferred Stated value of issued Shares employees’ Preferred Stock Purchase accounts Total non-redeemable preferred stock 5,000,000 54,825 *In order of preference for liquidation and dividends. 58,328 6,403 1,645 5,482 (144) $5,338 ,750 6,776 (74) $6,602 ,842 .00*** 6,879 (84) $6,695 **The Company’s charter permits the board of directors to issue Subordinated Serial Preferred Stock in as many series, each with as many shares and such rights and preferences as the board may designate. ***Also convertible into one share of $1.50 Subordinated Cumulative Preferred Stock. P R E F E R R E d S T o C k T R a n S a C T I o n S In THouSandS Balance January 29, 2005 Conversion of Series 4 other Balance January 28, 2006 other Balance February 3, 2007 Conversion of Series 3 Conversion of Series 4 other non-redeemable Preferred Stock total non-redeemable employees’ Purchase non-redeemable Preferred Stock $5,772 Preferred Stock $,89 acounts $(89) Preferred Stock $7,474 (723) (2) 5,037 () 5,026 (533) (56) (95) -0- (49) ,842 (92) ,750 -0- -0- (05) -0- 5 (84) 0 (74) -0- -0- 30 (723) (56) 6,695 (93) 6,602 (533) (56) (70) Balance February 2, 2008 $3,837 $1,645 $(144) $5,338 s u B o r d I n aT e d s e r I a l p r e F e r r e d s T o c k ( c u m u l aT I v e ) : Stated and redemption values for Series  are $40 per share and for Series 3 and 4 are each $00 per share plus accumulated dividends; liquidation value for Series  is $40 per share plus accumulated dividends and for Series 3 and 4 is $00 per share plus accumulated dividends. 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, 5% 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, 60 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 8 : S h a r e h o l d e r s ’ e q u i t y c o n t i n u e d at the exercise price, shares of the acquiring company having a market value of twice the exercise price. the rights expire in august 200, are redeemable under certain circumstances for $.0 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 . 5 0 s u B o r d I n aT e d c u m u l aT I v e p r e F e r r e d s T o c k : Stated and liquidation values and redemption price are 88 times the average quarterly per share dividend paid on common stock for the previous eight quarters (if any), but in no event less than $30 per share plus accumulated dividends. e m p lo y e e s ’ s u B o r d I n aT e d c o n v e r T I B l e p r e F e r r e d s T o c k : Stated and liquidation values are 88 times the average quarterly per share dividend paid on common stock for the previous eight quarters (if any), but in no event less than $30 per share. c o m m o n s T o c k : Common stock - $ par value. authorized: 80,000,000 shares; issued: February 2, 2008 – 23,284,74 shares; February 3, 2007–23,230,458 shares. there were 488,464 shares held in treasury at February 2, 2008 and February 3, 2007. each outstanding share is entitled to one vote. at February 2, 2008, common shares were reserved as follows: 4,244 shares for conversion of preferred stock; ,49,83 shares for the 996 Stock incentive Plan; 970,969 shares for the 2005 Stock incentive Plan; and 328,909 shares for the genesco employee Stock Purchase Plan. For the year ended February 2, 2008, 32,75 shares of common stock were issued for the exercise of stock options at an average weighted market price of $7.83, for a total of $0.6 million; 3,547 shares of common stock were issued as restricted shares as part of the 2005 equity incentive Plan; 4,83 shares of common stock were issued for the purchase of shares under the employee Stock Purchase Plan at an average weighted market price of $43.82, for a total of $0.2 million; 6,76 shares were issued to directors for no consideration; 9,397 shares were withheld for taxes on restricted stock vested in Fiscal 2008; 686 shares of restricted stock were forfeited in Fiscal 2008; and 26,494 shares were issued in miscellaneous conversions of Series , Series 3, Series 4, employees’ Subordinated Convertible Preferred Stock and debentures. the 32,75 options exercised were all fixed stock options (see note 2). For the year ended February 3, 2007, 357,423 shares of common stock were issued for the exercise of stock options at an average weighted market price of $8.07, for a total of $6.5 million; 66,769 shares of common stock were issued as restricted shares as part of the 2005 equity incentive Plan; 9,787 shares of common stock were issued for the purchase of shares under the employee Stock Purchase Plan at an average weighted market price of $32.75, for a total of $0.3 million; 9,422 shares were issued to directors for no consideration; 7,948 shares were withheld for taxes on restricted stock vested in Fiscal 2007; 4,0 shares of restricted stock were forfeited in Fiscal 2007; and 3,282 shares were issued in miscellaneous conversions of Series  and employees’ Subordinated Convertible Preferred Stock. the 357,423 options exercised were all fixed stock options (see note 2). in addition, the Company repurchased and retired ,062,400 shares of common stock at an average weighted market price of $30.20 for a total of $32. million. For the year ended January 28, 2006, 547,350 shares of common stock were issued for the exercise of stock options at an average weighted market price of $6.6, for a total of $8.8 million; 228,594 shares of common stock were issued as restricted shares as part of the 2005 equity incentive Plan; 24,978 shares of common stock were issued for the purchase of shares under the employee Stock Purchase Plan at an average weighted market price of $20.34, for a total of $0.5 million; 8,500 shares were issued to directors for no consideration; and 2,855 shares were issued in miscellaneous conversions of Series , Series 4 and employees’ Subordinated Convertible Preferred Stock. the 547,350 options exercised include 50,586 shares of fixed stock options and 36,764 shares of restricted stock (see note 2). r e s T r I c T I o n s o n d I v I d e n d s a n d r e d e m p T I o n s o F c a p I Ta l s T o c k : 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. 6 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 8 : S h a r e h o l d e r s ’ e q u i t y c o n t i n u e d the Company’s Credit Facility prohibits the payment of dividends and other restricted payments unless after such dividend or restricted payment availability under the Credit Facility exceeds $50.0 million or if availability is between $30.0 million and $50.0 million, the Company’s fixed charge coverage must be greater than .0 to .0. the Company’s management does not believe its availability under the Credit Facility will fall below $50.0 million during Fiscal 2009. the June 24 and June 26, 2003 indentures, under which the Company’s 4 /8% convertible subordinated debentures due 2023 were issued, does not restrict the payment of preferred stock dividends. dividends declared for Fiscal 2008 for the Company’s Subordinated Serial Preferred Stock, $2.30 Series , $4.75 Series 3 and $4.75 Series 4, and the Company’s $.50 Subordinated Cumulative Preferred Stock were $27,000 in the aggregate. C H a n g E S I n T H E S H a R E S o F T H E C o M Pa n Y ’ S C a P I Ta L S T o C k issued at January 29, 2005 exercise of options issue restricted stock issue shares–employee Stock Purchase Plan Conversion of Series 4 preferred stock other issued at January 28, 2006 exercise of options issue restricted stock issue shares–employee Stock Purchase Plan Shares repurchased other issued at February 3, 2007 exercise of options issue restricted stock issue shares–employee Stock Purchase Plan Conversion of Series 3 preferred stock Conversion of Series 4 preferred stock other issued at February 2, 2008 Less shares repurchased and held in treasury outstanding at February 2, 2008 Common Stock 22,925,857 547,350 228,594 24,978 0,985 0,370 23,748,34 357,423 66,769 9,787 (,062,400) 0,745 23,230,458 32,75 3,547 4,83 ,25 8,59 (6,598) 23,284,74 488,464 22,796,277 non-redeemable Preferred Stock 00,709 -0- -0- -0- (7,228) (325) 93,56 -0- -0- -0- -0- (250) 92,906 -0- -0- -0- (5,334) (5,605) (2,387) 79,580 -0- 79,580 employees’ Preferred Stock 63,03 -0- -0- -0- -0- (,628) 6,403 -0- -0- -0- -0- (3,075) 58,328 -0- -0- -0- -0- -0- (3,503) 54,825 -0- 54,825 62 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 9 : i n c o m e ta x e s in June 2006, the FaSB issued Fin 48. this interpretation clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFaS no. 09, “accounting for income taxes.” this interpretation prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. Fin 48 is effective in fiscal years beginning after december 5, 2006. effective February 4, 2007, the Company adopted the provisions of Fin 48. as a result of the adoption of Fin 48, the Company recognized a $4.3 million increase in the liability for unrecognized tax benefits which, as required, was accounted for as a reduction to the February 4, 2007 balance of retained earnings. the following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year. I n T H o u S a n d S unrecognized tax Benefit – February 4, 2007 gross decreases – tax Positions in a Prior Period gross increases – tax Positions in a Current Period Settlements Lapse of Statutes of Limitations unrecognized Tax Benefit – February 2, 2008 2008 $ 8,175 (3,370) 414 (247) (73) $ 4,899 in addition, the following information required by Fin 48 is provided: • unrecognized tax benefits were approximately $4.9 million and $8.2 million as of February 2, 2008 and February 4, 2007, respectively. included in the unrecognized tax benefit balance was $4.9 million of tax positions on both February 2, 2008 and February 4, 2007 which if recognized would impact the annual effective tax rate. the decrease in the unrecognized tax benefit balance from February 4, 2007 to February 2, 2008, was due to the resolution of a state audit and the irS approving of the Company’s filing of an application for change in accounting method. upon approval, the Company reclassified approximately $3.4 million between unrecognized tax benefits and deferred taxes. the Company believes that it is reasonably possible that an increase of up to $0.4 million in unrecognized tax benefits related to state exposures may be necessary within the coming year. in addition, the Company believes that it is reasonably possible that approximately $0.3 million of its currently remaining unrecognized tax positions, each of which are individually insignificant, may be recognized by the end of Fiscal 2009 as a result of a lapse of the statute of limitations. • the Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense on the Consolidated Statements of earnings. related to the uncertain tax benefits noted above, the Company accrued interest and penalties of approximately $0.5 million and $4,000, respectively, during Fiscal 2008. the Company recognized a liability for accrued interest and penalities of $.3 million and $0.7 million, respectively, as of February 2, 2008 included in deferred rent and other long-term liabilities on the Consolidated Balance Sheets. • the Company and its subsidiaries file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. with a few exceptions, the Company’s u.S. federal and state and local income tax returns for tax years 2004 and beyond remain subject to examination. in addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitation generally ranging from 3 to 6 years. 63 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e 9 : i n c o m e ta x e s c o n t i n u e d income tax expense from continuing operations is comprised of the following: I n T H o u S a n d S Current u.S. federal Foreign State total Current income tax expense deferred u.S. federal Foreign State total deferred income tax Benefit Total Income Tax expense – continuing operations 2 0 0 8 2 0 0 7 2 0 0 6 $ 30,625 1,351 4,954 36,930 $ 4,455 ,0 6,435 49,000 (10,732) (230) (1,721) (12,683) $ 24,247 (4,865) (6) (,48) (6,29) $ 42,87 $ 38,486 23 6,92 44,909 (4,429) (57) (579) (5,065) $ 39,844 discontinued operations were recorded net of income tax expense (benefit) of approximately ($.0) million, ($0.4) million and $38,000 in Fiscal 2008, 2007 and 2006, respectively. as a result of the exercise of stock options and vesting of restricted stock during Fiscal 2008, 2007 and 2006, the Company realized an additional income tax benefit of approximately $0.7 million, $2.4 million and $3.9 million, respectively. these tax benefits are reflected as an adjustment to either additional paid-in capital or deferred tax asset. in addition, during Fiscal 2006, the Company also realized a federal income tax benefit of $0.7 million related to stock options exercised as a result of the hat world acquisition. this benefit was accounted for as a decrease to current taxes payable and a reduction to goodwill. deferred tax assets and liabilities are comprised of the following: F E B R u a R Y 2 , F e B r u a r Y 3 , I n T H o u S a n d S identified intangibles Convertible bonds total deferred tax liabilities options deferred rent Pensions expense accruals uniform capitalization costs Book over tax depreciation Provisions for discontinued operations and restructurings inventory valuation tax net operating loss and credit carryforwards allowances for bad debts and notes other deferred tax assets n e t d e f e r r e d Ta x a s s e t s 2 0 0 8 $ (20,575) (7,854) (28,429) 1,568 6,739 1,078 6,758 4,006 14,296 401 5,969 1,446 303 7,208 49,772 $ 21,343 2 0 0 7 $ (2,064) (5,84) (26,905) 82 7,656 4,545 6,409 2,89 6,090 636 2,4 ,00 98 4,566 36,864 9,959 $ the deferred tax balances have been classified in the Consolidated Balance Sheets as follows: net current asset net non-current asset* n e t d e f e r r e d Ta x a s s e t s F E B R u a R Y 2 , F E B R u a R Y 3 , 2 0 0 8 $ 18,702 2,641 $ 21,343 2 0 0 7 $ 2,940 (2,98) 9,959 $ *Included in Deferred rent and other long-term liabilities on the Consolidated Balance Sheets for Fiscal 2007. 64 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e 9 : i n c o m e ta x e s c o n t i n u e d reconciliation of the united States federal statutory rate to the Company’s effective tax rate from continuing operations is as follows: u.S. federal statutory rate of tax State taxes (net of federal tax benefit) transaction costs deductible in future periods other effective Tax rate 2 0 0 8 35.00% 6.05 29.74 3.28 74.07% 2 0 0 7 35.00% 3.09 .00 .49 38.58% 2 0 0 6 35.00% 3.56 .00 .32 38.88% the provision for income taxes resulted in an effective tax rate for continuing operations of 74.% for Fiscal 2008, compared with an effective tax rate of 38.6% for Fiscal 2007. the increase in the effective tax rate for Fiscal 2008 was primarily attributable to non-deductible expenses in Fiscal 2008 incurred in connection with the now terminated merger with the Finish Line and related litigation and the accounting for uncertain tax positions (Fin 48). See notes 3 and 4 for additional information. as of February 2, 2008 and February 3, 2007, the Company had a Federal net operating loss carryforward of $.5 million for each period as a result of an acquisition. internal revenue Code Section 382 imposes limitations due to ownership changes. as of February 2, 2008, February 3, 2007 and January 28, 2006, the Company had state net operating loss carryforwards of $5.8 million, $5.7 million and $6.4 million, respectively, expiring in tax years 200 through 2027. as of February 2, 2008, February 3, 2007 and January 28, 2006, the Company had state tax credits of $0.0 million, $0.3 million and $0.3 million, respectively. these credits expire in tax years 2006 through 202. as of February 2, 2008 and February 3, 2007, the Company had foreign tax credits of $0.7 million and $0.2 million, respectively. these credits will expire in tax year 207. management believes a valuation allowance is not necessary because it is more likely than not that the Company will ultimately utilize the entire loss carryforwards, credits and other deferred tax assets based on existing carryback ability and expectations as to future taxable income in the jurisdictions in which it operates. n o t e  0 : d e f i n e d B e n e f i t Pe n s i o n P l a n s a n d o t h e r Po s t r e t i r e m e n t B e n e f i t P l a n s d e F I n e d B e n e F I T p e n s I o n p l a n s the Company sponsored a non-contributory, defined benefit pension plan. as of January , 996, the Company amended the plan to change the pension benefit formula to a cash balance formula from the then existing benefit calculation based upon years of service and final average pay. the benefits accrued under the old formula were frozen as of december 3, 995. 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 the participant’s cash balance account under the new formula. effective January , 2005, the Company froze the defined benefit cash balance plan which prevents any new entrants into the plan as of that date as well as effects the amounts credited to the participants’ accounts as discussed below. under the cash balance formula, beginning January , 996, the Company credited 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 3, 996 and annually thereafter, the account balance of each active participant was 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 was inactive would be credited with interest at the lesser of 7% or the 30 year treasury rate. under the frozen plan, each participants’ cash balance plan account will be credited annually only with interest at the 30 year treasury rate, not to exceed 7%, until the participant retires. the amount credited each year will be based on the rate at the end of the prior year. 65 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  0 : d e f i n e d B e n e f i t Pe n s i o n P l a n s a n d o t h e r Po s t r e t i r e m e n t B e n e f i t P l a n s c o n t i n u e d o T h e r p o s T r e T I r e m e n T B e n e F I T p l a n s 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. o B L I g aT I o n S a n d F u n d E d S TaT u S CHangE In BEnEFIT oBLIgaTIon In THouSandS Benefit obligation at beginning of year Service cost interest cost Plan amendments Plan participants’ contributions Benefits paid actuarial (gain) or loss Benefit obligation at end of year CHangE In PLan aSSETS In THouSandS Fair value of plan assets at beginning of year actual gain on plan assets employer contributions Plan participants’ contributions Benefits paid Fair value of plan assets at end of year Pension Benefits other Benefits 2008 $ 117,279 250 6,451 -0- -0- (8,792) (1,198) $ 113,990 2007 $ 2,943 250 6,423 5 -0- (9,246) (2,42) $ 7,279 2008 $ 3,951 123 159 -0- 144 (339) (965) $ 3,073 2007 $ 3,927 26 200 -0- 58 (35) (99) $ 3,95 Pension Benefits other Benefits 2008 $ 102,973 9,237 4,000 -0- (8,792) $ 107,418 2007 $ 98,72 9,498 4,000 -0- (9,246) $ 02,973 2008 -0- -0- 195 144 (339) -0- $ $ 2007 -0- -0- 93 58 (35) -0- $ $ Funded status at end of ye a r $ 6,572 $ 4,306 $ 3,073 $ 3,95 amounts recognized in the Consolidated Balance Sheets consist of: In THouSandS noncurrent assets Current liabilities noncurrent liabilities net amount recognized Pension Benefits other Benefits $ 2008 -0- -0- 6,572 $ 6,572 $ 2007 -0- -0- 4,306 $ 4,306 $ 2008 -0- 291 2,782 $ 3,073 $ 2007 -0- 280 3,67 $ 3,95 amounts recognized in accumulated other comprehensive income consist of: In THouSandS Prior service cost net loss Total recognized in accumulated other comprehensive (Income) loss Pension Benefits other Benefits 2008 $ 42 27,549 2007 $ 5 34,377 $ 2008 -0- 259 2007 $ -0- ,37 $ 27,591 $ 34,428 $ 259 $ ,37 PEnSIon BEnEFITS In THouSandS Projected benefit obligation accumulated benefit obligation Fair value of plan assets 2007 $ 113,990 113,990 107,418 december 31 2006 $ 7,279 7,279 02,973 66 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e  0 : d e f i n e d B e n e f i t Pe n s i o n P l a n s a n d o t h e r Po s t r e t i r e m e n t B e n e f i t P l a n s c o n t i n u e d C o M P o n E n T S o F n E T P E R I o d I C B E n E F I T C o S T n e T p e r I o d I c B e n e F I T c o s T In THouSandS Service cost interest cost expected return on plan assets amortization: Prior service cost Losses net amortization net periodic Benefit cost Pension Benefits other Benefits 2007 2008 2006 $ 250 $ 250 $ 250 6,639 6,423 6,451 (7,702) (8,024) (7,779) 8 -0- -0- 4,418 4,480 4,502 4,502 4,480 4,426 $ 3,103 $ 3,374 $ 3,689 2008 $ 123 159 -0- 2007 $ 26 200 -0- -0- 93 93 $ 375 -0- 87 87 $ 503 2006 $ 205 97 -0- -0- 83 83 $ 485 R E C o n C I L I aT I o n o F a C C u M u L aT E d o T H E R C o M P R E H E n S I v E I n C o M E In THouSandS net gain amortization of prior service cost (credit) amortization of net actuarial loss Total recognized in other comprehensive Income Total recognized in net periodic Benefit cost and other comprehensive Income Pension Benefits other Benefits 2008 $ (2,411) (8) (4,418) $ (6,837) $ 2008 (93) -0- (965) $ (1,058) $ (3,734) $ (683) the estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $3.3 million and $8,000, respectively. the estimated net loss for the other postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $0. million. w E I g H T E d - a v E R a g E a S S u M P T I o n S u S E d T o d E T E R M I n E B E n E F I T o B L I g aT I o n S discount rate rate of compensation increase measurement date Pension Benefits other Benefits 2008 5.875% na 12-31-2007 2007 5.75% na 2-3-2006 2008 5.875% - 2007 5.75% - 2-2-2008 2-3-2007 w E I g H T E d - a v E R a g E a S S u M P T I o n S u S E d T o d E T E R M I n E n E T B E n E F I T P E R I o d I C C o S T S discount rate expected long-term rate of return on plan assets rate of compensation increase Pension Benefits other Benefits 2008 5.75% 2007 5.50% 2006 5.75% 2008 5.75% 2006 2007 5.50% 5.75% 8.25% na 8.25% na 8.25% na - - - - - - the weighted average discount rate used to measure the benefit obligation for the pension plan increased from 5.75% to 5.875% from Fiscal 2007 to Fiscal 2008. the increase in the rate decreased the accumulated benefit obligation by $.3 million and decreased the projected benefit obligation by $.3 million. the weighted average discount rate used to measure the benefit obligation for the pension plan increased from 5.50% to 5.75% from Fiscal 2006 to Fiscal 2007. the increase in the rate decreased the accumulated benefit obligation by $3. million and decreased the projected benefit obligation by $3. million. to develop the expected long-term rate of return on assets assumption, the Company considered historical asset returns, the current asset allocation and future expectations. Considering this information, the Company selected an 8.25% long-term rate of return on assets assumption. 67 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  0 : d e f i n e d B e n e f i t Pe n s i o n P l a n s a n d o t h e r Po s t r e t i r e m e n t B e n e f i t P l a n s c o n t i n u e d a S S u M E d H E a LT H C a R E C o S T T R E n d R aT E S aT d E C E M B E R 3 1 health care cost trend rate assumed for next year rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate 2008 2007 9% 5% 9% 5% 2012 20 the effect on disclosed information of one percentage point change in the assumed health care cost trend rate for each future year is shown below. (In THouSandS) aggregated service and interest cost accumulated postretirement benefit obligation P L a n a S S E T S % increase % decrease in rates $ 48 $ 298 in rates $ 3 $ 25 the Company’s pension plan weighted average asset allocations as of december 3, 2007, and 2006, by asset category are as follows: aSSET CaTEgoRY equity securities debt securities other total Plan assets at december 31 2007 63% 36% 1% 100% 2006 65% 34% % 00% the investment strategy of the trust is to ensure over the long-term an asset pool, that when combined with company contributions, will support benefit obligations to participants, retirees and beneficiaries. investment management responsibilities of plan assets are delegated to outside investment advisers and overseen by an investment Committee comprised of members of the Company’s senior management that is appointed by the Board of directors. the Company has an investment policy that provides direction on the implementation of this strategy. the investment policy establishes a target allocation for each asset class and investment manager. the actual asset allocation versus the established target is reviewed at least quarterly and is maintained within a +/- 5% range of the target asset allocation. target allocations are 50% domestic equity, 3% international equity, 35% fixed income and 2% cash investments. all investments are made solely in the interest of the participants and beneficiaries for the exclusive purposes of providing benefits to such participants and their beneficiaries and defraying the expenses related to administering the trust as determined by the investment Committee. all assets shall be properly diversified to reduce the potential of a single security or single sector of securities having a disproportionate impact on the portfolio. the Committee utilizes an outside investment consultant and a team of investment managers to implement its various investment strategies. Performance of the managers is reviewed quarterly and the investment objectives are consistently evaluated. at February 2, 2008 and February 3, 2007, there were no Company related assets in the plan. 68 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s Genesco Inc. and SuBSidiarieS n o t e  0 : d e f i n e d B e n e f i t Pe n s i o n P l a n s a n d o t h e r Po s t r e t i r e m e n t B e n e f i t P l a n s c o n t i n u e d C a S H F Lo w S C o n t r i B u t i o n S there was no eriSa cash requirement for the plan in 2007 and none is projected to be required in 2008. however, the Company’s current cash policy is to fund the cost of benefits accruing each year (the “normal cost”) plus an amortization of the unfunded accrued liability. the Company made a $4.0 million contribution in march 2008. e S t i m at e d F u t u r e B e n e F i t PaY m e n t S expected benefit payments from the trust, including future service and pay, are as follows: ESTIMaTEd FuTuRE PaYMEnTS 2008 2009 200 20 202 203–206 s e c T I o n 4 0 1 ( k ) s a v I n G s p l a n Pension Benefits ($ in millions) $0.0 9.6 9.2 9. 8.8 4.6 other Benefits ($ in millions) $ 0.3 0.3 0.3 0.3 0.2 .0 the Company has a Section 40(k) Savings Plan available to employees who have completed one full year of service and are age 2 or older. Concurrent with the January , 996 amendment to the pension plan (discussed previously), the Company amended the 40(k) savings plan to make matching contributions equal to 50% of each employee’s contribution of up to 5% of salary. Concurrent with freezing the defined benefit pension plan effective January , 2005, the Company amended the 40(k) savings plan to make matching contributions. Beginning January , 2005, the Company will match 00% of each employee’s contribution of up to 3% of salary and 50% of the next 2% of salary. in addition, for those employees hired before december 3, 2004, who were eligible for the Company’s cash balance retirement plan before it was frozen, the Company will make an additional contribution of 2 /2 % of salary to each employee’s account. Company funds contributed prior to 2002 are not vested until a participant has completed five years of service. For matching contributions made in calendar 2002-2004, participants are vested in the matching contribution of their accounts on a graduated basis of 25% a year beginning after two years of service. Full vesting occurs after five years of service. in calendar 2005 and future years, participants are vested immediately in the matching contribution of their accounts. the contribution expense to the Company for the matching program was approximately $3.0 million for Fiscal 2008 and $3.6 million for both Fiscal 2007 and Fiscal 2006. 69 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e   : e a r n i n g s p e r S h a r e For the Year Ended February 2, 2008 For the Year ended February 3, 2007 For the Year ended January 28, 2006 in thouSandS, Income Shares Per-Share income Shares Per-Share income Shares Per-Share exCePt Per Share amountS (numerator) (denominator) amount (numerator) (denominator) amount (numerator) (denominator) amount earnings from continuing operations $8,488 $68,247 $62,626 Less: Preferred stock dividends (217) (256) (273) BaSIC EPS income available to common shareholders 8,271 22,441 $0.37 67,99 22,646 $3.00 62,353 22,804 $2.73 eFFecT oF dIluTIve securITIes options Convertible preferred stock() 4 /8% Convertible Subordinated debentures(2) employees’ preferred stock(3) dILuTEd EPS income available to common shareholders plus assumed 486 396 463 -0- -0- 67 67 84 37 -0- -0- 2,45 3,899 2,467 3,899 57 60 62 conversions $8,271 22,984 $0.36 $70,573 27,068 $2.6 $64,904 27,265 $2.38 (1) The amount of the dividend on the convertible preferred stock per common share obtainable on conversion of the convertible preferred stock is higher than basic earnings per share for Series 4 for all periods presented, Series 3 for Fiscal 2008 and Series 1 for Fiscal 2006 and 2008. Therefore, conversion of Series 4 convertible preferred stock is not reflected in diluted earnings per share for all periods presented, Series 3 in Fiscal 2008 and Series 1 in Fiscal 2006 and 2008, because it would have been antidilutive. The amount of the dividend on Series 3 convertible preferred stock per common share obtainable on conversion of the convertible preferred stock was less than basic earnings per share for Fiscal 2006 and 2007. Therefore, conversion of Series 3 preferred shares were included in diluted earnings per share for Fiscal 2006 and 2007. The amount of the dividend on Series 1 convertible preferred stock per common share obtainable on conversion of the convertible preferred stock was less than basic earnings per share for Fiscal 2007. Therefore, conversion of Series 1 preferred shares were included in diluted earnings per share for Fiscal 2007. The shares convertible to common stock for Series 1, 3 and 4 preferred stock would have been 28,047 and 25,949 and 5,423, respectively, as of February 2, 2008. (2) The amount of the interest on the convertible subordinated debentures for Fiscal 2008 per common share obtainable on conversion is higher than basic earnings per share, therefore the convertible debentures are not reflected in diluted earnings per share because it is antidilutive. (3) 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. options to purchase 74,98 shares of common stock at $36.40 per share, 2,378 shares of common stock at $40.05 per share, 08,509 shares of common stock at $38.4 per share, 95 shares of common stock at $37.4 per share and 2,35 shares of common stock at $42.82 per share were outstanding at the end of Fiscal 2008 but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares. options to purchase 75,459 shares of common stock at $36.40 per share, 2,378 shares of common stock at $40.05 per share, 09,68 shares of common stock at $38.4 per share and 95 shares of common stock at $37.4 per share were outstanding at the end of Fiscal 2007 but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares. options to purchase 2,378 shares of common stock at $40.05 per share were outstanding at the end of Fiscal 2006 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. 70 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e   : e a r n i n g s p e r S h a r e c o n t i n u e d the weighted shares outstanding reflects the effect of stock buy back programs. in a series of authorizations from Fiscal 999-2003, the Company’s board of directors authorized the repurchase of up to 7.5 million shares. in June 2006, the board authorized an additional $20.0 million in stock repurchases. in august 2006, the board authorized an additional $30.0 million in stock repurchases. the Company repurchased ,062,400 shares at a cost of $32. million during Fiscal 2007. the Company did not repurchase any shares during Fiscal 2008. in total, the Company has repurchased 8.2 million shares at a cost of $03.4 million from all authorizations as of February 2, 2008. in march 2008, the board authorized up to $00.0 million in stock repurchases primarily funded with the after-tax cash proceeds of the settlement of merger-related litigation with the Finish Line and its investment bankers (see notes 3 and 4). n o t e  2 : S h a r e d - B a s e d C o m p e n s a t i o n P l a n s the Company’s stock-based compensation plans, as of February 2, 2008, are described below. Prior to January 29, 2006, the Company accounted for these plans under the recognition and measurement provisions of aPB no. 25, “accounting for Stock issued to employees,” and related interpretations, as permitted by SFaS no. 23. effective January 29, 2006, the Company adopted SFaS no. 23(r), using the modified prospective transition method. under the modified prospective transition method, compensation cost recognized for Fiscal 2007 includes (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 29, 2006, based on the grant date fair value estimated in accordance with the provisions of SFaS no. 23; and (ii) compensation cost for all share-based payments granted on or after January 29, 2006, based on the grant date fair value estimated in accordance with SFaS no. 23(r). in accordance with the modified prospective method, the Company has not restated prior period results. s T o c k I n c e n T I v e p l a n s the Company has two fixed stock incentive plans. under the 2005 equity incentive Plan (the “2005 Plan”), effective as of June 23, 2005, the Company may grant options, restricted shares and other stock-based awards to its employees and consultants as well as directors for up to .0 million shares of common stock. under the 996 Stock incentive Plan (the “996 Plan”), the Company could grant options to its officers and other key employees of and consultants to the Company as well as directors for up to 4.4 million shares of common stock. there will be no future awards under the 996 Stock incentive Plan. 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 0 years. options granted under both plans vest 25% per year. For Fiscal 2008 and 2007, the Company recognized share-based compensation cost of $3.2 million and $4. million, respectively, for its fixed stock incentive plans included in selling and administrative expenses in the accompanying Consolidated Statements of earnings. the Company also recognized a total income tax benefit for share-based compensation arrangements of $0.7 million and $2.4 million for Fiscal 2008 and 2007, respectively. the Company did not capitalize any share-based compensation cost. 7 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  2 : S h a r e d - B a s e d C o m p e n s a t i o n P l a n s c o n t i n u e d the following table illustrates the effect on net earnings per common share as if the Company had applied the fair value recognition provisions of SFaS no. 23 for Fiscal 2006: I n T H o u S a n d S , E x C E P T P E R S H a R E a M o u n T net earnings, as reported add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects Pro forma net earnings earnings per share: Basic–as reported Basic–pro forma diluted–as reported diluted–pro forma F i s c a l Ye a r 2 0 0 6 $ 62,686 648 (3,699) $ 59,635 $ $ $ $ 2.74 2.60 2.38 2.27 Prior to adopting SFaS no. 23(r), the Company presented the tax benefit of stock option exercises as operating cash flows. SFaS no. 23(r) requires that the cash flows resulting from tax benefits for tax deductions in excess of the compensation cost recognized for those options (excess tax benefit) be classified as financing cash flows. accordingly, the Company classified excess tax benefits of $0.7 million and $2.4 million as financing cash inflows rather than as operating cash inflows on its Consolidated Statement of Cash Flows for Fiscal 2008 and 2007, respectively. SFaS no. 23(r) also requires companies to calculate an initial “pool” of excess tax benefits available at the adoption date to absorb any unused deferred tax assets that may be recognized under SFaS no. 23(r). the Company elected to calculate the pool of excess tax benefits under the alternative transition method described in FaSB Staff Position (“FSP”) no. 23(r)-3, “transition election related to accounting for tax effects of Share-Based Payment awards,” which also specifies the method the Company must use to calculate excess tax benefits reported on the Consolidated Statements of Cash Flows. the Company granted 2,35 shares, 0,632 shares and 80,973 shares of fixed stock options in Fiscal 2008, 2007 and 2006, respectively. For Fiscal 2008, the Company estimated the fair value of each option award on the date of grant using a Black-Scholes option pricing model. the Company based expected volatility on historical term structures. the Company based the risk free rate on an interest rate for a bond with a maturity commensurate with the expected term estimate. the Company estimated the expected term of stock options using historical exercise and employee termination experience. the Company does not currently pay a dividend. the following table shows the weighted average assumptions used to develop the fair value estimates for Fiscal 2008, 2007 and 2006: volatility risk Free rate expected term (years) dividend Yields F i s c a l Ye a r s 2008 35.3% 4.7% 4.7 0.0% 2007 42.4% 4.6% 4.8 0.0% 2006 4.5% 4.4% 5.2 0.0% 72 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  2 : S h a r e d - B a s e d C o m p e n s a t i o n P l a n s c o n t i n u e d a summary of fixed stock option activity and changes for Fiscal 2008, 2007 and 2006 is presented below: Genesco Inc. and SuBSidiarieS outstanding, January 29, 2005 granted exercised Forfeited outstanding at January 28, 2006 granted exercised Forfeited outstanding, February 3, 2007 granted Exercised Forfeited outstanding, February 2, 2008 exercisable, February 2, 2008 Shares ,894,099 80,973 (50,586) -0- ,464,486 0,632 (357,423) (56,909) ,60,786 2,351 (32,751) (712) 1,129,674 880,425 weighted-average Remaining value (in weighted-average aggregate Intrinsic Exercise Price $ 8.70 Contractual Term thousands)(1) 36.5 5.36 - $ 20.84 38.3 8.07 22.68 $ 23.25 42.82 17.83 38.14 $ 23.44 $ 21.26 6.09 5.67 $ 12,104 $ 11,001 (1) Based upon the difference between the closing market price of the Company’s common stock on the last trading day of the year and the grant price of in-the-money options. the total intrinsic value, which represents the difference between the underlying stock’s market price and the option’s exercise price, of options exercised during Fiscal 2008, 2007 and 2006 was $0.9 million, $7.3 million and $0. million, respectively. a summary of the status of the Company’s nonvested shares of its fixed stock incentive plans as of February 2, 2008, are presented below: n o n v E S T E d S H a R E S nonvested at February 3, 2007 granted vested Forfeited nonvested at February 2, 2008 we i g h t e d - a v e r a g e g r a n t - d a t e F a i r va l u e $ 4.38 6.28 3.4 3.69 $ 5.45 S h a r e s 520,474 2,35 (272,864) (72) 249,249 as of February 2, 2008 there were $2.4 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the stock incentive plans discussed above. that cost is expected to be recognized over a weighted average period of .26 years. Cash received from option exercises under all share-based payment arrangements for Fiscal 2008, 2007 and 2006 was $0.6 million, $6.5 million and $7.8 million, respectively. the actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled $0.7 million, $2.4 million and $3.9 million for Fiscal 2008, 2007 and 2006, respectively. r e s T r I c T e d s T o c k I n c e n T I v e p l a n s d i r e C t o r r e S t r i C t e d S t o C k the 996 Plan provided for an automatic grant of restricted stock to non-employee directors on the date of the annual meeting of shareholders at which an outside director is first elected. the outside director restricted stock so granted was to 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. the 2005 Plan includes no automatic grant provisions, but permits the board of directors to make 73 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  2 : S h a r e d - B a s e d C o m p e n s a t i o n P l a n s c o n t i n u e d awards to non-employee directors. the board granted restricted stock pursuant to the terms of the 2005 Plan to two new non-employee directors in Fiscal 2006 on substantially the same terms as the automatic awards under the 996 Plan, except that transfer restrictions are to lapse after three years. there were no shares issued in Fiscal 2008 and 2007. there were ,370 shares of restricted stock issued to directors for Fiscal 2006. in addition, under the 996 Plan an outside director could 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 were 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 were earned, the director was restricted from selling, transferring, pledging or assigning the shares for an additional four years. under the 2005 Plan, retainer Stock awards were made during Fiscal 2008, 2007 and 2006 on substantially the same terms as the grants under the 996 Plan, except that transfer restrictions are to lapse three years from the date of grant. For Fiscal 2008, 2007 and 2006, the Company issued 6,76 shares, 3,022 shares and 2,465 shares, respectively, of retainer Stock. also pursuant to the 996 Plan, annually on the date of the annual meeting of shareholders, beginning in Fiscal 2004, each outside director received restricted stock valued at $44,000 based on the average of stock prices for the first five days in the month of the annual meeting of shareholders. For Fiscal 2007, each outside director received restricted stock pursuant to the terms of the 2005 Plan valued at $60,000 based on the average of stock prices for the first five days in the month of the annual meeting of shareholders. the outside director restricted stock vests with respect to one- third of the shares each year as long as the director is still serving as a director. once the shares vest, the director is restricted from selling, transferring, pledging or assigning the shares for an additional two years. there were no shares of director restricted stock issued for Fiscal 2008. For Fiscal 2007 and 2006, the Company issued 6,400 shares and 8,855 shares, respectively, of director restricted stock. For Fiscal 2008, 2007 and 2006, the Company recognized $0.6 million, $0.5 million and $0.3 million, respectively, of director restricted stock related share-based compensation in selling and administrative expenses in the accompanying Consolidated Statements of earnings. e m P Lo Y e e r e S t r i C t e d S t o C k on april 24, 2002, the Company issued 36,764 shares of restricted stock to the President and Ceo of the Company under the 996 Plan. Pursuant to the terms of the grant, these shares vested on april 23, 2005, provided that on such date the grantee remained continuously employed by the Company since the date of the agreement. Compensation cost recognized in selling and administrative expenses in the accompanying Consolidated Statements of earnings for these shares was $0. million for Fiscal 2006. the 36,764 shares were issued in april 2005. under the 2005 Plan, the Company issued 3,547 shares and 66,769 shares of employee restricted stock in Fiscal 2008 and 2007, respectively. these shares vest 25% per year over four years, provided that on such date the grantee has remained continuously employed by the Company since the date of grant. the Company issued 228,594 shares of employee restricted stock in Fiscal 2006. of the restricted shares issued in Fiscal 2006, 06,445 shares vest at the end of three years and the remaining shares vest 25% per year over four years, provided that on such date the grantee has remained continuously employed by the Company since the date of grant. the fair value of employee restricted stock is charged against income as compensation cost over the vesting period. Compensation cost recognized in selling and administrative expenses in the accompanying Consolidated Statements of earnings for these shares was $4.0 million, $2.9 million and $0.6 million for Fiscal 2008, 2007 and 2006, respectively. a summary of the status of the Company’s nonvested shares of its employee restricted stock as of February 2, 2008 are presented below: 74 n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  2 : S h a r e d - B a s e d C o m p e n s a t i o n P l a n s c o n t i n u e d n o n v E S T E d S H a R E S nonvested at January 29, 2005 granted vested withheld for federal taxes Forfeited nonvested at January 28, 2006 granted vested withheld for federal taxes Forfeited nonvested at February 3, 2007 granted vested withheld for federal taxes Forfeited nonvested at February 2, 2008 e m p lo y e e s T o c k p u r c h a s e p l a n Genesco Inc. and SuBSidiarieS we i g h t e d - a v e r a g e g r a n t - d a t e F a i r va l u e - $ 36.46 - - - 36.46 38.3 36.5 36.5 36.40 37.23 42.82 37.46 37.47 38.14 $ 37.23 S h a r e s - 228,594 - - - 228,594 66,769 (2,607) (7,948) (4,0) 36,797 3,547 (51,720) (19,397) (976) 293,251 under the employee Stock Purchase Plan, the Company is authorized to issue up to .0 million shares of common stock to qualifying full-time employees whose total annual base salary is less than $90,000, effective october , 2002. Prior to october , 2002, the total annual base salary was limited to $00,000. under the terms of the Plan, employees could choose each year to have up to 5% of their annual base earnings or $8,500, whichever is lower, withheld to purchase the Company’s common stock. the purchase price of the stock was 85% of the closing market price of the stock on either the exercise date or the grant date, whichever was less. the Company’s board of directors amended the Company’s employee Stock Purchase Plan effective october , 2005 to provide that participants may acquire shares under the Plan at a 5% discount from fair market value on the last day of the Plan year. employees can choose each year to have up to 5% of their annual base earnings or $9,500, whichever is lower, withheld to purchase the Company’s common stock. under SFaS no. 23(r), shares issued under the Plan as amended are non-compensatory. no participant contributions were accepted by the Company under the Plan after September 28, 2007 as a result of the now terminated merger agreement. the merger agreement was terminated in march 2008. a new “short” plan year began april , 2008. under the Plan, the Company sold 4,83 shares, 9,787 shares and 24,978 shares to employees in Fiscal 2008, 2007 and 2006, respectively. s T o c k p u r c h a s e p l a n s Stock purchase accounts arising out of sales to employees prior to 972 under certain employee stock purchase plans amounted to $44,000 and $74,000 at February 2, 2008 and February 3, 2007, respectively, and were secured at February 2, 2008, by 7,895 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. 75 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  3 : te r m i n a t e d m e r g e r a g r e e m e n t the Company announced in June 2007 that the boards of directors of both genesco and the Finish Line, inc. had unanimously approved a definitive merger agreement under which the Finish Line would acquire all of the outstanding common shares of genesco at $54.50 per share in cash (the “Proposed merger”). the Finish Line breached the merger agreement and litigation ensued. the Proposed merger was terminated in march 2008 in connection with an agreement to settle the litigation with the Finish Line and its investment bankers for a cash payment of $75.0 million to the Company and a 2% equity stake in the Finish Line, which the Company has received. the Company will distribute to its shareholders 6,58,97 shares of Class a Common Stock of the Finish Line, inc. the Company is required to distribute the shares to its shareholders as soon as practicable once Finish Line registers the shares with the SeC and lists them on naSdaQ. the Company expects to set the record date for the distribution soon after the registration and listing process is complete. during Fiscal 2008, the Company expensed $27.6 million in merger-related costs and litigation expenses. as of march 25, 2008, the Company had expensed an additional $6. million of such costs and expenses in the first quarter of Fiscal 2009. the Company believes that most of the $27.6 million in merger-related costs and litigation expenses will be tax deductible in Fiscal 2009. For additional information, see the “merger-related Litigation” section in note 4. n o t e  4 : L e g a l P r o c e e d i n g s e n v I r o n m e n Ta l m aT T e r s n e w Y o r k S tat e e n v i r o n m e n ta L m at t e r S in august 997, the new York State department of environmental Conservation (“nYSdeC”) 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 remediate measure (“irm”) with regard to the site of a knitting mill operated by a former subsidiary of the Company from 965 to 969. the Company undertook the irm and riFS voluntarily, without admitting liability or accepting responsibility for any future remediation of the site. the Company has concluded the irm and the riFS. in the course of preparing the riFS, the Company identified remedial alternatives with estimated undiscounted costs ranging from $-0- to $24.0 million, excluding amounts previously expended or provided for by the Company, as described in this footnote. the united States environmental Protection agency (“ePa”), which has assumed primary regulatory responsibility for the site from nYSdeC, issued a record of decision in September 2007. the record of decision requires a remedy of a combination of groundwater extraction and treatment and in-site chemical oxidation at an estimated present worth cost of approximately $0.7 million. the village of garden City, new York, has asserted that the Company is liable for the costs associated with enhanced treatment required by the impact of the groundwater plume from the site on two public water supply wells, including historical costs ranging from approximately $.8 million to in excess of $2.5 million, and future operation and maintenance costs which the village estimates at $26,400 annually while the enhanced treatment continues. on december 4, 2007, the village filed a complaint against the Company and the owner of the property under provisions of various federal environmental statutes in the u.S. district Court for the eastern district of new York, seeking an injunction requiring the defendants to remediate contamination from the site and to establish their liability for future costs that may be incurred in connection with it, which the complaint alleges could exceed $4 million over a 70-year period. the Company has not verified the estimates of either historic or future costs asserted by the village, but believes that an estimate of future costs based on a 70-year remediation period is unreasonable given the expected remedial period reflected in the ePa’s record of decision. Because of uncertainty about when the contamination occurred, the short duration of the Company’s operations at the site, and the activities of at least one unrelated business operation at the site, among other reasons, 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 the extent of its liability, if any. the Company’s voluntary assumption of certain responsibility to date was based upon its judgment that such action was preferable to litigation to determine its liability, if any for contamination related to the site. the Company intends to continue to evaluate the costs of further voluntary remediation and compromise of the claims asserted by the village of garden City compared to the costs and uncertainty of litigation. 76 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  4 : L e g a l P r o c e e d i n g s c o n t i n u e d in december 2005, the ePa notified the Company that it considers the Company a potentially responsible party (“PrP”) with respect to contamination at two Superfund sites in upstate new York. the sites were used as landfills for process wastes generated by a glue manufacturer, which acquired tannery wastes from several tanners, allegedly including the Company’s whitehall tannery, for use as raw materials in the gluemaking process. the Company has no records indicating that it ever provided raw materials to the gluemaking operation and has not been able to establish whether ePa’s substantive allegations are accurate. the Company, together with other tannery PrP’s, has entered into cost sharing agreements and Consent decrees with ePa with respect to both sites. Based upon the current estimates of the cost of remediation, the Company’s share is expected to be less than $50,000 in total for the two sites. while there is no assurance that the Company’s share of the actual cost of remediation will not exceed the estimate, the Company does not presently expect that its aggregate exposure with respect to these two landfill sites will have a material adverse effect on its financial condition or results of operations. w h i t e h a L L e n v i r o n m e n ta L m at t e r S the Company has performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at the Company’s former volunteer Leather Company facility in whitehall, michigan. the Company has submitted to the michigan department of environmental Quality (“mdeQ”) and provided for certain costs associated with a remedial action plan (the “Plan”) designed to bring the property into compliance with regulatory standards for non-industrial uses and has subsequently engaged in negotiations regarding the scope of the Plan. the Company estimates that the costs of resolving environmental contingencies related to the whitehall property range from $4.2 million to $4.8 million, and considers the cost of implementing the Plan, as it is modified in the course of negotiations with mdeQ, to be the most likely cost within that range. until the Plan is finally approved by mdeQ, management cannot provide assurances that no further remediation will be required or that its estimate of the range of possible costs or of the most likely cost of remediation will prove accurate. a C C r u a L F o r e n v i r o n m e n ta L C o n t i n g e n C e S related to all outstanding environmental contingencies, the Company had accrued $7.8 million as of February 2, 2008 and $5.8 million as of February 3, 2007. all such provisions reflect the Company’s estimates of the most likely cost (undiscounted, including both current and noncurrent portions) of resolving the contingencies, based on facts and circumstances as of the time they were made. there is no assurance that relevant facts and circumstances will not change, necessitating future changes to the provisions. Such contingent liabilities are included in the liability arising from provision for discontinued operations on the accompanying Consolidated Balance Sheets. m e r G e r - r e l aT e d l I T I G aT I o n g e n e S C o i n C . v. t h e F i n i S h L i n e , e t a L . u B S S e C u r i t i e S L L C a n d u B S Lo a n F i n a n C e L L C v. g e n e S C o i n C . , et aL. on June 8, 2007, the Company announced that the boards of directors of genesco and the Finish Line had unanimously approved a definitive merger agreement under which the Finish Line would acquire all of the outstanding common shares of genesco at $54.50 per share in cash. on September 2, 2007, the Company filed suit against the Finish Line, inc. in Chancery Court in nashville, tennessee seeking a court order requiring the Finish Line to consummate the merger with the Company (the “tennessee action”). on September 28, 2007, the Finish Line filed an answer and counterclaim seeking a declaratory judgment as to whether a “Company material adverse effect” had occurred under the merger agreement. the Finish Line also filed a third-party claim against uBS Securities LLC and uBS Finance LLC (collectively, “uBS”), who provided the Finish Line with a commitment letter with respect to the financing for the merger transaction. on october 0, 2007, the Finish Line voluntarily dismissed its claims against uBS, and uBS filed a motion to intervene as a defendant in the case and an answer to the Company’s complaint. on november 3, 2007, the Company amended its complaint to add an alternative claim for damages. on november 5, 2007, the Finish Line 77 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  4 : L e g a l P r o c e e d i n g s c o n t i n u e d filed an answer to the amended complaint asserting that a Company material adverse effect had occurred under the merger agreement and asserting a counterclaim against the Company for intentional or negligent misrepresentation in connection with the merger agreement. on november 5, 2007, uBS filed an answer to the amended complaint and a counterclaim asserting fraud against the Company. that same day, uBS also filed a separate lawsuit in the united States district Court for the Southern district of new York (the “new York action”), naming the Company and the Finish Line as defendants. in the new York action, uBS sought a declaration that its commitment to provide the Finish Line with financing for the merger transaction was void and/or could be terminated by uBS because the Finish Line would not be able to provide, prior to the expiration of the financing commitment on april 30, 2008, a valid solvency certificate attesting to the solvency of the combined entities resulting from the merger, which certificate was a condition precedent to the closing of the financing. the Company was named in the new York action as an interested party. trial of the tennessee action began on december 0, 2007 and concluded on december 8, 2007. on december 27, 2007, the Chancery Court ordered the Finish Line to specifically perform the terms of the merger agreement. in its order, the Court rejected uBS’s and Finish Line’s claims of fraud and misrepresentation and declared that all conditions to the merger agreement had been met. the Court also declared that Finish Line had breached the merger agreement by not closing the merger. the Court ordered Finish Line to close the merger pursuant to section .2 of the merger agreement, to use its reasonable best efforts to take all actions to consummate the merger as required by section 6.4(d) of the merger agreement, and to use its reasonable best efforts to obtain financing as per section 6.8(a) of the merger agreement. the Court excluded from its order any ruling on the issue of the solvency of the combined company, finding that the issue of solvency was reserved for determination by the new York Court in the new York action filed by uBS. on January 8, 2008, the Finish Line and uBS each filed a notice of appeal and a motion For Permission For interlocutory appeal of the Chancery Court’s december 27, 2007 order requiring the Finish Line to specifically perform the terms of the merger agreement. on February 3, 2008, the tennessee Court of appeals dismissed the notices of appeal filed by the Finish Line and uBS on the ground that the order of the Chancery Court was not a final order. Subsequently, on February 28, 2008, the Court of appeals also denied the Finish Line’s and uBS’s motions For Permission For interlocutory appeal. on February 25, 2008, the Company filed a motion with the Chancery Court for permission to file a second amended complaint alleging claims directly against uBS for procurement of a breach of contract under tennessee law. on march 3, 2008, the Company, the Finish Line, and uBS entered into a definitive agreement for the termination of the merger agreement with the Finish Line and the settlement of all related litigation among the Finish Line and the Company and uBS, including the tennessee action and the new York action. Pursuant to the settlement agreement, the parties agreed that: () the merger agreement between the Company and the Finish Line would be terminated; (2) the financing commitment from uBS to the Finish Line would be terminated; (3) on or before march 7, 2008, uBS and the Finish Line would pay to the Company an aggregate of $75 million in cash; (4) on or before march 7, 2008, the Finish Line would transfer to the Company a number of Class a shares of the Finish Line common stock equal to 2.0% of the total post-issuance outstanding shares of the Finish Line common stock; (5) the Company and the Finish Line would be subject to a mutual standstill agreement; and (6) the parties would execute customary mutual releases. the cash payment and the Class a shares of the Finish Line common stock have been received by the Company in accordance with the settlement agreement. a Stipulation of dismissal with Prejudice was filed in the new York action on march 4, 2008. the parties will also file a Stipulation of dismissal in the tennessee action. i n v e S t i g at i o n BY t h e o F F i C e o F t h e u. S . at t o r n e Y F o r t h e S o u t h e r n d i S t r i C t o F n e w Y o r k on november 2, 2007, the Company received a grand jury subpoena from the office of the u.S. attorney for the Southern district of new York for documents relating to the Company’s negotiations and merger agreement with the Finish Line. the subpoena states that the documents are sought in connection with alleged violations of federal fraud statutes. the Company is cooperating fully with the u.S. attorney’s office and producing documents pursuant to the subpoena. 78 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  4 : L e g a l P r o c e e d i n g s c o n t i n u e d r o e g L i n v. g e n e S C o i n C . , e t a L . on december 5, 2007, a class action complaint alleging violations of the federal securities laws on behalf of all purchasers of the Company’s common stock between april 20, 2007 and november 26, 2007 was filed against the Company and four of its officers in the u.S. district Court for the middle district of tennessee. the complaint alleges that the defendants violated federal securities laws by making false and misleading statements about the Company’s business during that period. it seeks unspecified damages and interest, costs and attorneys’ fees and other relief. the Company does not believe there is any merit to the allegations and intends to defend these claims vigorously. ko S h t i v. g e n e S C o i n C . , e t a L . on december 3, 2007, a second class action complaint alleging violations of the federal securities laws on behalf of all purchasers of the Company’s common stock between april 20, 2007 and november 26, 2007 was filed against the Company and three of its officers in the u.S. district Court for the middle district of tennessee. the Complaint alleges that the defendants violated federal securities laws by failing to disclose material adverse facts about the Company’s financial well being and prospects during the class period. the complaint seeks unspecified damages and interest, costs and attorneys’ fees and other relief. the Company does not believe there is any merit to the allegations and intends to defend these claims vigorously. on January 22, 2008, the u.S. district Court entered a stipulation and order consolidating the koshti case with the roeglin case. Fa L Z o n e v. g e n e S C o i n C . , e t a L . on december , 2007, a class action complaint alleging violations of the federal securities laws on behalf of all purchasers of the Company’s common stock between may 3, 2007 and november 6, 2007 was filed against the Company and one of its officers in the u.S. district Court for the Southern district of new York. the complaint alleged that the defendants violated federal securities laws by making false and misleading statements about the Company’s business during that period. it sought unspecified damages and interest, costs and attorneys’ fees and other relief. on February 5, 2008, the plaintiff filed a Stipulation and order of discontinuance without Prejudice dismissing the case in light of the earlier filed cases in tennessee. P h i L L i P S v. g e n e S C o i n C . , e t a L . on april 24, 2007, a putative class action, maxine Phillips, on Behalf of herself and all others Similarly Situated vs. genesco inc., et al., was filed in the tennessee Chancery Court in nashville. the original complaint alleged, among other things, that the individual defendants (officers and directors of the Company) refused to consider properly the proposal by Foot Locker, inc. to acquire the Company. the complaint sought class certification, a declaration that defendants have breached their fiduciary and other duties, an order requiring defendants to implement a process to obtain the highest possible price for shareholders’ shares, and an award of costs and attorney’s fees. the defendants have not filed a response to the complaint as of the date of this report. Following the execution of the merger agreement with the Finish Line, inc., the plaintiff filed an amended complaint alleging breach of fiduciary duties by the individual defendants in connection with the board of directors’ approval of the merger agreement and the disclosures made in the preliminary proxy statement related to the merger and seeking injunctive relief. the Company and the individual defendants reached an agreement with plaintiff under which the Company agreed to include certain additional disclosures in its definitive proxy statement related to the merger that was filed on august 3, 2007. the parties executed a memorandum of understanding to formalize the settlement on September 0, 2007. under the terms of the memorandum, the Company agreed to pay $450,000 in attorneys’ fees and expenses if the settlement and payment of fees were approved by the Court and certain other conditions, including the consummation of the merger with the Finish Line, were to occur. c a l I F o r n I a e m p lo y m e n T m aT T e r on november 4, 2005, a former employee gave notice to the California Labor work Force development agency (“Lwda”) of a claim against the Company for allegedly failing to provide a payroll check that is negotiable and payable in cash, on demand, without discount, at an established place of business in California, as required by the California Labor Code. on may 8, 2006, the same claimant filed a putative class, representative and private attorney general 79 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  4 : L e g a l P r o c e e d i n g s c o n t i n u e d action alleging the same violations of the Labor Code in the Superior Court of California, alameda County, seeking statutory penalties, damages, restitution, and injunctive relief. on February 2, 2007, the court granted leave for the plaintiff to file an amended complaint adding the Company’s wholly-owned subsidiary, hat world, inc., as a defendant. the Company disputes the material allegations of the complaint. the parties have agreed to third-party mediation of the claims in the litigation. if the mediation does not resolve the issues in the litigation, we will continue to defend the matter vigorously. paT e n T a c T I o n the Company is named as a defendant in Paul Ware and Financial Systems Innovation, L.L.C. v. Abercrombie & Fitch Stores, Inc., et al., filed on June 9, 2007, in the united States district Court for the northern district of georgia, against more than 00 retailers. the suit alleges that the defendants have infringed u.S. Patent no. 4,707,592 by using a feature of their retail point of sale registers to generate transaction numbers for credit card purchases. the complaint seeks treble damages in an unspecified amount and attorneys’ fees. the Company has filed an answer denying the substantive allegations in the complaint and asserting certain affirmative defenses. on december 4, 2007, the Company filed a third-party complaint against datavantage Corporation and miCroS Systems, inc., its vendor for the technology at issue in the case, seeking indemnification and defense against the infringement allegations in the complaint. on december 27, 2007, the court stayed proceedings in the litigation pending the outcome of a reexamination of the patent by the u. S. Patent and trademark office. T e n n e s s e e d e pa r T m e n T o F e n v I r o n m e n T a n d c o n s e r v aT I o n I n q u I r y the Company has received an inquiry from the tennessee department of environment and Conservation concerning waste disposal on the premises of a manufacturing facility operated by the Company more than 25 years ago. the letter of inquiry did not disclose the reason for the inquiry. the Company is gathering information for its response to the inquiry, which is due may , 2008. n o t e  5 : B u s i n e s s S e g m e n t i n f o r m a t i o n the Company operates five reportable business segments (not including corporate): Journeys group, comprised of the Journeys, Journeys kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; underground Station group, comprised of the underground Station and Jarman retail footwear chains and e-commerce operations; hat world group, comprised of the hat world, Lids, hat Shack, hat Zone, head Quarters, Cap Connection and Lids kids retail headwear chains and e-commerce operations; Johnston & murphy group, comprised of Johnston & murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of dockers® Footwear sourced and marketed under a license from Levi Strauss & Company. 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 group, underground Station group and hat world group sell primarily branded products from other companies while Johnston & murphy group and Licensed Brands sell primarily the Company’s owned and licensed brands. Corporate assets include cash, deferred income taxes, deferred note expense and corporate fixed assets. the Company charges allocated retail costs of distribution to each segment and unallocated retail costs of distribution to the corporate segment. the Company does not allocate certain costs to each segment in order to make decisions and assess performance. these costs include corporate overhead, stock compensation, interest expense, interest income, restructuring charges and other, including litigation. 80 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  5 : B u s i n e s s S e g m e n t i n f o r m a t i o n c o n t i n u e d FIscal 2008 In THouSandS Sales intercompany sales underground Johnston Journeys group Station group Hat world & Murphy Licensed Corporate group group Brands & other Consolidated $ 713,366 $ 124,002 $ 378,913 $ 192,487 $ 93,064 $ 645 $ 1,502,477 -0- -0- -0- -0- (358) -0- (358) net sales to external customers $ 713,366 $ 124,002 $ 378,913 $ 192,487 $ 92,706 $ 645 $ 1,502,119 Segment operating income (loss) $ 51,097 $ (7,710) $ 31,987 $ 19,807 $ 10,976 $ (51,294) $ 54,863 restructuring and other -0- -0- -0- -0- -0- (9,702) (9,702) earnings (loss) from operations 51,097 (7,710) 31,987 19,807 10,976 (60,996) 45,161 interest expense interest income earnings (loss) before income taxes -0- -0- -0- -0- -0- -0- -0- -0- -0- (12,570) (12,570) -0- 144 144 from continuing operations $ 51,097 $ (7,710) $ 31,987 $ 19,807 $ 10,976 $ (73,422) $ 32,735 total assets* depreciation Capital expenditures $ 257,327 $ 45,734 $ 299,820 $ 71,574 $ 24,774 $ 105,327 $ 804,556 18,985 41,635 4,017 1,701 13,277 27,121 3,270 6,376 80 106 5,485 3,723 45,114 80,662 *Total assets for Hat World Group include $107.6 million goodwill. FiSCaL 2007 in thouSandS Sales intercompany sales underground Journeys group Station group hat world group Johnston & murphy Licensed Corporate group Brands & other Consolidated $ 696,889 $ 55,069 $ 342,64 $ 86,979 $ 79,58 $ 478 $ ,46,24 -0- -0- -0- -0- (736) -0- (736) net sales to external customers $ 696,889 $ 55,069 $ 342,64 $ 86,979 $ 78,422 $ 478 $ ,460,478 Segment operating income (loss) $ 83,835 $ 3,844 $ 4,359 $ 5,337 $ 6,777 $ (29,002) $ 22,50 restructuring and other -0- -0- -0- -0- -0- (,05) (,05) Earnings (loss) from operations 83,835 3,844 4,359 5,337 6,777 (30,07) 2,045 interest expense interest income Earnings (loss) before income taxes -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (0,488) (0,488) 56 56 from continuing operations $ 83,835 $ 3,844 $ 4,359 $ 5,337 $ 6,777 $ (40,034) $ ,8 total assets depreciation Capital expenditures FiSCaL 2006 in thouSandS Sales intercompany sales $ 204,28 $ 56,385 $ 282,989 $ 67,732 $ 22,290 $ 95,759 $ 729,373 6,294 33,250 4,604 4,723 0,705 23,722 2,957 6,255 62 85 5,684 5,252 40,306 73,287 underground Journeys group Station group hat world group Johnston & murphy Licensed Corporate group Brands & other Consolidated $ 593,56 $ 64,054 $ 297,27 $ 70,05 $ 59,94 $ 290 $ ,284,340 -0- -0- -0- -0- (464) -0- (464) net sales to external customers $ 593,56 $ 64,054 $ 297,27 $ 70,05 $ 58,730 $ 290 $ ,283,876 Segment operating income (loss) $ 73,346 $ 0,890 $ 40,33 $ 0,396 $ 4,67 $ (23,852) $ 5,080 restructuring and other -0- -0- -0- -0- -0- (2,253) (2,253) Earnings (loss) from operations 73,346 0,890 40,33 0,396 4,67 (26,05) 2,827 interest expense interest income Earnings (loss) before income taxes -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (,482) (,482) ,25 ,25 from continuing operations $ 73,346 $ 0,890 $ 40,33 $ 0,396 $ 4,67 $ (36,462) $ 02,470 total assets depreciation Capital expenditures $ 66,890 $ 57,80 $ 244,86 $ 60,978 $ 23,207 $ 33,677 $ 686,8 3,23 24,292 4,057 6,93 9,73 2,26 2,833 2,443 47 32 5,299 2,040 34,622 56,946 8 Genesco Inc. and SuBSidiarieS n o T e s T o c o n s o l I d aT e d F I n a n c I a l s TaT e m e n T s n o t e  6 : Q u a r t e r l y F i n a n c i a l i n f o r m a t i o n ( u n a u d i t e d ) ( I n T H o u S a n d S , E x C E P T 1 s t q u a r t e r 2 n d q u a r t e r 3 r d q u a r t e r 4 t h q u a r t e r F i s c a l Ye a r P E R S H a R E a M o u n T S ) 2 0 0 8 2 0 0 7 2 0 0 8 2 0 0 7 2 0 0 8 2 0 0 7 2 0 0 8 2 0 0 7 2 0 0 8 2 0 0 7 net sales gross margin $334,651 $35,08 $327,977 $304,30 $372,496 $364,298 $466,995 $476,86 $1,502,119 $,460,478 171,844 6,369 163,619 53,390 188,051 8,454 227,70 234,622 751,215 730,835 earnings (loss) before income taxes from continuing operations 3,774(1) 7,480(2) (5,598)(4) 0,3(6) 10,297(7) 26,43(8) 24,262(10) 57,076(2) 32,735 ,8 earnings (loss) from continuing operations 2,203 0,666 (2,940) 5,944 5,610 5,975 3,615 35,662 8,488 net earnings (loss) 2,203 0,477(3) (4,165)(5) 5,944 5,600 5,877(9) 3,247(11) 35,348(3) 6,885 68,247 67,646 diluted earnings (loss) per common share: Continuing operations net earnings (loss) .10 .10 .4 .40 (.13) (.19) .24 .24 .23 .23 .62 .62 .16 .14 .36 .35 .36 .29 2.6 2.59 (1) Includes a net restructuring and other charge of $6.6 million (see Note 3) and a $0.1 million charge for merger-related expenses (see Notes 13 and 14). (2) Includes a net restructuring and other charge of $0.1 million (see Note 3). (3) Includes a loss of $0.2 million, net of tax, from discontinued operations (see Note 3). (4) Includes a net restructuring and other charge of $0.2 million (see Note 3) and a $5.4 million charge for merger-related expenses (see Notes 13 and 14). (5) Includes a loss of $1.2 million, net of tax, from discontinued operations (see Note 3). (6) Includes a net restructuring and other charge of $0.5 million (see Note 3). (7) Includes a net restructuring and other charge of $0.1 million (see Note 3) and a $6.1 million charge for merger-related expenses (see Notes 13 and 14). (8) Includes a net restructuring and other charge of $1.1 million (see Note 3). (9) Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3). (10) Includes a net restructuring and other charge of $2.9 million (see Note 3) and a $16.0 million charge for merger-related expenses (see Notes 13 and 14). (11) Includes a loss of $0.4 million, net of tax, from discontinued operations (see Note 3). (12) Includes a net restructuring and other credit of $0.6 million (see Note 3). (13) Includes a loss of $0.3 million, net of tax, from discontinued operations (see Note 3). (a) 14 week period in Fiscal 2007 and 13 week period in Fiscal 2008. (b) 53 week period in Fiscal 2007 and 52 week period in Fiscal 2008. 82 c o r p o r aT e I n F o r m aT I o n Genesco Inc. and SuBSidiarieS a n n u a l m e e T I n G o F s h a r e h o l d e r s o T h e r I n F o r m aT I o n the annual meeting of shareholders will be held Certifications by the Chief executive officer and the Chief wednesday, June 8, 2008, at 0:00 a.m. Cdt, at the corporate Financial officer of the Company pursuant to Section 302 headquarters in genesco Park, nashville, tennessee. of the Sarbanes-oxley act of 2002 have been filed as c o r p o r aT e h e a d q u a r T e r s genesco Park 45 murfreesboro road – P.o. Box 73 nashville, tn 37202-073 I n d e p e n d e n T a u d I T o r s ernst & Young LLP 50 Fourth avenue north Suite 400 nashville, tennessee 3729 T r a n s F e r a G e n T a n d r e G I s T r a r Communications concerning stock transfer, preferred stock dividends, consolidating accounts, change of address and lost or stolen stock certificates should be directed to the transfer agent. when corresponding with the transfer agent, shareholders should state the exact name(s) in which the stock is registered and certificate number, as exhibits of the Company’s 2008 annual report on Form 0-k. the Chief executive officer has submitted to the new York Stock exchange (nYSe) the annual Ceo certification for fiscal 2008 regarding the Company’s compliance with the nYSe’s corporate governance listing standards. F o r m 1 0 - k each year genesco files with the Securities and exchange Commission a Form 0-k which contains more detailed information. any shareholder who would like to receive, without charge, a single copy (without exhibits), or who would like to receive extra copies of any genesco shareholder publication should send a request to: Claire S. mcCall director, Corporate relations genesco Park, Suite 490 – P.o. Box 73 nashville, tennessee 37202-073 (65) 367-8283 well as old and new information about the account. c o m m o n s T o c k l I s T I n G Computershare Phone #: 78-575-2879 new York Stock exchange, Chicago Stock exchange Symbol: gCo s h a r e h o l d e r I n F o r m aT I o n Shareholder information may be accessed at www.genesco.com. address: Computershare P. o. Box 43078 Providence, rhode island 02940-3078 Private Couriers/registered mail: Computershare 250 royall Street Canton, massachusetts 0202 Questions & inquiries via our website: http://www.computershare.com hearing impaired #: tdd: -800-952-9245 I n v e s T o r r e l aT I o n s Security analysts, portfolio managers or other investment community representatives should contact: James S. gulmi, Senior vice President – Finance and Chief Financial officer genesco Park, Suite 490 – P.o. Box 73 nashville, tennessee 37202-073 (65) 367-8325 83 Genesco Inc. and SuBSidiarieS B o a r d o F d I r e c T o r s J a m e S S . B e a r d retired President, Caterpillar Financial Services Corporation nashville, tennessee m at t h e w C . d i a m o n d Chairman and Chief executive officer alloy, inc. new York, new York member of the audit and finance committees Chairman of the compensation committee, member L e o n a r d L . B e r r Y of the finance committee distinguished Professor of marketing and Professor of m a r t Y g . d i C k e n S humanities in medicine texas a&m university College Station, texas retired President at&t–tennessee nashville, tennessee member of the compensation and nominating and Chairman of the finance committee, member of governance committees w i L L i a m F. B L a u F u S S , J r . Consultant, Certified Public accountant nashville, tennessee member of the audit and finance committees J a m e S w. B r a d F o r d dean, owen School of management vanderbilt university nashville, tennessee the nominating and governance committee B e n t. h a r r i S Former Chairman genesco inc. k at h L e e n m a S o n President and Chief executive officer tuesday morning inc. dallas, texas member of the audit and compensation committees member of the finance and nominating and h a L n . P e n n i n g t o n governance committees r o B e r t v. d a L e Consultant nashville, tennessee Chairman of the audit and nominating and governance committees r o B e r t J . d e n n i S President and Chief operating officer genesco inc. Chairman and Chief executive officer genesco inc. w i L L i a m a . w i L L i a m S o n , J r . Private investor montgomery, alabama member of the compensation and nominating and governance committees c o r p o r aT e o F F I c e r s h a L n . P e n n i n g t o n J o h n w. C L i n a r d Chairman and Chief executive officer Senior vice President–administration and human resources 46 years with genesco r o B e r t J . d e n n i S 36 years with genesco r o g e r g . S i S S o n President and Chief operating officer Senior vice President, Secretary and general Counsel 4 years with genesco J a m e S S . g u L m i 4 years with genesco m i m i e . v a u g h n Senior vice President–Finance and Chief Financial officer Senior vice President–Strategy and Business development 36 years with genesco J a m e S C . e S t e Pa 5 years with genesco m at t h e w n . J o h n S o n Senior vice President–genesco retail vice President and treasurer 23 years with genesco J o n at h a n d. C a P L a n 5 years with genesco Pa u L d. w i L L i a m S Senior vice President–genesco Branded vice President and Chief accounting officer 5 years with genesco k e n n e t h J . ko C h e r Senior vice President–hat world/Lids 4 years with genesco 3 years with genesco 84 G e n e s c o r e Ta I l s T o r e s a S o F 2 / 2 / 0 8 Genesco Inc. and SuBSidiarieS aLaSka anCHoRagE LidS (2), JourneYS (2) FaIRBankS LidS, JourneYS aLaBaMa auBuRn hat ShaCk, JourneYS anTIoCH LidS, JourneYS aRCadIa LidS, JourneYS San BERnadIno LidS, JourneYS San BRuno JourneYS dISTRICT oF CoLuMBIa waSHIngTon, d.C. LidS, JohnSton & murPhY BakERSFIELd LidS, JourneYS, San dIEgo LidS (3), JohnSton & murPhY ShoP, JourneYS kidZ, Shi BREa JourneYS BuEna PaRk LidS JourneYS (3) San FRanCISCo LidS (3), JohnSton & murPhY ShoP San JoSE LidS (2), JourneYS (2), JourneYS kidZ ShoP (4) FLoRIda aLTaMonTE SPRIngS LidS, JourneYS avEnTuRa LidS, JohnSton & murPhY ShoP, JourneYS BoCa RaTon LidS, JohnSton & murPhY ShoP, JourneYS BoYnTon BEaCH LidS, JourneYS, underground Station BRadEnTon JourneYS, LidS BRandon LidS, JourneYS, JourneYS kidZ, Shi CLEaRwaTER hat ShaCk, LidS, JourneYS, Shi CoRaL SPRIngS hat ShaCk, JourneYS, underground Station daYTona BEaCH LidS, JourneYS dESTIn LidS, JohnSton & murPhY outLet, JourneYS ELLEnTon JourneYS, JohnSton & murPhY outLet ESTERo LidS, JourneYS (2), JohnSton & murPhY outLet FT. LaudERdaLE JourneYS FT. MYERS LidS (3), JourneYS (2), underground Station gaInESvILLE hat ShaCk, LidS, JourneYS HIaLEaH hat ShaCk JaCkSonvILLE hat ShaCk, LidS (2), JourneYS (2), underground Station (2) JEnSEn BEaCH JourneYS kISSIMMEE LidS, JourneYS LakE waLES JourneYS LakELand hat worLd, JourneYS MaRY ESTHER hat ShaCk, JourneYS MELBouRnE hat ShaCk, JourneYS MERRITT ISLand JourneYS, LidS MIaMI hat ShaCk, LidS, JourneYS (2), JourneYS kidZ, underground Station (4), Shi MIaMI BEaCH JourneYS naPLES LidS, JourneYS, JourneYS kidZ oCoEE LidS, JourneYS, underground Station oRangE PaRk LidS, JourneYS oRLando hat ShaCk, LidS (4), JohnSton & murPhY outLet, JourneYS (5), JourneYS kidZ (2), underground Station (2) ovIEdo JourneYS PaLM BEaCH gaRdEnS JohnSton & murPhY ShoP, JourneYS PanaMa CITY LidS, JourneYS PEMBRokE PInES LidS, JourneYS PEnSaCoLa LidS, JourneYS, underground Station PLanTaTIon JourneYS, LidS PoRT CHaRLoTTE JourneYS, LidS PoRT RICHEY hat ShaCk, JourneYS ST. PETERSBuRg JourneYS, LidS, BIRMIngHaM hat ShaCk, hat worLd, LidS, BuRBank LidS, JourneYS JohnSton & murPhY ShoP, JourneYS (2), CaBazon JohnSton & murPhY outLet underground Station CaMaRILLo JohnSton & murPhY outLet doTHan hat worLd, JourneYS FaIRFIELd underground Station FLoREnCE JourneYS, LidS Canoga PaRk LidS, JohnSton & murPhY ShoP, JourneYS CaPIToLa LidS, JourneYS San LEandRo LidS San MaTEo LidS, JourneYS San RaFaEL JourneYS San YSIdRo JourneYS SanTa ana LidS, JourneYS SanTa CLaRa hat worLd, JourneYS, FoLEY LidS, JohnSton & murPhY outLet, CaRLSBad LidS (2), JohnSton & murPhY outLet, JourneYS kidZ, LidS kidS JourneYS gadSdEn hat ShaCk HoMEwood JourneYS HoovER JourneYS, Shi HunTSvILLE hat ShaCk, LidS, JourneYS (2), underground Station MoBILE hat ShaCk, JourneYS, underground Station MonTgoMERY hat ShaCk, underground Station oxFoRd hat ShaCk, underground Station SPanISH FoRT JourneYS TuSCaLooSa hat ShaCk, JourneYS aLBERTa CaLgaRY LidS EdMonTon CaP ConneCtion (2), LidS, head QuarterS (2) REd dEER LidS aRkanSaS JourneYS, underground Station SanTa MonICa LidS, JourneYS CERRIToS LidS, JourneYS CHICo LidS, JourneYS CHuLa vISTa hat worLd, JourneYS (2), LidS CITRuS HEIgHTS JourneYS CITY oF InduSTRY JourneYS CoMMERCE LidS, JourneYS ConCoRd LidS, JourneYS CoSTa MESa JohnSton & murPhY ShoP, JourneYS CuLvER CITY LidS daLY CITY JourneYS downEY LidS, JourneYS EL CaJon LidS, JourneYS EL CEnTRo LidS, JourneYS ESCondIdo LidS, JourneYS EuREka hat worLd, JourneYS SanTa RoSa LidS, JourneYS SHERMan oakS JourneYS SIERRa vISTa LidS SIMI vaLLEY JourneYS SToCkTon JourneYS, LidS TEMECuLa JourneYS THouSand oakS JourneYS TRaCY hat worLd, JourneYS TuLaRE JourneYS TuSTIn LidS vaLEnCIa JourneYS, LidS vEnTuRa hat worLd, JourneYS vICToRvILLE LidS vISaLIa LidS, JourneYS wEST CovIna LidS, JourneYS, underground Station FaIRFIELd JourneYS, LidS, underground Station wESTMInSTER LidS, JourneYS FoLSoM LidS FRESno LidS, Jarman Shoe Store FaYETTEvILLE hat worLd, JourneYS, gILRoY LidS, JohnSton & murPhY outLet JourneYS kidZ gLEndaLE LidS FoRT SMITH hat worLd, JourneYS HanFoRd LidS, JourneYS HoT SPRIngS JourneYS HaYwaRd underground Station JonESBoRo LidS, JourneYS IRvInE LidS LITTLE RoCk LidS LakEwood LidS, JourneYS, noRTH LITTLE RoCk JourneYS (2), hat worLd, underground Station underground Station Long BEaCH LidS PInE BLuFF hat worLd, JourneYS LoS angELES LidS (4), JohnSton & murPhY RogERS LidS, JourneYS ShoP, underground Station MILPITaS LidS, JourneYS ModESTo LidS, Jarman Shoe Store, JourneYS, JourneYS kidZ, Shi MonTCLaIR JourneYS, LidS, MonTEBELLo LidS, JourneYS MonTEREY LidS MoREno vaLLEY LidS, JourneYS YuBa CITY LidS, JourneYS CoLoRado auRoRa LidS (2), JourneYS (2), underground Station BRooMFIELd LidS, JourneYS CaSTLE RoCk LidS, JohnSton & murPhY outLet, JourneYS CoLoRado SPRIngS LidS(2), JourneYS, underground Station dEnvER LidS, JourneYS (3) FT. CoLLInS JourneYS gRand JunCTIon LidS, JourneYS gREELEY JourneYS LakEwood LidS, JourneYS LITTLETon hat worLd, JourneYS (2) LongMonT JourneYS LovELand LidS, JourneYS PuEBLo LidS, JourneYS SILvERTHoRnE JourneYS aRIzona CHandLER JourneYS, JourneYS kidZ FLagSTaFF JourneYS, LidS gILBERT JourneYS gLEndaLE LidS, JourneYS MESa JourneYS (2), JourneYS kidZ, LidS (2), underground Station PHoEnIx hat worLd, LidS (2), Jarman Shoe Store, JohnSton & murPhY ShoP, JourneYS(4), JourneYS kidZ, underground Station (2) PRESCoTT JourneYS SCoTTSdaLE JohnSton & murPhY ShoP, JourneYS, JourneYS kidZ TEMPE LidS (2), JourneYS (2), JourneYS kidZ TuCSon hat worLd, LidS (2), JourneYS (2), JourneYS kidZ, Shi, underground Station YuMa JourneYS BRITISH CoLuMBIa BuRnaBY LidS kELowna head QuarterS LangLEY head QuarterS nanaIMo LidS SuRREY LidS vICToRIa head QuarterS CaLIFoRnIa aLPInE JourneYS naTIonaL CITY LidS, JourneYS, JourneYS kidZ, underground Station nEwaRk LidS, JourneYS wESTMInSTER LidS, JourneYS, JourneYS kidZ, underground Station noRTHRIdgE LidS, JourneYS, JourneYS kidZ, ConnECTICuT underground Station CLInTon JohnSton & murPhY outLet onTaRIo LidS, JourneYS, JourneYS kidZ danBuRY LidS, JourneYS, JourneYS kidZ oRangE LidS FaRMIngTon LidS, JohnSton & murPhY ShoP underground Station PaLM dESERT LidS, JohnSton & murPhY ShoP, ManCHESTER LidS, JourneYS JourneYS PaLMdaLE LidS, JourneYS PanoRaMa CITY LidS PISMo BEaCH JourneYS PLEaSanTon JourneYS MERIdEn LidS, JourneYS MILFoRd LidS, JourneYS, underground Station SunRISE hat ShaCk, LidS, JourneYS, STaMFoRd JohnSton & murPhY ShoP, JourneYS underground Station SanFoRd hat ShaCk, JourneYS SaRaSoTa LidS, JourneYS TRuMBuLL LidS, JourneYS waTERBuRY LidS, JourneYS TaLLaHaSSEE hat ShaCk, hat worLd, LidS, JourneYS (2), underground Station TaMPa hat ShaCk, LidS (3), JohnSton & RanCHo CuCaMonga JourneYS waTERFoRd LidS, JourneYS REddIng JourneYS wESTPoRT JohnSton & murPhY ShoP murPhY ShoP (2), JourneYS (3), JourneYS kidZ, REdondo BEaCH LidS, JourneYS RICHMond LidS, underground Station RIvERSIdE LidS, JourneYS RoSEvILLE JourneYS dELawaRE dovER hat worLd, JourneYS nEwaRk LidS, JohnSton & murPhY ShoP, JourneYS SaCRaMEnTo LidS (3), JourneYS (2) REHoBoTH BEaCH LidS, JourneYS SaLInaS LidS, JourneYS wILMIngTon JourneYS underground Station vERo BEaCH LidS, JourneYS wELLIngTon JohnSton & murPhY ShoP, JourneYS, LidS wEST PaLM BEaCH Jarman Shoe Store, JourneYS (2), underground Station 85 Genesco Inc. and SuBSidiarieS G e n e s c o r e Ta I l s T o r e s a S o F 2 / 2 / 0 8 gEoRgIa aLBanY JourneYS, LidS aLPHaRETTa hat ShaCk, LidS, JourneYS aTHEnS hat ShaCk, JourneYS aTLanTa hat ShaCk (3), LidS (2), Jarman Shoe Store, JohnSton & murPhY ShoP (3), JourneYS (3), underground Station (3) auguSTa LidS, JourneYS, hat ShaCk, underground Station BRunSwICk JourneYS BuFoRd hat ShaCk, LidS, JourneYS, JourneYS kidZ CEnTERvILLE JourneYS guRnEE LidS, JourneYS, Shi JoLIET LidS, underground Station LInCoLnwood LidS, underground Station LoMBaRd LidS, JourneYS MaTTESon hat worLd MoLInE hat worLd, JourneYS noRRIdgE LidS, JourneYS, underground Station noRTH RIvERSIdE LidS, JourneYS, underground Station noRTHBRook JohnSton & murPhY ShoP oakBRook JohnSton & murPhY ShoP oRLand PaRk LidS, LidS kidS, JourneYS, CoLuMBuS hat ShaCk, LidS, JourneYS, JourneYS kidZ PEoRIa LidS, JourneYS, JourneYS kidZ PERu LidS RoCkFoRd LidS, JourneYS SCHauMBuRg LidS, JohnSton & murPhY ShoP, JourneYS SPRIngFIELd LidS, JourneYS vERnon HILLS JourneYS, LidS wEST dundEE JourneYS, LidS IndIana kEnTuCkY aSHLand JourneYS, LidS BowLIng gREEn LidS, JourneYS FLoREnCE hat worLd, JourneYS HEBRon JohnSton & murPhY ShoP LExIngTon hat worLd, LidS, JourneYS, JourneYS kidZ, Shi BRaInTREE LidS, JohnSton & murPhY ShoP, JourneYS, underground Station BRoCkTon underground Station BuRLIngTon LidS, JohnSton & murPhY ShoP, JourneYS CaMBRIdgE LidS, JourneYS CHESTnuT HILL JohnSton & murPhY ShoP LouISvILLE LidS (3), JohnSton & murPhY ShoP, daRTMouTH LidS, JourneYS JourneYS, JourneYS kidZ, underground Station (2) nEwPoRT JourneYS owEnSBoRo JourneYS PaduCaH hat worLd, JourneYS LouISIana aLExandRIa LidS, underground Station BaTon RougE hat ShaCk, LidS (2), JohnSton & murPhY ShoP, JourneYS (2), JourneYS kidZ, underground Station BoSSIER CITY hat worLd, JourneYS, underground Station EaST BoSTon LidS, JohnSton & murPhY ShoP HadLEY LidS HanovER LidS, JourneYS HoLYokE LidS, JourneYS, JourneYS kidZ , LidS kidS, Shi HYannIS LidS, JourneYS kIngSTon LidS, JourneYS LanESBoRo LidS, JourneYS LEE JohnSton & murPhY outLet LEoMInSTER LidS, JourneYS MaRLBoRo LidS, JourneYS naTICk LidS, JourneYS, LidS kidS, JohnSton & murPhY ShoP, Shi gRETna JourneYS, LidS, underground Station noRTH aTTLEBoRo LidS, JourneYS, HouMa JourneYS kEnnER hat ShaCk, Jarman Shoe Store, BLooMIngTon LidS, JourneYS, JourneYS kidZ JourneYS, JourneYS kidZ CaRMEL LidS CLaRkSvILLE hat worLd, JourneYS EdInBuRgH LidS ELkHaRT hat worLd EvanSvILLE LidS, JourneYS, JourneYS kidZ FT. waYnE hat worLd, JourneYS, JourneYS kidZ, LidS kidS Shi gREEnwood LidS, JourneYS, LidS kidS, Shi IndIanaPoLIS hat worLd (3), LidS (2), JohnSton & murPhY ShoP (2), JourneYS (2), LidS kidS, underground Station (2) LaFaYETTE LidS, JourneYS, JourneYS kidZ LakE CHaRLES LidS, JourneYS, underground Station METaIRIE JohnSton & murPhY ShoP MonRoE LidS, JourneYS, JourneYS kidZ, underground Station SHREvEPoRT JourneYS SLIdELL JourneYS MaInE BangoR LidS, JourneYS kokoMo LidS, JourneYS LaFaYETTE hat worLd, JourneYS, JourneYS kidZ kITTERY JohnSton & murPhY outLet SouTH PoRTLand LidS, JourneYS MERRILLvILLE LidS, JourneYS, underground Station MICHIgan CITY LidS MISHawaka LidS, LidS kidS, JourneYS, ManIToBa wInnIPEg LidS (2) MaRYLand underground Station PEaBodY LidS, JourneYS SauguS LidS (2), JourneYS, underground Station SPRIngFIELd JourneYS SwanSEa LidS TaunTon LidS, JourneYS waTERTown underground Station wREnTHaM LidS, JohnSton & murPhY outLet, JourneYS MICHIgan ann aRBoR LidS, JohnSton & murPhY ShoP, JourneYS auBuRn HILLS LidS, JourneYS, JourneYS kidZ, Shi BaTTLE CREEk hat worLd, JourneYS BIRCH Run JourneYS CLInTon TownSHIP Shi dEaRBoRn LidS, JourneYS, underground Station, JourneYS kidZ, Shi MunCIE LidS, JourneYS PLaInFIELd LidS, JourneYS RICHMond JourneYS TERRE HauTE LidS, JourneYS Iowa aMES JourneYS CEdaR FaLLS hat worLd CEdaR RaPIdS JourneYS CoRaLvILLE hat worLd, JourneYS CounCIL BLuFFS JourneYS davEnPoRT hat worLd, JourneYS dES MoInES JourneYS (2) SIoux CITY JourneYS waTERLoo JourneYS wEST dES MoInES JourneYS (2) kanSaS LawREnCE LidS ManHaTTan hat worLd, JourneYS oLaTHE LidS, JourneYS annaPoLIS LidS (2), JohnSton & murPhY ShoP, JohnSton & murPhY ShoP JourneYS, JourneYS kidZ FLInT LidS, JourneYS BaLTIMoRE LidS (2), Jarman Shoe Store, FoRT gRaTIoT LidS, JourneYS JohnSton & murPhY ShoP (2), JourneYS, gRand RaPIdS LidS, JohnSton & murPhY ShoP, JourneYS kidZ, hat worLd, JourneYS underground Station BEL aIR LidS, JourneYS BETHESda LidS, JourneYS CoLuMBIa LidS, JohnSton & murPhY ShoP, JourneYS FREdERICk hat worLd, JourneYS gaITHERSBuRg LidS, JourneYS, underground Station gLEn BuRnIE LidS, JourneYS gRandvILLE hat worLd, JourneYS, Shi gREEn oak TownSHIP JourneYS HaRPER woodS LidS, underground Station HowELL LidS, JourneYS JaCkSon hat worLd LanSIng LidS, JourneYS LIvonIa JohnSton & murPhY ShoP MIdLand hat worLd, JourneYS MuSkEgon JourneYS, LidS HagERSTown hat worLd, JourneYS novI LidS, JohnSton & murPhY ShoP, JourneYS, JohnSton & murPhY outLet JourneYS kidZ, Shi HanovER LidS, Jarman Shoe Store, JourneYS okEMoS hat worLd, JourneYS HYaTTSvILLE LidS, underground Station PoRTagE LidS, JourneYS owIngS MILLS underground Station RoSEvILLE LidS, underground Station quEEnSTown JohnSton & murPhY outLet SagInaw hat worLd, JourneYS SaLISBuRY hat worLd, JourneYS SouTHFIELd hat Zone, underground Station ovERLand PaRk LidS, JohnSton & murPhY ShoP, TowSon JourneYS STERLIng HEIgHTS LidS, JohnSton & murPhY ShoP, underground Station CoMMERCE LidS, JourneYS daLTon JourneYS daRIEn JohnSton & murPhY outLet dawSonvILLE LidS, JourneYS, JohnSton & murPhY outLet dECaTuR LidS, Jarman Shoe Store dougLaSvILLE hat ShaCk, JourneYS, JourneYS kidZ duLuTH hat ShaCk, LidS, JourneYS, underground Station kEnnESaw hat ShaCk, LidS, JourneYS, JourneYS kidZ, Shi LawREnCEvILLE JourneYS, LITHonIa hat ShaCk, JourneYS, underground Station MaCon hat ShaCk, JourneYS, underground Station MoRRow LidS (2),underground Station RoME LidS, JourneYS SavannaH LidS (2), JourneYS (2), underground Station unIon CITY LidS, underground Station vaLdoSTa JourneYS HawaII aIEa LidS, JourneYS HILo LidS, JourneYS HonoLuLu LidS (4), JourneYS, hat ShaCk kaHuLuI LidS, JourneYS kaILua-kona LidS kanEoHE LidS, JourneYS LaHaIna LidS LIHuE LidS waIkoLoa LidS IdaHo BoISE JourneYS, JourneYS kidZ IdaHo FaLLS JourneYS TwIn FaLLS JourneYS ILLInoIS auRoRa LidS (2), JohnSton & murPhY outLet, JourneYS (2), underground Station BLooMIngdaLE hat worLd, JourneYS BLooMIngTon hat worLd, JourneYS BoLIngBRook JourneYS CaLuMET CITY LidS, underground Station CaRBondaLE JourneYS CHaMPaIgn LidS, JourneYS CHICago LidS (4), JourneYS, Jarman Shoe Store, JohnSton & murPhY ShoP (2), underground Station CHICago RIdgE LidS, JourneYS, underground Station JourneYS SaLIna JourneYS ToPEka LidS, JourneYS wICHITa LidS (2), JourneYS (2), EvERgREEn PaRk LidS, underground Station underground Station FaIRvIEw HEIgHTS JourneYS, LidS, LidS kidS FoRSYTH JourneYS waLdoRF hat worLd, underground Station JourneYS, underground Station wESTMInSTER JourneYS wHEaTon hat ShaCk, LidS, JourneYS, underground Station MaSSaCHuSETTS auBuRn LidS, JourneYS BoSTon LidS, JohnSton & murPhY ShoP (2) TaYLoR LidS, JourneYS, underground Station TRavERSE CITY LidS, JourneYS TRoY LidS, JohnSton & murPhY ShoP, JourneYS (2), underground Station wESTLand LidS, JourneYS, underground Station 86 Genesco Inc. and SuBSidiarieS HunTIngTon STaTIon JohnSton & murPhY ShoP BEaCHwood JohnSton & murPhY ShoP JoHnSon CITY LidS, JourneYS BEavERCREEk JourneYS kidZ, hat worLd, kIngSTon LidS, JourneYS JourneYS (2) LakE gRovE LidS, JourneYS, CanTon LidS, JourneYS JourneYS kidZ, LidS kidS CInCInnaTI hat worLd, hat Zone, LidS (2), LakEwood LidS MaSSaPEqua LidS, JourneYS MIddLETown LidS, JourneYS nEw HaRTFoRd LidS, JourneYS JourneYS (4), JourneYS kidZ, underground Station (2), LidS kidS CLEvELand LidS (2), JohnSton & murPhY ShoP (2), Shi, underground Station nEw YoRk LidS (6), JohnSton & murPhY ShoP (2), CoLuMBuS hat worLd, LidS (2), JohnSton & JourneYS (3) murPhY ShoP, JourneYS, JourneYS kidZ, Shi, nIagaRa FaLLS LidS, JohnSton & murPhY outLet, underground Station PLaTTSBuRgH LidS, JourneYS PougHkEEPSIE LidS, JourneYS RIvERHEad LidS, JourneYS RoCHESTER LidS (2), JourneYS, underground Station RoTTERdaM JourneYS daYTon LidS (2), JourneYS, Shi duBLIn hat Zone, JourneYS, JourneYS kidZ, Shi ELYRIa LidS, JourneYS FIndLaY JourneYS HEaTH JourneYS JEFFERSonvILLE JohnSton & murPhY outLet, JourneYS SaRaToga SPRIngS hat worLd, JourneYS LanCaSTER hat worLd, JourneYS SCHEnECTadY LidS LIMa LidS, JourneYS STaTEn ISLand LidS, JourneYS, ManSFIELd hat worLd, JourneYS underground Station SYRaCuSE LidS, JourneYS, JourneYS kidZ MauMEE JourneYS, LidS MEnToR LidS, JourneYS vaLLEY STREaM LidS, underground Station nILES JourneYS, hat worLd vICToR LidS, JohnSton & murPhY ShoP, JourneYS noRTH oLMSTEd LidS, JourneYS waTERLoo LidS, JourneYS waTERTown LidS wEST nYaCk JourneYS, LidS, underground Station, Shi wHITE PLaInS LidS (2), JourneYS, underground Station wILLIaMSvILLE JourneYS PaRMa LidS, JourneYS RICHMond HEIgHTS underground Station SanduSkY LidS, JourneYS SPRIngFIELd LidS, JourneYS ST. CLaIRSvILLE hat worLd STRongSvILLE LidS, JohnSton & murPhY ShoP, JourneYS, JourneYS kidZ YoRkTown HEIgHTS LidS, JourneYS ToLEdo LidS, JourneYS, Shi, underground Station CHERRY HILL LidS, JohnSton & murPhY ShoP, JourneYS G e n e s c o r e Ta I l s T o r e s a S o F 2 / 2 / 0 8 MInnESoTa nEw HaMPSHIRE aLBERTvILLE LidS, JourneYS ConCoRd LidS, JourneYS BLaInE LidS, JourneYS ManCHESTER LidS, JourneYS BLooMIngTon hat worLd, LidS (4), naSHua LidS, JourneYS JohnSton & murPhY ShoP, JourneYS, nEwIngTon LidS, JourneYS JourneYS kidZ, Shi, underground Station noRTH ConwaY LidS, JourneYS BRookLYn CEnTER JourneYS SaLEM LidS, JourneYS BuRnSvILLE LidS, JourneYS, JourneYS kidZ duLuTH LidS, JourneYS EdEn PRaIRIE JourneYS MankaTo JourneYS MaPLE gRovE JourneYS MaPLEwood JourneYS MInnETonka LidS, JourneYS RoCHESTER LidS, JourneYS RoSEvILLE hat worLd, JourneYS, Shi ST. CLoud hat worLd, JourneYS ST. PauL LidS (2), JohnSton & murPhY ShoP woodBuRY JourneYS MISSISSIPPI nEw JERSEY BRIdgEwaTER LidS, JohnSton & murPhY ShoP, JourneYS BuRLIngTon underground Station JourneYS, underground Station dEPTFoRd LidS, JourneYS, JourneYS kidZ EaST BRunSwICk LidS, JourneYS EaTonTown LidS, JourneYS, JourneYS kidZ, underground Station, Shi EdISon LidS ELIzaBETH hat ShaCk, LidS, JourneYS, JourneYS kidZ BILoxI hat ShaCk, JourneYS, FREEHoLd hat worLd, JourneYS underground Station JaCkSon JourneYS gREEnvILLE JourneYS JERSEY CITY LidS, JourneYS, HaTTIESBuRg hat ShaCk, JourneYS, underground Station, Shi JourneYS kidZ LawREnCEvILLE LidS, JourneYS, JaCkSon hat worLd, underground Station underground Station MERIdIan hat ShaCk LIvIngSTon LidS, JourneYS RIdgELand hat worLd, JourneYS MaRLTon JohnSton & murPhY ShoP MaYS LandIng LidS, JourneYS MooRESTown LidS, JourneYS nEwaRk hat worLd, JohnSton & murPhY ShoP PaRaMuS LidS (3), JourneYS, JourneYS kidZ, underground Station, Shi RoCkawaY LidS, JourneYS, Shi SHoRT HILLS JohnSton & murPhY ShoP ToMS RIvER LidS, JourneYS SouTHavEn JourneYS TuPELo LidS MISSouRI BRanSon LidS, JourneYS CaPE gIRaRdEau LidS, JourneYS CHESTERFIELd LidS, JohnSton & murPhY ShoP, JourneYS, JourneYS kidZ CoLuMBIa LidS, JourneYS dES PERES JourneYS, JourneYS kidZ, Shi FLoRISSanT underground Station HazELwood LidS, JourneYS IndEPEndEnCE LidS, JourneYS, noRTH CaRoLIna aSHEvILLE LidS, JourneYS, underground Station wESTLakE JourneYS YoungSTown LidS, JourneYS zanESvILLE hat worLd okLaHoMa waYnE LidS, JourneYS, underground Station woodBRIdgE LidS (2), JourneYS, JourneYS kidZ, BuRLIngTon JourneYS CaRY hat ShaCk, LidS, JourneYS Shi, underground Station nEw MExICo CHaRLoTTE LidS (5), JohnSton & murPhY ShoP (3), BaRTLESvILLE JourneYS JourneYS (2), underground Station (2) ConCoRd hat ShaCk, LidS, JourneYS (2) LawTon LidS, JourneYS noRMan LidS, JourneYS JourneYS kidZ, Shi aLBuquERquE LidS (2), JourneYS (2), JoPLIn hat worLd, JourneYS JourneYS kidZ (2), underground Station (2) duRHaM LidS, JourneYS, underground Station okLaHoMa CITY hat worLd (2), LidS, FaYETTEvILLE LidS, JourneYS, JourneYS kidZ, JourneYS (3), JourneYS kidZ (2) kanSaS CITY LidS, JohnSton & murPhY ShoP, CLovIS JourneYS JourneYS FaRMIngTon JourneYS oSagE BEaCH LidS, JourneYS, gaLLuP JourneYS JohnSton & murPhY outLet LaS CRuCES JourneYS SPRIngFIELd LidS, JourneYS, JourneYS kidZ SanTa FE JohnSton & murPhY outLet, JourneYS ST. ann hat Zone, JourneYS, underground Station ST. JoSEPH LidS, JourneYS ST. LouIS LidS (4), JohnSton & murPhY ShoP (2), JourneYS (3), JourneYS kidZ, underground Station ST. PETERS JourneYS, JourneYS kidZ, Shi nEw YoRk aLBanY LidS (3), JourneYS, underground Station, Shi aMHERST hat worLd, JourneYS auBuRn JourneYS BaY SHoRE LidS, JourneYS BRonx LidS underground Station gaSTonIa hat worLd, JourneYS goLdSBoRo JourneYS SHawnEE JourneYS TuLSa LidS (2), JourneYS (2), JourneYS kidZ, underground Station gREEnSBoRo hat ShaCk, LidS, Jarman Shoe Store, onTaRIo JohnSton & murPhY ShoP, JourneYS, underground Station gREEnvILLE underground Station HICkoRY hat ShaCk, JourneYS HIgH PoInT hat worLd JaCkSonvILLE LidS, JourneYS, underground Station PInEvILLE hat ShaCk, JourneYS, BaRRIE CaP ConneCtion BRaMPTon LidS CaMBRIdgE head QuarterS guELPH LidS HaMILTon head QuarterS kIngSTon LidS kITCHnER LidS London LidS (2) MonTana BRookLYn LidS (2), underground Station RaLEIgH hat ShaCk, LidS, JohnSton & murPhY ShoP, MISSISSauga LidS (2), head QuarterS BILLIngS LidS, JourneYS BuFFaLo LidS, JourneYS (2), BozEMan LidS MISSouLa JourneYS nEBRaSka LInCoLn LidS, JourneYS (2) oMaHa hat worLd, LidS (2), JourneYS (2) nEvada underground Station, LidS kidS CEnTRaL vaLLEY LidS, JourneYS, JohnSton & murPhY outLet CLaY JourneYS dEwITT JourneYS ELMHuRST LidS, JourneYS, underground Station, LidS kidS JourneYS (2), JourneYS kidZ, Shi RoCkY MounT LidS, underground Station SMITHFIELd JourneYS wILMIngTon LidS, JourneYS wInSTon-SaLEM LidS, JourneYS, JourneYS kidZ noRTH dakoTa BISMaRCk LidS, JourneYS FaRgo JourneYS nEwMaRkET head QuarterS noRTH BaY CaP ConneCtion SCaRBoRougH head QuarterS SudBuRY LidS ToRonTo head QuarterS vaugHn head QuarterS wIndSoR head QuarterS oREgon HEndERSon LidS, JourneYS, JourneYS kidZ FLuSHIng LidS gRand FoRkS LidS, JourneYS EugEnE LidS, JourneYS LaS vEgaS LidS (6), JohnSton & murPhY outLet, gaRdEn CITY LidS (2), JohnSton & murPhY ShoP, JohnSton & murPhY ShoP, JourneYS (7), JourneYS JourneYS kidZ, underground Station gREECE JourneYS PRIMM JourneYS REno JourneYS (2), LidS HICkSvILLE LidS, JourneYS HoRSEHEadS LidS, JourneYS MInoT JourneYS oHIo akRon LidS (2), JourneYS (2) auRoRa JourneYS MEdFoRd hat worLd, JourneYS PoRTLand LidS (2), JourneYS (2) SaLEM LidS, JourneYS TIgaRd LidS, JourneYS woodBuRn LidS, JourneYS 87 Genesco Inc. and SuBSidiarieS G e n e s c o r e Ta I l s T o r e s a S o F 2 / 2 / 0 8 PEnnSYLvanIa aLToona LidS, JourneYS SouTH CaRoLIna aIkEn LidS daLLaS hat worLd, LidS (3), ogdEn LidS, JourneYS JohnSton & murPhY ShoP (3), JourneYS (3), oREM LidS, JourneYS, JourneYS kidZ BEnSaLEM LidS, JourneYS andERSon hat worLd, JourneYS CaMP HILL hat worLd, JourneYS BLuFFTon JohnSton & murPhY outLet, CaRoLIna Shi JourneYS CEnTER vaLLEY LidS, JohnSton & murPhY ShoP, CHaRLESTon hat ShaCk, LidS, JourneYS, JourneYS kidZ, underground Station (2) PaRk CITY JourneYS dEnTon hat worLd, JourneYS PRovo JourneYS EagLE PaSS JourneYS SaLT LakE CITY LidS, JourneYS EL PaSo hat Zone (2), JourneYS (3), SandY LidS, JourneYS, JourneYS kidZ hat worLd JourneYS kidZ (2) ST. gEoRgE JourneYS CoLuMBIa hat worLd (2), LidS, JourneYS (3), FoRT woRTH hat worLd, LidS, Jarman Shoe Store, vaLLEY CITY Jarman Shoe Store JourneYS dICkSon CITY JourneYS ERIE LidS, JourneYS ExTon LidS, JourneYS, JourneYS kidZ FLoREnCE hat worLd, JourneYS underground Station JourneYS (2), underground Station FRIEndSwood LidS, JourneYS, JourneYS gREEnSBuRg hat worLd, JourneYS gaFFnEY JourneYS kidZ, Shi wEST vaLLEY CITY JourneYS vERMonT gRovE CITY JohnSton & murPhY outLet, gREEnvILLE LidS, LidS kidS, Jarman Shoe Store, FRISCo hat worLd, JourneYS, JourneYS kidZ, Shi BuRLIngTon LidS, JourneYS JourneYS HaRRISBuRg JourneYS (2) HoMESTEad JourneYS JourneYS, JourneYS kidZ MYRTLE BEaCH LidS (3), JohnSton & murPhY outLet, JourneYS (2) gaRLand LidS, JourneYS gRaPEvInE LidS, JourneYS HaRLIngEn LidS, JourneYS kIng oF PRuSSIa LidS, JohnSton & murPhY noRTH CHaRLESTon JourneYS (2), HouSTon LidS (8), JohnSton & murPhY ShoP (2), ShoP, JourneYS, JourneYS kidZ underground Station LanCaSTER LidS (2), JohnSton & murPhY outLet, noRTH MYRTLE BEaCH LidS JourneYS (2) SPaRTanBuRg LidS, JourneYS, JourneYS (8), JourneYS kidZ (2), underground Station (5) ManCHESTER JohnSton & murPhY outLet SouTH BuRLIngTon LidS, JourneYS vIRgInIa aRLIngTon hat Zone, JohnSton & murPhY ShoP, underground Station HuMBLE LidS, JourneYS, JourneYS kidZ, CHaRLoTTESvILLE hat worLd, JourneYS LangHoRn LidS, JourneYS, JourneYS kidZ underground Station underground Station, Shi CHESaPEakE hat worLd (2), JourneYS (2), MEdIa LidS, JourneYS, underground Station MonaCa hat worLd, JourneYS MonRoEvILLE LidS, JohnSton & murPhY ShoP, JourneYS MooSIC LidS, JourneYS SouTH dakoTa RaPId CITY LidS, JourneYS SIoux FaLLS hat worLd, JourneYS TEnnESSEE noRTH waLES LidS, JourneYS, JourneYS kidZ anTIoCH LidS, JourneYS, JourneYS kidZ, PHILadELPHIa LidS (3), JohnSton & murPhY ShoP, underground Station (2) underground Station BaRTLETT LidS HuRST LidS, JourneYS underground Station (2) IRvIng LidS, JourneYS, JourneYS kidZ, CHRISTIanSBuRg hat worLd, JourneYS underground Station kaTY LidS, JourneYS kILLEEn hat worLd, JourneYS LakE JaCkSon LidS, JourneYS LaREdo JourneYS, JourneYS kidZ, underground Station CoLonIaL HEIgHTS hat worLd, underground Station danvILLE hat ShaCk, JourneYS duLLES LidS, JourneYS FaIRFax LidS, JohnSton & murPhY ShoP, PITTSBuRgH LidS (4), JohnSton & murPhY ShoP (2), CHaTTanooga LidS, JourneYS, JourneYS kidZ LEwISvILLE LidS, JourneYS, JourneYS kidZ JourneYS JourneYS (3), hat worLd PLYMouTH MEETIng JourneYS CLaRkSvILLE hat worLd, JourneYS CoLLIERSvILLE LidS, JourneYS PoTTSTown JohnSton & murPhY ShoP, LidS FRankLIn hat worLd, JohnSton & murPhY ShoP, SCRanTon LidS (2), JourneYS SELInSgRovE hat worLd SPRIngFIELd LidS, JourneYS STaTE CoLLEgE hat worLd, JourneYS STRoudSBuRg LidS, JourneYS TannERSvILLE JohnSton & murPhY outLet, JourneYS TaREnTuM LidS, JourneYS unIonTown hat worLd uPPER daRBY LidS waSHIngTon hat worLd wEST MIFFLIn LidS (2), JourneYS wHITEHaLL LidS wILkES-BaRRE hat worLd, JourneYS wILLow gRovE hat worLd, JourneYS, Shi wYoMISSIng LidS, JourneYS YoRk JourneYS PuERTo RICo aguadILLa JourneYS BaRCELonETa LidS, JourneYS BaYaMon LidS (2), JourneYS (2) CaguaS LidS (3), JourneYS (2) CanovanaS LidS, JourneYS FaJaRdo JourneYS guaYaMa JourneYS, LidS HaTILLo LidS, JourneYS HaTo REY JourneYS HuMaCao LidS, JourneYS ISaBELa LidS, JourneYS MaYaguEz LidS, JourneYS (2) PonCE LidS, JourneYS San Juan LidS SIERRa BaYaMon JourneYS vEga aLTa LidS, JourneYS RHodE ISLand PRovIdEnCE LidS, JohnSton & murPhY ShoP, JourneYS JourneYS, JourneYS kidZ, Shi gaTLInBuRg LidS goodLETTSvILLE LidS, JourneYS, underground Station JaCkSon hat worLd, JourneYS JoHnSon CITY LidS, JourneYS knoxvILLE hat worLd, LidS, JourneYS (3) MEMPHIS JohnSton & murPhY ShoP, JourneYS (2), JourneYS kidZ, underground Station (2) MoRRISTown JourneYS MuRFREESBoRo hat worLd, LidS, JourneYS naSHvILLE LidS, JohnSton & murPhY outLet, JohnSton & murPhY ShoP, JourneYS, JourneYS kidZ, Shi SEvIERvILLE LidS, JohnSton & murPhY outLet, JourneYS TExaS LongvIEw LidS, JourneYS FREdERICkSBuRg hat worLd, JourneYS LuBBoCk hat worLd, JourneYS, JourneYS kidZ, underground Station LuFkIn JourneYS MCaLLEn LidS, Jarman Shoe Store, JourneYS, JourneYS kidZ, underground Station gLEn aLLEn LidS, JourneYS, underground Station HaRRISonBuRg LidS, JourneYS LEESBuRg JohnSton & murPhY outLet MERCEdES JourneYS, JohnSton & murPhY outLet LYnCHBuRg hat worLd, JourneYS MESquITE LidS (2), JourneYS, JourneYS kidZ, ManaSSaS LidS, JourneYS underground Station MCLEan LidS, JourneYS MIdLand LidS, JourneYS odESSa LidS, JourneYS PaSadEna JourneYS PLano LidS (2), JohnSton & murPhY ShoP, JourneYS PoRT aRTHuR JourneYS nEwPoRT nEwS hat worLd, JourneYS, underground Station noRFoLk LidS (2), JohnSton & murPhY ShoP, JourneYS, underground Station (2) RICHMond hat worLd, LidS, JourneYS (3) Round RoCk LidS, JohnSton & murPhY outLet, JourneYS JohnSton & murPhY ShoP RoanokE LidS, JourneYS San angELo hat worLd, JourneYS SPRIngFIELd LidS, JourneYS San anTonIo LidS (7), Jarman Shoe Store, vIRgInIa BEaCH LidS (2), JourneYS (2), JohnSton & murPhY ShoP (2), JourneYS (6), JohnSton & murPhY ShoP JourneYS kidZ (2), underground Station (2), wILLIaMSBuRg JohnSton & murPhY outLet, Shi JourneYS aBILEnE hat worLd, JourneYS San MaRCoS LidS, JohnSton & murPhY outLet, aMaRILLo LidS, JourneYS, JourneYS kidZ JourneYS, JourneYS kidZ aRLIngTon LidS (2), JourneYS, JourneYS kidZ, SHERMan JourneYS Shi, underground Station SPRIng LidS JourneYS (3), underground Station TEMPLE JourneYS BaYTown JourneYS TExaRkana LidS, JourneYS BEauMonT LidS, JourneYS, JourneYS kidZ, THE woodLandS JourneYS underground Station TYLER LidS, JourneYS, underground Station BRownSvILLE LidS, JourneYS, JourneYS kidZ, vICToRIa JourneYS wInCHESTER LidS, JourneYS woodBRIdgE LidS, JourneYS waSHIngTon auBuRn LidS, JourneYS BELLEvuE LidS, JohnSton & murPhY ShoP BELLIngHaM LidS, JourneYS BuRLIngTon JourneYS EvERETT LidS, JourneYS underground Station waCo LidS, JourneYS kEnnEwICk LidS, JourneYS, JourneYS kidZ CanuTILLo JohnSton & murPhY outLet, wICHITa FaLLS LidS, JourneYS kEnT JourneYS JourneYS CEdaR PaRk hat worLd, JourneYS, JourneYS kidZ CoLLEgE STaTIon hat worLd, JourneYS ConRoE LidS CoRPuS CHRISTI LidS, JourneYS, JourneYS kidZ, Shi, underground Station woodLandS JourneYS kidZ u.S. vIRgIn ISLandS ST. THoMaS LidS, JourneYS uTaH LaYTon JourneYS Logan JourneYS MuRRaY LidS, JourneYS, JourneYS kidZ LYnnwood LidS, JourneYS oLYMPIa LidS, JourneYS PuYaLLuP JourneYS REdMond JourneYS SEaTTLE LidS, JohnSton & murPhY outLet, JourneYS (2) 88 CaRoLIna LidS, JourneYS, underground Station auSTIn LidS (3), JohnSton & murPhY ShoP (2), SugaRLand LidS, JourneYS, JourneYS kidZ G e n e s c o r e Ta I l s T o r e s a S o F 2 / 2 / 0 8 Genesco Inc. and SuBSidiarieS SILvERdaLE LidS, JourneYS SPokanE LidS, JourneYS (2) TaCoMa LidS, JourneYS TukwILa LidS TuLaLIP LidS, JourneYS unIon gaP JourneYS vanCouvER LidS, JourneYS wEST vIRgInIa BaRBouRSvILLE hat worLd, JourneYS, JourneYS kidZ BRIdgEPoRT hat worLd. JourneYS CHaRLESTon LidS, JourneYS MoRganTown hat worLd, JourneYS PaRkERSBuRg hat worLd wISConSIn aPPLETon LidS, JourneYS BaRaBoo LidS, JourneYS BRookFIELd LidS Eau CLaIRE JourneYS gLEndaLE LidS, JourneYS, JohnSton & murPhY ShoP gREEn BaY LidS, JourneYS gREEndaLE LidS, JourneYS JanESvILLE LidS, JourneYS LaCRoSSE JourneYS MadISon LidS (3), JourneYS (2) MILwaukEE LidS, underground Station oSHkoSH JourneYS PLEaSanT PRaIRIE JohnSton & murPhY outLet, JourneYS RaCInE LidS, JourneYS wauwaToSa hat worLd, JourneYS wYoMIng CaSPER JourneYS CHEYEnnE JourneYS 89 Genesco Inc. | Genesco PARK | P.o. BoX 731 nAsHVILLe, Tennessee 37202-0731 | www.genesco.com

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