G E N E S C O A N N U A L R E P O R T
2 0 1 6
THE BUSINESS OF GENESCO
The Company’s business includes the design and sourcing, marketing and distribution of footwear and accessories through
retail stores, including Journeys®, Journeys Kidz®, Shi by Journeys®, Little Burgundy®, Underground by Journeys® and
Johnston & Murphy® in the U.S., Puerto Rico and Canada and through Schuh® stores in the United Kingdom, the Republic of
Ireland and Germany, and through e-commerce websites and catalogs, and at wholesale, primarily under the Company’s
Johnston & Murphy brand, the Trask brand, the licensed Dockers® brand, and other brands that the Company licenses for
men’s footwear. The Company’s wholesale footwear brands are distributed to more than 1,275 retail accounts in the United
States, including a number of leading department, discount, and specialty stores. The Company’s business also includes Lids
Sports, which operates (i) headwear and accessory stores under the Lids® name and other names in the U.S., Puerto Rico and
Canada, (ii) the Lids Locker Room and Lids Clubhouse businesses, consisting of sports-oriented fan shops featuring a broad
array of licensed merchandise such as apparel, hats and accessories, sports decor and novelty products, operating under various
trade names, (iii) licensed team merchandise departments in Macy's department stores operated under the name Locker Room
by Lids and on macys.com under a license agreement with Macy's, and (iv) e-commerce operations. Including both the
footwear businesses and the Lids Sports business, at January 30, 2016, the Company operated 2,852 retail stores and leased
departments in the U.S., Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
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 1500 Footwear Index. The graph assumes the
investment of $100 in the Company’s common stock, the S&P 500 Index and the S&P 1500 Footwear Index at the market
close on January 31, 2011 and the reinvestment monthly of all dividends.
COMPARISON OF CUMULATIVE 5 YEAR TOTAL RETURN
300
250
200
150
100
50
0
FYE 11
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
FYE 12
FYE 13
FYE 14
FYE 15
FYE 16
ANNUAL RETURN PERCENTAGE
Years Ending
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
Jan 12
69.91
5.33
24.35
Jan 13
1.98
17.60
2.70
Jan 14
11.76
20.31
36.80
Jan 15
1.75
14.22
24.49
Jan 16
-7.43
-0.67
29.33
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
Base
Period
Jan 11
100
100
100
INDEXED RETURNS
Years Ending
Jan 12
169.91
105.33
124.35
Jan 13
173.28
123.87
127.71
Jan 14
193.66
149.02
174.71
Jan 15
197.05
170.22
217.50
Jan 16
182.40
169.09
281.30
*The S&P 1500 Footwear Index consists of Crocs, Inc., Deckers Outdoor Corporation, Nike, Inc. –CL B, Skechers U.S.A., Inc., Steven Madden, Ltd. and
Wolverine World Wide, Inc.
CORPORATE INFORMATION
Annual Meeting of Shareholders
The annual meeting of shareholders will be held Thursday, June 23, 2016, at 10:00 a.m. CDT, at the corporate headquarters in
Genesco Park, Nashville, Tennessee.
Corporate Headquarters
Genesco Park
1415 Murfreesboro Road –P.O. Box 731
Nashville, Tennessee 37202-0731
Independent Auditors
Ernst & Young
150 Fourth Avenue North, Suite 1400
Nashville, Tennessee 37219
Transfer Agent and Registrar
Communications concerning stock transfer, 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 well as old and new information about the account.
Shareholder correspondence should be mailed to:
Computershare
P. O. Box 30170
College Station, Texas 77842-3170
Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, Texas 77845
Questions & Inquiries via Computershare’s website:
www.computershare.com/investor
Computershare Phone: (877) 224-0366
Hearing Impaired/TDD: 1-800-952-9245
Investor Relations
Security analysts, portfolio managers or other investment community representatives should contact:
Mimi E. Vaughn, Senior Vice President –Finance, Chief Financial Officer
Genesco Park, Suite 490 –P.O. Box 731
Nashville, Tennessee 37202-0731
(615) 367-7386
Other Information
A copy of any exhibits to the Annual Report on Form 10-K will be furnished to shareholders upon written request, addressed to
Director, Corporate Relations, Genesco Inc., Genesco Park, Suite 490, P.O. Box 731, Nashville, Tennessee 37202-0731,
accompanied by a check in the amount of $15.00 payable to Genesco Inc.
Certifications by the Chief Executive Officer and the Chief Financial Officer of the Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 have been filed as exhibits of the Company’s 2016 Annual Report on Form 10-K.
Common Stock Listing
New York Stock Exchange: GCO
Shareholder Information
Shareholder information may be accessed at www.genesco.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended January 30, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
for the transition period from to
Commission File No. 1-3083
_____________________________________________________
Genesco Inc.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
Genesco Park, 1415 Murfreesboro Road
Nashville, Tennessee
(Address of principal executive offices)
62-0211340
(I.R.S. Employer
Identification No.)
37217-2895
(Zip Code)
Registrant’s telephone number, including area code: (615) 367-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 par value
Preferred Share Purchase Rights
Name of Exchange
on which Registered
New York
New York
Securities Registered Pursuant to Section 12(g) of the Act:
Employees’ Subordinated Convertible Preferred Stock
________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes No
The aggregate market value of common stock held by nonaffiliates of the registrant as of August 1, 2015, the last business day
of the registrant’s most recently completed second fiscal quarter, was approximately $1,539,000,000. The market value
calculation was determined using a per share price of $64.69, the price at which the common stock was last sold on the New
York Stock Exchange on such date. For purposes of this calculation, shares held by nonaffiliates excludes only those shares
beneficially owned by officers, directors, and shareholders owning 10% or more of the outstanding common stock (and, in each
case, their immediate family members and affiliates).
As of March 11, 2016, 21,312,624 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the proxy statement for the June 23, 2016 annual meeting of shareholders are incorporated into Part III by
reference.
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Item 4A. Executive Officers
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
PART IV
2
ITEM 1, BUSINESS
General
PART I
Genesco Inc. ("Genesco" or the “Company”) is a leading retailer and wholesaler of branded footwear, apparel and
accessories with net sales for Fiscal 2016 of $3.02 billion. During Fiscal 2016, the Company operated five reportable
business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz, Shi by
Journeys, Little Burgundy, acquired in the fourth quarter of Fiscal 2016, and Underground by Journeys retail footwear
chains, e-commerce operations and catalog; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-
commerce operations; (iii) Lids Sports Group, comprised of (a) headwear and accessory stores under the Lids® name and
other names in the U.S., Puerto Rico and Canada, (b) the Lids Locker Room and Lids Clubhouse businesses, consisting
of sports-oriented fan shops featuring a broad array of licensed merchandise such as apparel, hats and accessories, sports
decor and novelty products, operating under various trade names, (c) licensed team merchandise departments in Macy's
department stores operated under the name Locker Room by Lids and on macys.com under a license agreement with
Macy's, (d) e-commerce operations and (e) an athletic team dealer business operating as Lids Team Sports, which was
sold in the fourth quarter of Fiscal 2016; (iv) Johnston & Murphy Group, comprised of Johnston & Murphy retail
operations, e-commerce operations and catalog and wholesale distribution of products under the Johnston & Murphy and
Trask brands; and (v) Licensed Brands, comprised of Dockers® footwear, sourced and marketed under a license from
Levi Strauss & Company; SureGrip®Footwear, occupational footwear primarily sold directly to consumers; and other
brands.
At January 30, 2016, the Company operated 2,852 retail footwear, headwear and sports apparel and accessory stores and
leased departments located primarily throughout the United States and in Puerto Rico, but also including 151 headwear
and sports apparel and accessory stores and 82 footwear stores in Canada and 125 footwear stores in the United
Kingdom, the Republic of Ireland and Germany. It currently plans to open a total of approximately 130 new retail stores
and to close approximately 56 retail stores in Fiscal 2017. At January 30, 2016, Journeys Group operated 1,222 stores,
Schuh Group operated 125 stores, Lids Sports Group operated 1,332 stores and Johnston & Murphy Group operated 173
retail shops and factory stores.
The following table sets forth certain additional information concerning the Company’s retail footwear, headwear and
sports apparel and accessory stores and leased departments during the five most recent fiscal years:
Retail Stores and Leased Departments
Beginning of year
Opened during year
Acquired during year
Closed during year
End of year
Fiscal
2012
Fiscal
2013
Fiscal
2014
Fiscal
2015
Fiscal
2016
2,309
70
85
(77 )
2,387
2,387
104
33
(65 )
2,459
2,459
183
15
(89 )
2,568
2,568
273
56
(73 )
2,824
2,824
81
37
(90 )
2,852
The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand, the
Trask brand, the licensed Dockers® brand and other brands that the Company licenses for men's footwear to over 1,275
retail accounts in the United States, including a number of leading department, discount, and specialty stores.
Shorthand references to fiscal years (e.g., “Fiscal 2016”) refer to the fiscal year ended on the Saturday nearest
January 31st in the named year (e.g., January 30, 2016). The terms "Company," "Genesco," "we," "our" or "us" as used
herein and unless otherwise stated or indicated by context refer to Genesco Inc. and its subsidiaries. All information
contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is
referred to in Item 1 of this report, is incorporated by such reference in Item 1. This report contains forward-looking
statements. Actual results may vary materially and adversely from the expectations reflected in these statements. For a
3
discussion of some of the factors that may lead to different results, see Item 1A, “Risk Factors” and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Available Information
The Company files reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form
10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials
we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Company is an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains the reports,
proxy and information statements, and other information filed electronically. The Company’s website address is
http://www.genesco.com. The Company’s website address is provided as an inactive textual reference only. The
Company makes available free of charge through the website annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. Copies of the charters of each of the Company’s Audit
Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as the
Company’s Corporate Governance Guidelines and Code of Ethics along with position descriptions for the Company's
board of directors (the "Board of Directors" or the "Board") and Board committees are also available free of charge
through the website. The information provided on the Company’s website is not part of this report, and is therefore not
incorporated by reference unless such information is otherwise specifically incorporated elsewhere in this report.
Segments
Journeys Group
The Journeys Group segment, including Journeys, Journeys Kidz, Shi by Journeys, Little Burgundy and Underground by
Journeys retail stores, catalog and e-commerce operations, accounted for approximately 41% of the Company’s net sales
in Fiscal 2016. For Fiscal 2016, same store sales increased 5%, comparable direct sales increased 18% and comparable
sales, including both store and direct sales, increased 5% from the prior fiscal year. Earnings from operations
attributable to Journeys Group was $126.2 million in Fiscal 2016, with an operating margin of 10.1%. The Company
believes that the Journeys Group’s distinctive store formats, its mix of well-known brands and new product
introductions, and its experienced management team provide significant competitive advantages for the Journeys Group.
At January 30, 2016, Journeys Group operated 1,222 stores, including 200 Journeys Kidz stores, 46 Shi by Journeys
stores, 36 Little Burgundy stores and 98 Underground by Journeys stores averaging approximately 1,925 square feet,
throughout the United States and in Puerto Rico and Canada, selling footwear and accessories for young men, women
and children.
Journeys retail footwear stores target customers in the 13 to 22 year age group through the use of youth-oriented decor
and multi-channel media. Journeys stores carry predominately branded merchandise across a wide range of prices. The
Journeys Kidz retail footwear stores sell footwear and accessories primarily for younger children ages five to 12. Shi by
Journeys retail footwear stores sell footwear and accessories to a target customer group consisting of fashion-conscious
women in their early 20’s to mid 30’s. Little Burgundy retail footwear stores sell footwear and accessories to fashion-
oriented men and women in the 18 to 34 age group ranging from students to young professionals. Underground by
Journeys retail footwear stores sell footwear and accessories primarily for men and women in the 20 to 35 age group. In
Fiscal 2016, the Journeys Group added 40 net new stores, which includes 36 Little Burgundy stores acquired in Fiscal
2016, and plans to open approximately 63 net new stores in Fiscal 2017.
Lids Sports Group
The Lids Sports Group segment, as described above, accounted for approximately 32% of the Company’s net sales in
Fiscal 2016. For Fiscal 2016, same store sales increased 3%, comparable direct sales increased 46% and comparable
sales, including both store and direct sales, increased 6% from the prior fiscal year. Earnings from operations
attributable to Lids Sports Group was $17.0 million in Fiscal 2016, with an operating margin of 1.7%.
4
At January 30, 2016, Lids Sports Group operated 1,332 stores, including 919 Lids stores, 228 Lids Locker Room and
Clubhouse stores and 185 Locker Room by Lids leased departments, averaging approximately 1,175 square feet,
throughout the United States and in Puerto Rico and Canada. Lids Sports Group added 27 new stores and leased
departments but closed 59 stores and leased departments in Fiscal 2016, and plans to open one net new store in Fiscal
2017.
The core headwear stores and kiosks, located in malls, airports, street-level stores and factory outlet stores throughout
the United States and in Puerto Rico and Canada, target customers in the early-teens to mid-20’s age group. In general,
the stores offer headwear from an assortment of college, MLB, NBA, NFL and NHL teams, as well as other specialty
fashion categories. The Lids Locker Room and Lids Clubhouse stores, operating under a number of trade names, located
in malls and other locations primarily in the United States and Canada, target sports fans of all ages. These stores offer
headwear, apparel, accessories and novelties representing an assortment of college and professional teams. The Locker
Room by Lids leased departments in Macy's department stores offer headwear, apparel, accessories and novelties
representing an assortment of college and professional teams specific to that particular Macy's department store
geographic location.
Schuh Group
The Schuh Group segment, including e-commerce operations, accounted for approximately 14% of the Company’s net
sales in Fiscal 2016. For Fiscal 2016, same store sales increased 1%, comparable direct sales increased 13% and
comparable sales, including both store and direct sales, increased 3%. Earnings from operations attributable to Schuh
Group was $19.1 million in Fiscal 2016, with an operating margin of 4.7%. Earnings from operations for Schuh included
$1.5 million in compensation expense related to a deferred purchase price obligation in connection with the Company's
acquisition of Schuh during Fiscal 2012.
At January 30, 2016, Schuh Group operated 115 Schuh stores, averaging approximately 5,000 square feet, which include
both street-level and mall locations in the United Kingdom, the Republic of Ireland and Germany. Schuh Group opened
its first Schuh Kids store in Fiscal 2013. As of January 30, 2016, Schuh Group operated ten Schuh Kids stores averaging
2,675 square feet. Schuh Group opened 17 net new stores in Fiscal 2016 and plans to open approximately 7 net new
Schuh and Schuh Kids stores in Fiscal 2017. Schuh stores target men and women in the 15 to 30 age group, selling a
broad range of branded casual and athletic footwear along with a meaningful private label offering.
Johnston & Murphy Group
The Johnston & Murphy Group segment, including retail stores, catalog and e-commerce operations and wholesale
distribution, accounted for approximately 9% of the Company’s net sales in Fiscal 2016. Same store sales for Johnston &
Murphy retail operations increased 5%, comparable direct sales increased 11% and comparable sales, including both
store and direct sales, increased 6% for Fiscal 2016. Earnings from operations attributable to Johnston & Murphy Group
was $17.8 million in Fiscal 2016, with an operating margin of 6.4%. The majority of Johnston & Murphy wholesale
sales are of the Genesco-owned Johnston & Murphy brand, and all of the group’s retail sales are of Johnston & Murphy
branded products.
Johnston & Murphy Retail Operations. At January 30, 2016, Johnston & Murphy operated 173 retail shops and factory
stores throughout the United States and in Canada averaging approximately 1,875 square feet and selling footwear,
apparel and accessories primarily for men in the 35 to 55 age group, targeting business and professional customers.
Women’s footwear and accessories are sold in select Johnston & Murphy locations. Johnston & Murphy retail shops are
located primarily in better malls and airports nationwide and sell a broad range of men’s dress and casual footwear,
apparel and accessories. The Company also sells Johnston & Murphy products directly to consumers through an e-
commerce website and a direct mail catalog. Retail prices for Johnston & Murphy footwear generally range from $100
to $275. Total footwear accounted for 65% of total Johnston & Murphy retail sales in Fiscal 2016, with the balance
consisting primarily of apparel and accessories. Johnston & Murphy Group added three net new shops and factory stores
and plans to open approximately three net new shops and factory stores in Fiscal 2017.
5
Johnston & Murphy Wholesale Operations. Johnston & Murphy men’s and women's footwear and accessories are sold at
wholesale, primarily to better department and independent specialty stores. Johnston & Murphy’s wholesale customers
offer the brand’s footwear for dress, dress casual, and casual occasions, with the majority of styles offered in these
channels selling from $100 to $195. Additionally, the Company offers the Trask brand, with men's and women's
footwear and leather accessories offered primarily through better independent retailers and department stores, an e-
commerce website and catalog. Suggested retail prices for Trask footwear range from $195 to $495.
Licensed Brands
The Licensed Brands segment accounted for approximately 4% of the Company’s net sales in Fiscal 2016. Earnings
from operations attributable to Licensed Brands was $9.2 million in Fiscal 2016, with an operating margin of 8.4%.
Licensed Brands sales include footwear marketed under the Dockers® brand, for which Genesco has had the exclusive
men’s footwear license in the United States since 1991. See “Licenses”. Dockers footwear is marketed 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. Suggested retail prices for Dockers footwear generally range from $50 to $90. The
Company acquired Keuka Footwear in the third quarter of Fiscal 2011 and subsequently launched its SureGrip Footwear
line of slip-resistant, occupational footwear within the Licensed Brands segment from that base. The Company sources
and distributes the SureGrip line to employees in the hospitality, healthcare, and other industries. The Company also
sells footwear under other licenses and in March 2015 entered into a License Agreement to source and distribute certain
men's and women's footwear under the G.H. Bass trademark and related marks.
For further information on the Company’s business segments, see Note 14 to the Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data" and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Manufacturing and Sourcing
The Company relies on independent third-party manufacturers for production of its footwear products sold at wholesale.
The Company sources footwear and accessory products from foreign manufacturers located in Bangladesh, Brazil,
Cambodia, Canada, China, Dominican Republic, El Salvador, France, Germany, Hong Kong, India, Indonesia, Italy,
Mexico, Netherlands, Portugal, Peru, Romania, Taiwan and Vietnam. The Company’s retail operations source primarily
branded products from third parties, who source primarily overseas.
Competition
Competition is intense in the footwear, headwear, sports apparel and accessory industries. The Company’s retail
footwear, headwear, sports apparel and accessory competitors range from small, locally owned stores to regional and
national department stores, discount stores, specialty chains and online retailers. The Company also competes with
hundreds of footwear wholesale operations in the United States and throughout the world, most of which are relatively
small, specialized operations, but some of which are large, more diversified companies. Some of the Company’s
competitors have resources that are not available to the Company. The Company’s success depends upon its ability to
remain competitive with respect to the key factors of style, price, quality, comfort, brand loyalty, customer service, store
location and atmosphere and the ability to offer distinctive products.
Licenses
The Company owns its Johnston & Murphy®, H.S. Trask®, Keuka® and SureGrip® brands and owns or licenses the trade
names of its retail concepts either directly or through wholly-owned subsidiaries. The Dockers® brand footwear line,
introduced in Fiscal 1993, is sold under a license agreement granting the Company the exclusive right to sell men’s
footwear under the trademark in the United States, Canada and Mexico and in certain other Latin American countries.
The Dockers license agreement has been renewed for a term expiring on November 30, 2018. Net sales of Dockers
products were approximately $78 million in Fiscal 2016 and approximately $82 million in Fiscal 2015. The Company
licenses certain of its footwear brands, mostly in foreign markets. License royalty income was not material in Fiscal
2016.
6
Wholesale Backlog
Most of the orders in the Company’s wholesale divisions are for delivery within 150 days. Because most of the
Company’s business is at-once, the backlog at any one time is not necessarily indicative of future sales. As of February
27, 2016, the Company’s wholesale operations had a backlog of orders, including unconfirmed customer purchase
orders, amounting to approximately $32.8 million, compared to approximately $56.3 million on February 28, 2015. The
backlog for Fiscal 2015 included Lids Team Sports, which the Company sold in the fourth quarter of Fiscal 2016. The
backlog is somewhat seasonal, reaching a peak in the spring. The Company maintains in-stock programs for selected
product lines with anticipated high volume sales.
Employees
Genesco had approximately 27,500 employees at January 30, 2016, approximately 130 of whom were employed in
corporate staff departments and the balance in operations. Retail stores employ a substantial number of part-time
employees, and approximately 18,275 of the Company’s employees were part-time at January 30, 2016.
Seasonality
The Company's business is seasonal with the Company's investment in inventory and accounts receivable normally
reaching peaks in the spring and fall of each year and a significant portion of the Company's net sales and operating
earnings generated during the fourth quarter.
Properties
At January 30, 2016, the Company operated 2,852 retail footwear, headwear and sports apparel and accessory stores and
leased departments throughout the United States and in Puerto Rico, Canada, the United Kingdom, the Republic of
Ireland and Germany. New shopping center store leases in the United States, Puerto Rico and Canada typically are for a
term of approximately 10 years. New store leases in the United Kingdom, the Republic of Ireland and Germany typically
have terms of between 10 and 15 years. Both typically provide for rent based on a percentage of sales against a fixed
minimum rent based on the square footage leased.
7
The general location, use and approximate size of the Company’s principal properties are set forth below:
Location
Owned/Leased
Segment
Use
Approximate
Area
Square Feet
Lebanon, TN
Indianapolis, IN
Owned
Leased
Journeys
Group
Lids Sports
Group
Nashville, TN
Leased
Various
Distribution warehouse
320,000
Distribution warehouse
311,600
Executive & footwear
operations offices
306,455
*
Indianapolis, IN
Bathgate, Scotland
Chapel Hill, TN
Fayetteville, TN
Zionsville, IN
Deans Industrial Estate,
Livingston, Scotland
Nashville, TN
Mississauga, Ontario,
Canada
Leased/Sub-
leased
Lids Sports
Group
Distribution warehouse
271,825
**
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Schuh
Group
Licensed
Brands
Johnston &
Murphy
Group
Lids Sports
Group
Schuh
Group
Journeys
Group
Lids Sports
Group
Distribution warehouse
244,644
Distribution warehouse
182,000
Distribution warehouse
178,500
Administrative offices
150,000
Distribution warehouse and
administrative offices
106,813
Distribution warehouse
63,000
Distribution warehouses
43,611
*
The Company occupies approximately 85% of the building and subleases the remainder of the building.
** The Company occupies approximately 25% of the building and subleases the remainder of the building.
The lease on the Company’s Nashville office expires in April 2017, with an option to renew for an additional five years.
The Company believes that all leases of properties that are material to its operations may be renewed, or that alternative
properties are available, on terms not materially less favorable to the Company than existing leases.
Environmental Matters
The Company’s former manufacturing operations and the sites of those operations as well as the sites of its current
operations are subject to numerous federal, state, and local laws and regulations relating to human health and safety and
the environment. These laws and regulations address and regulate, among other matters, wastewater discharge, air
quality and the generation, handling, storage, treatment, disposal, and transportation of solid and hazardous wastes and
releases of hazardous substances into the environment. In addition, third parties and governmental agencies in some
cases have the power under such laws and regulations to require remediation of environmental conditions and, in the
case of governmental agencies, to impose fines and penalties. Several of the facilities owned by the Company (currently
or in the past) are located in industrial areas and have historically been used for extensive periods for industrial
operations such as tanning, dyeing, and manufacturing. Some of these operations used materials and generated wastes
that would be considered regulated substances under current environmental laws and regulations. The Company
currently is involved in certain administrative and judicial environmental proceedings relating to the Company’s former
facilities. See Item 3, "Legal Proceedings" and Note 13 to the Consolidated Financial Statements included in Item 8,
"Financial Statements and Supplementary Data".
8
ITEM 1A, RISK FACTORS
Our business is subject to significant risks. You should carefully consider the risks and uncertainties described below and
the other information in this Form 10-K, including our Consolidated Financial Statements and the notes to those
statements. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
that we do not presently know about or that we currently consider immaterial may also affect our business operations
and financial performance. If any of the events described below actually occur, our business, financial condition or
results of operations could be adversely affected in a material way. This could cause the trading price of our stock to
decline, perhaps significantly, and you may lose part or all of your investment.
Poor economic conditions and other factors can affect consumer spending and may significantly harm our
business, affecting our financial condition, liquidity, and results of operations.
The success of our business depends to a significant extent upon the level of consumer spending. A number of factors
may affect the level of consumer spending on merchandise that we offer, including, among other things:
• general economic, industry and weather conditions;
• energy costs, which affect gasoline and home heating prices;
• the level of consumer debt;
• pricing of products;
• interest rates;
• tax rates, refunds and policies;
• war, terrorism and other hostilities; and
• consumer confidence in future economic conditions.
Adverse economic conditions and any related decrease in consumer demand for discretionary items could have a
material adverse effect on our business, results of operations and financial condition. The merchandise we sell generally
consists of discretionary items. Reduced consumer confidence and spending may result in reduced demand for
discretionary items and may force us to take inventory markdowns, decreasing sales and making expense leverage
difficult to achieve. Demand can also be influenced by other factors beyond our control. For example, sales in the Lids
Sports Group segment have historically been affected by developments in team sports, and could be adversely impacted
by player strikes or other interruptions, as well as by the performance and reputation of certain teams and players.
Moreover, while the Company believes that its operating cash flows and its borrowing capacity under committed lines of
credit will be more than adequate for its anticipated cash requirements, if the economy were to experience a renewed
downturn, or if one or more of the Company’s revolving credit banks were to fail to honor its commitments under the
Company’s credit lines, the Company could be required to modify its operations for decreased cash flow or to seek
alternative sources of liquidity, and such alternative sources might not be available to the Company.
Our business involves a degree of fashion risk.
The majority of our businesses serve a fashion-conscious customer base and depend upon the ability of our buyers and
merchandisers to react to fashion trends, to purchase inventory that reflects such trends, and to manage our inventories
appropriately in view of the potential for sudden changes in fashion, consumer taste, or other drivers of demand,
including the performance and popularity of individual sports teams and athletes. Failure to continue to execute any of
these activities successfully could result in adverse consequences, including lower sales, product margins, operating
income and cash flows.
9
Our business and results of operations are subject to a broad range of uncertainties arising out of world and
domestic events.
Our business and results of operations are subject to uncertainties arising out of world and domestic events, which may
impact not only consumer demand, but also our ability to obtain the products we sell, most of which are produced
outside the countries in which we operate. These uncertainties may include a global economic slowdown, changes in
consumer spending or travel, increase in gasoline and natural gas prices, and the economic consequences of natural
disasters, military action or terrorist activities and increased regulatory and compliance burdens related to governmental
actions in response to a variety of factors, including but not limited to national security and anti-terrorism concerns and
concerns about climate change. Any future events arising as a result of terrorist activity or other world events may have a
material impact on our business, including the demand for and our ability to source products, and consequently on our
results of operations and financial condition.
The increasing scope of our non-U.S. operations exposes our performance to risks including foreign economic
conditions and exchange rate fluctuations.
Our performance depends in part on general economic conditions affecting all countries in which we do business. We are
dependent on foreign manufacturers for the products we sell, and our inventory is subject to cost and availability of
foreign materials and labor. In addition to the other risks disclosed herein, demand for our product offering in our non-
U.S. operations is also subject to local market conditions. As a result, there can be no assurance that Schuh's or our
Canadian operations' future performance will not be adversely affected by economic conditions in their markets.
As we expand our international operations, we also increase our exposure to exchange rate fluctuations. Sales from
stores outside the U.S. are denominated in the currency of the country in which these operations or stores are located and
changes in foreign exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for
financial reporting purposes. Additionally, inventory purchase agreements may also be denominated in the currency of
the country where the vendor resides.
Our business is intensely competitive and increased or new competition could have a material adverse effect on
us.
The retail footwear, headwear, sports apparel and accessory markets are intensely competitive. We currently compete
against a diverse group of retailers, including other regional and national specialty stores, department and discount
stores, small independents and e-commerce retailers, which sell products similar to and often identical to those we sell.
Our branded businesses, selling footwear at wholesale, also face intense competition, both from other branded wholesale
vendors and from private label initiatives of their retailer customers. A number of different competitive factors could
have a material adverse effect on our business, results of operations and financial condition, including:
• increased operational efficiencies of competitors;
• competitive pricing strategies;
• expansion by existing competitors;
• entry by new competitors into markets in which we currently operate; and
• adoption by existing retail competitors of innovative store formats or sales methods.
Use of social media may adversely impact our reputation or subject us to fines or other penalties.
There has been a substantial increase in the use of social media platforms and similar devices, including blogs, social
media websites, and other forms of internet-based communications, which allow individuals access to a broad audience
of consumers and other interested persons. As laws and regulations rapidly evolve to govern the use of these platforms
and devices, the failure by us, our associates or third parties acting at our direction to abide by applicable laws and
regulations in the use of these platforms and devices could adversely impact our reputation or subject us to fines or other
penalties.
10
Consumers value readily available information concerning retailers and their goods and services and often act on such
information without further investigation and without regard to its accuracy. Information concerning us may be posted
on social media platforms and similar devices at any time and may be adverse to our reputation or business. The harm
may be immediate without affording us an opportunity for redress or correction. Damage to our reputation could result in
declines in customer loyalty and sales, affect our vendor relationships, development opportunities and associate retention
and otherwise adversely affect our business.
If we are unsuccessful in establishing and protecting our intellectual property, the value of our brands could be
adversely affected.
Our ability to remain competitive is dependent upon our continued ability to secure and protect trademarks, patents and
other intellectual property rights in the U.S. and internationally for all of our lines of business. We rely on a combination
of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and
technical measures to protect our intellectual property rights; however, some countries’ laws do not protect intellectual
property rights to the same extent U.S. laws do.
Our business could be significantly harmed if we are not able to protect our intellectual property, or if a court found us to
be infringing on other persons’ intellectual property rights. Any future intellectual property lawsuits or threatened
lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and
money and distract management’s attention from operating our business. If we do not prevail on any intellectual property
claims, then we may have to change our manufacturing processes, products or trade names, any of which could reduce
our profitability.
We are dependent on third-party vendors for the merchandise we sell.
We do not manufacture the merchandise we sell. This means that our product supply is subject to the ability and
willingness of third-party suppliers to deliver merchandise we order on time and in the quantities and of the quality we
need. In addition, a material portion of our retail footwear sales consists of products marketed under brands, belonging to
unaffiliated vendors, which have fashion significance to our customers. Our core retail hat and sports apparel businesses
are dependent upon products bearing sports and other logos, each generally controlled by a single licensee/vendor. If
those vendors were to decide not to sell to us or to limit the availability of their products to us, or if they become unable
because of economic conditions, work stoppages, strikes, political unrest, raw materials supply disruptions, or any other
reason to supply us with products, we could be unable to offer our customers the products they wish to buy and could
lose their business to competitors. Additionally, manufacturers are required to remain in compliance with certain wage,
labor and environment-related laws and regulations. Delayed compliance or complete failure to comply with such laws
and regulations by our vendors could adversely affect our ability to obtain products generally or at favorable costs,
affecting our overall ability to maintain and manage inventory levels.
An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales
and profits.
Merchandise originally manufactured and imported from overseas makes up a large proportion of our total inventory. A
disruption in the shipping of our imported merchandise or an increase in the cost of those products may significantly
decrease our sales and profits. We may be unable to meet our customers’ demands or pass on price increases to our
customers. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative
sources may not occur in time to meet demand. Products from alternative sources may also be of lesser quality or more
expensive than those we currently import. Risks associated with our reliance on imported products include:
disruptions in the shipping and importation of imported products because of factors such as:
▪ raw material shortages, work stoppages, strikes and political unrest;
▪ problems with oceanic shipping, including shipping container shortages and delays in ports;
11
▪ increased customs inspections of import shipments or other factors that could result in penalties
causing delays in shipments;
▪ economic crises, natural disasters, international disputes and wars; and
increases in the cost of purchasing or shipping foreign merchandise resulting from:
• imposition of additional cargo or safeguard measures;
• denial by the United States of “most favored nation” trading status to or the imposition of
quotas or other restriction on imports from a foreign country from which we purchase goods;
• import duties, import quotas and other trade sanctions; and
• increases in shipping rates.
A significant amount of the inventory we sell is imported from the People’s Republic of China, which has historically
been subject to efforts to increase duty rates or to impose restrictions on imports of certain products.
A small portion of the products we buy abroad is priced in foreign currencies and, therefore, we are affected by
fluctuating currency exchange rates. In the past, we have entered into foreign currency exchange contracts with major
financial institutions to hedge these fluctuations. We might not be able to effectively protect ourselves in the future
against currency rate fluctuations, and our financial performance could suffer as a result. Even dollar-denominated
foreign purchases may be affected by currency fluctuations, as suppliers seek to reflect appreciation in the local currency
against the dollar in the price of the products that they provide. You should read Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for more information about our foreign currency exchange
rate exposure and hedging activities.
Increased operating costs could have an adverse effect on our results.
Increased operating costs, including those resulting from potential increases in the minimum wage or wage increases
reflecting competition in relevant labor markets, store occupancy costs, and other expense items, including healthcare
costs, may reduce our operating margin and, by making it more difficult to identify new store locations that we believe
will meet our investment return requirements, slow our growth. In addition, other employment and healthcare law
changes may increase the cost of provided retirement, pension and healthcare benefits expenses. Increases in the
Company’s overall employment costs could have a material adverse effect on the Company’s business, results of
operations and financial and competitive position.
The operation of the Company’s business is heavily dependent on its information systems.
We depend on a variety of information technology systems for the efficient functioning of our business and security of
information. Much information essential to our business is maintained electronically, including competitively sensitive
information and potentially sensitive personal information about customers and employees. Our insurance policies may
not provide coverage for security breaches and similar incidents or may have coverage limits which may not be adequate
to reimburse us for losses caused by security breaches. We also rely on certain hardware and software vendors to
maintain and periodically upgrade many of these systems so that they can continue to support our business. The software
programs supporting many of our systems were licensed to the Company by independent software developers. The
inability of these developers or the Company to continue to maintain and upgrade these information systems and
software programs could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and
interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or
adequate support of existing systems could also disrupt or reduce the efficiency of our operations or leave the Company
vulnerable to security breaches.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area, we may not
be able to fulfill our technology initiatives or to provide maintenance on existing systems.
12
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft,
subject us to fraud or theft, subject us to potential liability and potentially disrupt our business.
As a retailer who accepts payments using a variety of methods, including credit and debit cards, PayPal, and gift cards,
the Company is subject to rules, regulations, contractual obligations and compliance requirements, including payment
network rules and operating guidelines, data security standards and certification requirements, and rules governing
electronic funds transfers. The regulatory environment related to information security and privacy is increasingly
rigorous, with new and constantly changing requirements applicable to our business, and compliance with those
requirements could result in additional costs or accelerate these costs, For certain payment methods, including credit
and debit cards, we pay interchange and other fees, which could increase over time and raise our operating costs. We
rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and
other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems
are compromised, it could disrupt our business.
The payment methods that we offer also subject us to potential fraud and theft by persons who seek to obtain
unauthorized access to or exploit any weaknesses that may exist in the payment systems. The payment card industry
established October 1, 2015 as the date on which it shifted liability for certain transactions to retailers who are not able
to accept EMV card transactions. The Company did not implement the EMV technology and receive certification prior
to October 1, 2015, and accordingly may be liable for costs incurred by payment card issuing banks and other third
parties as a result of fraudulent use of credit card information improperly obtained from information captured by us until
such time as the technology has been implemented and certified. The Company expects to complete the implementation
and receive certification in its third quarter of Fiscal 2018.
A privacy breach could have a material adverse effect on the Company's business and reputation.
We rely heavily on digital technologies for the successful operation of our business, including electronic messaging,
digital marketing efforts and the collection and retention of customer data and employee information. We also rely on
third parties to process credit card transactions, perform online e-commerce and social media activities and retain data
relating to the Company’s financial position and results of operations, strategic initiatives and other important
information. Despite the security measures we have in place, our facilities and systems and those of our third-party
service providers may be vulnerable to cyber-security breaches, acts of vandalism, computer viruses, misplaced or lost
data, programming and/or human errors or other similar events. Any misappropriation, loss or other unauthorized
disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers,
could adversely affect our business and operations, including loss of sales generated through our websites, severely
damaging our reputation and our relationships with our customers, suppliers, employees and investors and expose us to
risks of litigation and liability.
In addition, we may incur significant remediation costs in the event of a cyber-security breach or incident, including
liability for stolen customer or employee information, repairing system damage or providing credit monitoring or other
benefits to affected customers or employees. We may also incur increased costs to comply with various applicable laws
or industry standards regarding use and/or unauthorized disclosure of personal information. These and other cyber-
security-related compliance, prevention and remediation costs may adversely impact our financial condition and results
of operations.
The loss of, or disruption in, one of our distribution centers and other factors affecting the distribution of
merchandise, could have a material adverse effect on our business and operations.
Each of our operations uses a single distribution center to handle all or a significant amount of its merchandise. Most of
our operations’ inventory is shipped directly from suppliers to our operations' distribution centers, where the inventory is
then processed, sorted and shipped to our stores or to our wholesale customers. We depend on the orderly operation of
this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective
management of the distribution centers. Although we believe that our receiving and distribution process is efficient and
well positioned to support our current business and our expansion plans, we cannot offer assurance that we have
anticipated all of the changing demands that our expanding operations will impose on our receiving and distribution
13
system, or that events beyond our control, such as disruptions in operations due to fire or other catastrophic events, labor
disagreements or shipping problems (whether in our own or in our third party vendors’ or carriers’ businesses), will not
result in delays in the delivery of merchandise to our stores or to our wholesale customers or retail customers (e-
commerce). In addition, we add capacity to distribution centers by either leasing or building new distribution centers or
adding capacity at existing centers. Failure to execute on these initiatives may cause disruption in our business. We also
make changes in our distribution processes from time to time in an effort to improve efficiency and maximize capacity.
We cannot assure that these changes will not result in unanticipated delays or interruptions in distribution. We depend
upon UPS for shipment of a significant amount of merchandise. An interruption in service by UPS for any reason could
cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.
Our freight cost is impacted by changes in fuel prices through surcharges. Fuel prices and surcharges affect freight cost
both on inbound freight from vendors to our distribution centers and outbound freight from our distribution centers to
our stores and wholesale customers. Increases in fuel prices and surcharges and other factors may increase freight costs
and thereby increase our cost of goods sold.
Any acquisitions we make or new businesses we launch, as well as any dispositions of assets or businesses, involve
a degree of risk.
Acquisitions have been a component of the Company’s growth strategy in recent years and we expect that we may
continue to engage in acquisitions or launch new businesses to grow our revenues and meet our other strategic
objectives. If any future acquisitions are not successfully integrated with our business, our ongoing operations could be
adversely affected. Additionally, acquisitions or new businesses may not achieve desired profitability objectives or result
in any anticipated successful expansion of the businesses or concepts, causing lower than expected earnings and cash
flow and potentially requiring impairment of goodwill and other intangibles. Although we review and analyze assets or
companies we acquire, such reviews are subject to uncertainties and may not reveal all potential risks. Additionally,
although we attempt to obtain protective contractual provisions, such as representations, warranties and indemnities, in
connection with acquisitions, we cannot offer assurance that we can obtain such provisions in our acquisitions or that
they will fully protect us from unforeseen costs of, or liabilities associated with, the acquisitions. We may also incur
significant costs and diversion of management time and attention in connection with pursuing possible acquisitions even
if the acquisition is not ultimately consummated.
Additionally, we may decide to divest assets or businesses that are no longer material to our core business. Following
such divestitures, we may incur liabilities relating to our previous ownership of the assets or business that we sell. Any
required payments on retained liabilities or indemnification obligations with respect to past or future asset or business
divestitures could have a material adverse effect on our business or results of operations.
Further, acquisitions and dispositions are often structured such that the purchase price paid or received by us, as
applicable, is subject to post-closing adjustments, whether as a result of net working capital adjustments, contingent
payments (i.e., earn-outs) or otherwise. Any such adjustments could result in a material change in the consideration paid
to or received by us, as applicable, in such transactions.
We face a number of risks in opening new stores.
As part of our long-term growth strategy, we expect to open new stores, both in regional malls, where most of the
operational experience of our U.S. businesses lies, and in other venues including outlet centers, major city street
locations, airports and tourist destinations. We cannot offer assurances that we will be able to open as many stores as we
have planned, that any new store will achieve similar operating results to those of our existing stores or that new stores
opened in markets in which we operate will not have a material adverse effect on the revenues and profitability of our
existing stores. The success of our planned expansion will be dependent upon numerous factors, many of which are
beyond our control, including the following:
• our ability to identify suitable markets and individual store sites within those markets;
14
• the competition for suitable store sites;
• our ability to negotiate favorable lease terms for new stores and renewals (including rent and other costs) with
landlords;
• our ability to obtain governmental and other third-party consents, permits and licenses needed to construct and
operate our stores;
• the ability to build and remodel stores on schedule and at acceptable cost;
• the availability of employees to staff new stores and our ability to hire, train, motivate and retain store
personnel;
• the effect of changes to laws and regulations, including minimum wage, over-time, and employee benefits laws
on store expenses;
• the availability of adequate management and financial resources to manage an increased number of stores;
• our ability to adapt our distribution and other operational and management systems to an expanded network of
stores;
• our ability to attract customers and generate sales sufficient to operate new stores profitably; and
• the effect of changes in consumer shopping patterns, including an accelerated shift to online shopping at the
expense of in-store shopping, during the term of a lease.
Additionally, the results we expect to achieve during each fiscal quarter are dependent upon opening new stores on
schedule. If we fall behind, we will lose expected sales and earnings between the planned opening date and the actual
opening and may further complicate the logistics of opening stores, possibly resulting in additional delays, seasonally
inappropriate product assortments, and other undesirable conditions.
Our results of operations are subject to seasonal and quarterly fluctuations, which could have a material adverse
effect on the market price of our stock.
Our business is seasonal, with a significant portion of our net sales and operating income generated during the fourth
quarter, which includes the holiday shopping season. Because of this seasonality, we have limited ability to compensate
for shortfalls in fourth quarter sales or earnings by changes in our operations or strategies in other quarters. A significant
shortfall in results for the fourth quarter of any year could have a material adverse effect on our annual results of
operations and on the market price of our stock. Our quarterly results of operations also may fluctuate significantly
based on such factors as:
• the timing of new store openings and renewals;
• the amount of net sales contributed by new and existing stores;
• the timing of certain holidays and sales events;
• changes in our merchandise mix;
• general economic, industry and weather conditions that affect consumer spending; and
• actions of competitors, including promotional activity.
Changes in our effective income tax rate could adversely affect our net earnings.
A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of
existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could
15
change our effective tax rate, which could adversely affect our net earnings. In addition, our operations outside of the
United States may cause greater volatility in our effective tax rate.
A failure to increase sales at our existing stores and in our e-commerce businesses may adversely affect our stock
price and impact our results of operations.
A number of factors have historically affected, and will continue to affect, our comparable sales results, including:
• consumer trends, such as less disposable income due to the impact of economic conditions and tax policies;
• the lack of new fashion trends to drive demand in certain of our businesses;
• competition;
• timing of holidays including sales tax holidays and the timing of tax refunds;
• general regional and national economic conditions;
• inclement weather;
• changes in our merchandise mix;
• our ability to distribute merchandise efficiently to our stores;
• timing and type of sales events, promotional activities or other advertising;
• other external events beyond our control;
• our ability to adapt to changing customer preferences in the ways they digitally shop;
• new merchandise introductions; and
• our ability to execute our business strategy effectively.
Our comparable sales have fluctuated in the past, and we believe such fluctuations may continue. The unpredictability of
our comparable sales may cause our revenue and results of operations to vary from quarter to quarter, and an
unanticipated change in revenues or operating income may cause our stock price to fluctuate significantly.
We are subject to regulatory proceedings and litigation and to regulatory changes that could have an adverse
effect on our financial condition and results of operations.
We are party to certain lawsuits, governmental investigations, and regulatory proceedings, including the suits and
proceedings arising out of alleged environmental contamination relating to historical operations of the Company and
various suits involving current operations as disclosed in Item 3, "Legal Proceedings" and Note 13 to the Consolidated
Financial Statements. If these or similar matters are resolved against us, our results of operations, our cash flows, or our
financial condition could be adversely affected. The costs of defending such lawsuits and responding to such
investigations and regulatory proceedings may be substantial and their potential to distract management from day-to-day
business is significant. Moreover, with retail operations in 50 states, Puerto Rico, Canada, the United Kingdom, the
Republic of Ireland and Germany, we are subject to federal, state, provincial, territorial, local and foreign regulations,
which impose costs and risks on our business. Numerous states and municipalities as well as the federal government of
the U.S. are proposing or implementing changes to minimum wage, overtime, employee leave, and other requirements
that will increase costs. Changes in regulations could make compliance more difficult and costly, and violations could
result in liability for damages or penalties.
16
If we lose key members of management or are unable to attract and retain the talent required for our business,
our operating results could suffer.
Our performance depends largely on the efforts and abilities of members of our management team. Our executives have
substantial experience and expertise in our business and have made significant contributions to our growth and success.
The unexpected future loss of services of one or more key members of our management team could have an adverse
effect on our business. In addition, future performance will depend upon our ability to attract, retain and motivate
qualified employees, including store personnel and field management. If we are unable to do so, our ability to meet our
operating goals may be compromised. Finally, our stores are decentralized, are managed through a network of
geographically dispersed management personnel and historically experience a high degree of turnover. If we are for any
reason unable to maintain appropriate controls on store operations due to turnover or other reasons, including the ability
to control losses resulting from inventory and cash shrinkage, our sales and operating margins may be adversely
affected. There can be no assurance that we will be able to attract and retain the personnel we need in the future.
Goodwill recorded with acquisitions is subject to impairment which could reduce the Company's
profitability.
Deterioration in the Company’s market value, whether related to the Company’s operating performance or to disruptions
in the equity markets or deterioration in the operating performance of the business unit with which goodwill is
associated, could require the Company to recognize the impairment of some or all of the $281.4 million of goodwill on
its Consolidated Balance Sheets at January 30, 2016, resulting in the reduction of net assets and a corresponding non-
cash charge to earnings in the amount of the impairment.
In connection with acquisitions, the Company records goodwill on its Consolidated Balance Sheets. This asset is not
amortized but is subject to an impairment test at least annually, which consists of either a qualitative assessment on a
reporting unit level, or a two-step impairment test if necessary, that is based on projected future cash flows from the
acquired business discounted at a rate commensurate with the risk the Company considers to be inherent in its current
business model. The Company performs the impairment test annually as of the close of its fiscal year, or more
frequently if events or circumstances indicate that the value of the asset might be impaired.
Pension funding and costs are dependent upon several economic assumptions which if changed may cause our
future earnings and cash flow to fluctuate significantly.
The impact of our pension plan on our U.S. generally accepted accounting principles earnings may be volatile in that the
amount of expense we record for our pension plan may materially change from year to year because those calculations
are sensitive to funding levels as well as changes in several key economic assumptions, including interest rates, rates of
return on plan assets, and other actuarial assumptions including participant mortality estimates. Changes in these factors
also affect our plan funding, cash flow and shareholders’ equity. In addition, the funding of our pension plan may be
subject to changes caused by legislative or regulatory actions.
We will make contributions to fund the pension plan when considered necessary or advantageous to do so. The macro-
economic factors discussed above, including the return on assets and the minimum funding requirements established by
government funding or taxing authorities, or established by other agreement, may influence future funding requirements.
A significant decline in the fair value of the assets in our pension plan, or other adverse changes to our pension plan
could require us to make significant funding contributions and affect cash flows in future periods.
17
ITEM 1B, UNRESOLVED STAFF COMMENTS
None.
ITEM 2, PROPERTIES
See Item 1, "Business — Properties
18
ITEM 3, LEGAL PROCEEDINGS
Environmental Matters
New York State Environmental Matters
In August 1997, 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 remedial measure (“IRM”) with regard to the site of a knitting
mill operated by a former subsidiary of the Company from 1965 to 1969. The Company undertook the IRM and RIFS
voluntarily, without admitting liability or accepting responsibility for any future remediation of the site. The Company
has completed the IRM and the RIFS. In the course of preparing the RIFS, the Company identified remedial alternatives
with estimated undiscounted costs ranging from $0.0 million to $24.0 million, excluding amounts previously expended
or provided for by the Company. 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 specified a remedy of a combination of groundwater extraction and treatment and in site chemical
oxidation.
In July 2009, the Company agreed to a Consent Order with the EPA requiring the Company to perform certain
remediation actions, operations, maintenance and monitoring at the site. In September 2009, a Consent Judgment
embodying the Consent Order was filed in the U.S. District Court for the Eastern District of New York.
In September 2015, the EPA adopted an amendment to the 2007 Record of Decision by eliminating the separate ground-
water extraction and treatment systems and the use of in-situ oxidation from the remedy adopted in the 2007 Record of
Decision. The amendment provides for the continued operation and maintenance of the existing wellhead treatment
systems on wells operated by the Village of Garden City, New York (the "Village").
The Village has additionally 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
total costs ranging from approximately $1.8 million to in excess of $2.5 million, and future operation and maintenance
costs which the Village estimates at $126,400 annually while the enhanced treatment continues. On December 14, 2007,
the Village filed a complaint (the "Village Lawsuit") against the Company and the owner of the property under the
Resource Conservation and Recovery Act (“RCRA”), the Safe Drinking Water Act, and the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) as well as a number of state law theories 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 $41 million, undiscounted, over a 70-year period.
The Company has not verified the estimates of either historic or future costs asserted in the Village Lawsuit, 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. On May 23, 2008, the Company filed a motion to dismiss the Village
Lawsuit on grounds including applicable statutes of limitation and preemption of certain claims by the NYSDEC's and
the EPA's diligent prosecution of remediation. On January 27, 2009, the Court granted the motion to dismiss all counts
of the plaintiff's complaint except for the CERCLA claim and a state law claim for indemnity for costs incurred after
November 27, 2000. On September 23, 2009, on a motion for reconsideration by the Village, the Court reinstated the
claims for injunctive relief under RCRA and for equitable relief under certain of the state law theories.
The Company and the Village have reached an agreement in principle providing for the Village to continue to operate
and maintain the well head treatment systems in accordance with the Record of Decision and to release its claims against
the Company asserted in the Village Lawsuit in exchange for a lump-sum payment by the Company. The agreement in
principle is subject to the issuance by EPA of Statement of Work under the amended Record of Decision that is
acceptable to the Company and the Village and to the execution by both parties of definitive documentation
incorporating the agreement in principle. While there can be no assurance that a definitive agreement incorporating the
19
agreement in principle will be concluded, the Company does not expect that such an agreement, the Village Lawsuit, or
the implementation of the amended Record of Decision would have a material effect on its financial condition or results
of operations.
In April 2015, the Company received from EPA a Notice of Potential Liability and Demand for Costs pursuant to
CERCLA regarding the site in Gloversville, New York of a former leather tannery operated by the Company and by
other, unrelated parties. The Notice demanded payment of approximately $2.2 million of response costs claimed by EPA
to have been incurred to conduct assessments and removal activities at the site. The Company has requested additional
information on the basis for EPA's assertion that the Company is a potentially responsible party with regard to the site
and is assessing the claims asserted in the notice. The Company's environmental insurance carrier is providing coverage
of the matter subject to a $500,000 self-insured retention and the other terms and conditions of the insurance policy,
subject to a standard reservation of rights.
Whitehall Environmental Matters
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.
In October 2010, the Company and the Michigan Department of Natural Resources and Environment entered into a
Consent Decree providing for implementation of a remedial Work Plan for the facility site designed to bring the site into
compliance with applicable regulatory standards. The Work Plan's implementation is substantially complete and the
Company expects, based on its present understanding of the condition of the site, that its future obligations with respect
to the site will be limited to periodic monitoring and that future costs related to the site should not have a material effect
on its financial condition or results of operations.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, the Company had accrued $14.5 million as of January 30, 2016,
$14.1 million as of January 31, 2015 and $11.9 million as of February 1, 2014. 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 because it relates to former facilities operated by the Company. The Company has made pretax accruals for
certain of these contingencies, including approximately $0.8 million reflected in Fiscal 2016, $2.8 million reflected in
Fiscal 2015 and $0.5 million reflected in Fiscal 2014. These charges are included in provision for discontinued
operations, net in the Consolidated Statements of Operations and represent changes in estimates.
Other Matters
On December 10, 2010, the Company announced that it had suffered a criminal intrusion into the portion of its computer
network that processes payments for transactions in certain of its retail stores. Visa, Inc., MasterCard Worldwide and
American Express Travel Related Services Company, Inc. have asserted claims totaling approximately $15.6 million in
connection with the intrusion and the claims of two of the claimants have been collected by withholding payment card
receivables of the Company. In the fourth quarter of Fiscal 2013, the Company recorded a $15.4 million charge to
earnings in connection with the disputed liability. On March 7, 2013, the Company filed an action in the U.S. District
Court for the Middle District of Tennessee against Visa U.S.A. Inc., Visa Inc. and Visa International Service Association
seeking to recover $13.3 million in non-compliance fines and issuer reimbursement assessments collected from the
Company in connection with the intrusion. The Company does not currently expect any future claims in connection with
the intrusion to have a material effect on its financial condition, cash flows, or results of operations.
On May 17, 2013, a former employee filed a putative class and representative action, Garcia v. Genesco, Inc., in the
Superior Court of California for the County of Ventura, alleging various claims under the California Labor Code,
including failure to provide meal and rest periods, failure to timely pay wages, failure to provide accurate itemized wage
20
statements, and unfair competition and violation of the Private Attorneys’ General Act of 2004, and seeking unspecified
damages and penalties. On August 30, 2013, the Company removed the action to the United States District Court for the
Central District of California. Subsequently, the Company reached an agreement to settle the matter. The court granted
final approval of the settlement on May 8, 2015 and dismissed the case.
On April 30, 2015, an employee of a subsidiary of the Company filed an action, Stewart v. Hat World, Inc., et al., under
the California Labor Code Private Attorneys General Act on behalf of herself, the State of California, and other non-
exempt, hourly-paid employees of the subsidiary in California, seeking unspecified damages and penalties for various
alleged violations of the California Labor Code, including failure to pay for all hours worked, minimum wage and
overtime violations, failure to provide required meal and rest periods, failure to timely pay wages, failure to provide
complete and accurate wage statements, and failure to provide full reimbursement of business-related costs and expenses
incurred in the course of employment. The Company disputes the material allegations in the complaint and intends to
defend the matter.
On March 3, 2016, plaintiffs filed an action Lacey, et al. v. Genesco Inc., in the U.S. District Court for the Western
District of Pennsylvania, alleging that certain of the Company's internet websites are inaccessible to the blind, in
violation of the Americans With Disabilities Act. The suit seeks injunctive relief and attorneys' fees. The Company is
investigating the allegations in the complaint.
In addition to the matters specifically described in this Item 3, "Legal Proceedings", the Company is a party to other
legal and regulatory proceedings and claims arising in the ordinary course of its business. While management does not
believe that the Company's liability with respect to any of these other matters is likely to have a material effect on its
financial statements, legal proceedings are subject to inherent uncertainties and unfavorable rulings could have a
material adverse impact on the Company's financial statements.
ITEM 4, MINE SAFETY DISCLOSURES
Not applicable.
21
ITEM 4A, EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company are generally elected at the first meeting of the Board of Directors following the annual
meeting of shareholders and hold office until their successors have been chosen and qualified or until their earlier
resignation or removal. The name, age and office of each of the Company’s executive officers and certain information
relating to the business experience of each are set forth below:
Robert J. Dennis, 62, Chairman, President and Chief Executive Officer. Mr. Dennis joined the Company in 2004 as
chief executive officer of the Company’s acquired Hat World business. Mr. Dennis was named senior vice president of
the Company in June 2004 and executive vice president and chief operating officer, with oversight responsibility for all
the Company’s operating divisions, in October 2005. Mr. Dennis was named president of the Company in October 2006
and chief executive officer in August 2008. Mr. Dennis was named chairman in February 2010, which became effective
April 1, 2010. Mr. Dennis joined Hat World in 2001 from Asbury Automotive, where he was employed in senior
management roles beginning in 1998. Mr. Dennis was with McKinsey and Company, an international consulting firm,
from 1984 to 1997, and became a partner in 1990.
Mimi Eckel Vaughn, 49, Senior Vice President - Finance and Chief Financial Officer. Ms. Vaughn joined the Company
in September 2003 as vice president of strategy and business development. She was named senior vice president,
strategy and business development in October 2006, senior vice president of strategy and shared services in April 2009
and senior vice president - finance and chief financial officer in February 2015. Prior to joining the Company,
Ms. Vaughn was executive vice president of business development and marketing, and acting chief financial officer from
2000 to 2001 for Link2Gov Corporation in Nashville. From 1993 to 1999, she was a consultant at McKinsey and
Company in Atlanta.
Jonathan D. Caplan, 62, Senior Vice President. Mr. Caplan rejoined the Company in 2002 as chief executive officer of
the branded group and president of Johnston & Murphy and was named senior vice president of the Company in
November 2003. Mr. Caplan first joined the Company in June 1982 and served as president of Genesco’s Laredo-Code
West division from December 1985 to May 1992. After that time, Mr. Caplan was president of Stride Rite’s Children’s
Group and then its Ked’s Footwear division, from 1992 to 1996. He was vice president, New Business Development and
Strategy, for Service Merchandise Corporation from 1997 to 1998. Prior to rejoining Genesco in October 2002,
Mr. Caplan served as president and chief executive officer of Hi-Tec Sports North America beginning in 1998.
James C. Estepa, 64, Senior Vice President. Mr. Estepa joined the Company in 1985 and in February 1996 was named
vice president operations of Genesco Retail, which included the Jarman Shoe Company, Journeys, Boot Factory and
General Shoe Warehouse. Mr. Estepa was named senior vice president operations of Genesco Retail in June 1998. He
was named president of Journeys in March 1999. Mr. Estepa was named senior vice president of the Company in April
2000. He was named president and chief executive officer of the Genesco Retail Group in 2001, assuming additional
responsibilities of overseeing the Company's former Underground Station segment.
Roger G. Sisson, 52, Senior Vice President, Secretary and General Counsel. Mr. Sisson joined the Company in 1994 as
assistant general counsel and was elected secretary in February 1994. He was named general counsel in January 1996,
vice president in November 2003, and senior vice president in October 2006.
Parag D. Desai, 41, Senior Vice President of Strategy and Shared Services. Mr. Desai joined the Company in 2014 as
senior vice president of strategy and shared services. Prior to joining the Company, Mr. Desai spent 14 years with
McKinsey and Company, including seven years as a partner. Prior to joining McKinsey, Mr. Desai also held business
development and technology positions at Outpace Systems and Booz Allen & Hamilton.
Paul D. Williams, 61, Vice President and Chief Accounting Officer. Mr. Williams joined the Company in 1977, was
named director of corporate accounting and financial reporting in 1993 and chief accounting officer in April 1995. He
was named vice president in October 2006.
22
Matthew N. Johnson, 51, Vice President and Treasurer. Mr. Johnson joined the Company in 1993 as manager,
corporate finance and was elected assistant treasurer in December 1993. He was elected treasurer in June 1996. He was
named vice president finance in October 2006 and renamed treasurer in April 2011 after a period of service as chief
financial officer of one of the Company's divisions. Prior to joining the Company, Mr. Johnson was a vice president in
the corporate and institutional banking division of The First National Bank of Chicago.
23
PART II
ITEM 5, MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is listed on the New York Stock Exchange (Symbol: GCO). The following table sets
forth for the periods indicated the high and low sales prices of the common stock as shown in the New York Stock
Exchange Composite Transactions listed in the Wall Street Journal.
Fiscal Year ended January 31
2015 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year ended January 30
2016 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
High
Low
80.52 $
82.98
89.58
82.89
68.52
70.87
71.24
69.53
High
Low
74.74 $
70.47
65.78
66.16
65.59
61.07
54.03
50.64
There were approximately 2,500 common shareholders of record on March 11, 2016.
The Company has not paid cash dividends in respect of its Common Stock since 1973. The Company’s ability to pay
cash dividends in respect of its common stock is subject to various restrictions. See Notes 6 and 8 to the Consolidated
Financial Statements included in Item 8, "Financial Statements and Supplementary Data" and Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources
of Liquidity” for information regarding restrictions on dividends and redemptions of capital stock.
Recent Sales of Unregistered Securities
None.
24
Repurchases (shown in 000's except share and per share amounts):
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) Total Number of
Shares Purchased
(b) Average Price Paid
per Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(d) Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or Programs
(in thousands)
November 2015
11-1-15 to 11-28-15
December 2015
11-29-15 to 12-26-15
January 2016
12-27-15 to 1-30-16
— $
— $
—
—
—
$
— $
—
—
251,000 $
63.24
251,000 $
84,128
Share repurchases were made pursuant to the share repurchase program described under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The Company expects to implement
the balance of the repurchase program through purchases made from time to time either in the open market or
through private transactions, in accordance with the regulations of the SEC and other applicable legal
requirements.
Equity Compensation Plan Information
Refer to Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters".
25
ITEM 6, SELECTED FINANCIAL DATA
Financial Summary
In Thousands except per common share
data, Financial Statistics and Other Data
(End of Year)
Results of Operations Data
Net sales
Depreciation and amortization
Earnings from operations
Earnings from continuing operations
before income taxes
Earnings from continuing operations
Provision for discontinued
operations, net
Net earnings
Per Common Share Data
Earnings from continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Net earnings
Basic
Diluted
2016
2015
2014
2013
2012
Fiscal Year End
$ 3,022,234
79,011
151,251
$ 2,859,844
74,326
167,266
$ 2,624,972
67,135
163,435
$ 2,604,817
63,697
169,863
$ 2,291,987
53,737
161,485
151,533
95,381
156,989
99,373
158,860
92,982
164,832
112,897
156,393
93,451
(812 )
$
94,569
$
(1,648 )
97,725
$
(329 )
(462 )
92,653
$ 112,435
$
(1,025 )
92,426
$
$
4.17
4.15
$
4.23
4.19
$
3.99
3.94
$
4.78
4.69
3.89
3.83
(0.04 )
(0.04 )
(0.07 )
(0.07 )
(0.01 )
(0.02 )
(0.02 )
(0.01 )
4.13
4.11
4.16
4.12
3.98
3.92
4.76
4.68
(0.05 )
0.04
3.84
3.79
Balance Sheet and Cash Flow Data
Total assets
Long-term debt
Non-redeemable preferred stock
Common equity
Capital expenditures
Financial Statistics
Earnings from operations as a
percent of net sales
Book value per share (common
equity divided by common shares
outstanding)
Working capital (in thousands)
Current ratio
Percent long-term debt to total
capitalization
Other Data (End of Year)
Number of retail outlets*
Number of employees
$ 1,541,483
112,058
1,077
954,079
100,652
$ 1,583,087
29,155
1,274
995,533
103,111
$ 1,439,284
33,730
1,305
914,885
98,456
$ 1,326,072
50,682
3,924
817,936
71,737
$ 1,229,761
40,704
4,957
721,774
49,456
5.0 %
5.8 %
6.2 %
6.5 %
7.0 %
$
43.70
$ 476,469
2.5
$
41.43
$ 441,742
2.1
$
38.25
$ 451,297
2.5
$
34.09
$ 407,073
2.5
$
29.74
$ 291,990
2.0
10.5 %
2.8 %
3.5 %
5.8 %
5.3 %
2,852
27,500
2,824
27,325
2,568
22,250
2,459
22,700
2,387
21,475
* Includes 36 Little Burgundy stores added in Fiscal 2016 that were acquired on November 3, 2015, 185, 190 and 26
Locker Room by Lids leased departments in Macy's stores in Fiscal 2016, 2015 and 2014, respectively, and 75
Schuh stores and concessions added in Fiscal 2012 that were acquired on June 23, 2011.
26
Reflected in earnings from continuing operations for Fiscal 2016 was a gain of $4.7 million from the sale of Lids Team Sports,
for Fiscal 2015 was a charge of $7.1 million for an indemnification asset write-off and for Fiscal 2012 was $7.4 million in
acquisition-related expenses.
Also reflected in earnings from continuing operations for Fiscal 2016, 2015, 2014, 2013 and 2012 were asset impairment and
other charges of $7.9 million, $2.3 million, $1.3 million, $17.0 million and $2.7 million, respectively. See Note 3 to the
Consolidated Financial Statements for additional information regarding these charges.
Long-term debt includes current obligations. In December 2015, the Company entered into the first amendment to the third
amended and restated credit agreement. 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 Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity
and Capital Resources – Sources of Liquidity” for a description of limitations on the Company’s ability to pay dividends.
27
ITEM 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward Looking Statements
This discussion and the notes to the Consolidated Financial Statements, as well as Item 1, "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, but are not limited
to, the level and timing of promotional activity necessary to maintain inventories at appropriate levels, the timing and
amount of non-cash asset impairments related to retail store fixed assets and intangible assets of acquired businesses, the
impact of post-closing adjustments and payments related to asset and business acquisitions and divestitures, the
effectiveness of our omnichannel initiatives, weakness in the consumer economy and retail industry, competition in the
Company’s markets, fashion trends that affect the sales or product margins of the Company’s retail product offerings,
changes in buying patterns by significant wholesale customers, bankruptcies or deterioration in financial condition of
significant wholesale customers or the inability of wholesale customers or consumers to obtain credit, disruptions in
product supply or distribution, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs,
and other factors affecting the cost of products, the Company’s ability to continue to complete and integrate acquisitions,
expand its business and diversify its product base, changes in the timing of holidays or in the onset of seasonal weather
affecting period-to-period sales comparisons, and the performance of athletic teams, the participants in major sporting
events such as the Super Bowl and World Series, developments with respect to certain individual athletes, and other
sports-related events or changes that may affect period-to-period comparisons in the Company's Lids Sports Group retail
business. Additional factors that could affect the Company’s prospects and cause differences from expectations include
the ability to build, open, staff and support additional retail stores and to renew leases in existing stores and control
occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels,
deterioration in the performance of individual businesses or of the Company’s market value relative to its book value,
resulting in impairments of fixed assets or intangible assets or other adverse financial consequences, unexpected changes
to the market for the Company’s shares, variations from expected pension-related charges caused by conditions in the
financial markets, and the cost and outcome of litigation, investigations and environmental matters involving the
Company. For a full discussion of risk factors, see Item 1A, "Risk Factors".
Overview
Description of Business
The Company’s business includes the design and sourcing, marketing and distribution of footwear and accessories
through retail stores, including Journeys®, Journeys Kidz®, Shi by Journeys®, Little Burgundy®, Underground by
Journeys® and Johnston & Murphy® in the U.S., Puerto Rico and Canada and through Schuh® stores in the United
Kingdom, the Republic of Ireland and Germany, and through e-commerce websites and catalogs, and at wholesale,
primarily under the Company’s Johnston & Murphy brand, the Trask brand, the licensed Dockers® brand, and other
brands that the Company licenses for men’s footwear. The Company’s wholesale footwear brands are distributed to more
than 1,275 retail accounts in the United States, including a number of leading department, discount, and specialty stores.
The Company’s business also includes Lids Sports, which operates (i) headwear and accessory stores under the Lids®
name and other names in the U.S., Puerto Rico and Canada, (ii) the Lids Locker Room and Lids Clubhouse businesses,
consisting of sports-oriented fan shops featuring a broad array of licensed merchandise such as apparel, hats and
accessories, sports decor and novelty products, operating under various trade names, (iii) licensed team merchandise
departments in Macy's department stores operated under the name Locker Room by Lids and on macys.com under a
license agreement with Macy's, and (iv) e-commerce operations. Including both the footwear businesses and the Lids
Sports business, at January 30, 2016, the Company operated 2,852 retail stores and leased departments in the U.S.,
Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
During Fiscal 2016, the Company operated five reportable business segments (not including corporate): (i) Journeys
Group, comprised of Journeys, Journeys Kidz, Shi by Journeys, Little Burgundy and Underground by Journeys retail
28
footwear chains, e-commerce operations and catalog; (ii) Schuh Group, comprised of the Schuh retail footwear chain
and e-commerce operations; (iii) Lids Sports Group, comprised as described in the preceding paragraph plus an athletic
team dealer business operating as Lids Team Sports which was sold in the fourth quarter of Fiscal 2016; (iv) Johnston &
Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce operations and catalog and wholesale
distribution of products under the Johnston & Murphy and Trask brands; and (v) Licensed Brands, comprised of
Dockers® Footwear, sourced and marketed under a license from Levi Strauss & Company; SureGrip®Footwear,
occupational footwear primarily sold directly to consumers; and other brands.
The Journeys retail footwear stores sell footwear and accessories primarily for 13 to 22 year old men and women. The
stores average approximately 2,025 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for
younger children, ages five to 12. These stores average approximately 1,450 square feet. Shi by Journeys retail footwear
stores sell footwear and accessories to fashion-conscious women in their early 20’s to mid 30’s. These stores average
approximately 2,150 square feet. The Underground by Journeys retail footwear stores sell footwear and accessories
primarily for men and women in the 20 to 35 age group. These stores average approximately 1,850 square feet. The
Journeys Group stores are primarily in malls and factory outlet centers throughout the United States, Puerto Rico and
Canada. The Company's Canadian subsidiary acquired the Little Burgundy retail footwear chain in Canada during the
fourth quarter of Fiscal 2016. Little Burgundy is being operated under the Journeys Group. Little Burgundy retail
footwear stores sell footwear and accessories to fashion-oriented men and women in the 18 to 34 age group ranging from
students to young professionals. These stores average approximately 1,900 square feet. With the 36 Little Burgundy
stores, Journeys Group now operates 75 stores in Canada. Journeys also sells footwear and accessories through direct-
to-consumer catalog and e-commerce operations.
The Schuh retail footwear stores sell a broad range of branded casual and athletic footwear along with a meaningful
private label offering primarily for 15 to 30 year old men and women. The stores, which average approximately 5,000
square feet, include both street-level and mall locations in the United Kingdom, the Republic of Ireland and Germany.
During the third quarter of Fiscal 2013, the Schuh Group opened its first Schuh Kids store. As of January 30, 2016, the
Company has opened ten Schuh Kids stores that sell footwear primarily for younger children, ages five to 12, and
average 2,675 square feet. The Schuh Group also sells footwear through e-commerce operations.
The Lids Sports Group includes stores and kiosks, primarily under the Lids banner, that sell licensed and branded
headwear to men and women primarily in the early-teens to mid-20’s age group. The Lids store locations average
approximately 875 square feet and are primarily in malls, airports, street-level stores and factory outlet centers
throughout the United States, Puerto Rico and Canada. The Lids Sports Group also operates Lids Locker Room and Lids
Clubhouse stores under a number of trade names, selling licensed sports headwear, apparel and accessories to sports fans
of all ages in locations averaging approximately 2,825 square feet in malls and other locations primarily in the United
States. The Lids Sports Group operates 151 stores in Canada. The Lids Sports Group also operates Locker Room by
Lids leased departments in Macy's department stores selling headwear, apparel, accessories and novelties from an
assortment of college and professional teams specific to particular Macy's department stores' geographic locations. As of
January 30, 2016, the Company had 185 Locker Room by Lids leased departments averaging approximately 650 square
feet. The Lids Sports Group also sells headwear and accessories through e-commerce operations. In addition, the Lids
Sports Group operated Lids Team Sports, an athletic team dealer business that was sold in the fourth quarter of Fiscal
2016.
Johnston & Murphy retail shops sell a broad range of men’s footwear, apparel and accessories. Women’s footwear and
accessories are sold in select Johnston & Murphy retail locations. Johnston & Murphy shops average approximately
1,550 square feet and are located primarily in better malls and in airports throughout the United States and in Canada.
Johnston & Murphy opened its first store in Canada during the fourth quarter of Fiscal 2012. As of January 30, 2016,
Johnston & Murphy operated seven stores in Canada. The Company also has license and distribution agreements for
wholesale and retail sales of Johnston & Murphy products in various non - U.S. jurisdictions. The Company also sells
Johnston & Murphy footwear and accessories in factory stores, averaging approximately 2,400 square feet, located in
factory outlet malls, and through a direct -to-consumer catalog and e-commerce operations. In addition, Johnston &
Murphy shoes are distributed through the Company’s wholesale operations to better department and independent
29
specialty stores. Additionally, the Company sells the Trask brand, with men's and women's footwear and leather
accessories distributed to better independent retailers and department stores.
The Licensed Brands segment markets casual and dress casual footwear under the licensed Dockers® brand 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. The Company entered into an exclusive license with Levi Strauss & Co. to market
men’s footwear in the United States under the Dockers brand name in 1991. Levi Strauss & Co. and the Company have
subsequently added additional territories, including Canada and Mexico and certain other Latin American countries. The
Dockers license agreement has been renewed for a term expiring November 30, 2018. The Company acquired Keuka
Footwear in the third quarter of Fiscal 2011 and subsequently launched its SureGrip® Footwear line of slip-resistant,
occupational footwear from that base. The Company sources and distributes the SureGrip line to employees in the
hospitality, healthcare, and other industries. The Company also sells footwear under other licenses and in March 2015
entered into a License Agreement to source and distribute certain men's and women's footwear under the G.H. Bass
trademark and related marks.
Strategy
The Company’s long-term strategy has been to seek organic growth by: 1) increasing the Company’s store base, 2)
increasing retail square footage, 3) improving comparable sales, both in stores and digital commerce, 4) increasing
operating margin and 5) enhancing the value of its brands.
To supplement its organic growth potential, the Company has made acquisitions, including the acquisition of the Schuh
Group in June 2011 and several smaller acquisitions of businesses in the Lids Sports Group's markets, and expects to
consider acquisition opportunities, either to augment its existing businesses or to enter new businesses that it considers
compatible with its existing businesses, core expertise and strategic profile. Acquisitions involve a number of risks,
including, among others, inaccurate valuation of the acquired business, the assumption of undisclosed liabilities, the
failure to integrate the acquired business appropriately, and distraction of management from existing businesses. The
Company seeks to mitigate these risks by applying appropriate financial metrics in its valuation analysis and developing
and executing plans for due diligence and integration that are appropriate to each acquisition. The Company also seeks
appropriate opportunities to extend existing brands and retail concepts. For example, the Schuh Group opened its first
Schuh Kids store in Scotland during the third quarter of Fiscal 2013. The Company typically tests such extensions on a
relatively small scale to determine their viability and to refine their strategies and operations before making significant,
long-term commitments.
More generally, the Company attempts to develop strategies to mitigate the risks it views as material, including those
discussed under the caption “Forward Looking Statements,” above, and those discussed in Item 1A, "Risk Factors".
Among the most important of these factors are those related to consumer demand. Conditions in the 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 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 or products which are more widely available in the
marketplace and thus more subject to competitive pressures than the Company's typical offering. Moreover, economic
factors, such as persistent unemployment and any future economic contraction and changes in tax policies, 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 and importance in the industry segments in which it competes are important to its ability to mitigate risks
associated with changing customer preferences and other changes in consumer demand.
30
Summary of Results of Operations
The Company’s net sales increased 5.7% during Fiscal 2016 compared to Fiscal 2015. The increase reflected a 6%
increase in Journeys Group sales, an 8% increase in Lids Sports Group sales and a 7% increase in Johnston & Murphy
Group sales, while Schuh Group and Licensed Brands sales remained flat for Fiscal 2016. Gross margin decreased as a
percentage of net sales from 49.0% in Fiscal 2015 to 47.8% in Fiscal 2016, reflecting gross margin decreases as a
percentage of net sales in Schuh Group, Lids Sports Group and Johnston & Murphy Group, partially offset by increased
gross margin as a percentage of net sales in Journeys Group and Licensed Brands. Selling and administrative expenses
decreased as a percentage of net sales from 43.0% in Fiscal 2015 to 42.5% in Fiscal 2016, reflecting decreased expenses
as a percentage of net sales in Schuh Group, Lids Sports Group and Johnston & Murphy Group, partially offset by
increased expenses as a percentage of net sales in Journeys Group and Licensed Brands. Earnings from operations
decreased as a percentage of net sales from 5.8% in Fiscal 2015 to 5.0% in Fiscal 2016, reflecting decreased earnings in
Lids Sports Group and Licensed Brands, partially offset by improved earnings from operations in Journeys Group,
Schuh Group and Johnston & Murphy Group.
Significant Developments
Sale of Lids Team Sports Business
On January 19, 2016, the Company completed the sale of the assets of the Lids Team Sports business, which has
operated within its Lids Sports Group segment, to BSN Sports, LLC. The Company recognized a gain on the sale
estimated at $4.7 million, net of transaction-related expenses before tax. The results of operations for Lids Team Sports
is not a strategic shift that will have a major effect on operations and financial results, and therefore this business has not
been presented as a discontinued operation in the Company's Consolidated Financial Statements.
Pursuant to the purchase agreement, on March 18, 2016, the buyer submitted a proposed adjustment of $2.4 million to
the purchase price based upon a final calculation of certain working capital items as of the closing date. The Company is
reviewing the proposed adjustment and the adjustment is reflected in the Consolidated Financial Statements as having
occurred in the fourth quarter of Fiscal 2016.
Indemnification Asset Write-off
During the third quarter of Fiscal 2015, the Company recorded a pretax charge of $7.1 million for the write-off of an
indemnification asset related to formerly uncertain tax positions that were taken by Schuh at the time of the Company's
acquisition of Schuh, which were favorably resolved during the third quarter of Fiscal 2015.
Change in EVA Incentive Plan
Under the Company's EVA Incentive Plan, bonus awards in excess of a specified cap in any one year were retained and
paid over three subsequent years, subject to reduction or elimination by deteriorating financial performance and
historically were subject to forfeiture if the participant voluntarily resigns from employment with the Company. As a
result, the bonus awards were subject to service conditions that resulted in recognition of expense over the period of
service by the respective employee. During the first quarter of Fiscal 2015, the Company amended the plan to remove
the future service requirement for the payment of the retained bonuses. As a result, the bonus expense that would have
been deferred under the previous plan terms is now recognized in the first year of service. The Company recorded a $5.7
million charge to earnings in the first quarter of Fiscal 2015 in connection with the amendment related to bonus amounts
previously deferred to future years.
Acquisitions
During Fiscal 2016, the Company completed the acquisition of Little Burgundy, a small retail footwear chain in Canada
for a total purchase price of $35.1 million. The stores acquired are operated within the Journeys Group. During Fiscal
2015, the Company completed acquisitions of primarily small retail chains and one small wholesale business for a total
purchase price of $34.9 million. In Fiscal 2014, the Company completed other acquisitions of primarily small retail
chains for a total purchase price of $13.6 million. The stores acquired in Fiscal 2015 and 2014 are operated within the
31
Lids Sports Group. The wholesale business acquired in Fiscal 2015 was operated within Lids Team Sports which was
sold January 19, 2016.
Asset Impairment and Other Charges
The Company recorded a pretax charge to earnings of $7.9 million in Fiscal 2016, including $3.1 million for retail store
asset impairments, $2.5 million for asset write-downs, $2.2 million for network intrusion expenses and $0.1 million for
other legal matters.
The Company recorded a pretax charge to earnings of $2.3 million in Fiscal 2015, including $3.1 million for network
intrusion expenses, $1.9 million for retail store asset impairments and $0.7 million for other legal matters, partially offset
by a $3.4 million gain on a lease termination of a Lids store.
The Company recorded a pretax charge to earnings of $1.3 million in Fiscal 2014, including $3.3 million for network
intrusion expenses, $2.4 million for other legal matters, $2.3 million for retail store asset impairments and $1.6 million
for a lease termination, partially offset by an $8.3 million gain on the lease termination of a New York City Journeys
store.
Postretirement Benefit Liability Adjustments
The return on pension plan assets was a loss of $4.4 million for Fiscal 2016, compared to an expected return of $5.8
million. The discount rate used to measure benefit obligations increased from 3.55% to 4.30% in Fiscal 2016. As a result
of the increase in the discount rate and a change in the mortality table, partially offset by lower than expected asset
returns, the pension liability reflected in the Consolidated Balance Sheets decreased to $10.0 million compared to $22.2
million at the end of Fiscal 2015. There was an decrease in the pension liability adjustment of $9.8 million (net of tax) in
accumulated other comprehensive income in equity. Depending upon future interest rates and returns on plan assets and
other factors, there can be no assurance that additional adjustments in future periods will not be required.
Discontinued Operations
In Fiscal 2016, Fiscal 2015 and Fiscal 2014, the Company recorded an additional charge to earnings of $1.3 million
($0.8 million net of tax), $2.7 million ($1.6 million net of tax) and $0.5 million ($0.3 million net of tax), respectively,
reflected in discontinued operations, primarily for anticipated costs of environmental remedial alternatives related to
former facilities operated by the Company. For additional information, see Notes 3 and 13 to the Consolidated Financial
Statements.
32
Critical Accounting Policies
Inventory Valuation
As discussed in Note 1 to the Consolidated Financial Statements, the Company values its inventories at the lower of cost
or market.
In its footwear wholesale operations and its Schuh Group segment, cost is determined using the first-in, first-out
("FIFO") method. Market value 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 for footwear wholesale. The Company provides reserves when the inventory has not been marked down to market
value based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory
to the Company.
The Lids Sports Group 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.
In its retail operations, other than the Schuh Group and Lids Sports Group segments, 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.
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. A change of 10% from the recorded
provisions for markdowns, shrinkage and damaged goods would have changed inventory by $1.5 million at January 30,
2016.
Impairment of Long-Lived Assets
As discussed in Note 1 to the Consolidated Financial Statements, the Company periodically assesses the realizability of
its long-lived assets, other than goodwill, 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.
The goodwill impairment test involves performing a qualitative assessment, on a reporting unit level, based on current
circumstances. If the results of the qualitative assessment indicate that it is more likely than not that the fair value of a
reporting unit is greater than its carrying amount, a two-step impairment test will not be performed. However, if the
results of the qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, then a two-step impairment test is performed. Alternatively, the Company may elect to bypass
the qualitative assessment and proceed directly to the two-step impairment test, on a reporting unit level. The first step is
33
a comparison of the fair value and carrying value of the business unit with which the goodwill is associated. The
Company estimates fair value using the best information available, and computes the fair value derived by an income
approach utilizing discounted cash flow projections. The income approach uses a projection of a reporting unit’s
estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects
current market conditions. A key assumption in the Company’s fair value estimate is the weighted average cost of capital
utilized for discounting its cash flow projections in its income approach. The Company believes the rate it used in its
annual test, which was completed at the end of fourth quarter, was consistent with the risks inherent in its business and
with industry discount rates. The projection uses management’s best estimates of economic and market conditions over
the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and
cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of
capital expenditures and changes in future working capital requirements.
If the carrying value of the business unit is higher than its fair value, there is an indication that impairment may exist and
the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined
by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner
as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair
value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a
hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less
than the recorded goodwill, the Company would record an impairment charge for the difference.
Environmental and Other Contingencies
The Company is subject to certain loss contingencies related to environmental proceedings and other legal matters,
including those disclosed in Note 13 to the Company’s Consolidated Financial Statements. The Company has made
pretax accruals for certain of these contingencies, including approximately $0.8 million reflected in Fiscal 2016, $2.8
million reflected in Fiscal 2015 and $0.5 million reflected in Fiscal 2014. These charges are included in provision for
discontinued operations, net in the Consolidated Statements of Operations because they relate to former facilities
operated by the Company. The Company monitors these matters on an ongoing basis and, on a quarterly basis,
management reviews the Company’s 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 accrued liability 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 provisions, that
some or all liabilities will be adequate or that the amounts of any such additional provisions or any such inadequacy will
not have a material adverse effect upon the Company’s financial condition or results of operations.
Revenue Recognition
Retail sales are recorded at the point of sale and are net of estimated returns and exclude sales and value added taxes.
Catalog and internet sales are recorded at time of delivery to the customer and are net of estimated returns and exclude
sales and value added taxes. 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.
Income Taxes
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
34
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 increased in a period, the Company includes an expense within the tax provision in the Consolidated
Statements of Operations. These deferred tax valuation allowances may be released in future years when management
considers that it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such
a determination, management will need to periodically evaluate whether or not all available evidence, such as future
taxable income and reversal of temporary differences, tax planning strategies, and recent results of operations, provides
sufficient positive evidence to offset any other potential negative evidence that may exist at such time. In the event the
deferred tax valuation allowance is released, the Company would record an income tax benefit for the portion or all of
the deferred tax valuation allowance released. At January 30, 2016, the Company had a deferred tax valuation allowance
of $3.4 million.
Income tax reserves for uncertain tax positions are determined using the methodology required by the Income Tax Topic
of the Accounting Standards Codification (“Codification”). This methodology 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 to the Company’s Consolidated
Financial Statements for additional information regarding income taxes.
The Company recorded an effective income tax rate of 37.1% for Fiscal 2016 compared to 36.7% for Fiscal 2015 and
41.5% for Fiscal 2014. The effective tax rate for Fiscal 2016 benefited from increased foreign earnings and lowering of
foreign tax rates combined with a release of $1.3 million in valuation allowance on foreign net operating losses no
longer required. The tax rate for Fiscal 2015 was lower than Fiscal 2014 primarily due to a $7.0 million reversal of
charges previously recorded related to formerly uncertain tax positions that were recorded by Schuh at the time of the
purchase by the Company, which were favorably resolved during Fiscal 2015. Related to the same uncertain tax
position, the Company wrote off a $7.1 million indemnification asset during Fiscal 2015.
Postretirement Benefits Plan Accounting
Full-time employees who had at least 1,000 hours of service in calendar year 2004, except employees in the Lids Sports
Group and Schuh Group segments, are covered by a defined benefit pension plan. The Company froze the defined
benefit pension plan effective January 1, 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.
As required by the Compensation – Retirement Benefits Topic of the Codification, the Company is required to recognize
the overfunded or underfunded status of postretirement benefit plans as an asset or liability in their 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.
The Company recognizes pension expense 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.
35
Long Term Rate of Return Assumption – 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 6.35%. 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, 13% international equities, 35% U.S. fixed income securities and 2% cash equivalents. For
Fiscal 2016, if the expected rate of return had been decreased by 1%, net pension expense would have increased by $0.9
million, and if the expected rate of return had been increased by 1%, net pension expense would have decreased by $0.9
million.
Discount Rate – Pension liability and future pension expense increase as the discount rate is reduced. The Company
discounted future pension obligations using a rate of 4.30%, 3.55% and 4.40% for Fiscal 2016, 2015 and 2014,
respectively. The discount rate at January 30, 2016 was determined based on a yield curve of high quality corporate
bonds with cash flows matching the Company’s plans’ expected benefit payments. For Fiscal 2016, if the discount rate
had been increased by 0.5%, net pension expense would have decreased by $0.7 million, and if the discount rate had
been decreased by 0.5%, net pension expense would have increased by $0.7 million. In addition, if the discount rate had
been increased by 0.5%, the projected benefit obligation would have decreased by $6.9 million and the accumulated
benefit obligation would have decreased by $6.9 million. If the discount rate had been decreased by 0.5%, the projected
benefit obligation would have been increased by $7.7 million and the accumulated benefit obligation would have
increased by $7.7 million.
Amortization of Gains and Losses – 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 2016, the Company
had unrecognized actuarial losses of $21.4 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 approximately nine 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 $3.9 million, $2.6 million and $4.4 million in
Fiscal 2016, 2015 and 2014, respectively. The Company’s pension expense is expected to decrease in Fiscal 2017 by
approximately $3.9 million due to a smaller actuarial loss to be amortized, resulting from a higher discount rate and
experience study updates. Additionally, the amortization period for gains and losses has increased due to the experience
study updates.
Comparable Sales
For purposes of this report, "comparable sales" are sales from stores open longer than one year, beginning in the fifty-
third week of a store’s operation (which we refer to in this report as "same store sales"), and sales from websites
operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct
sales"). Temporarily closed stores are excluded from the comparable sales calculation for every full week of the store
closing. Expanded stores are excluded from the comparable sales calculation until the fifty-third week of operation in the
expanded format. Current year foreign exchange rates are applied to both current year and prior year comparable sales
to achieve a consistent basis for comparison.
Results of Operations—Fiscal 2016 Compared to Fiscal 2015
The Company’s net sales for Fiscal 2016 increased 5.7% to $3.02 billion from $2.86 billion in Fiscal 2015. The increase
in net sales was a result of increased sales in Journeys Group, Lids Sports Group and Johnston & Murphy Group, while
Schuh Group and Licensed Brands sales remained flat for Fiscal 2016. Gross margin increased 3.1% to $1.44 billion in
Fiscal 2016 from $1.40 billion in Fiscal 2015, but decreased as a percentage of net sales from 49.0% in Fiscal 2015 to
47.8% in Fiscal 2016, primarily reflecting decreased gross margin as a percentage of net sales in the Lids Sports Group,
Schuh Group and Johnston & Murphy Group, offset slightly by increased gross margin as a percentage of net sales in
36
Journeys Group and Licensed Brands. Selling and administrative expenses in Fiscal 2016 increased 4.3% from Fiscal
2015 but decreased as a percentage of net sales from 43.0% to 42.5%, primarily reflecting expense decreases in Schuh
Group, Lids Sports Group and Johnston & Murphy Group, partially offset by increased expenses in Journeys Group and
Licensed Brands. 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 from continuing operations before income taxes (“pretax earnings”) for Fiscal 2016 were $151.5 million,
compared to $157.0 million for Fiscal 2015. Pretax earnings for Fiscal 2016 included asset impairment and other charges
of $7.9 million, including $3.1 million for retail store asset impairments, $2.5 million for asset write-downs, $2.2 million
for expenses related to the computer network intrusion announced in December 2010 and $0.1 million for other legal
matters. Pretax earnings for Fiscal 2016 also included a gain of $4.7 million on the sale of Lids Team Sports and $1.5
million in expense related to the deferred purchase price obligation related to the Schuh acquisition. Pretax earnings for
Fiscal 2015 included asset impairment and other charges of $2.3 million, including $3.1 million for expenses related to
the computer network intrusion, $1.9 million for retail store asset impairments and $0.7 million for other legal matters,
partially offset by a $3.4 million gain on a lease termination. Pretax earnings for Fiscal 2015 also included an
indemnification asset write-off of $7.1 million related to formerly uncertain tax positions that were taken by Schuh at the
time of the purchase by the Company, which were favorably resolved during the year and $7.3 million in expense related
to the deferred purchase price obligation related to the Schuh acquisition.
Net earnings for Fiscal 2016 were $94.6 million ($4.11 diluted earnings per share) compared to $97.7 million ($4.12
diluted earnings per share) for Fiscal 2015. Net earnings for Fiscal 2016 included a $0.8 million ($0.03 diluted loss per
share) charge to earnings (net of tax), primarily for anticipated costs of environmental remedial alternatives related to
former facilities operated by the Company. Net earnings for Fiscal 2015 included a $1.6 million ($0.07 diluted loss per
share) charge to earnings (net of tax), 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 37.1% for
Fiscal 2016 compared to 36.7% for Fiscal 2015. The effective tax rate for Fiscal 2016 benefited from increased foreign
earnings and lowering of foreign tax rates combined with a release of $1.3 million in valuation allowance on foreign net
operating losses no longer required. The tax rate for Fiscal 2015 was lower primarily due to a $7.0 million reversal of
charges previously recorded related to formerly uncertain tax positions that were taken by Schuh at the time of the
purchase by the Company, which were favorably resolved during Fiscal 2015. See Note 9 to the Consolidated Financial
Statements for additional information.
Journeys Group
Net sales
Earnings from operations
Operating margin
Fiscal Year Ended
2016
2015
(dollars in thousands)
$ 1,251,637
126,248
$
$ 1,179,476
114,784
$
10.1 %
9.7 %
%
Change
6.1 %
10.0 %
Net sales from Journeys Group increased 6.1% to $1.25 billion for Fiscal 2016 from $1.18 billion for Fiscal 2015. The
increase reflects primarily a 5% increase in comparable sales which includes a 5% increase in same store sales and an
18% increase in comparable direct sales, and a 1% 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). The comparable store sales increase reflected a 4% increase in average price per pair of shoes, while footwear
unit comparable sales remained flat. The store count for Journeys Group was 1,222 stores at the end of Fiscal 2016,
including 200 Journeys Kidz stores, 46 Shi by Journeys stores, 98 Underground by Journeys stores, 39 Journeys stores in
Canada and 36 Little Burgundy stores in Canada, acquired in the fourth quarter of Fiscal 2016, compared to 1,182 stores
37
at the end of Fiscal 2015, including 189 Journeys Kidz stores, 49 Shi by Journeys stores, 110 Underground by Journeys
stores and 35 Journeys stores in Canada.
Journeys Group earnings from operations for Fiscal 2016 increased 10.0% to $126.2 million, compared to $114.8
million for Fiscal 2015. The increase in earnings from operations was primarily due to increased net sales and increased
gross margin as a percentage of net sales, reflecting higher initial margins due to changes in sales mix.
Schuh Group
Fiscal Year Ended
2016
2015
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
405,674
19,124
406,947
10,110
4.7 %
2.5 %
(0.3 )%
89.2 %
Net sales from the Schuh Group decreased 0.3% to $405.7 million for Fiscal 2016, compared to $406.9 million for
Fiscal 2015. The sales decrease reflects primarily a decrease of $33.0 million in sales due to the depreciation of the
British Pound, offset by a 12% increase in average stores operated and a 3% increase in comparable sales which includes
a 1% increase in same store sales and a 13% increase in comparable direct sales. Schuh Group operated 125 stores,
including ten Schuh Kids stores at the end of Fiscal 2016 compared to 108 stores, including six Schuh Kids stores at the
end of Fiscal 2015.
Schuh Group earnings from operations increased 89.2% to $19.1 million in Fiscal 2016 compared to $10.1 million for
Fiscal 2015. Earnings included $1.5 million for Fiscal 2016 and $7.3 million for Fiscal 2015 in compensation expense
related to a deferred purchase price obligation in connection with the Schuh acquisition in Fiscal 2014. Earnings also
included $11.8 million for Fiscal 2015 related to accruals for a contingent bonus payment for Schuh employees provided
for in the Schuh acquisition. The increase in earnings from operations was primarily due to decreased expenses as a
percentage of net sales, reflecting the decreases in deferred purchase price expense and contingent bonus expense
referred to above. The decrease in expense more than offset the decreased gross margin as a percentage of net sales,
which reflected increased shipping and warehouse expense and increased promotional activity.
Lids Sports Group
Fiscal Year Ended
2016
2015
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
975,504
17,040
902,661
48,970
1.7 %
5.4 %
8.1 %
(65.2 )%
Net sales from the Lids Sports Group increased 8.1% to $975.5 million for Fiscal 2016 from $902.7 million for Fiscal
2015. The increase primarily reflects a 6% increase in comparable sales, reflecting a 3% increase in same store sales and
a 46% increase in comparable direct sales for Fiscal 2016 and a 2% increase in average Lids Sports Group stores
operated, excluding leased departments. The comparable sales increase reflected a 14% increase in comparable store hat
units sold while the average price per hat decreased 7% reflecting aggressive promotional activity to clear excess
inventory positions throughout the year. Lids Sports Group operated 1,332 stores at the end of Fiscal 2016, including
113 Lids stores in Canada, 228 Lids Locker Room and Clubhouse stores, which include 38 Locker Room stores in
Canada, and 185 Locker Room by Lids leased departments at Macy's, compared to 1,364 stores at the end of Fiscal 2015
including 117 Lids stores in Canada and 242 Lids Locker Room and Clubhouse stores, which include 37 Locker Room
stores in Canada, and 190 Locker Room by Lids leased departments at Macy's.
38
Lids Sports Group earnings from operations for Fiscal 2016 decreased 65.2% to $17.0 million compared to $49.0 million
for Fiscal 2015. The decrease in operating income was primarily due to decreased gross margin as a percentage of net
sales, reflecting promotional activity, changes in sales mix and increased shipping and warehouse expenses.
Johnston & Murphy Group
Net sales
Earnings from operations
Operating margin
$
$
Fiscal Year Ended
2016
2015
%
Change
(dollars in thousands)
$
$
278,681
17,761
259,675
14,856
6.4 %
5.7 %
7.3 %
19.6 %
Johnston & Murphy Group net sales increased 7.3% to $278.7 million for Fiscal 2016 from $259.7 million for Fiscal
2015. The increase reflected primarily a 6% increase in comparable sales which includes a 5% increase in same store
sales and an 11% increase in comparable direct sales, a 1% increase in average stores operated for Johnston & Murphy
retail operations and an 8% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy
wholesale business increased 6% in Fiscal 2016 while the average price per pair of shoes was flat for the same period.
Retail operations accounted for 71.7% of the Johnston & Murphy Group's sales in Fiscal 2016, down slightly from
72.0% in Fiscal 2015. The comparable sales increase in Fiscal 2016 reflects a 4% increase in the average price per pair
of shoes for Johnston & Murphy retail operations and a 1% increase in footwear unit comparable sales. The store count
for Johnston & Murphy retail operations at the end of Fiscal 2016 included 173 Johnston & Murphy shops and factory
stores, including seven stores in Canada, compared to 170 Johnston & Murphy shops and factory stores, including seven
stores in Canada, at the end of Fiscal 2015.
Johnston & Murphy earnings from operations for Fiscal 2016 increased 19.6% to $17.8 million from $14.9 million for
Fiscal 2015, primarily due to increased net sales and decreased expenses as a percentage of net sales, due primarily to
decreased advertising expenses and occupancy costs.
Licensed Brands
Fiscal Year Ended
2016
2015
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
109,826
9,236
110,115
10,459
8.4 %
9.5 %
(0.3 )%
(11.7 )%
Licensed Brands’ net sales decreased 0.3% to $109.8 million for Fiscal 2016 from $110.1 million for Fiscal 2015. The
small sales decrease reflects decreased sales of Dockers Footwear, offset by increased sales of SureGrip Footwear and
Chaps Footwear. The sales decrease in Dockers Footwear reflects weakness in the department store channel. Unit sales
for Dockers Footwear decreased 6% for Fiscal 2016, while the average price per pair of shoes increased 2% for the same
period.
Licensed Brands’ earnings from operations for Fiscal 2016 decreased 11.7%, from $10.5 million for Fiscal 2015 to $9.2
million, primarily due to increased expenses as a percentage of net sales, reflecting start-up costs for the launch of the
Bass footwear line and increased compensation and bad debt expenses.
39
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2016 was $38.2 million compared to $31.9 million for Fiscal 2015. Corporate
expense in Fiscal 2016 included $7.9 million in asset impairment and other charges, primarily for retail store asset
impairments, asset write-downs, network intrusion expenses and other legal matters. Corporate expense in Fiscal 2015
included $2.3 million in asset impairment and other charges, primarily for network intrusion expenses, retail store asset
impairments and other legal matters, partially offset by a gain on a lease termination. Excluding the charges listed above,
corporate and other expense increased primarily due to increased compensation expense and professional fees, partially
offset by decreased foreign exchange losses.
Net interest expense increased 36.4% from $3.2 million in Fiscal 2015 to $4.4 million in Fiscal 2016 primarily due to
increased revolver borrowings compared to the previous year as a result of the share repurchase program, Little
Burgundy acquisition and increased borrowings to fund the Schuh contingent bonus and deferred purchase price
payments.
Results of Operations—Fiscal 2015 Compared to Fiscal 2014
The Company’s net sales for Fiscal 2015 increased 8.9% to $2.86 billion from $2.62 billion in Fiscal 2014. The increase
in net sales was a result of increased sales across all of the Company's business segments. Gross margin increased 7.8%
to $1.40 billion in Fiscal 2015 from $1.30 billion in Fiscal 2014, but decreased as a percentage of net sales from 49.5%
in Fiscal 2014 to 49.0% in Fiscal 2015, primarily reflecting decreased gross margin as a percentage of net sales in the
Schuh Group, Lids Sports Group and Johnston & Murphy Group, offset slightly by increased gross margin as a
percentage of net sales in Journeys Group and Licensed Brands. Selling and administrative expenses in Fiscal 2015
increased 8.5% from Fiscal 2014 but decreased as a percentage of net sales from 43.2% to 43.0%, primarily reflecting
expense decreases in Journeys Group and Schuh Group, partially offset by increased expenses in Lids Sports Group,
Johnston & Murphy Group and Licensed Brands. 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 2015 were $157.0 million, compared to $158.9 million for Fiscal 2014. Pretax earnings for
Fiscal 2015 included asset impairment and other charges of $2.3 million, including $3.1 million for expenses related to
the computer network intrusion announced in December 2010, $1.9 million for retail store asset impairments and $0.7
million for other legal matters, partially offset by a $3.4 million gain on a lease termination. Pretax earnings for Fiscal
2015 also included an indemnification asset write-off of $7.1 million related to formerly uncertain tax positions that
were taken by Schuh at the time of the purchase by the Company, which were favorably resolved during the year and
$7.3 million in expense related to the deferred purchase price obligation related to the Schuh acquisition. Pretax
earnings for Fiscal 2014 included asset impairment and other charges of $1.3 million, including $3.3 million for
expenses related to the computer network intrusion announced in December 2010, $2.4 million for other legal matters,
$2.3 million for retail store asset impairments and $1.6 million for a lease termination partially offset by an $(8.3)
million gain on the lease termination of a New York City Journeys store. Pretax earnings for Fiscal 2014 also include
$11.7 million in expense related to the deferred purchase price obligation related to the Schuh acquisition.
Net earnings for Fiscal 2015 were $97.7 million ($4.12 diluted earnings per share) compared to $92.7 million ($3.92
diluted earnings per share) for Fiscal 2014. Net earnings for Fiscal 2015 included a $1.6 million ($0.07 diluted loss per
share) charge to earnings (net of tax), primarily for anticipated costs of environmental remedial alternatives related to
former facilities operated by the Company. Net earnings for Fiscal 2014 included a $0.3 million ($0.02 diluted loss per
share) charge to earnings (net of tax) 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 36.7% for
Fiscal 2015 compared to 41.5% for Fiscal 2014. The tax rate for Fiscal 2015 was lower primarily due to a $7.0 million
reversal of charges previously recorded related to formerly uncertain tax positions that were taken by Schuh at the time
40
of the purchase by the Company, which were favorably resolved during Fiscal 2015. See Note 9 to the Consolidated
Financial Statements for additional information.
Journeys Group
Net sales
Earnings from operations
Operating margin
Fiscal Year Ended
2015
2014
%
Change
(dollars in thousands)
$ 1,179,476
114,784
$
$ 1,082,241
97,377
$
9.7 %
9.0 %
9.0 %
17.9 %
Net sales from Journeys Group increased 9.0% to $1.18 billion for Fiscal 2015 from $1.08 billion for Fiscal 2014. The
increase reflects primarily an 8% increase in comparable sales which includes a 7% increase in same store sales and a
30% increase in comparable direct sales, and a 1% 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). The comparable store sales increase reflected a 6% increase in footwear unit comparable sales while the
average price per pair of shoes remained flat. The store count for Journeys Group was 1,182 stores at the end of Fiscal
2015, including 189 Journeys Kidz stores, 49 Shi by Journeys stores, 110 Underground by Journeys stores and 35
Journeys stores in Canada, compared to 1,168 stores at the end of Fiscal 2014, including 174 Journeys Kidz stores, 50
Shi by Journeys stores, 117 Underground by Journeys stores and 31 Journeys stores in Canada.
Journeys Group earnings from operations for Fiscal 2015 increased 17.9% to $114.8 million, compared to $97.4 million
for Fiscal 2014. The increase in earnings from operations was primarily due to increased net sales, increased gross
margin as a percentage of net sales, reflecting lower markdowns, and to decreased expenses as a percentage of net sales,
reflecting positive leverage from positive comparable sales.
Schuh Group
Fiscal Year Ended
2015
2014
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
406,947
10,110
364,732
3,063
2.5 %
0.8 %
11.6 %
230.1 %
Net sales from the Schuh Group increased 11.6% to $406.9 million for Fiscal 2015, compared to $364.7 million for
Fiscal 2014. The sales increase reflects primarily a 7% increase in average stores operated, an increase of $12.2 million
in sales due to the appreciation of the British Pound and a 1% increase in comparable sales which includes a 1%
decrease in same store sales and a 12% increase in comparable direct sales. Schuh Group operated 108 stores, including
six Schuh Kids stores at the end of Fiscal 2015 compared to 99 stores, including four Schuh Kids stores at the end of
Fiscal 2014.
Schuh Group earnings from operations increased to $10.1 million in Fiscal 2015 compared to $3.1 million for Fiscal
2014. Earnings included $7.3 million for Fiscal 2015 and $11.7 million for Fiscal 2014 in compensation expense
related to a deferred purchase price obligation in connection with the acquisition. Earnings also included $11.8 million
for Fiscal 2015 and $13.1 million for Fiscal 2014 related to accruals for a contingent bonus payment for Schuh
employees provided for in the Schuh acquisition. The increase in earnings from operations was primarily due to
increased net sales and decreased expenses as a percentage of net sales, reflecting the decreases in deferred purchase
price expense and contingent bonus expense referred to above. The decrease in expense more than offset the decreased
41
gross margin as a percentage of net sales, which reflected increased shipping and warehouse expense and increased
markdowns.
Lids Sports Group
Fiscal Year Ended
2015
2014
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
902,661
48,970
820,996
63,748
5.4 %
7.8 %
9.9 %
(23.2 )%
Net sales from the Lids Sports Group increased 9.9% to $902.7 million for Fiscal 2015 from $821.0 million for Fiscal
2014. The increase primarily reflects a 6% increase in average Lids Sports Group stores operated, excluding leased
departments, and a 2% increase in comparable sales, reflecting a 1% increase in same store sales and a 14% increase in
comparable direct sales for Fiscal 2015. The comparable sales increase reflected a 2% increase in comparable store hat
units sold while the average price per hat remained flat. Lids Sports Group operated 1,364 stores at the end of Fiscal
2015, including 117 Lids stores in Canada, 242 Lids Locker Room and Clubhouse stores, which include 37 Locker
Room stores in Canada, and 190 Locker Room by Lids leased departments at Macy's, compared to 1,133 stores at the
end of Fiscal 2014, including 110 Lids stores in Canada and 177 Lids Locker Room and Clubhouse stores, and 26
Locker Room by Lids leased departments at Macy's.
Lids Sports Group earnings from operations for Fiscal 2015 decreased 23.2% to $49.0 million compared to $63.7 million
for Fiscal 2014. The decrease in operating income was primarily due to decreased gross margin as a percentage of net
sales, reflecting promotional activity, increased shipping and warehouse expenses and changes in sales mix, and to
increased expenses as a percentage of net sales, primarily reflecting increased occupancy and central expenses to support
growth initiatives.
Johnston & Murphy Group
Fiscal Year Ended
2015
2014
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
259,675
14,856
245,941
17,638
5.7 %
7.2 %
5.6 %
(15.8 )%
Johnston & Murphy Group net sales increased 5.6% to $259.7 million for Fiscal 2015 from $245.9 million for Fiscal
2014. The increase reflected primarily a 5% increase in average stores operated for Johnston & Murphy retail operations,
a 1% increase in comparable sales which includes a 1% increase in same store sales and a 1% decrease in comparable
direct sales, and a 4% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy wholesale
business increased 3% in Fiscal 2015 and the average price per pair of shoes increased 1% for the same period. Retail
operations accounted for 71.8% of the Johnston & Murphy Group's sales in Fiscal 2015, down slightly from 71.9% in
Fiscal 2014. The comparable sales increase in Fiscal 2015 reflects a 3% increase in the average price per pair of shoes
for Johnston & Murphy retail operations, while footwear unit comparable sales decreased 3%. The store count for
Johnston & Murphy retail operations at the end of Fiscal 2015 included 170 Johnston & Murphy shops and factory
stores, including seven stores in Canada, compared to 168 Johnston & Murphy shops and factory stores, including seven
stores in Canada, at the end of Fiscal 2014.
Johnston & Murphy earnings from operations for Fiscal 2015 decreased 15.8% to $14.9 million from $17.6 million for
Fiscal 2014, primarily due to decreased gross margin as a percentage of net sales, reflecting higher markdowns and
42
increased shipping and warehouse expenses, and to increased expenses as a percentage of net sales, due primarily to
increased advertising expenses, occupancy costs and selling salaries.
Licensed Brands
Net sales
Earnings from operations
Operating margin
$
$
Fiscal Year Ended
2015
2014
%
Change
(dollars in thousands)
$
$
110,115
10,459
109,780
10,614
9.5 %
9.7 %
0.3 %
(1.5 )%
Licensed Brands’ net sales increased 0.3% to $110.1 million for Fiscal 2015 from $109.8 million for Fiscal 2014. The
small sales increase reflects an increase in sales of SureGrip Footwear, mostly offset by decreased sales of Dockers
Footwear. Unit sales for Dockers Footwear decreased 6% for Fiscal 2015, while the average price per pair of shoes
increased 4% for the same period.
Licensed Brands’ earnings from operations for Fiscal 2015 decreased 1.5%, from $10.6 million for Fiscal 2014 to $10.5
million, primarily due to increased expenses as a percentage of net sales, reflecting license agreement expense and
increased compensation and depreciation expenses.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2015 was $31.9 million compared to $29.0 million for Fiscal 2014. Corporate
expense in Fiscal 2015 included $2.3 million in asset impairment and other charges, primarily for network intrusion
expenses, retail store asset impairments and other legal matters, partially offset by a gain on a lease termination.
Corporate expense in Fiscal 2014 included $1.3 million in asset impairment and other charges, primarily for network
intrusion expenses, retail store asset impairments, other legal matters and a lease termination, partially offset by a gain
on another lease termination. Excluding the charges listed above, corporate and other expense increased primarily due to
increased bonus expense as a result of the reversal of bonus accruals last year.
Net interest expense decreased 29.5% from $4.6 million in Fiscal 2014 to $3.2 million in Fiscal 2015 primarily due to
lower average borrowings under the Company's Credit Facility.
Liquidity and Capital Resources
The following table sets forth certain financial data at the dates indicated.
Cash and cash equivalents
Working capital
Long-term debt (includes current maturities)
Working Capital
Jan. 30, 2016
Jan. 31, 2015
Feb. 1, 2014
(dollars in millions)
$
$
$
133.3 $
476.5 $
112.1 $
112.9 $
441.7 $
29.2 $
59.4
451.3
33.7
The Company’s business is 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.
43
Cash provided by operating activities was $145.1 million in Fiscal 2016 compared to $189.8 million in Fiscal 2015. The
$44.7 million decrease from operating activities from Fiscal 2015 reflects a decrease in cash flow from changes in other
accrued liabilities and other assets and liabilities combined, accounts payable and prepaids and other current assets of
$52.7 million, $25.1 million and $9.1 million, respectively, partially offset by a $58.8 million increase in cash flow from
changes in inventory.
The $52.7 million decrease in cash flow from other accrued liabilities and other assets and liabilities combined reflects
the Schuh contingent bonus, deferred purchase price and other acquisition related payments and an increase in income
tax payments this year versus last year. The $25.1 million decrease in cash flow from accounts payable reflects changes
in buying patterns and payment terms negotiated with individual vendors and is related to the reduction in inventory.
The $9.1 million decrease in cash flow from prepaids and other current assets reflects changes in prepaid taxes and
increased prepaid rent from store growth. The $58.8 million increase in cash flow from inventory reflects a reduction in
Lids Sports Group inventory, partially offset primarily by an increase in Journeys Group inventory.
The $27.8 million decrease in inventories at January 30, 2016 from January 31, 2015 levels reflects decreases in Lids
Sports Group, partially offset by increased inventory in Journeys Group, Johnston & Murphy Group and Licensed
Brands.
Accounts receivable at January 30, 2016 increased $6.7 million compared to January 31, 2015 due to increased footwear
wholesale sales and the Company's processing of payroll for former Lids Team Sports employees during a transitional
period following the sale of the Lids Team Sports business, for which the Company is due reimbursement as a result of
the sale of that business.
Cash provided by operating activities was $189.8 million in Fiscal 2015 compared to $140.0 million in Fiscal 2014. The
$49.8 million increase from operating activities from Fiscal 2014 reflects an increase in cash flow from changes in
inventory, prepaids and other current assets and accounts payable of $27.4 million, $9.1 million and $7.8 million,
respectively, and to increased earnings. The $27.4 million increase in cash flow from inventory reflects a reduction in
Journeys Group inventory.
The $9.1 million increase in cash flow from prepaids and other current assets reflected changes in prepaid income taxes.
The $7.8 million increase in cash flow from accounts payable reflects changes in buying patterns and payment terms
negotiated with individual vendors.
The $31.0 million increase in inventories at January 31, 2015 from February 1, 2014 levels reflects increases in Lids
Sports Group and Johnston & Murphy retail inventory, resulting from a net increase of 231 Lids Sports Group stores and
leased departments, slower than expected holiday sales and increased wholesale inventory in Lids Team Sports and
Johnston & Murphy.
Accounts receivable at January 31, 2015 increased $1.3 million compared to February 1, 2014.
Sources of Liquidity
The Company has three principal sources of liquidity: cash from operations, cash and cash equivalents on hand and the
Credit Facilities discussed below. The Company believes that cash and cash equivalents on hand, cash from operations
and availability under its Credit Facilities will be sufficient to cover its working capital and capital expenditures for the
foreseeable future.
On December 4, 2015, the Company entered into the First Amendment to the Third Amended and Restated Credit
Agreement dated as of January 31, 2014 (the “Credit Facility”) by the among the company, certain subsidiaries of the
Company party thereto, as other Borrowers, with the lenders party thereto and Bank of America, N.A., as agent,
providing for a revolving credit facility in the aggregate principal amount of $400.0 million, including a $70.0 million
sublimit for the issuance of letters of credit and a domestic swingline subfacility of up to $40.0 million, a revolving
credit subfacility for the benefit of GCO Canada, Inc. in an aggregate amount not to exceed $70.0 million, which
includes a $5.0 million sublimit for the issuance of letters of credit, and revolving credit subfacility for the benefit of
44
Genesco (UK) Limited in an aggregate amount not to exceed $50.0 million, which includes a $10.0 million sublimit for
the issuance of letters of credit and a swingline subfacility of up to $10.0 million. The facility has a five-year term from
January 31, 2014. Any swingline loans and any letters of credit and borrowings under the Canadian facilities will reduce
the availability under the Credit Facility on a dollar-for-dollar basis.
The Company has the option, from time to time, to increase the availability under the Credit Facility by an aggregate
amount of up to $150.0 million subject to, among other things, the receipt of commitments for the increased amount. In
connection with this increased facility, the Canadian revolving credit facility may be increased up to no more than $85.0
million.
Genesco (UK) Limited has a one-time option to increase the availability of its subfacility under the Credit Facility by an
additional amount of up to $50.0 million.
The aggregate amount of the loans made and letters of credit issued under the Credit Facility shall at no time exceed the
lesser of the facility amount ($400.0 million or, if increased as described above, up to $550.0 million or $600.0 million,
respectively) or the "Borrowing Base", which generally is based on 90% of eligible inventory plus 85% of eligible
wholesale receivables plus 90% of eligible credit card and debit card receivables less applicable reserves (the "Loan
Cap"). The relevant assets of Genesco (UK) Limited will be included in the Borrowing Base if the additional $50.0
million sublimit increase is exercised, provided that amounts borrowed by Genesco (UK) Limited based solely on its
own borrowing base will be limited to $50.0 million and the total outstanding to Genesco (UK) Limited will not exceed
30% of the Loan Cap.
The Credit Facility also provides that a first-in, last-out tranche could be added to the revolving credit facility at the
option of the Company subject to, among other things, the receipt of commitments for such tranche. For additional
information on the Company’s Credit Facility, see Note 6 to the Consolidated Financial Statements included in Item 8,
"Financial Statements and Supplementary Data".
In May 2015, Schuh Group Limited entered into a Form of Amended and Restated Facilities Agreement and Working
Capital Facility Letter ("UK Credit Facilities") which replaced the former A, B and C term loans with a new Facility A of
£17.5 million and a Facility B of £11.6 million (which was the former Facility C loan) as well as provided an additional
revolving credit facility, Facility C, of £22.5 million and a working capital facility of £2.5 million. The Facility A loan
bears interest at LIBOR plus 1.8% per annum with quarterly payments through April 2017. The Facility B loan bears
interest at LIBOR plus 2.5% per annum with quarterly payments through September 2019. The Facility C bears interest
at LIBOR plus 2.2% per annum and expires in September 2019.
There were $28.9 million in UK term loans and $24.8 million in UK revolver loans outstanding at January 30, 2016.
The UK Credit Facilities contain certain covenants at the Schuh level including a minimum interest coverage covenant
of 4.50x and thereafter, a maximum leverage covenant initially set at 2.25x declining over time at various rates to 1.75x
beginning in April 2017 and a minimum cash flow coverage of 1.00x. The Company was in compliance with all the
covenants at January 30, 2016. The UK Credit Facilities are secured by a pledge of all the assets of Schuh and its
subsidiaries.
The Company's revolving credit borrowings averaged $49.6 million during Fiscal 2016 and $17.3 million during Fiscal
2015, as cash on hand, cash generated from operations and revolver borrowings primarily funded seasonal working
capital requirements, capital expenditures and stock repurchases for Fiscal 2016 and Fiscal 2015, along with the
acquisition of Little Burgundy in Fiscal 2016.
There were $13.5 million of letters of credit outstanding and $58.3 million of revolver borrowings outstanding, including
$22.1 million (£15.6 million) related to Genesco (UK) Limited and $36.2 million (C$51.0 million) related to GCO
Canada, under the Credit Facility at January 30, 2016. The Company is not required to comply with any financial
covenants under the Credit Facility unless Excess Availability (as defined in the Credit Agreement) is less than the
greater of $25.0 million or 10.0% of the Loan Cap. If and during such time as Excess Availability is less than the greater
of $25.0 million or 10.0% of the Loan Cap, the Credit Facility requires the Company to meet a minimum fixed charge
coverage ratio of (a) an amount equal to consolidated EBITDA less capital expenditures and taxes paid in cash, in each
45
case for such period, to (b) fixed charges for such period, of not less than 1.0:1.0. Excess Availability was $279.3 million
at January 30, 2016. Because Excess Availability exceeded $25.0 million or 10.0% of the Loan Cap, the Company was
not required to comply with this financial covenant at January 30, 2016.
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 and to agreements which would have a material adverse effect if breached, certain events of
bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts and change in control.
The Company’s Credit Facility prohibits the payment of dividends and other restricted payments unless as of the date of
the making of any Restricted Payment (as defined in the Credit Facility) or consummation of any Acquisition (as defined
in the Credit Facility), (a) no Default (as defined in the Credit Facility) or Event of Default (as defined in the Credit
Facility)exists or would arise after giving effect to such Restricted Payment or Acquisition, and (b) either (i) the
Borrowers (as defined in the Credit Facility) have pro forma projected Excess Availability for the following six month
period equal to or greater than 25% of the Loan Cap, after giving pro forma effect to such Restricted Payment or
Acquisition, or (ii) (A) the Borrowers have pro forma projected Excess Availability for the following six month period of
less than 25% of the Loan Cap but equal to or greater than 15% of the Loan Cap, after giving pro forma effect to the
Restricted Payment or Acquisition, and (B) the Fixed Charge Coverage Ratio (as defined in the Credit Facility), on a
pro-forma basis for the twelve months preceding such Restricted Payment or Acquisition, will be equal to or greater than
1.0:1.0 and (c) after giving effect to such Restricted Payment or Acquisition, the Company and the other Borrowers
under the Credit Facility are Solvent (as defined in the Credit Facility). Notwithstanding the foregoing, the company
may make cash dividends on preferred stock up to $500,000 in any fiscal year absent a continuing Event of Default. The
Company’s management does not expect availability under the Credit Facility to fall below the requirements listed above
during Fiscal 2017.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
The following tables set forth aggregate contractual obligations and commitments as of January 30, 2016.
(in thousands)
Contractual Obligations
Long-Term Debt Obligations
Operating Lease Obligations
Purchase Obligations(1)
Long-Term Obligations – Schuh(2)
Other Long-Term Liabilities
Total Contractual Obligations(3)
$
$
Payments Due by Period
Total
112,058 $
1,297,902
678,582
2,939
1,134
2,092,615 $
Less than 1
year
1 - 3
years
3 - 5
years
14,182 $
238,660
678,582
984
176
932,584 $
63,308 $
387,144
—
1,501
351
452,304 $
34,568 $
295,662
—
454
351
331,035 $
(in thousands)
Amount of Commitment Expiration Per Period
Commercial Commitments
Total Amounts
Committed
Less than 1
year
1 - 3
years
3 - 5
years
More
than 5
years
—
376,436
—
—
256
376,692
More
than 5
years
Letters of Credit
Total Commercial Commitments
$
$
13,519 $
13,519 $
13,519 $
13,519 $
— $
— $
— $
— $
—
—
(1) Represents open purchase orders for inventory.
46
(2) Includes interest on the UK debt. For additional information, see Note 6 to the Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data".
(3) Excludes unrecognized tax benefits of $10.2 million due to their uncertain nature in timing of payments, if any.
The total accrued benefit liability for pension and other postretirement benefit plans as of January 30, 2016, was $16.8
million. This amount is impacted by, among other items, pension expense, funding levels, plan amendments, changes in
plan demographics and assumptions, and the investment return on plan assets. Because the accrued liability does not
represent expected liquidity needs, the Company did not include this amount in the contractual obligations table. There
is no requirement for the Company to make a pension plan contribution. See Note 10 to the Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
Capital Expenditures
Capital expenditures were $100.7 million, $103.1 million and $98.5 million for Fiscal 2016, 2015 and 2014,
respectively. The $2.4 million decrease in Fiscal 2016 capital expenditures as compared to Fiscal 2015 is primarily due
to decreases in capital expenditures of Lids Sports Group partially offset by increased retail capital expenditures in
Journeys Group. The $4.6 million increase in Fiscal 2015 capital expenditures as compared to Fiscal 2014 reflected an
increase primarily due to major capital projects related to a fit-out of a new distribution center and construction of a new
office building.
Total capital expenditures in Fiscal 2017 are expected to be approximately $125 million to $135 million. These include
retail capital expenditures of approximately $114 million to $124 million to open approximately 40 Journeys stores,
including 10 in Canada, 45 Journeys Kidz stores, two Little Burgundy stores, nine Schuh stores, including three Schuh
Kids stores, nine Johnston & Murphy shops and factory stores, and 25 Lids Sports Group stores, including 20 Lids
stores, with 5 stores in Canada, and 5 Lids Locker Room stores, and to complete approximately 231 major store
renovations. The planned amount of capital expenditures in Fiscal 2017 for wholesale operations and other purposes is
approximately $11 million, including approximately $5.6 million for new systems.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations and borrowings under its Credit Facilities will
be sufficient to support seasonal working capital, capital expenditure requirements and share repurchases during Fiscal
2017. The approximately $11.4 million of costs associated with discontinued operations that are expected to be paid
during the next twelve months are expected to be funded from cash on hand, cash generated from operations and
borrowings under the Credit Facilities during Fiscal 2017.
The Company had total available cash and cash equivalents of $133.3 million and $112.9 million as of January 30, 2016
and January 31, 2015, respectively, of which approximately $24.1 million and $25.2 million was held by the Company's
foreign subsidiaries as of January 30, 2016 and January 31, 2015, respectively. The Company's strategic plan does not
require the repatriation of foreign cash in order to fund its operations in the U.S., and it is the Company's current
intention to permanently reinvest its foreign cash and cash equivalents outside of the U.S. If the Company were to
repatriate foreign cash to the U.S., it would be required to accrue and pay U.S. taxes in accordance with applicable U.S.
tax rules and regulations as a result of the repatriation.
Common Stock Repurchases
Pursuant to its Board-approved share repurchase program, the Company repurchased 2,383,384 shares at a cost of
$144.9 million during Fiscal 2016, of which $7.2 million was not paid in the fourth quarter but included in other accrued
liabilities in the Consolidated Balance Sheets. The Company has repurchased 663,200 shares in the first quarter of Fiscal
2017, through March 29, 2016, at a cost of $43.2 million. The Company has $40.9 million remaining as of March 29,
2016 under its current $100.0 million share repurchase authorization. The Company repurchased 64,709 shares at a cost
of $4.6 million during Fiscal 2015. The Company repurchased 337,665 shares at a cost of $20.7 million during Fiscal
2014.
47
Environmental and Other Contingencies
The Company is subject to certain loss contingencies related to environmental proceedings and other legal matters,
including those disclosed in Item 3, "Legal Proceedings" and Note 13 to the Company’s Consolidated Financial
Statements. The Company has made pretax accruals for certain of these contingencies, including approximately $0.8
million reflected in Fiscal 2016, $2.8 million reflected in Fiscal 2015 and $0.5 million reflected in Fiscal 2014. These
charges are included in provision for discontinued operations, net in the Consolidated Statements of Operations because
they relate to former facilities operated by the Company. The Company monitors these matters on an ongoing basis and,
on a quarterly basis, management reviews the Company’s 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 accrued liability in relation to each
proceeding is a best estimate of the 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 provisions, that some or all liabilities may not be adequate or that the amounts of any such additional
provisions or any such inadequacy will not have a material adverse effect upon the Company’s financial condition or
results of operations.
Financial Market Risk
The following discusses the Company’s exposure to financial market risk.
Outstanding Debt of the Company – The Company has $28.9 million of outstanding U.K. term loans at a weighted
average interest rate of 2.78% as of January 30, 2016. A 100 basis point increase in interest rates would increase annual
interest expense by $0.3 million on the $28.9 million term loans. The Company has $24.8 million of outstanding U.K.
revolver borrowings at a weighted average interest rate of 2.78% as of January 30, 2016. A 100 basis point increase in
interest rates would increase annual interest expense by $0.2 million on the $24.8 million revolver borrowings. The
Company has $58.3 million of outstanding U.S. revolver borrowings at a weighted average interest rate of 2.12% as of
January 30, 2016. A 100 basis point increase in interest rates would increase annual interest expense by $0.6 million on
the $58.3 million revolver borrowings.
Cash and Cash Equivalents – 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 January 30, 2016. As a result, the Company considers the interest rate market risk implicit in
these investments at January 30, 2016 to be low.
Summary – Based on the Company’s overall market interest rate exposure at January 30, 2016, the Company believes
that the effect, if any, of reasonably possible near-term changes in interest rates on the Company’s consolidated financial
position, results of operations or cash flows for Fiscal 2017 would not be material.
Accounts Receivable – The Company’s accounts receivable balance at January 30, 2016 is concentrated primarily in two
of its footwear wholesale businesses, which sell primarily to department stores and independent retailers across the
United States. In the footwear wholesale wholesale businesses, one customer accounted for 9%, two other customers
each accounted for 8% while all other customers accounted for 7% or less of the Company’s total trade receivables
balance as of January 30, 2016. 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.
Foreign Currency Exchange Risk – The Company is exposed to translation risk because certain of its foreign operations
utilize the local currency as their functional currency and those financial results must be translated into United States
dollars. As currency exchange rates fluctuate, translation of the Company's financial statements of foreign businesses
into United States dollars affects the comparability of financial results between years.
48
New Accounting Principles
In February 2016, the FASB issued ASU 2016-02, "Leases" ("ASU 2016-02"). The standard's core principle is to
increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance
sheet and disclosing key information. The standard is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, which would be the beginning of our Fiscal 2020 or February 2019.
Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on
its Consolidated Financial Statements and related disclosures and is expecting a material impact because the Company is
party to a significant number of lease contracts.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17").
ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be
classified as noncurrent on the balance sheet. ASU 2015-17 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2016 and may be applied either prospectively or retrospectively. Early adoption is
permitted. As of January 30, 2016, the Company has $29.0 million of current deferred tax assets that will be reclassed to
noncurrent deferred tax assets on its Consolidated Balance Sheets. The change to noncurrent classification could have a
significant impact on our working capital. The Company is currently assessing which transition method will be adopted.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03").
In August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent measurement of Debt Issuance Costs
Associated with Line-of-Credit Arrangements" ("ASU 2015-15"). ASU 2015-03 will require that debt issuance costs be
presented in the balance sheet as a deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to
present debt issuance costs associated with a revolving line of credit arrangement as an asset, regardless of whether a
balance is outstanding. The recognition and measurement guidance for debt issuance costs are not affected by ASU
2015-03 or ASU 2015-15. These ASU's are effective for annual reporting periods beginning after December 15, 2015,
including interim periods within that reporting period, with early adoption permitted. ASU 2015-03 will require the
Company to reclassify its deferred financing costs associated with its long-term debt from other noncurrent assets to
long-term debt on a retrospective basis. The Company does not expect the new standards to impact the Company's
results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09").
ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and
merges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a
five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of
risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenues and cash flows from contracts with customers. ASU 2014-09 was originally effective for fiscal
years, and interim periods within those years, beginning after December 15, 2016, however, in August 2015, the FASB
deferred this ASU for one year, which would be the beginning of our Fiscal 2019 or February 2018. The amendment is
to be applied either retrospectively to each prior reporting period presented or with the cumulative effect recognized at
the date of initial adoption as an adjustment to the opening balance of retained earnings (or other appropriate
components of equity or net assets on the balance sheet). Early adoption is not permitted. The Company is currently
assessing the impact the adoption of ASU 2014-09 will have on its Consolidated Financial Statements and related
disclosures, including which transition method will be adopted.
Inflation
The Company does not believe inflation has had a material impact on sales or operating results during periods covered in
this discussion.
49
ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information regarding market risk appearing under the heading “Financial Market
Risk” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, January 30, 2016 and January 31, 2015
Consolidated Statements of Operations, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Equity, each of the three fiscal years ended 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Page
51
52
53
55
56
57
58
59
50
Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting
The Board of Directors and Shareholders
Genesco Inc.
We have audited Genesco Inc. and Subsidiaries' internal control over financial reporting as of January 30, 2016, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). Genesco Inc. and Subsidiaries' 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 Annual 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 (1) 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. and Subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of January 30, 2016, 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. and Subsidiaries as of January 30, 2016 and January 31, 2015, and the related
consolidated statements of operations, comprehensive income, cash flows, and equity for each of the three fiscal years in the
period ended January 30, 2016, and our report dated March 30, 2016 expressed an unqualified opinion thereon. Our audits also
included the financial statement schedule listed in the Index at Item 15.
Nashville, Tennessee
March 30, 2016
/s/ Ernst & Young LLP
51
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Genesco Inc.
We have audited the accompanying consolidated balance sheets of Genesco Inc. and Subsidiaries (the “Company”) as of
January 30, 2016 and January 31, 2015, and the related consolidated statements of operations, comprehensive income, cash
flows and equity for each of the three fiscal years in the period ended January 30, 2016. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and schedule 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 January 30, 2016 and January 31, 2015, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period ended January 30, 2016, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth
therein.
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 January 30, 2016, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework), and our report dated March 30, 2016 expressed an unqualified opinion thereon.
Nashville, Tennessee
March 30, 2016
/s/ Ernst & Young LLP
52
Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $2,960 at January 30,
2016 and $4,191 at January 31, 2015
Inventories
Deferred income taxes
Prepaids and other current assets
Total current assets
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, net of accumulated amortization of $5,039 at
January 30, 2016 and $5,054 at January 31, 2015
Other intangibles, net of accumulated amortization of $15,947 at
January 30, 2016 and $23,389 at January 31, 2015
Other noncurrent assets
Total Assets
As of Fiscal Year End
January 30,
2016
January 31,
2015
$
133,288 $
112,867
47,265
529,758
28,965
60,810
800,086
8,038
51,768
183,985
209,337
16,190
359,591
828,909
(505,581 )
323,328
959
281,385
55,263
598,145
28,293
53,090
847,658
7,653
32,872
164,512
192,078
25,587
349,087
771,789
(466,037 )
305,752
31
296,865
86,740
82,263
3,569
45,416
1,541,483 $
11,585
38,933
1,583,087
$
53
Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts
Liabilities and Equity
Current Liabilities:
Accounts payable
Accrued employee compensation
Accrued other taxes
Accrued income taxes
Current portion – long-term debt
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
Equity
Non-redeemable preferred stock
Common equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued/Outstanding:
January 30, 2016 – 22,322,799/21,834,335
January 31, 2015 – 24,515,362/24,026,898
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares, at cost (488,464 shares)
Total Genesco equity
Noncontrolling interest – non-redeemable
Total equity
Total Liabilities and Equity
As of Fiscal Year End
January 30,
2016
January 31,
2015
$
154,241 $
23,666
24,508
16,349
14,182
79,282
11,389
323,617
97,876
9,957
149,020
4,230
584,700
176,307
88,030
33,965
12,921
13,152
71,036
10,505
405,916
16,003
22,184
135,953
4,254
584,310
1,077
1,274
22,323
224,004
768,222
(42,613 )
(17,857 )
955,156
1,627
956,783
1,541,483 $
24,515
208,888
820,563
(40,576 )
(17,857 )
996,807
1,970
998,777
1,583,087
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
54
Genesco Inc.
and Subsidiaries
Consolidated Statements of Operations
In Thousands, except per share amounts
Net sales
Cost of sales
Selling and administrative expenses
Asset impairments and other, net
Earnings from operations
Gain on sale of Lids Team Sports
Indemnification asset write-off
Interest expense, net:
Interest expense
Interest income
Total interest expense, net
Earnings from continuing operations before income taxes
Income tax expense
Earnings from continuing operations
Provision for 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
Fiscal Year
2015
2016
2014
$ 3,022,234 $ 2,859,844 $ 2,624,972
1,325,922
1,134,274
1,341
163,435
—
—
1,578,768
1,284,322
7,893
151,251
(4,685 )
—
1,459,433
1,230,864
2,281
167,266
—
7,050
4,414
(11 )
4,403
151,533
56,152
95,381
(812 )
94,569 $
3,337
(110 )
3,227
156,989
57,616
99,373
(1,648 )
97,725 $
4,641
(66 )
4,575
158,860
65,878
92,982
(329 )
92,653
4.17 $
(0.04 )
4.13 $
4.15 $
(0.04 )
4.11 $
4.23 $
(0.07 )
4.16 $
4.19 $
(0.07 )
4.12 $
3.99
(0.01 )
3.98
3.94
(0.02 )
3.92
$
$
$
$
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
55
Genesco Inc.
and Subsidiaries
Consolidated Statements of Comprehensive Income
In Thousands, except as noted
Fiscal Year
Net earnings
Other comprehensive income (loss):
Pension liability adjustment net of tax of $6.3 million,
$4.0 million and $6.2 million for 2016, 2015 and
2014, respectively
Postretirement liability adjustment net of tax of $0.4
million, $0.4 million and $0.3 million in 2016, 2015
and 2014, respectively
Foreign currency translation adjustments
Total other comprehensive (loss) income
Comprehensive Income
2016
2015
$ 94,569 $ 97,725 $ 92,653
2014
9,756
(6,343 )
9,510
666
(12,459 )
(644 )
(16,822 )
(542 )
2,506
11,474
$ 92,532 $ 73,916 $ 104,127
(23,809 )
(2,037 )
The accompanying Notes are an integral part of these Consolidated Financial Statements
56
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization
Amortization of deferred note expense and debt discount
Deferred income taxes
Provision for (recoveries on) accounts receivable
Indemnification asset write-off
Impairment of long-lived assets
Restricted stock expense
Provision for discontinued operations
Gain on sale of Lids Team Sports
Tax benefit of stock options and restricted stock
Other
Effect on cash from changes in working capital and other
assets and liabilities, net of acquisitions/dispositions:
Accounts receivable
Inventories
Prepaids and other current assets
Accounts payable
Other accrued liabilities
Other assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Acquisitions, net of cash acquired
Proceeds from asset sales and sale of business
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt
Proceeds from issuance of long-term debt
Borrowings under revolving credit facility
Payments on revolving credit facility
Tax benefit of stock options and restricted stock
Shares repurchased
Change in overdraft balances
Redemption of preferred shares
Dividends paid on non-redeemable preferred stock
Additions to deferred note cost
Exercise of stock options
Other
Net cash used in financing activities
Effect of foreign exchange rate fluctuations on cash
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Net cash paid for:
Interest
Income taxes
The accompanying Notes are an integral part of these Consolidated Financial Statements.
57
Fiscal Year
2016
2015
2014
$
94,569 $
97,725 $
92,653
79,011
820
(2,125 )
637
—
3,125
13,758
1,333
(4,685 )
(150 )
3,708
(6,669 )
27,827
(8,879 )
2,505
(70,890 )
11,223
145,118
(100,652 )
(35,063 )
59,915
(75,800 )
(24,920 )
27,417
401,276
(311,067 )
150
(137,648 )
(600 )
—
—
(655 )
1,442
(2,950 )
(47,555 )
(1,342 )
20,421
112,867
133,288 $
74,326
692
5,212
390
7,050
1,890
13,392
2,711
—
(3,061 )
894
(1,325 )
(30,955 )
179
27,646
52,694
(59,696 )
189,764
(103,111 )
(34,918 )
336
67,135
801
14,983
(525 )
—
2,347
12,295
543
—
(3,784 )
1,301
(3,684 )
(58,386 )
(8,885 )
19,850
(10,093 )
13,448
139,999
(98,456 )
(13,567 )
75
(137,693 )
(111,948 )
(31,583 )
26,253
280,950
(280,950 )
3,061
(4,635 )
3,489
—
—
—
2,009
(43 )
(1,449 )
2,798
53,420
59,447
112,867 $
(6,428 )
15,124
402,200
(429,900 )
3,784
(20,676 )
6,025
(1,462 )
(33 )
—
3,230
(1,790 )
(29,926 )
1,527
(348 )
59,795
59,447
3,408 $
58,940
2,632 $
42,816
3,769
52,618
$
$
Genesco Inc.
and Subsidiaries
Consolidated Statements of Equity
In Thousands
Balance February 2, 2013
Net earnings
Other comprehensive income
$
Total Non-
Redeemable
Preferred
Stock
3,924 $
—
—
Common
Stock
24,485 $
—
—
Additional
Paid-In
Capital
170,360 $
—
—
Accumulated
Other
Comprehensive
Loss
Non
Controlling
Interest
Non-
Redeemable
Treasury
Shares
(28,241 ) $
—
11,474
(17,857 ) $
—
—
1,927 $
—
—
Retained
Earnings
669,189 $
92,653
—
—
—
—
—
—
—
—
—
(1,462 )
(1,157 )
—
1,305
—
—
—
—
—
—
—
—
—
(31 )
—
1,274
—
—
—
—
—
—
—
—
130
—
2,904
3
193
—
214
(105 )
—
(338 )
—
19
—
24,408
—
—
69
12,295
(214 )
105
3,784
—
—
1,141
—
190,568
—
—
1,749
3
188
(33 )
—
—
—
—
(6,938 )
—
(20,338 )
—
—
—
734,533
97,725
—
—
—
—
—
—
202
(88 )
—
(65 )
(14 )
—
24,515
—
—
35
13,392
(202 )
88
(7,125 )
3,061
—
44
—
208,888
—
—
1,273
—
(4,570 )
—
—
820,563
94,569
—
—
3
131
—
—
239
(66 )
13,758
(239 )
66
—
—
(4,408 )
—
—
—
—
—
—
—
—
—
—
—
(16,767 )
—
(23,809 )
—
—
—
—
—
—
—
—
—
(40,576 )
—
(2,037 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
—
Total
Equity
823,787
92,653
11,474
(33 )
3,034
196
12,295
—
(6,938 )
3,784
(20,676 )
(1,462 )
3
6
918,123
97,725
(23,809 )
1,818
191
13,392
—
(7,125 )
3,061
(4,635 )
(1 )
37
998,777
94,569
(2,037 )
1,308
—
—
—
—
—
—
—
—
—
—
6
1,933
—
—
—
—
—
—
—
—
—
—
37
1,970
—
—
—
—
134
—
—
—
13,758
—
(4,408 )
Dividends paid on non-
redeemable preferred stock
Exercise of stock options
Issue shares – Employee Stock
Purchase Plan
Employee and non-employee
restricted stock
Restricted stock issuance
Restricted shares withheld for
taxes
Tax benefit of stock options and
restricted stock exercised
Shares repurchased
Redemption of preferred shares
Other
Noncontrolling interest – gain
Balance February 1, 2014
Net earnings
Other comprehensive loss
Exercise of stock options
Issue shares – Employee Stock
Purchase Plan
Employee and non-employee
restricted stock
Restricted stock issuance
Restricted shares withheld for
taxes
Tax benefit of stock options and
restricted stock exercised
Shares repurchased
Other
Noncontrolling interest – gain
Balance January 31, 2015
Net earnings
Other comprehensive loss
Exercise of stock options
Issue shares – Employee Stock
Purchase Plan
Employee and non-employee
restricted stock
Restricted stock issuance
Restricted shares withheld for
taxes
Tax benefit of stock options and
restricted stock exercised
Shares repurchased
Other
Noncontrolling interest – loss
Balance January 30, 2016
$
—
—
(197 )
—
1,077 $
—
(2,383 )
(20 )
—
22,323 $
(90 )
—
217
—
224,004 $
—
(142,502 )
—
—
768,222 $
—
—
—
—
(42,613 ) $
—
—
—
—
(17,857 ) $
—
—
—
(343 )
1,627 $
(90 )
(144,885 )
—
(343 )
956,783
The accompanying Notes are an integral part of these Consolidated Financial Statements.
58
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company") business includes the design and
sourcing, marketing and distribution of footwear and accessories through retail stores in the U.S.,
Puerto Rico and Canada primarily under the Journeys, Journeys Kidz, Shi by Journeys, Little
Burgundy, Underground by Journeys and Johnston & Murphy banners and under the Schuh banner
in the United Kingdom, the Republic of Ireland and Germany; through e-commerce websites
including journey.com, journeyskidz.com, shibyjourney.com, schuh.co.uk, littleburgundyshoes.com,
johnstonmurphy.com and trask.com and catalogs, and at wholesale, primarily under the Company's
Johnston & Murphy brand, the Trask brand, the licensed Dockers brand and other brands that the
Company licenses for footwear, and the Company's SureGrip® line of slip-resistant, occupational
footwear. The Company's business also includes Lids Sports Group, which operates headwear and
accessory stores in the U.S. and Canada primarily under the Lids, Hat World and Hat Shack banners;
the Lids Locker Room and Lids Clubhouse businesses, consisting of sports-oriented fan shops
featuring a broad array of licensed merchandise such as apparel, hats and accessories, sports decor
and novelty products, operating under various trade names; licensed team merchandise departments
in Macy's department stores operated under the name of Locker Room by Lids and on macys.com,
under a license agreement with Macy's; and certain e-commerce operations including lids.com,
lids.ca, lidslockerroom.com, lidsclubhouse.com and shop.neweracap.com. Including both the
footwear businesses and the Lids Sports Group business, at January 30, 2016, the Company operated
2,852 retail stores and leased departments in the U.S., Puerto Rico, Canada, the United Kingdom, the
Republic of Ireland and Germany.
During Fiscal 2016, the Company operated five reportable business segments (not including
corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz, Shi by Journeys, Little
Burgundy and Underground by Journeys retail footwear chains, e-commerce operations and catalog;
(ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations;
(iii) Lids Sports Group, comprised as described in the preceding paragraph plus an athletic team
dealer business operating as Lids Team Sports which was sold in the fourth quarter of Fiscal 2016;
(iv) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce
operations, catalog and wholesale distribution of products under the Johnston & Murphy and Trask
brands; and (v) Licensed Brands, comprised of Dockers® Footwear, sourced and marketed under a
license from Levi Strauss & Company; SureGrip®Footwear, occupational footwear primarily sold
directly to consumers; and other brands.
Principles of Consolidation
All subsidiaries are consolidated in the consolidated financial statements. All significant
intercompany transactions and accounts have been eliminated.
59
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. As a result, Fiscal 2016 was a 52-
week year with 364 days, Fiscal 2015 was a 52-week year with 364 days and Fiscal 2014 was a 52-week
year with 364 days. Fiscal 2016 ended on January 30, 2016, Fiscal 2015 ended on January 31, 2015 and
Fiscal 2014 ended on February 1, 2014.
Use of Estimates
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:
Inventory Valuation
The Company values its inventories at the lower of cost or market.
In its footwear wholesale operations and its Schuh Group segment, cost is determined using the
FIFO method. Market value 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 for footwear wholesale. The Company provides
reserves when the inventory has not been marked down to market value based on current selling
prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the
Company.
The Lids Sports Group 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.
In its retail operations, other than the Schuh Group and Lids Sports Group segments, 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.
60
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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.
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.
Impairment of Long-Lived Assets
The Company periodically assesses the realizability of its long-lived assets, other than goodwill,
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 also Notes 3 and 5.
The goodwill impairment test involves performing a qualitative assessment, on a reporting unit
level, based on current circumstances. If the results of the qualitative assessment indicate that it is
more likely than not that the fair value of a reporting unit is greater than its carrying amount, a
two-step impairment test will not be performed. However, if the results of the qualitative
assessment indicate that it is more likely than not that the fair value of a reporting unit is less than
its carrying amount, then a two-step impairment test is performed. Alternatively, the Company
may elect to bypass the qualitative assessment and proceed directly to the two-step impairment
test, on a reporting unit level. The first step is a comparison of the fair value and carrying value of
the business unit with which the goodwill is associated.
61
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
The Company estimates fair value using the best information available, and computes the fair
value derived by an income approach utilizing discounted cash flow projections. The income
approach uses a projection of a reporting unit’s estimated operating results and cash flows that is
discounted using a weighted-average cost of capital that reflects current market conditions. A key
assumption in the Company’s fair value estimate is the weighted average cost of capital utilized for
discounting its cash flow projections in its income approach. The Company believes the rate it
used in its latest annual test, which was completed at the end of the fourth quarter, was consistent
with the risks inherent in its business and with industry discount rates. The projection uses
management’s best estimates of economic and market conditions over the projected period
including growth rates in sales, costs, estimates of future expected changes in operating margins
and cash expenditures. Other significant estimates and assumptions include terminal value growth
rates, future estimates of capital expenditures and changes in future working capital requirements.
If the carrying value of the reporting unit is higher than its fair value, there is an indication that
impairment may exist and the second step must be performed to measure the amount of
impairment loss. The amount of impairment is determined by comparing the implied fair value of
reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting
unit was being acquired in a business combination. Specifically, the Company would allocate the
fair value of the reporting unit to all of the assets and liabilities of the reporting unit, including any
unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair
value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the
Company would record an impairment charge for the difference.
Environmental and Other Contingencies
The Company is subject to certain loss contingencies related to environmental proceedings and
other legal matters. The Company has made pretax accruals for certain of these contingencies,
including approximately $0.8 million in Fiscal 2016, $2.8 million in Fiscal 2015 and $0.5 million
in Fiscal 2014. These charges are included in provision for discontinued operations, net in the
Consolidated Statements of Operations because they relate to former facilities operated by the
Company. The Company monitors these matters on an ongoing basis and, on a quarterly basis,
management reviews the Company’s accruals, 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.
62
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Consequently, management believes that its accrued liability 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
provisions, that some or all liabilities will be adequate or that the amounts of any such additional
provisions or any such inadequacy will not have a material adverse effect upon the Company’s
financial condition, cash flows, or results of operations. See also Notes 3 and 13.
Revenue Recognition
Retail sales are recorded at the point of sale and are net of estimated returns and exclude sales and
value added taxes. Catalog and internet sales are recorded at estimated time of delivery to the
customer and are net of estimated returns and exclude sales and value added taxes. 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.
Income Taxes
As part of the process of preparing the 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 or other sources. 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 increased in a period, the Company includes an
expense within the tax provision in the Consolidated Statements of Operations. These deferred tax
valuation allowances may be released in future years when management considers that it is more
likely than not that some portion or all of the deferred tax assets will be realized.
63
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
In making such a determination, management will need to periodically evaluate whether or not all
available evidence, such as future taxable income and reversal of temporary differences, tax
planning strategies, and recent results of operations, provides sufficient positive evidence to offset
any potential negative evidence that may exist at such time. In the event the deferred tax valuation
allowance is released, the Company would record an income tax benefit for the portion or all of the
deferred tax valuation allowance released. At January 30, 2016, the Company had a deferred tax
valuation allowance of $3.4 million.
Income tax reserves for uncertain tax positions are determined using the methodology required by
the Income Tax Topic of the Accounting Standards Codification ("Codification"). This
methodology 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.
The Company recorded an effective income tax rate of 37.1% for Fiscal 2016 compared to 36.7%
for Fiscal 2015 and 41.5% for Fiscal 2014. The effective tax rate for Fiscal 2016 benefited from
increased foreign earnings and lowering of foreign tax rates combined with a release of $1.3
million in valuation allowance on foreign net operating losses no longer required. The tax rate for
Fiscal 2015 was lower than Fiscal 2014 primarily due to a $7.0 million reversal of charges
previously recorded related to formerly uncertain tax positions that were recorded by Schuh at the
time of the purchase by the Company, which were favorably resolved during Fiscal 2015. Related
to the same uncertain tax position, the Company wrote off a $7.1 million indemnification asset
during Fiscal 2015.
Postretirement Benefits Plan Accounting
Full-time employees who had at least 1000 hours of service in calendar year 2004, except
employees in the Lids Sports Group and Schuh Group segments, are covered by a defined benefit
pension plan. The Company froze the defined benefit pension plan effective January 1, 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.
64
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
As required by the Compensation – Retirement Benefits Topic of the Codification, the Company is
required to recognize the overfunded or underfunded status of postretirement benefit plans as an
asset or liability, respectively, in their 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.
The Company recognizes pension expense 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.
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. 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 approximately nine years.
Cash and Cash Equivalents
The Company had total available cash and cash equivalents of $133.3 million and $112.9 million as
of January 30, 2016 and January 31, 2015, respectively, of which approximately $24.1 million and
$25.2 million was held by the Company's foreign subsidiaries as of January 30, 2016 and January
31, 2015, respectively. The Company's strategic plan does not require the repatriation of foreign
cash in order to fund its operations in the U.S., and it is the Company's current intention to
permanently reinvest its foreign cash and cash equivalents outside of the U.S. If the Company were
to repatriate foreign cash to the U.S., it would be required to accrue and pay U.S. taxes in accordance
with applicable U.S. tax rules and regulations as a result of the repatriation. There were no cash
equivalents included in cash and cash equivalents at January 30, 2016 and January 31, 2015. Cash
equivalents are highly-liquid financial instruments having an original maturity of three months or
less.
At January 30, 2016, substantially all of the Company’s domestic cash was invested in deposit
accounts at FDIC-insured banks. The majority of payments due from banks for domestic customer
credit card transactions process within 24 - 48 hours and are accordingly classified as cash and cash
equivalents in the Consolidated Balance Sheets.
65
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
At January 30, 2016 and January 31, 2015, outstanding checks drawn on zero-balance accounts at
certain domestic banks exceeded book cash balances at those banks by approximately $45.0 million
and $45.6 million, respectively. These amounts are included in accounts payable in the Consolidated
Balance Sheets.
Concentration of Credit Risk and Allowances on Accounts Receivable
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. In the footwear wholesale businesses, one
customer accounted for 9% of the Company’s total trade receivables balance and two other
customers each accounted for 8% of the Company's total trade receivables balance, while all other
customers accounted for 7% or less of the Company’s total trade receivables balance as of January
30, 2016.
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.
Property and Equipment
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
Computer hardware, software and equipment
Furniture and fixtures
20-45 years
3-10 years
10 years
Depreciation expense related to property and equipment was approximately $76.2 million, $71.0
million and $63.9 million for Fiscal 2016, 2015 and 2014, respectively.
Leases
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 Operations.
66
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 deferred rent.
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.
The Consolidated Balance Sheets include asset retirement obligations related to leases of $10.6
million and $9.8 million as of January 30, 2016 and January 31, 2015, respectively.
Acquisitions
Acquisitions are accounted for using the Business Combinations Topic of the Codification. The total
purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair
values at acquisition.
Goodwill and Other Intangibles
Under the provisions of the Intangibles – Goodwill and Other Topic of the Codification, goodwill
and intangible assets with indefinite lives are not amortized, but are tested at least annually for
impairment. The Company will update the tests between annual tests if events or circumstances
occur that would more likely than not reduce the fair value of the business unit with which the
goodwill is associated below its carrying amount. It is also required that intangible assets with finite
lives be amortized over their respective lives to their estimated residual values, and reviewed for
impairment in accordance with the Property, Plant and Equipment Topic of the Codification.
Intangible assets of the Company with indefinite lives are primarily goodwill and identifiable
trademarks acquired in connection with the acquisition of Little Burgundy in December 2015, Schuh
Group Ltd. in June 2011, Hat World Corporation in April 2004 and various other small acquisitions.
The Consolidated Balance Sheets include goodwill of $180.9 million for the Lids Sports Group,
$90.3 million for the Schuh Group, $9.4 million for Journeys Group and $0.8 million for Licensed
Brands at January 30, 2016, and $200.1 million for the Lids Sports Group, $96.0 million for the
Schuh Group and $0.8 million for Licensed Brands at January 31, 2015.
67
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
The Company tests for impairment of intangible assets with an indefinite life, relying on a number of
factors including operating results, business plans, projected future cash flows and observable
market data. 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. The Company has not
recorded an impairment charge for intangible assets.
In connection with acquisitions, the Company records goodwill on its Consolidated Balance Sheets.
This asset is not amortized but is subject to an impairment test at least annually, based on projected
future cash flows from the acquired business discounted at a rate commensurate with the risk the
Company considers to be inherent in its current business model. The Company performs the
impairment test annually as of the close of its fiscal year, or more frequently if events or
circumstances indicate that the value of the asset might be impaired. The Company has not recorded
an impairment charge for goodwill.
Identifiable intangible assets of the Company with finite lives are trademarks, customer lists, in-
place leases, non-compete agreements and a vendor contract. 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.
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments at January 30, 2016 and
January 31, 2015 are:
In thousands
U.S. Revolver Borrowings
UK Term Loans
UK Revolver Borrowings
January 30, 2016
January 31, 2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
58,344 $
28,896
24,818
58,480 $
28,901
24,630
— $
29,155
—
—
29,126
—
Debt fair values were determined using a discounted cash flow analysis based on current market
interest rates for similar types of financial instruments and would be classified in Level 2 as defined
in Note 5.
68
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Carrying amounts reported on the Consolidated Balance Sheets for cash, cash equivalents,
receivables and accounts payable approximate fair value due to the short-term maturity of these
instruments.
Cost of Sales
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.
Selling and Administrative Expenses
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 $9.6 million, $9.1 million and $8.7 million for Fiscal 2016, 2015 and 2014, respectively.
EVA Incentive Plan
Under the Company's EVA Incentive Plan, bonus awards in excess of a specified cap in any one year
are retained and paid over three subsequent years, subject to reduction or elimination by
deteriorating financial performance and historically were subject to forfeiture if the participant
voluntarily resigns from employment with the Company. As a result, the bonus awards were subject
to service conditions that resulted in recognition of expense over the period of service by the
respective employee. During the first quarter of Fiscal 2015, the Company amended the plan to
remove the future service requirement for the payment of the retained bonuses. As a result, the
bonus expense that would have been deferred under the previous plan terms is now recognized in the
first year of service. The Company recorded a $5.7 million charge to earnings in the first quarter of
Fiscal 2015 in connection with the amendment related to bonus amounts previously deferred to
future years.
69
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Gift Cards
The Company has a gift card program that began in calendar 1999 for its Lids Sports Group
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.
Gift card breakage is recognized in revenues each period. Gift card breakage recognized as revenue
was $1.2 million, $1.0 million and $0.8 million for Fiscal 2016, 2015 and 2014, respectively. The
Consolidated Balance Sheets include an accrued liability for gift cards of $16.9 million and $15.8
million at January 30, 2016 and January 31, 2015, respectively.
Buying, Merchandising and Occupancy Costs
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. Retail occupancy costs recorded in selling and administrative expense were $432.9 million,
$413.6 million and $381.6 million for Fiscal 2016, 2015 and 2014, respectively.
Shipping and Handling Costs
Shipping and handling costs related to inventory purchased from suppliers are included in the cost of
inventory and are 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 on
the Consolidated Statements of Operations.
Preopening Costs
Costs associated with the opening of new stores are expensed as incurred, and are included in selling
and administrative expenses on the Consolidated Statements of Operations.
70
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Store Closings and Exit Costs
From time to time, the Company makes strategic decisions to close stores or exit locations or
activities. Under the provisions of the Property, Plant, and Equipment Topic of the Codification,
which the Company adopted in the first quarter of Fiscal 2015, the definition of a discontinued
operation was amended. A discontinued operation may include a component of an entity or a group
of components of an entity that represent a strategic shift that has or will have a major effect on an
entity's operation or financial results. If stores or operating activities to be closed or exited constitute
a component or group of components that represent a strategic shift in the Company's operations,
these closures will be considered discontinued operations. The results of operations of discontinued
operations are presented retroactively, net of tax, as a separate component on the Consolidated
Statements of Operations. In each of the years presented, no store closings have met the discontinued
operations criteria.
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 the Property, Plant and Equipment Topic of the Codification, 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 the Exit or Disposal Cost Obligations
Topic of the Codification.
Advertising Costs
Advertising costs are predominantly expensed as incurred. Advertising costs were $73.7 million,
$67.0 million and $56.9 million for Fiscal 2016, 2015 and 2014, respectively. Direct response
advertising costs for catalogs are capitalized in accordance with the Other Assets and Deferred Costs
Topic for Capitalized Advertising Costs of the Codification. Such costs are amortized over the
estimated future period as revenues are realized from such advertising, not to exceed six months.
The Consolidated Balance Sheets include prepaid assets for direct response advertising costs of $2.0
million at January 30, 2016 and $2.3 million at January 31, 2015.
71
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Consideration to Resellers
In its wholesale businesses, 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.
Cooperative Advertising
Cooperative advertising funds are made available to most of the Company’s wholesale footwear
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 the Revenue Recognition Topic for
Customer Payments and Incentives of the Codification.
Cooperative advertising costs recognized in selling and administrative expenses were $3.4 million,
$3.3 million and $3.2 million for Fiscal 2016, 2015 and 2014, respectively. During Fiscal 2016,
2015 and 2014, the Company’s cooperative advertising reimbursements paid did not exceed the fair
value of the benefits received under those agreements.
Vendor Allowances
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.
72
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
The reimbursements are agreed upon with vendors and represent specific, incremental, identifiable
costs incurred by the Company in selling the vendor’s specific 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 $6.4 million, $4.1 million and $2.8 million for Fiscal 2016, 2015 and
2014, respectively. During Fiscal 2016, 2015 and 2014, the Company’s cooperative advertising
reimbursements received were not in excess of the costs incurred.
Earnings Per Common Share
Basic earnings per share excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if securities to issue common stock
were exercised or converted to common stock (see Note 11).
Foreign Currency Translation
The functional currency of the Company's foreign operations is the applicable local currency. The
translation of the applicable foreign currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date. Income and expense
accounts are translated at monthly average exchange rates. The unearned gains and losses resulting
from such translation are included as a separate component of accumulated other comprehensive loss
within shareholders' equity. Gains and losses from certain foreign currency transactions are reported
as an item of income and resulted in a net loss of $2.7 million, $2.4 million and $2.7 million for
Fiscal 2016, 2015 and 2014, respectively.
Share-Based Compensation
The Company has share-based compensation covering certain members of management and non-
employee directors. The Company recognizes compensation expense for share-based payments
based on the fair value of the awards as required by the Compensation - Stock Compensation Topic
of the Codification. The Company has not granted any stock options since the first quarter of Fiscal
2008.
73
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
The fair value of employee restricted stock is determined based on the closing price of the
Company's stock on the date of grant. The benefits of tax deductions in excess of recognized
compensation expense are reported as a financing cash flow (see Note 12).
Other Comprehensive Income
The Comprehensive Income Topic of the Codification requires, among other things, the Company’s
pension liability adjustment, postretirement liability adjustment and foreign currency translation
adjustments to be included in other comprehensive income net of tax. Accumulated other
comprehensive loss at January 30, 2016 consisted of $13.0 million of cumulative pension liability
adjustment, net of tax, a cumulative post retirement liability adjustment of $0.9 million, net of tax,
and a cumulative foreign currency translation adjustment of $28.7 million.
The following table summarizes the components of accumulated other comprehensive loss for the
year ended January 30, 2016:
(In thousands)
Balance January 31, 2015
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment
Loss on intra-entity foreign currency transactions
(long-term investment nature)
Net actuarial loss
Amounts reclassified from AOCI:
Amortization of net actuarial loss (1)
Amortization reclassified from AOCI, before tax
Income tax expense
Foreign
Currency
Translation
Unrecognized
Pension/Postretir
ement Benefit
Costs
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
(16,247 ) $
(24,329 ) $
(40,576 )
(9,875 )
(2,584 )
—
—
—
—
—
—
12,065
5,137
5,137
6,780
10,422
(9,875 )
(2,584 )
12,065
5,137
5,137
6,780
(2,037 )
Current period other comprehensive income (loss), net of tax
(12,459 )
Balance January 30, 2016
$
(28,706 ) $
(13,907 ) $
(42,613 )
(1) Amount is included in net periodic benefit cost, which is recorded in selling and administrative expense on
the Consolidated Statements of Operations.
74
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Business Segments
The Segment Reporting Topic of the Codification requires that companies disclose “operating
segments” based on the way management disaggregates the Company’s operations for making
internal operating decisions (see Note 14).
New Accounting Principles
In February 2016, the FASB issued ASU 2016-02, "Leases". The standard's core principle is to
increase transparency and comparability among organizations by recognizing lease assets and
liabilities on the balance sheet and disclosing key information. The standard is effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years, which
would be the beginning of our Fiscal 2020 or February 2019. Early adoption is permitted. The
Company is currently assessing the impact the adoption of ASU 2016-02 will have on its
Consolidated Financial Statements and related disclosures and is expecting a material impact
because the Company is party to a significant number of lease contracts.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred
Taxes". ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2016 and may be
applied either prospectively or retrospectively. Early adoption is permitted. As of January 30, 2016,
the Company has $29.0 million of current deferred tax assets that will be reclassed to noncurrent
deferred tax assets on its Consolidated Balance Sheets. The change to noncurrent classification could
have a significant impact on our working capital. The Company is currently assessing which
transition method will be adopted.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance
Costs". In August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent measurement
of Debt Issuance Costs Associated with Line-of-Credit Arrangements". ASU 2015-03 will require
that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of
the debt. ASU 2015-15 allows an entity to present debt issuance costs associated with a revolving
line of credit arrangement as an asset, regardless of whether a balance is outstanding. The
recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03 or
ASU 2015-15. These ASU's are effective for annual reporting periods beginning after December 15,
2015, including interim periods within that reporting period, with early adoption permitted. ASU
2015-03 will require the Company to reclassify its deferred financing costs associated with its long-
term debt from other noncurrent assets to long-term debt on a retrospective basis. The Company
does not expect the new standards to impact the Company's results of operations or cash flows.
75
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic
606)". ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-
specific requirements and merges areas under this topic with those of the International Financial
Reporting Standards. The ASU implements a five-step process for customer contract revenue
recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The
amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty
of revenues and cash flows from contracts with customers. ASU 2014-09 was originally effective
for fiscal years, and interim periods within those years, beginning after December 15, 2016,
however, in August 2015, the FASB deferred this ASU for one year, which would be the beginning
of our Fiscal 2019 or February 2018. The amendment is to be applied either retrospectively to each
prior reporting period presented or with the cumulative effect recognized at the date of initial
adoption as an adjustment to the opening balance of retained earnings (or other appropriate
components of equity or net assets on the balance sheet). Early adoption is not permitted. The
Company is currently assessing the impact the adoption of ASU 2014-09 will have on its
Consolidated Financial Statements and related disclosures, including which transition method will be
adopted.
Note 2
Acquisitions, Intangible Assets and Sale of Business
Acquisitions
During Fiscal 2016, the Company completed the acquisition of Little Burgundy, a small retail
footwear chain in Canada for a total purchase price of $35.1 million. The stores acquired are
operated within the Journeys Group. During Fiscal 2015, the Company completed acquisitions of
primarily small retail chains and one small wholesale business for a total purchase price of $34.9
million. In Fiscal 2014, the Company completed other acquisitions of primarily small retail chains
for a total purchase price of $13.6 million. The stores acquired in Fiscal 2015 and 2014 are operated
within the Lids Sports Group. The wholesale business acquired in Fiscal 2015 was operated within
Lids Team Sports which was sold January 19, 2016.
76
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
Acquisitions, Intangible Assets and Sale of Business, Continued
Other Intangible Assets
Other intangibles by major classes were as follows:
Leases
Customer Lists
Other*
Total
In thousands
Gross other intangibles
Accumulated amortization
Net Other Intangibles
Jan. 30,
2016
Jan. 31,
2015
$ 14,841 $ 13,616 $
(12,301 )
1,315 $
(12,637 )
2,204 $
$
Jan. 31,
2015
Jan. 30,
2016
2,622 $ 18,244 $
(9,424 )
(2,264 )
8,820 $
358 $
Jan. 30,
2016
2,053 $
(1,046 )
1,007 $
Jan. 31,
Jan. 31,
Jan. 30,
2015
2015
2016
3,114 $ 19,516 $ 34,974
(1,664 )
(23,389 )
(15,947 )
3,569 $ 11,585
1,450 $
*Includes non-compete agreements, vendor contract and backlog.
The amortization of intangibles, including trademarks, was $2.9 million, $3.3 million and $3.2
million for Fiscal 2016, 2015 and 2014, respectively. The amortization of intangibles, including
trademarks, will be $0.9 million, $0.2 million, $0.2 million, $0.1 million and $0.1 million for Fiscal
2017, 2018, 2019, 2020 and 2021, respectively.
Sale of Business
On January 19, 2016, the Company completed the sale of the assets of the Lids Team Sports
business, which has operated within its Lids Sports Group segment, to BSN Sports, LLC. The
Company recognized a gain on the sale estimated at $(4.7) million, net of transaction-related
expenses before tax. The results of operations for Lids Team Sports is not a strategic shift that will
have a major effect on operations and financial results, and therefore this business has not been
presented as a discontinued operation in the Company's Consolidated Financial Statements.
Pursuant to the purchase agreement, on March 18, 2016, the buyer submitted a proposed adjustment
of $2.4 million to the purchase price based upon a final calculation of certain working capital items
as of the closing date. The Company is reviewing the proposed adjustment and the adjustment is
reflected in the Consolidated Financial Statements as having occurred in the fourth quarter of Fiscal
2016.
77
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
Asset Impairments and Other Charges and Discontinued Operations
Asset Impairments and Other Charges
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 estimated fair value of those assets.
Asset impairment charges are reflected as a reduction of the net carrying value of property and
equipment, and in asset impairment and other, net in the accompanying Consolidated Statements of
Operations.
The Company recorded a pretax charge to earnings of $7.9 million in Fiscal 2016, including $3.1
million for retail store asset impairments, $2.5 million for asset write-downs, $2.2 million for
network intrusion expenses and $0.1 million for other legal matters.
The Company recorded a pretax charge to earnings of $2.3 million in Fiscal 2015, including $3.1
million for network intrusion expenses, $1.9 million for retail store asset impairments and $0.7
million for other legal matters, partially offset by a $(3.4) million gain on a lease termination of a
Lids store.
The Company recorded a pretax charge to earnings of $1.3 million in Fiscal 2014, including $3.3
million for network intrusion expenses, $2.4 million for other legal matters, $2.3 million for retail
store asset impairments and $1.6 million for a lease termination, partially offset by an $(8.3) million
gain on the lease termination of a New York City Journeys store.
Discontinued Operations
In Fiscal 2016, Fiscal 2015 and Fiscal 2014, the Company recorded an additional charge to earnings
of $1.3 million ($0.8 million net of tax), $2.7 million ($1.6 million net of tax) and $0.5 million ($0.3
million net of tax), respectively, reflected in discontinued operations, primarily for anticipated costs
of environmental remedial alternatives related to former facilities operated by the Company (see
Note 13.)
78
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
Asset Impairments and Other Charges and Discontinued Operations, Continued
Accrued Provision for Discontinued Operations
In thousands
Balance February 2, 2013
Additional provision Fiscal 2014
Charges and adjustments, net
Balance February 1, 2014
Additional provision Fiscal 2015
Charges and adjustments, net
Balance January 31, 2015
Additional provision Fiscal 2016
Charges and adjustments, net
Balance January 30, 2016*
Current provision for discontinued operations
Total Noncurrent Provision for Discontinued Operations
Facility
Shutdown
Costs
11,351
543
(519 )
11,375
2,711
673
14,759
1,333
(473 )
15,619
11,389
4,230
$
$
*Includes a $14.5 million environmental provision, including $10.9 million in current provision for
discontinued operations.
Note 4
Inventories
In thousands
Raw materials
Wholesale finished goods
Retail merchandise
Total Inventories
January 30,
2016
469 $
58,773
470,516
$
January 31,
2015
32,941
65,785
499,419
$
529,758
$
598,145
79
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5
Fair Value
The Fair Value Measurements and Disclosures Topic of the Codification defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements. This Topic defines fair value as
the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. It also establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest
level input that is significant to the fair value measurement.
The following table presents the Company’s assets and liabilities measured at fair value on a
nonrecurring basis as of January 30, 2016 aggregated by the level in the fair value hierarchy within
which those measurements fall (in thousands):
Measured as of May 2, 2015
Measured as of August 1, 2015
Measured as of October 31, 2015
Measured as of January 30, 2016
Total Asset Impairment Fiscal 2016
Long-Lived
Assets
Held and Used
$
67 $
632
200
538
Level 1
Level 2
Level 3
— $
—
—
—
— $
—
—
—
Impairment
Charges
766
931
90
1,338
3,125
67 $
632
200
538
$
In accordance with the Property, Plant and Equipment Topic of the Codification, the Company
recorded $3.1 million of impairment charges as a result of the fair value measurement of its long-
lived assets held and used and tested on a nonrecurring basis during the twelve months ended
January 30, 2016. These charges are reflected in asset impairments and other, net on the
Consolidated Statements of Operations.
80
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 5
Fair Value, Continued
The Company used a discounted cash flow model to estimate the fair value of these long-lived
assets. Discount rate and growth rate assumptions are derived from current economic conditions,
expectations of management and projected trends of current operating results. As a result, the
Company has determined that the majority of the inputs used to value its long-lived assets held and
used are unobservable inputs that fall within Level 3 of the fair value hierarchy.
Note 6
Long-Term Debt
In thousands
Revolver borrowings
UK term loans
UK revolver borrowings
Total long-term debt
Current portion
Total Noncurrent Portion of Long-Term Debt
January 30,
2016
58,344 $
28,896
24,818
112,058
14,182
97,876 $
January 31,
2015
—
29,155
—
29,155
13,152
16,003
$
$
Long-term debt maturing during each of the next five years ending in January each year is $14.2
million, $3.2 million, $60.1 million, $34.6 million and $0.0 million, respectively.
The Company had $58.3 million of revolver borrowings outstanding under the Credit Facility at
January 30, 2016, which includes $22.1 million (£15.6 million) related to Genesco (UK) Limited
and $36.2 million (C$51.0 million) related to GCO Canada, and had $28.9 million (£20.4 million) in
term loans outstanding and $24.8 million (£17.5 million) in revolver loans outstanding under the
U.K. Credit Facilities (described below) at January 30, 2016. The Company had outstanding letters
of credit of $13.5 million under the Credit Facility at January 30, 2016. These letters of credit
support product purchases and lease and insurance indemnifications.
Credit Facility:
On December 4, 2015, the Company entered into the First Amendment to the Third Amended and
Restated Credit Agreement, dated as of January 31, 2014 (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 agent (the "Agent"). The Credit Facility provides revolving
credit in the aggregate principal amount of $400.0 million and replaces the previous $375.0 million
revolving credit facility. The Credit Facility expires January 31, 2019.
81
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
Deferred financing costs incurred of $1.6 million related to the Credit Facility were capitalized and
are being amortized over five years. In addition, the remaining deferred financing costs of $1.5
million related to the previous amendment are being amortized over five years. These costs are
included in other non-current assets on the Consolidated Balance Sheets.
The material terms of the Credit Facility are as follows:
Availability
The Credit Facility is a revolving credit facility in the aggregate principal amount of $400.0 million,
including a $70.0 million sublimit for the issuance of letters of credit and a domestic swingline
subfacility of up to $40.0 million, a revolving credit subfacility for the benefit of GCO Canada, Inc.
in an aggregate amount not to exceed $70.0 million, which includes a $5.0 million sublimit for the
issuance of letters of credit, and revolving credit subfacility for the benefit of Genesco (UK) Limited
in an aggregate amount not to exceed $50.0 million, which includes a $10.0 million sublimit for the
issuance of letters of credit and a swingline subfacility of up to $10.0 million. Any swingline loans
and any letters of credit and borrowings under the Canadian facilities and UK facilities will reduce
the availability under the Credit Facility on a dollar-for-dollar basis.
The Company has the option, from time to time, to increase the availability under the Credit Facility
by an aggregate amount of up to $150.0 million subject to, among other things, the receipt of
commitments for the increased amount. In connection with this increased facility, the Canadian
revolving credit facility may be increased up to no more than $85.0 million.
Genesco (UK) Limited has a one-time option to increase the availability of its subfacility under the
Credit Facility by an additional amount of up to $50.0 million.
The aggregate amount of the loans made and letters of credit issued under the Credit Facility shall at
no time exceed the lesser of the facility amount ($400.0 million or, if increased as described above,
up to $550.0 million or $600.0 million, respectively) or the "Borrowing Base", which generally is
based on 90% of eligible inventory plus 85% of eligible wholesale receivables plus 90% of eligible
credit card and debit card receivables less applicable reserves (the "Loan Cap"). The relevant assets
of Genesco (UK) Limited will be included in the Borrowing Base if the additional $50.0 million
sublimit increase is exercised, provided that amounts borrowed by Genesco (UK) Limited based
solely on its own borrowing base will be limited to $50.0 million and the total outstanding to
Genesco (UK) Limited will not exceed 30% of the Loan Cap.
The Credit Facility also provides that a first-in, last-out tranche could be added to the revolving
credit facility at the option of the Company subject to, among other things, the receipt of
commitments for such tranche.
82
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
Collateral
The loans and other obligations under the Credit Facility are secured by a perfected first priority lien
and security interest in all tangible and intangible assets and excludes real estate and leaseholds of
the Company and certain subsidiaries of the Company, including a pledge of 65% of the Company's
interest in Genesco (UK) Limited.
The assets of Genesco (UK) Limited will not be pledged as collateral unless the additional $50.0
million sublimit increase is exercised and once pledged, will only serve to secure the obligations of
GCO Canada, Inc. and Genesco (UK) Limited and their respective subsidiaries.
Interest and Fees
The Company’s borrowings under the Credit Facility bear interest at varying rates that, at the
Company’s option, can be based on:
Domestic Facility:
(a) adjusted LIBOR plus the applicable margin (as defined and based on average Excess Availability
during the prior quarter), or (b) the domestic Base Rate (defined as the higher of (i) the Bank of
America prime rate, (ii) the federal funds rate plus 0.50% or (iii) LIBOR for an interest period of
thirty days plus 1.0%) plus the applicable margin.
Canadian Sub-Facility:
(a) For loans made in Canadian dollars, the bankers’ acceptances (“BA”) rate plus the applicable
margin, or (b) the Canadian Prime Rate (defined as the highest of the (i) Bank of America Canadian
Prime Rate, (ii) the Bank of America (Canada Branch) overnight rate plus 0.50%, and (iii) the BA
rate for a one month interest period plus 1.0%) plus the applicable margin.
(a) For loans made in U.S. dollars, LIBOR plus the applicable margin, or (b) the U.S. Index Rate
(defined as the highest of the (i) Bank of America (Canada branch) U.S. dollar base rate, (ii) the
Federal Funds rate plus 0.50%, and (iii) LIBOR for an interest period of thirty days plus 1.0%) plus
the applicable margin.
UK Sub-Facility:
(a) adjusted LIBOR plus the applicable margin, plus any mandating cost, if applicable
Swingline Loans:
Domestic swingline loans - domestic Base Rate plus the applicable margin.
UK swingline loans - UK Base Rate (being the "base rate" of the local Bank of America branch in
the jurisdiction of the currency chosen) plus the applicable margin.
83
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
The initial applicable margin for Base Rate loans and U.S. Index rate loans and Canadian Prime Rate
loans was 0.50% and the initial applicable margin for LIBOR loans, BA equivalent loans and UK
swingline loans was 1.50%.
Thereafter, the applicable margin is 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
Loan Cap (being the lesser of the total commitments and the Borrowing Base) over the outstanding
credit extensions under the Credit Facility.
Interest on the Company’s borrowings is payable monthly in arrears for domestic Base Rate loans
(including domestic swingline loans), U.S. Index rate loans, Canadian Prime Rate loans and UK
swingline loans and at the end of each interest rate period (but not less often than quarterly) for
LIBOR loans and BA equivalent loans.
The Company is also required to pay a commitment fee on the actual daily unused portions of the
Credit Facility at a rate of 0.25% per annum.
Currency
Loans to GCO Canada, Inc. may be made in U.S. dollars or Canadian dollars. Loans to Genesco
(UK) Limited may be made in U.S. dollars, Euros, Pounds Sterling or any other freely transferable
currencies approved by the Agent and applicable lenders.
Certain Covenants
The Company is not required to comply with any financial covenants unless Excess Availability is
less than the greater of $25.0 million or 10.0% of the Loan Cap. If and during such time as Excess
Availability is less than the greater of $25.0 million or 10.0% of the Loan Cap, the Credit Facility
requires the Company to meet a minimum fixed charge coverage ratio of (a) an amount equal to
consolidated EBITDA less capital expenditures and taxes paid in cash, in each case for such period,
to (b) fixed charges for such period, of not less than 1.0:1.0. Excess Availability was $279.3 million
at January 30, 2016. Because Excess Availability exceeded $25.0 million or 10.0% of the Loan Cap,
the Company was not required to comply with this financial covenant at January 30, 2016.
The Credit Facility also permits the Company to incur up to $500.0 million of senior debt provided
that certain terms and conditions are met.
84
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
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.
Cash Dominion
The Credit Facility also contains cash dominion provisions that apply in the event that the
Company’s Excess Availability is less than the greater of $30.0 million or 12.5% of the Loan Cap or
there is an event of default under the Credit Facility.
Events of Default
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 and to agreements which would have a
material adverse effect if breached, 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.
U.K. Credit Facility
In May 2015, Schuh Group Limited entered into a Form of Amended and Restated Facilities
Agreement and Working Capital Facility Letter ("UK Credit Facilities") which replaced the former
A, B and C term loans with a new Facility A of £17.5 million and a Facility B of £11.6 million
(which was the former Facility C loan) as well as provided an additional revolving credit facility,
Facility C, of £22.5 million and a working capital facility of £2.5 million. The Facility A loan bears
interest at LIBOR plus 1.8% per annum with quarterly payments through April 2017. The Facility B
loan bears interest at LIBOR plus 2.5% per annum with quarterly payments through September
2019. The Facility C bears interest at LIBOR plus 2.2% per annum and expires in September 2019.
85
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
The UK Credit Facilities contain certain covenants at the Schuh level including a minimum interest
coverage covenant of 4.50x and thereafter, a maximum leverage covenant initially set at 2.25x
declining over time at various rates to 1.75x beginning in April 2017 and a minimum cash flow
coverage of 1.00x. The Company was in compliance with all the covenants at January 30, 2016.
The UK Credit Facilities are secured by a pledge of all the assets of Schuh and its subsidiaries.
Note 7
Commitments Under Long-Term Leases
Operating Leases
The Company leases its office space and all of its retail store locations, certain distribution centers
and transportation equipment under various noncancelable operating leases. The leases have varying
terms and expire at various dates through 2030. The store leases in the United States, Puerto Rico
and Canada typically have initial terms of approximately 10 years. The stores leases in the United
Kingdom, the Republic of Ireland and Germany typically have initial terms of between 10 and 20
years. Generally, most of the leases require the Company to pay taxes, insurance, maintenance costs
and contingent rentals based on sales. Approximately 2% 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
2016
2015
2014
$
$
255,083 $
11,044
(825 )
265,302 $
250,077 $
9,217
(852 )
258,442 $
227,880
9,667
(663 )
236,884
Minimum rental commitments payable in future years are:
Fiscal Years
Total Minimum Rental Commitments
86
2017 $
2018
2019
2020
2021
Later years
$
In thousands
238,660
209,050
178,094
156,260
139,402
376,436
1,297,902
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 7
Commitments Under Long-Term Leases, Continued
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 recorded as deferred rent and amortized as a reduction of rent expense over
the initial lease term. Tenant allowances of $25.4 million and $23.5 million for Fiscal 2016 and
2015, respectively, and deferred rent of $48.0 million and $45.0 million for Fiscal 2016 and 2015,
respectively, are included in deferred rent and other long-term liabilities on the Consolidated
Balance Sheets.
87
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity
Non-Redeemable Preferred Stock
Number of Shares
Amounts in Thousands
Shares
Authorized
2016
2015
2014
2016
2015
2014
Common
Convertible
Ratio
No. of
Votes
per
share
Class (In order of
preference)*
Subordinated Serial
Preferred
(Cumulative)
Aggregate
3,000,000 **
$2.30 Series 1
$4.75 Series 3
$4.75 Series 4
Series 6
$1.50 Subordinated
Cumulative Preferred
64,368
40,449
53,764
800,000
5,000,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ — $ — $ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
N/A
.83
2.11
1.52
N/A
1
2
1
100
1
Employees’
Subordinated
Convertible Preferred
Stated Value of
Issued Shares
Employees’ Preferred
Stock Purchase
Accounts
Total Non-
Redeemable
Preferred Stock
5,000,000
38,196 44,836 46,069
1,146
1,345
1,382
1.00 ***
1
1,146
1,345
1,382
(69 )
(71 )
(77 )
$ 1,077
$ 1,274
$ 1,305
In order of preference for liquidation and dividends.
*
** 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 my designate.
*** Also convertible into one share of $1.50 Subordinated Cumulative Preferred Stock.
88
Note 8
Equity, Continued
Preferred Stock Transactions
In thousands
Balance February 2, 2013
Preferred stock redemptions
Other stock conversions
Balance February 1, 2014
Other stock conversions
Balance January 31, 2015
Other stock conversions
Balance January 30, 2016
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Non-Redeemable
Preferred Stock
Non-Redeemable
Employees’
Preferred Stock
Employees’
Preferred
Stock
Purchase
Accounts
$
$
2,615 $
(1,462 )
(1,153 )
—
—
—
—
— $
1,405 $
—
(23 )
1,382
(37 )
1,345
(199 )
1,146
Total
Non-Redeemable
Preferred Stock
3,924
(1,462 )
(1,157 )
1,305
(31 )
1,274
(197 )
1,077
(96 ) $
—
19
(77 )
6
(71 )
2
(69 ) $
Subordinated Serial Preferred Stock (Cumulative):
The Company issued a notice of mandatory redemption effective April 30, 2013, to its holders of
Subordinated Serial Preferred Stock $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4 during the first
quarter of Fiscal 2014. The Series 1 preferred stock was redeemed at $40 per share plus
accumulated dividends. During Fiscal 2014, 13,713 shares of Series 1 preferred stock were
converted to common stock and 2,490 shares of Series 1 preferred stock were redeemed. The Series
3 and 4 preferred stocks were redeemed at $100 per share plus accumulated dividends. During
Fiscal 2014, 6,046 shares of Series 3 preferred stock were converted to common stock and 1,352
shares of Series 3 preferred stock were redeemed. During Fiscal 2014, 3,247 shares of Series 4
preferred stock were redeemed. The total cost of the redemption for Series 1, 3 and 4 preferred stock
was $0.6 million in Fiscal 2014.
The Company’s shareholders’ rights plan grants to common shareholders the right to purchase, at a
specified exercise price, a fraction of a share of subordinated serial preferred stock, Series 6, in the
event of an acquisition of, or an announced tender offer for, 15% or more of the Company’s
outstanding common stock. Upon any such event, each right also entitles the holder (other than the
person making such acquisition or tender offer) to purchase, at the exercise price, shares of common
stock having a market value of twice the exercise price. In the event the Company is acquired in a
transaction in which the Company is not the surviving corporation, each right would entitle its holder
to purchase, at the exercise price, shares of the acquiring company having a market value of twice
the exercise price.
89
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity, Continued
The rights expire in March 2020, are redeemable under certain circumstances for $.01 per right and
are subject to exchange for one share of common stock or an equivalent amount of preferred stock
at any time after the event that makes the rights exercisable and before a majority of the Company’s
common stock is acquired.
$1.50 Subordinated Cumulative Preferred Stock:
The Company issued a notice of mandatory redemption effective April 30, 2013, to its holders of
$1.50 Subordinated Cumulative Preferred Stock during the first quarter of Fiscal 2014. The $1.50
Subordinated Cumulative Preferred Stock was redeemed at $30 per share plus accumulated
dividends. During Fiscal 2014, 30,067 shares of $1.50 Subordinated Cumulative Preferred Stock
were redeemed. The total cost of the redemption for the $1.50 Subordinated Cumulative Preferred
Stock was $0.9 million in Fiscal 2014.
Employees’ Subordinated Convertible Preferred Stock:
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.
Common Stock:
Common stock-$1 par value. Authorized: 80,000,000 shares; issued: January 30, 2016 – 22,322,799
shares; January 31, 2015 –24,515,362 shares. There were 488,464 shares held in treasury at January
30, 2016 and January 31, 2015. Each outstanding share is entitled to one vote. At January 30, 2016,
common shares were reserved as follows: 38,196 shares for conversion of preferred stock; 26,696
shares for the 2005 Stock Incentive Plan; 473,092 shares for the 2009 Amended and Restated Stock
Incentive Plan; and 305,134 shares for the Genesco Employee Stock Purchase Plan, as amended (the
"ESPP"), which was terminated December 31, 2015. The remaining securities for the ESPP were
removed from registration by means of a post-effective amendment filed in March 2016.
90
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity, Continued
For the year ended January 30, 2016, 35,542 shares of common stock were issued for the exercise of
stock options at an average weighted exercise price of $36.81, for a total of $1.3 million; 219,404
shares of common stock were issued as restricted shares as part of the Amended and Restated 2009
Genesco Inc. Equity Incentive Plan (the "2009 Plan"); 2,470 shares of common stock were issued for
the purchase of shares under the ESPP at an average weighted market price of $54.22, for a total of
$0.1 million; 19,769 shares were issued to directors for no consideration; 65,783 shares were
withheld for taxes on restricted stock vested in Fiscal 2016; 27,221 shares of restricted stock were
forfeited in Fiscal 2016; and 6,640 shares were issued in miscellaneous conversions of Employees’
Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired
2,383,384 shares of common stock at an average weighted market price of $60.79 for a total of
$144.9 million.
For the year ended January 31, 2015, 68,616 shares of common stock were issued for the exercise of
stock options at an average weighted exercise price of $26.49, for a total of $1.8 million; 185,416
shares of common stock were issued as restricted shares as part of the 2009 Plan; 2,688 shares of
common stock were issued for the purchase of shares under the ESPP at an average weighted market
price of $71.01, for a total of $0.2 million; 16,396 shares were issued to directors for no
consideration; 88,003 shares were withheld for taxes on restricted stock vested in Fiscal 2015;
13,999 shares of restricted stock were forfeited in Fiscal 2015; and 1,233 shares were issued in
miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the
Company repurchased and retired 64,709 shares of common stock at an average weighted market
price of $71.63 for a total of $4.6 million.
For the year ended February 1, 2014, 130,051 shares of common stock were issued for the exercise
of stock options at an average weighted exercise price of $23.33, for a total of $3.0 million; 199,392
shares of common stock were issued as restricted shares as part of the 2009 Plan; 3,146 shares of
common stock were issued for the purchase of shares under the ESPP at an average weighted market
price of $62.30, for a total of $0.2 million; 14,435 shares were issued to directors for no
consideration; 105,193 shares were withheld for taxes on restricted stock vested in Fiscal 2014;
6,279 shares of restricted stock were forfeited in Fiscal 2014; and 24,922 shares were issued in
miscellaneous conversions of Series 1, 3, and Employees’ Subordinated Convertible Preferred Stock.
In addition, the Company repurchased and retired 337,665 shares of common stock at an average
weighted market price of $61.23 for a total of $20.7 million.
91
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity, Continued
Restrictions on Dividends and Redemptions of Capital Stock:
The Company’s charter provides that no dividends may be paid and no shares of capital stock
acquired for value if there are dividend or redemption arrearages on any senior or equally ranked
stock. Exchanges of subordinated serial preferred stock for common stock or other stock junior to
such exchanged stock are permitted.
The Company’s Credit Facility prohibits the payment of dividends and other restricted payments
unless as of the date of the making of any Restricted Payment or consummation of any Acquisition,
(a) no Default or Event of Default exists or would arise after giving effect to such Restricted
Payment or Acquisition, and (b) either (i) the Borrowers have pro forma projected Excess
Availability for the following six month period equal to or greater than 25% of the Loan Cap, after
giving pro forma effect to such Restricted Payment or Acquisition, or (ii) (A) the Borrowers have pro
forma projected Excess Availability for the following six month period of less than 25% of the Loan
Cap but equal to or greater than 15% of the Loan Cap, after giving pro forma effect to the Restricted
Payment or Acquisition, and (B) the Fixed Charge Coverage Ratio, on a pro forma basis for the
twelve months preceding such Restricted Payment or Acquisition, will be equal to or greater than
1.0:1.0, and (c) after giving effect to such Restricted Payment or Acquisition, the Borrowers are
Solvent. The Company’s management does not expect availability under the Credit Facility to fall
below the requirements listed above during Fiscal 2016. The Company’s UK Credit Facility
prohibits the payment of any dividends by Schuh or its subsidiaries to the Company.
The Company issued a mandatory notice of redemption effective April 30, 2013, to its holders of
Subordinated Serial Preferred Stock $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4 and on its
$1.50 Subordinated Cumulative Preferred Stock during the first quarter of Fiscal 2014. The total
cost of the redemption was $1.5 million. As a result, all of these preferred issues of stock were either
converted to common stock or redeemed in Fiscal 2014, and there are no outstanding shares
remaining. Therefore, there is no longer an annual dividend requirement. Dividends paid during
Fiscal 2014 were less than $0.1 million.
92
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity, Continued
Changes in the Shares of the Company’s Capital Stock
Issued at February 2, 2013
Exercise of options
Issue restricted stock
Issue shares—Employee Stock Purchase Plan
Shares repurchased
Other
Issued at February 1, 2014
Exercise of options
Issue restricted stock
Issue shares—Employee Stock Purchase Plan
Shares repurchased
Other
Issued at January 31, 2015
Exercise of options
Issue restricted stock
Issue shares—Employee Stock Purchase Plan
Shares repurchased
Other
Issued at January 30, 2016
Less shares repurchased and held in treasury
Outstanding at January 30, 2016
Non-
Redeemable
Preferred
Stock
Employees’
Preferred
Stock
56,915
—
—
—
—
(56,915 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
46,852
—
—
—
—
(783 )
46,069
—
—
—
—
(1,233 )
44,836
—
—
—
—
(6,640 )
38,196
—
38,196
Common
Stock
24,484,915
130,051
213,827
3,146
(337,665 )
(86,550 )
24,407,724
68,616
185,416
2,688
(64,709 )
(84,373 )
24,515,362
35,542
219,404
2,470
(2,383,384 )
(66,595 )
22,322,799
488,464
21,834,335
93
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes
The components of earnings from continuing operations before income taxes is comprised of the
following:
In thousands
United States
Foreign
$
Total Earnings from Continuing Operations before Income Taxes $
2016
136,178 $
15,355
151,533 $
2015
150,682 $
6,307
156,989 $
2014
152,832
6,028
158,860
Income tax expense from continuing operations is comprised of the following:
In thousands
Current
U.S. federal
International
State
Total Current Income Tax Expense
Deferred
U.S. federal
International
State
Total Deferred Income Tax Expense (Benefit)
Total Income Tax Expense – Continuing Operations
2016
2015
2014
$
$
46,515 $
3,542
8,220
58,277
(1,249 )
868
(1,744 )
(2,125 )
56,152 $
43,146 $
292
8,966
52,404
4,422
636
154
5,212
57,616 $
35,463
7,293
8,139
50,895
14,078
(1,813 )
2,718
14,983
65,878
Discontinued operations were recorded net of income tax expense (benefit) of approximately $(0.5)
million, $(1.1) million and $(0.2) million in Fiscal 2016, 2015 and 2014, respectively.
As a result of the exercise of stock options and vesting of restricted stock during Fiscal 2016, 2015
and 2014, the Company realized an additional income tax benefit of approximately $0.2 million,
$3.1 million and $3.8 million, respectively. These tax benefits are reflected as an adjustment to
additional paid-in capital.
94
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
Deferred tax assets and liabilities are comprised of the following:
In thousands
Identified intangibles
Prepaids
Convertible bonds
Tax over book depreciation
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
Deferred compensation and restricted stock
Other
Gross deferred tax assets
Deferred tax asset valuation allowance
Deferred tax asset net of valuation allowance
Net Deferred Tax Assets
January 30,
2016
January 31,
2015
$
$
(29,763 ) $
(3,390 )
(1,799 )
—
(34,952 )
101
5,119
4,409
9,577
14,644
9,778
6,111
3,954
2,493
378
6,706
3,825
67,095
(3,352 )
63,743
28,791 $
(30,923 )
(3,135 )
(2,402 )
(2,028 )
(38,488 )
229
4,494
9,721
14,185
14,369
—
5,983
3,816
2,030
711
6,933
4,853
67,324
(4,411 )
62,913
24,425
The deferred tax balances have been classified in the Consolidated Balance Sheets as follows:
Net current asset
Net non-current asset
Net non-current liability
Net Deferred Tax Assets
2016
2015
28,965 $
959
(1,133 )
28,791 $
28,293
31
(3,899 )
24,425
$
$
95
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
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)
Foreign rate differential
Change in valuation allowance
Permanent items
Uncertain federal, state and foreign tax positions
Other
Effective Tax Rate
2016
2015
2014
35.00 %
2.82
(2.60 )
(0.58 )
2.19
1.23
(1.00 )
37.06 %
35.00 %
3.80
(1.56 )
0.57
2.13
(3.06 )
(0.18 )
36.70 %
35.00 %
4.62
(1.24 )
0.05
2.18
0.21
0.65
41.47 %
The provision for income taxes resulted in an effective tax rate for continuing operations of 37.06%
for Fiscal 2016, compared with an effective tax rate of 36.70% for Fiscal 2015. The tax rate for
Fiscal 2016 was higher primarily due to the reversal of previously recorded charges related to
formerly uncertain tax positions that were taken by Schuh at the time of the purchase by the
Company which the Company resolved favorably during the third quarter of Fiscal 2015.
As of January 30, 2016, January 31, 2015 and February 1, 2014, the Company had a federal net
operating loss carryforward, which was assumed in one of the prior year acquisitions, of $1.0
million, $1.2 million and $1.3 million, respectively, which expire in fiscal years 2025 through 2030.
As of January 30, 2016, January 31, 2015 and February 1, 2014, the Company had state net
operating loss carryforwards of $0.5 million, $0.0 million and $0.0 million, respectively, which
expire in fiscal years 2019 through 2036.
As of January 30, 2016, January 31, 2015 and February 1, 2014, the Company had state tax credits
of $0.6 million, $0.4 million and $0.7 million, respectively. These credits expire in fiscal years 2017
through 2024.
As of January 30, 2016, January 31, 2015 and February 1, 2014, the Company had foreign net
operating losses of $7.4 million, $6.8 million and $7.5 million, respectively, which have no
expiration.
96
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
As of January 30, 2016, the Company has provided a valuation allowance of approximately $3.4
million on deferred tax assets associated primarily with foreign fixed assets for which management
has determined it is more likely than not that the deferred tax assets will not be realized. The $1.0
million net decrease in the valuation allowance during Fiscal 2016 from the $4.4 million provided
for as of January 31, 2015 relates to decreases of $1.3 million in foreign net operating losses on
which a valuation allowance is no longer required, partially offset by increases of $0.3 million in
fixed asset-related deferred tax assets that will more likely than not never be realized. Management
believes that it is more likely than not that the remaining deferred tax assets will be fully realized.
As of January 30, 2016, the Company has not provided for withholding or United States federal
income taxes on approximately $47.1 million of accumulated undistributed earnings of its foreign
subsidiaries as they are considered by management to be permanently reinvested. If these
undistributed earnings were not considered to be permanently reinvested, the related U.S. tax
liability may be reduced by foreign income taxes paid on those earnings. The determination of the
amount of unrecognized deferred tax liability related to these temporary differences is not
practicable at this time as this could be significantly impacted by the source location and amount of
the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and
the opportunity to use foreign tax credits.
The methodology in the Income Tax Topic of the Codification 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.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal
2016, 2015 and 2014.
In thousands
2016
2015
2014
Unrecognized Tax Benefit – Beginning of Period
Gross Increases (Decreases) – Tax Positions in a Prior Period
Gross Increases (Decreases) – Tax Positions in a Current Period
Settlements
Lapse of Statutes of Limitations
Unrecognized Tax Benefit – End of Period
$
$
3,997 $
9,328
1,403
—
(89 )
14,639 $
10,960 $
231
(287 )
—
(6,907 )
3,997 $
10,437
139
1,452
(340 )
(728 )
10,960
The amount of unrecognized tax benefits as of January 30, 2016, January 31, 2015 and February 1,
2014 which would impact the annual effective rate if recognized were $3.9 million, $2.7 million and
$1.3 million, respectively.
97
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
The Company believes it is reasonably possible that there will be a $9.4 million decrease in the
gross tax liability for uncertain tax positions within the next 12 months based upon expected changes
in tax accounting methods and the expiration of statutes of limitation.
The Company recognizes interest expense and penalties related to the above unrecognized tax
benefits within income tax expense on the Consolidated Statements of Operations. Related to the
uncertain tax benefits noted above, the Company recorded interest and penalties of approximately
$0.6 million expense and $0.0 million benefit, respectively, during Fiscal 2016, $(0.1) million and
$0.0 million benefit, respectively, during Fiscal 2015 and $(0.1) million and $(0.1) million benefit,
respectively, during Fiscal 2014. The Company recognized a liability for accrued interest and
penalties of $1.5 million and $0.1 million, respectively, as of January 30, 2016, $0.8 million and
$0.1 million, respectively, as of January 31, 2015 and $0.9 million and $0.1 million, respectively, as
of February 1, 2014. The long-term portion of the unrecognized tax benefits and related accrued
interest and penalties are included in deferred rent and other long-term liabilities on the
Consolidated Balance Sheets.
Income tax reserves are determined using the methodology required by the Income Tax Topic of the
Codification.
The Company and its subsidiaries file income tax returns in federal and in many state and local
jurisdictions as well as foreign jurisdictions. With few exceptions, the Company's state and local
income tax returns for fiscal years ended February 2, 2013 and beyond remain subject to
examination. In addition, the Company has subsidiaries in various foreign jurisdictions that have
statutes of limitation generally ranging from two to six years. The Company is currently under audit
by the Internal Revenue Service for Fiscal 2013 and 2014.
98
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans
Defined Benefit Pension Plans
The Company previously sponsored a non-contributory, defined benefit pension plan. As of
January 1, 1996, 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 31, 1995.
Upon retirement, the participant will receive this accrued benefit payable as an annuity. In addition,
the participant will receive as a lump sum (or annuity if desired) the amount credited to the
participant’s cash balance account under the new formula. Effective January 1, 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 affects the amounts credited to the participants’ accounts as discussed below.
Under the cash balance formula, beginning January 1, 1996, the Company credits each participants’
account annually with an amount equal to 4% of the participant’s compensation plus 4% of the
participant’s compensation in excess of the Social Security taxable wage base. Beginning
December 31, 1996 and annually thereafter, the account balance of each active participant 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.
Other Postretirement Benefit Plans
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 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.
99
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Obligations and Funded Status
Change in Benefit Obligation
In thousands
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Benefits paid
Actuarial (gain) loss
Benefit Obligation at End of Year
Change in Plan Assets
In thousands
Fair value of plan assets at beginning of year
Actual gain (loss) on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Fair Value of Plan Assets at End of Year
Funded Status at End of Year
Pension Benefits
Other Benefits
2016
2015
2016
2015
125,764 $
450
4,263
—
(8,841 )
(21,346 )
100,290
$
111,133 $
450
4,664
—
(9,027 )
18,544
125,764 $
6,886 $
821
245
124
(341 )
(154 )
6,826
$
5,714
526
226
101
(839 )
1,158
6,886
Pension Benefits
Other Benefits
2016
2015
2016
2015
103,580 $
(4,406 )
—
—
(8,841 )
101,910
10,697
—
—
(9,027 )
90,333
$
103,580
—
—
217
124
(341 )
—
—
—
738
101
(839 )
—
(9,957 ) $
(22,184 ) $
(6,826 ) $
(6,886 )
$
$
$
$
$
Amounts recognized in the Consolidated Balance Sheets consist of:
In thousands
Current liabilities
Noncurrent liabilities
Net Amount Recognized
Pension Benefits
Other Benefits
2016
2015
2016
2015
$
$
— $
(9,957 )
(9,957 ) $
— $
(22,184 )
(22,184 ) $
(274 ) $
(6,552 )
(6,826 ) $
(247 )
(6,639 )
(6,886 )
100
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Amounts recognized in accumulated other comprehensive income consist of:
In thousands
Net loss
Total Recognized in Accumulated Other
Comprehensive Loss
$
$
Pension Benefits
Other Benefits
2016
2015
2016
2015
21,415 $
37,518 $
1,417 $
2,515
21,415
$
37,518
$
1,417
$
2,515
Amounts for projected and accumulated benefit obligation and fair value of plan assets are as follows:
In thousands
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of Net Periodic Benefit Cost
Net Periodic Benefit Cost
$
January 30,
2016
100,290 $
100,290
90,333
January 31,
2015
125,764
125,764
103,580
In thousands
Service cost
Interest cost
Expected return on plan assets
Amortization:
Prior service cost
Losses
Net amortization
Net Periodic Benefit Cost
Pension Benefits
2015
2016
2014
2016
Other Benefits
2015
2014
$
450 $
450 $
350 $
4,263
(5,785 )
4,664
(6,069 )
4,584
(6,654 )
—
4,948
4,948 $
$
3,876
—
3,546
3,546 $
2,591 $
—
6,160
6,160 $
4,440 $
$
$
821 $
245
—
—
189
189 $
$
1,255
526 $
226
—
—
102
102 $
854 $
428
159
—
—
97
97
684
Reconciliation of Accumulated Other Comprehensive Income
In thousands
Net loss
Amortization of prior service cost
Amortization of net actuarial loss
Total Recognized in Other Comprehensive Income
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income $
101
Pension Benefits Other Benefits
2016
2016
$
$
(11,155 ) $
—
(4,948 )
(16,103 ) $
(12,227 ) $
(910 )
—
(189 )
(1,099 )
156
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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 $0.9 million and $0.0 million, 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 $0.1 million.
Weighted-average assumptions used to determine benefit obligations
Discount rate
Rate of compensation increase
Pension Benefits
2015
2016
4.30 %
NA
3.55 %
NA
Other Benefits
2016
4.04 %
—
2015
3.31 %
—
For Fiscal 2016 and 2015, the discount rate was based on a yield curve of high quality corporate
bonds with cash flows matching the Company’s planned expected benefit payments.
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate
Expected long-term rate of return on plan
assets
Rate of compensation increase
Pension Benefits
Other Benefits
2016
2015
2014
2016
2015
2014
3.55 %
4.40 %
4.00 %
3.31 %
4.40 %
4.01 %
6.35 %
6.75 %
7.75 %
NA
NA
NA
—
—
—
—
—
—
The weighted average discount rate used to measure the benefit obligation for the pension plan
increased from 3.55% to 4.30% from Fiscal 2015 to Fiscal 2016. The increase in the rate decreased
the accumulated benefit obligation by $7.5 million and decreased the projected benefit obligation by
$7.5 million. The weighted average discount rate used to measure the benefit obligation for the
pension plan decreased from 4.40% to 3.55% from Fiscal 2014 to Fiscal 2015. The decrease in the
rate increased the accumulated benefit obligation by $11.4 million and increased the projected
benefit obligation by $11.4 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 a 6.35% long-term rate of return on assets assumption.
102
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Assumed health care cost trend rates
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
2016
2015
7.5 %
5 %
2021
8.0 %
5 %
2020
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
Plan Assets
1% Increase
in Rates
1% Decrease
in Rates
$
$
248 $
1,086 $
195
888
The Company’s pension plan weighted average asset allocations as of January 30, 2016 and January
31, 2015, by asset category are as follows:
Asset Category
Equity securities
Debt securities
Total
Plan Assets
January 30,
2016
January 31,
2015
64 %
36 %
100 %
63 %
37 %
100 %
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 are 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, 13% international equity, 35% fixed income and 2% cash investments.
103
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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 investment managers to implement its
various investment strategies. Performance of the managers is reviewed quarterly and the investment
objectives are consistently evaluated.
At January 30, 2016 and January 31, 2015, there were no Company related assets in the plan.
Generally, quoted market prices are used to value pension plan assets. Equities, some fixed income
securities, publicly traded investment funds and U.S. government obligations are valued at the
closing price reported on the active market on which the individual security is traded.
The following tables present the pension plan assets by level within the fair value hierarchy as of
January 30, 2016 and January 31, 2015.
January 30, 2016 (In thousands)
Equity Securities:
International securities
U.S. securities
Fixed Income Securities
Other:
Cash Equivalents
Other (includes receivables and payables)
Total Pension Plan Assets
January 31, 2015 (In thousands)
Equity Securities:
International securities
U.S. securities
Fixed Income Securities
Other:
Cash Equivalents
Other (includes receivables and payables)
Total Pension Plan Assets
Level 1
Level 2
Level 3
Total
11,464 $
46,012
32,573
291
(7 )
90,333 $
— $
—
—
—
—
— $
— $
—
—
—
—
— $
11,464
46,012
32,573
291
(7 )
90,333
Level 1
Level 2
Level 3
Total
12,266 $
53,074
38,034
232
(26 )
103,580 $
— $
—
—
—
—
— $
— $
—
—
—
—
— $
12,266
53,074
38,034
232
(26 )
103,580
$
$
$
$
104
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Cash Flows
Return of Assets
There was no return of assets from the plan to the Company in Fiscal 2016 and no plan assets are
projected to be returned to the Company in Fiscal 2017.
Contributions
There was no Employee Retirement Income Security Act of 1974, as amended ("ERISA") cash
requirement for the plan in 2015 and none is projected to be required in 2016. It is the Company’s
policy to contribute enough cash to maintain at least an 80% funding level.
Estimated Future Benefit Payments
Expected benefit payments from the trust, including future service and pay, are as follows:
Estimated future payments
2016
2017
2018
2019
2020
2021 – 2025
Section 401(k) Savings Plan
Pension
Benefits
($ in millions)
8.2 $
$
7.9
7.8
7.6
7.5
34.1
Other
Benefits
($ in millions)
0.3
0.3
0.3
0.4
0.4
1.9
The Company has a Section 401(k) Savings Plan available to employees who have completed one
full year of service and are age 21 or older.
Since January 1, 2005, the Company has matched 100% 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 31, 2004, who were eligible for the Company’s cash balance retirement plan before it was
frozen, the Company annually makes an additional contribution of 2 1/2 % of salary to each
employee’s account. In calendar 2005 and future years, participants are immediately vested in their
contributions and the Company’s matching contribution plus actual earnings thereon. The
contribution expense to the Company for the matching program was approximately $6.0 million for
Fiscal 2016, $5.5 million for Fiscal 2015 and $5.0 million for Fiscal 2014.
105
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Earnings Per Share
For the Year Ended
January 30, 2016
For the Year Ended
January 31, 2015
For the Year Ended
February 1, 2014
(In thousands, except
per share amounts)
Income
(Numerator)
Shares
(Denominator) Per-Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Earnings from continuing
operations
Less: Preferred stock
dividends and income from
participating securities
Basic EPS from continuing
operations
$
95,381
$
99,373
$
92,982
—
—
(33 )
Income from continuing
operations available to
common shareholders
Effect of Dilutive Securities
from continuing operations
Options and restricted stock
Employees’ preferred
stock(1)
95,381
22,880
$
4.17
99,373
23,507
$
4.23
92,949
23,297
$
3.99
76
44
155
46
272
46
Diluted EPS from
continuing operations
Income from continuing
operations available to
common shareholders plus
assumed conversions
$
95,381
23,000
$
4.15
$
99,373
23,708
$
4.19
$
92,949
23,615
$
3.94
(1) The Company’s Employees’ Subordinated Convertible Preferred Stock is convertible one for one to the Company’s
common stock. Because there are no dividends paid on this stock, these shares are assumed to be converted.
All outstanding options to purchase shares of common stock at the end of Fiscal 2016, 2015 and
2014 were included in the computation of diluted earnings per share because the impact of doing so
was dilutive.
The weighted shares outstanding reflects the effect of the Company's Board-approved share
repurchase program. The Company repurchased 2,383,384 shares at a cost of $144.9 million during
Fiscal 2016, of which $7.2 million was not paid in the fourth quarter but included in other accrued
liabilities in the Consolidated Balance Sheets. The Company has repurchased 663,200 shares in the
first quarter of Fiscal 2017, through March 29, 2016, at a cost of $43.2 million. The Company has
$40.9 million remaining as of March 29, 2016 under its current $100.0 million share repurchase
authorization. The Company repurchased 64,709 shares at a cost of $4.6 million during Fiscal 2015.
The Company repurchased 337,665 shares at a cost of $20.7 million during Fiscal 2014.
106
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans
The Company’s stock-based compensation plans, as of January 30, 2016, are described below. The
Company recognizes compensation expense for share-based payments based on the fair value of the
awards as required by the Compensation – Stock Compensation Topic of the Codification.
Stock Incentive Plans
The Company has two stock incentive plans. Under the 2009 Plan, effective as of June 22, 2011, the
Company may grant options, restricted shares, performance awards and other stock-based awards to
its employees, consultants and directors for up to 2.5 million shares of common stock. Under the
2005 Equity Incentive Plan (the “2005 Plan”), effective as of June 23, 2005, the Company was
permitted to grant options, restricted shares and other stock-based awards to its employees and
consultants as well as directors for up to 2.5 million shares of common stock. There will be no future
awards under the 2005 Equity 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 10 years. Options granted under both plans primarily vest 25% per year over four years.
For Fiscal 2016, 2015 and 2014, the Company did not recognize any stock option related share-
based compensation for its stock incentive plans as all such amounts were fully recognized in earlier
periods. The Company did not capitalize any share-based compensation cost.
The Compensation—Stock Compensation Topic of the Codification 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 $0.2 million, $3.1 million and $3.8 million as financing cash inflows
rather than as operating cash inflows on its Consolidated Statement of Cash Flows for Fiscal 2016,
2015 and 2014, respectively.
The Company did not grant any stock options in Fiscal 2016, 2015 or 2014.
107
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
A summary of stock option activity and changes for Fiscal 2016, 2015 and 2014 is presented below:
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate Intrinsic
Value (in
thousands)(1)
Outstanding, February 3, 2013
Granted
Exercised
Forfeited
Outstanding, February 1, 2014
Granted
Exercised
Forfeited
Outstanding, January 31, 2015
Granted
Exercised
Forfeited
Outstanding, January 30, 2016
Exercisable, January 30, 2016
263,155 $
—
(130,051 )
(2,250 )
130,854 $
—
(68,616 )
—
62,238 $
—
(35,542 )
0
26,696 $
26,696 $
27.43
—
23.33
17.50
31.67
—
26.49
—
37.38
—
36.81
—
38.13
38.13
0.7343 $
0.7343 $
748
748
(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 2016, 2015 and 2014 was
$0.9 million, $3.4 million and $6.1 million, respectively.
As of January 30, 2016, the Company does not have any nonvested options under its stock incentive
plans.
As of January 30, 2016, there was no unrecognized compensation costs related to stock options
under the 2009 Plan. Cash received from option exercises under all share-based payment
arrangements for Fiscal 2016, 2015 and 2014 was $1.3 million, $1.8 million and $3.0 million,
respectively.
Restricted Stock Incentive Plans
Director Restricted Stock
The 2009 Plan permits grants to non-employee directors on such terms as the Board of Directors
may approve. Restricted stock awards were made to independent directors on the date of the annual
meeting of shareholders in each of Fiscal 2016, 2015 and 2014.
108
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
The shares granted in each award vested on the first anniversary of the grant date, subject to the
director's continued service through that date. The Board of Directors also approved a grant of 365
additional shares in Fiscal 2014 to a newly elected director on the annual meeting date in Fiscal
2014 on the same terms as the Fiscal 2014 grant to all independent directors. In all cases, the
director is restricted from selling, transferring, pledging or assigning the shares for three years from
the grant date unless he or she earlier leaves the board. The Fiscal 2016, 2015 and 2014 grants were
valued at $97,500, $97,500 and $80,000, respectively, per director based on the average closing
price of the stock for the first five trading days of the month in which they were granted and vested
on the first anniversary of the grant date. For Fiscal 2016, 2015 and 2014, the Company issued
12,978 shares, 11,592 shares and 9,280 shares, respectively, of director restricted stock.
In addition, the 2009 Plan permits an outside director to 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 are granted as of the first business day of the fiscal year as to which the election is
effective, subject to forfeiture to the extent not earned upon the outside director's ceasing to serve as
a director or committee chairman during such fiscal year. Once the shares are earned, the director is
restricted from selling, transferring, pledging or assigning the shares for an additional three years.
For Fiscal 2016, 2015 and 2014, the Company issued 6,791 shares, 4,804 shares and 4,790 shares,
respectively, of Retainer Stock.
For Fiscal 2016, 2015 and 2014, the Company recognized $1.4 million, $1.1 million and $1.0
million, respectively, of director restricted stock related share-based compensation in selling and
administrative expenses in the accompanying Consolidated Statements of Operations.
Employee Restricted Stock
Under the 2009 Plan, the Company issued 219,404 shares, 185,416 shares and 199,392 shares of
employee restricted stock in Fiscal 2016, 2015 and 2014, respectively. Shares of employee
restricted stock issued in Fiscal 2016, 2015 and 2014 primarily 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 Operations for these
shares was $12.4 million, $12.3 million and $11.3 million for Fiscal 2016, 2015 and 2014,
respectively.
109
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
A summary of the status of the Company’s nonvested shares of its employee restricted stock as of
January 30, 2016 is presented below:
Nonvested Restricted Shares
Nonvested at February 2, 2013
Granted
Vested
Withheld for federal taxes
Forfeited
Nonvested at February 1, 2014
Granted
Vested
Withheld for federal taxes
Forfeited
Nonvested at January 31, 2015
Granted
Vested
Withheld for federal taxes
Forfeited
Nonvested at January 30, 2016
Shares
692,782 $
199,392
(199,428 )
(105,193 )
(6,279 )
581,274
185,416
(177,694 )
(88,003 )
(13,999 )
486,994
219,404
(141,795 )
(65,783 )
(27,221 )
471,599 $
Weighted-Average
Grant-Date
Fair Value
40.59
65.11
34.31
34.42
46.48
52.21
80.85
44.77
45.27
65.71
66.70
66.43
60.08
60.62
69.31
69.26
As of January 30, 2016, there was $25.2 million of total unrecognized compensation costs related to
nonvested share-based compensation arrangements for restricted stock discussed above. That cost is
expected to be recognized over a weighted average period of 1.76 years.
Employee Stock Purchase Plan
The Company ended the ESPP in Fiscal 2016. The shares issued under the ESPP for Fiscal 2016
will be the last shares issued. Under the ESPP, the Company was authorized to issue up to 1.0
million shares of common stock to qualifying full-time employees whose total annual base salary
was less than $90,000. The Company’s board of directors amended the Company’s ESPP effective
October 1, 2005 to provide that participants may acquire shares under the ESPP at a 5% discount
from fair market value on the last day of the ESPP year rather than a 15% discount prior to the
amendment. Employees can choose each year to have up to 15% of their annual base earnings or
$9,500, whichever is lower, withheld to purchase the Company’s common stock. Under the
Compensation – Stock Compensation Topic of the Codification, shares issued under the ESPP as
amended are non-compensatory. Under the ESPP, the Company sold 2,470 shares, 2,688 shares and
3,146 shares to employees in Fiscal 2016, 2015 and 2014, respectively.
110
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings
Environmental Matters
New York State Environmental Matters
In August 1997, 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
remedial measure (“IRM”) with regard to the site of a knitting mill operated by a former subsidiary
of the Company from 1965 to 1969. The Company undertook the IRM and RIFS voluntarily,
without admitting liability or accepting responsibility for any future remediation of the site. The
Company has completed the IRM and the RIFS. In the course of preparing the RIFS, the Company
identified remedial alternatives with estimated undiscounted costs ranging from $0.0 million to
$24.0 million, excluding amounts previously expended or provided for by the Company. 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 specified a remedy of a combination of groundwater extraction and treatment
and in site chemical oxidation.
In July 2009, the Company agreed to a Consent Order with the EPA requiring the Company to
perform certain remediation actions, operations, maintenance and monitoring at the site. In
September 2009, a Consent Judgment embodying the Consent Order was filed in the U.S. District
Court for the Eastern District of New York.
In September 2015, the EPA adopted an amendment to the 2007 Record of Decision by eliminating
the separate ground-water extraction and treatment systems and the use of in-situ oxidation from the
remedy adopted in the 2007 Record of Decision. The amendment provides for the continued
operation and maintenance of the existing wellhead treatment systems on wells operated by the
Village of Garden City, New York (the "Village").
The Village has additionally 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 total costs ranging from approximately $1.8 million to in
excess of $2.5 million, and future operation and maintenance costs which the Village estimates at
$126,400 annually while the enhanced treatment continues.
111
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings, Continued
On December 14, 2007, the Village filed a complaint (the "Village Lawsuit") against the Company
and the owner of the property under the Resource Conservation and Recovery Act (“RCRA”), the
Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”) as well as a number of state law theories 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 $41 million, undiscounted, over a 70-
year period.
The Company has not verified the estimates of either historic or future costs asserted in the Village
Lawsuit, 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.
On May 23, 2008, the Company filed a motion to dismiss the Village Lawsuit on grounds including
applicable statutes of limitation and preemption of certain claims by the NYSDEC's and the EPA's
diligent prosecution of remediation. On January 27, 2009, the Court granted the motion to dismiss
all counts of the plaintiff's complaint except for the CERCLA claim and a state law claim for
indemnity for costs incurred after November 27, 2000. On September 23, 2009, on a motion for
reconsideration by the Village, the Court reinstated the claims for injunctive relief under RCRA and
for equitable relief under certain of the state law theories.
The Company and the Village have reached an agreement in principle providing for the Village to
continue to operate and maintain the well head treatment systems in accordance with the Record of
Decision and to release its claims against the Company asserted in the Village Lawsuit in exchange
for a lump-sum payment by the Company. The agreement in principle is subject to the issuance by
EPA of Statement of Work under the amended Record of Decision that is acceptable to the Company
and the Village and to the execution by both parties of definitive documentation incorporating the
agreement in principle. While there can be no assurance that a definitive agreement incorporating
the agreement in principle will be concluded, the Company does not expect that such an agreement,
the Village Lawsuit, or the implementation of the amended Record of Decision would have a
material effect on its financial condition or results of operations.
In April 2015, the Company received from EPA a Notice of Potential Liability and Demand for
Costs pursuant to CERCLA regarding the site in Gloversville, New York of a former leather tannery
operated by the Company and by other, unrelated parties. The Notice demanded payment of
approximately $2.2 million of response costs claimed by EPA to have been incurred to conduct
assessments and removal activities at the site.
112
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings, Continued
The Company has requested additional information on the basis for EPA's assertion that the
Company is a potentially responsible party with regard to the site and is assessing the claims
asserted in the notice. The Company's environmental insurance carrier is providing coverage of the
matter subject to a $500,000 self-insured retention and the other terms and conditions of the
insurance policy, subject to a standard reservation of rights.
Whitehall Environmental Matters
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.
In October 2010, the Company and the Michigan Department of Natural Resources and
Environment entered into a Consent Decree providing for implementation of a remedial Work Plan
for the facility site designed to bring the site into compliance with applicable regulatory standards.
The Work Plan's implementation is substantially complete and the Company expects, based on its
present understanding of the condition of the site, that its future obligations with respect to the site
will be limited to periodic monitoring and that future costs related to the site should not have a
material effect on its financial condition or results of operations.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, the Company had accrued $14.5 million as
of January 30, 2016, $14.1 million as of January 31, 2015 and $11.9 million as of February 1, 2014.
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 because it relates to former facilities operated by the
Company. The Company has made pretax accruals for certain of these contingencies, including
approximately $0.8 million reflected in Fiscal 2016, $2.8 million reflected in Fiscal 2015 and $0.5
million reflected in Fiscal 2014. These charges are included in provision for discontinued
operations, net in the Consolidated Statements of Operations and represent changes in estimates.
113
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings, Continued
Other Matters
On December 10, 2010, the Company announced that it had suffered a criminal intrusion into the
portion of its computer network that processes payments for transactions in certain of its retail
stores. Visa, Inc., MasterCard Worldwide and American Express Travel Related Services Company,
Inc. have asserted claims totaling approximately $15.6 million in connection with the intrusion and
the claims of two of the claimants have been collected by withholding payment card receivables of
the Company. In the fourth quarter of Fiscal 2013, the Company recorded a $15.4 million charge to
earnings in connection with the disputed liability. On March 7, 2013, the Company filed an action
in the U.S. District Court for the Middle District of Tennessee against Visa U.S.A. Inc., Visa Inc. and
Visa International Service Association seeking to recover $13.3 million in non-compliance fines and
issuer reimbursement assessments collected from the Company in connection with the intrusion.
The Company does not currently expect any future claims in connection with the intrusion to have a
material effect on its financial condition, cash flows, or results of operations.
On May 17, 2013, a former employee filed a putative class and representative action, Garcia v.
Genesco, Inc., in the Superior Court of California for the County of Ventura, alleging various claims
under the California Labor Code, including failure to provide meal and rest periods, failure to timely
pay wages, failure to provide accurate itemized wage statements, and unfair competition and
violation of the Private Attorneys’ General Act of 2004, and seeking unspecified damages and
penalties. On August 30, 2013, the Company removed the action to the United States District Court
for the Central District of California. Subsequently, the Company reached an agreement to settle the
matter. The court granted final approval of the settlement on May 8, 2015 and dismissed the case.
On April 30, 2015, an employee of a subsidiary of the Company filed an action, Stewart v. Hat
World, Inc., et al., under the California Labor Code Private Attorneys General Act on behalf of
herself, the State of California, and other non-exempt, hourly-paid employees of the subsidiary in
California, seeking unspecified damages and penalties for various alleged violations of the
California Labor Code, including failure to pay for all hours worked, minimum wage and overtime
violations, failure to provide required meal and rest periods, failure to timely pay wages, failure to
provide complete and accurate wage statements, and failure to provide full reimbursement of
business-related costs and expenses incurred in the course of employment. The Company disputes
the material allegations in the complaint and intends to defend the matter.
On March 3, 2016, plaintiffs filed an action Lacey, et al. v. Genesco Inc., in the U.S. District Court
for the Western District of Pennsylvania, alleging that certain of the Company's internet websites are
inaccessible to the blind, in violation of the Americans With Disabilities Act. The suit seeks
injunctive relief and attorneys' fees. The Company is investigating the allegations in the complaint.
114
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings, Continued
In addition to the matters specifically described in this Note, the Company is a party to other legal
and regulatory proceedings and claims arising in the ordinary course of its business. While
management does not believe that the Company's liability with respect to any of these other matters
is likely to have a material effect on its financial statements, legal proceedings are subject to inherent
uncertainties and unfavorable rulings could have a material adverse impact on the Company's
financial statements.
Note 14
Business Segment Information
During Fiscal 2016, the Company operated five reportable business segments (not including
corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz, Shi by Journeys, Little
Burgundy and Underground by Journeys retail footwear chains, e-commerce operations and catalog;
(ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii)
Lids Sports Group, comprised primarily of the Lids, Hat World and Hat Shack retail headwear
stores, the Lids Locker Room and Lids Clubhouse fan shops (operated under various trade names),
licensed team merchandise departments in Macy's department stores operated under the name of
Locker Room by Lids under a license agreement with Macy's, certain e-commerce operations and an
athletic team dealer business operating as Lids Team Sports which was sold in the fourth quarter of
Fiscal 2016; (iv) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-
commerce operations, catalog and wholesale distribution of products under the Johnston & Murphy
and Trask brands; and (v) Licensed Brands, comprised of Dockers® Footwear, sourced and marketed
under a license from Levi Strauss & Company; SureGrip® Footwear, occupational footwear
primarily sold directly to consumers; and other brands.
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 management's organization of the segments in
order to make operating decisions and assess performance along types of products sold. Journeys
Group, Schuh Group and Lids Sports Group sell primarily branded products from other companies
while Johnston & Murphy Group and Licensed Brands sell primarily the Company's owned and
licensed brands.
115
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Corporate assets include cash, domestic prepaid rent expense, prepaid income taxes, deferred
income taxes, deferred note expense and corporate fixed assets. The Company charges allocated
retail costs of distribution to each segment. The Company does not allocate certain costs to each
segment in order to make decisions and assess performance. These costs include corporate
overhead, interest expense, interest income, asset impairment charges and other, including major
litigation and major lease terminations.
Fiscal 2016
In thousands
Journeys
Group
Schuh
Group
$ 1,251,637 $ 405,674 $ 976,372 $
Lids
Sports
Group
Johnston
& Murphy
Group
278,681 $ 110,655 $
Licensed
Brands
Corporate
& Other
Sales
Intercompany sales
Net sales to external customers $ 1,251,637 $ 405,674 $ 975,504 $
17,040 $
Segment operating income (loss) $ 126,248 $ 19,124 $
—
Asset Impairments and other*
(868 )
—
—
—
—
—
(829 )
278,681 $ 109,826 $
9,236 $
17,761 $
—
—
Earnings (loss) from operations
Gain on sale of Lids Team Sports
Interest expense
Interest income
Earnings (loss) from continuing
operations before income taxes
Total assets**
Depreciation and amortization
Capital expenditures
126,248
—
—
—
19,124
—
—
—
17,040
—
—
—
17,761
—
—
—
9,236
—
—
—
$ 126,248
$ 19,124
$
17,040
$
17,761
$
9,236
$
(37,876 ) $
151,533
$ 349,021 $ 241,924 $ 517,284 $
30,196
14,814
37,396
19,065
22,504
33,251
118,913 $
5,677
7,796
50,718 $
911
774
263,623 $
4,909
2,370
1,541,483
79,011
100,652
912 $
—
912 $
(30,265 ) $
(7,893 )
(38,158 )
4,685
(4,414 )
11
Consolidated
3,023,931
(1,697 )
3,022,234
159,144
(7,893 )
151,251
4,685
(4,414 )
11
*Asset Impairments and other includes a $3.1 million charge for asset impairments, of which $2.7 million is in the Lids Sports Group and $0.4 million
is in the Schuh Group, a $2.5 million charge for asset write-downs, a $2.2 million charge for network intrusion costs and a $0.1 million charge for
other legal matters.
**Total assets for the Lids Sports Group, Schuh Group, Journeys Group and Licensed Brands include $180.9 million, $90.3 million, $9.4 million and
$0.8 million of goodwill, respectively. Goodwill for Lids Sports Group primarily decreased $19.2 million due to the sale of Lids Team Sports in the
fourth quarter of Fiscal 2016. Goodwill for Schuh Group decreased by $5.7 million due to foreign currency translation adjustment. Goodwill for
Journeys Group increased $9.4 million due to the acquisition of Little Burgundy in the fourth quarter of Fiscal 2016. Of the Company's $323.3 million
of long-lived assets, $64.7 million and $18.3 million relate to long-lived assets in the United Kingdom and Canada, respectively.
116
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Fiscal 2015
In thousands
Sales
Intercompany sales
Net sales to external customers
Segment operating income (loss)
Asset Impairments and other*
Earnings (loss) from operations
Indemnification asset write-off
Interest expense
Interest income
Earnings (loss) from continuing
operations before income taxes
Total assets**
Depreciation and amortization
Capital expenditures
Johnston
&
Murphy
Group
Lids
Sports
Group
Journeys
Group
Schuh
Group
406,947 $ 903,451 $ 259,675 $
—
(790 )
$ 1,179,476 $ 406,947 $ 902,661 $ 259,675 $
$ 1,179,476
—
—
$ 114,784
$
—
114,784
—
—
—
$
$ 114,784
$ 292,536
20,785
26,180
10,110
$
—
10,110
—
—
—
48,970
$
—
48,970
—
—
—
14,856
$
—
14,856
—
—
—
$
$
14,856
$
10,110
48,970
246,570 $ 660,833 $ 109,791 $
4,935
29,711
14,114
8,196
43,013
21,382
Licensed
Brands
Corporate
& Other
110,896 $
(781 )
110,115 $
10,459
$
—
10,459
—
—
—
$
10,459
47,066 $
725
979
Consolidated
2,861,415
(1,571 )
2,859,844
970 $
—
970 $
(29,632 ) $
169,547
(2,281 )
(31,913 )
(7,050 )
(3,337 )
110
(2,281 )
167,266
(7,050 )
(3,337 )
110
(42,190 ) $
226,291 $
4,056
3,361
156,989
1,583,087
74,326
103,111
*Asset Impairments and other includes a $1.9 million charge for asset impairments, of which $1.7 million is in the Lids Sports Group and $0.2 million
is in the Johnston & Murphy Group, a $3.1 million charge for network intrusion costs and a $0.7 million charge for other legal matters, partially offset
by a gain of $(3.4) million on a lease termination of a Lids store.
**Total assets for the Lids Sports Group, Schuh Group and Licensed Brands include $200.1 million, $96.0 million and $0.8 million of goodwill,
respectively. Goodwill for Lids Sports Group includes $17.7 million of additions in Fiscal 2015 resulting from several small acquisitions and the
Schuh Group goodwill decreased by $8.9 million due to foreign currency translation adjustment. Of the Company's $305.8 million of long-lived
assets, $63.9 million and $14.6 million relate to long-lived assets in the United Kingdom and Canada, respectively.
117
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Net sales to external customers
$ 1,082,241 $ 364,732 $ 820,996 $ 245,941 $ 109,780 $
Fiscal 2014
In thousands
Sales
Intercompany sales
Segment operating income (loss)
Asset Impairments and other*
$
Earnings (loss) from operations
Interest expense
Interest income
Earnings (loss) from continuing
operations before income taxes
Total assets**
Depreciation and amortization
Capital expenditures
Journeys
Group
Lids
Sports
Group
$ 1,082,241 $ 364,732 $ 821,779 $ 245,941 $ 109,989 $
Licensed
Brands
Schuh
Group
—
—
(783 )
—
(209 )
Johnston
&
Murphy
Group
Corporate
& Other
97,377 $
—
97,377
—
—
3,063 $ 63,748 $ 17,638 $ 10,614 $ (27,664 ) $
—
17,638
—
—
—
63,748
—
—
—
10,614
—
—
—
3,063
—
—
(29,005 )
(4,641 )
66
(1,341 )
—
Consolidated
1,282 $ 2,625,964
(992 )
1,282 $ 2,624,972
164,776
(1,341 )
163,435
(4,641 )
66
$
3,063
97,377
$ 63,748
158,860
$
$ 298,105 $ 268,514 $ 574,664 $ 97,532 $ 50,955 $ 149,514 $ 1,439,284
67,135
98,456
28,345
35,193
19,400
20,223
11,339
29,673
3,581
2,737
468
1,452
4,002
9,178
$ (33,580 ) $
$ 10,614
$ 17,638
*Asset Impairments and other includes a $2.3 million charge for asset impairments, of which $1.4 million is in the Lids Sports Group, $0.6 million is
in the Journeys Group and $0.3 million is in the Johnston & Murphy Group, a $3.3 million charge for network intrusion costs, a $2.4 million charge for
other legal matters and a $1.6 million charge for a lease termination, partially offset by a gain of $(8.3) million for the lease termination of a New York
City Journeys store.
**Total assets for the Lids Sports Group, Schuh Group and Licensed Brands include $182.4 million, $104.9 million and $0.8 million of goodwill,
respectively. Goodwill for the Lids Sports Group includes $10.1 million of additions in Fiscal 2014 resulting from small acquisitions and the Schuh
Group goodwill increased by $4.2 million due to foreign currency translation adjustment. Of the Company's $280.0 million of long-lived assets,
$66.9 million and $15.1 million relate to long-lived assets in the United Kingdom and Canada, respectively.
118
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15
Quarterly Financial Information (Unaudited)
(In thousands,
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year
2016
2015
2016
2015
$ 660,597 $ 628,825
315,944
326,333
$ 655,525 $ 615,474
301,745
320,091
2016
$ 773,898
373,886
2015
$ 722,915
358,489
2016
$ 932,214
423,156
2015
$ 892,630
424,233
2016
2015
$ 3,022,234 $ 2,859,844
1,443,466 1,400,411
15,609
(1)
23,017
(3)
11,568
(5)
9,302
(7)
50,720
(9)
38,619
(11)
73,636
(13)
86,051
(15)
151,533
156,989
9,945
(2)
9,878
14,098
(4)
13,973
7,593
(6)
7,520
4,768
(8)
4,694
32,855
28,750
44,988
51,757
95,381
99,373
(10)
32,507
(12)
28,662
(14)
44,664
(16)
50,396
94,569
97,725
except per share
amounts)
Net sales
Gross margin
Earnings from
continuing
operations before
income taxes
Earnings from
continuing
operations
Net earnings
Diluted earnings
per common
share:
Continuing
operations
Net earnings
0.42
0.59
0.42
0.60
0.32
0.32
0.20
0.20
1.43
1.42
1.21
1.21
2.07
2.06
2.18
2.12
4.15
4.19
4.11
4.12
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Includes a net asset impairment and other charge of $2.6 million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other credit of $(1.1) million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $1.2 million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $1.4 million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $0.2 million (see Note 3).
Includes a loss of $0.3 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $1.0 million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $3.9 million (see Note 3) and a gain of $(4.7) million on the sale
of Lids Team Sports (see Note 2).
Includes a loss of $0.3 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other charge of $1.0 million (see Note 3).
Includes a loss of $1.4 million, net of tax, from discontinued operations (see Note 3).
119
ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A, CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
We have established disclosure controls and procedures to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other members
of senior management and Board of Directors.
Based on their evaluation as of January 30, 2016, the principal executive officer and principal financial officer of the Company
have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), were effective to ensure that the information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the
Company's management, including the principal executive and principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s annual report on internal control over financial reporting.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting
as defined in Rule 13a-15(f) under the Exchange Act. The 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 30, 2016. In
making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013) drafted by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management
believes that, as of January 30, 2016, the Company’s internal control over financial reporting was effective based on those
criteria.
Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’s Consolidated Financial
Statements, has issued an attestation report on the Company’s effectiveness of internal control over financial reporting which is
included herein.
Changes in internal control over financial reporting.
There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal
quarter that have materially affected or are reasonable likely to materially affect the Company's internal control over financial
reporting.
ITEM 9B, OTHER INFORMATION
Not applicable.
120
PART III
ITEM 10, DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this item is incorporated herein by reference to the sections entitled “Election of Directors,”
“Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy
statement for its annual meeting of shareholders to be held June 23, 2016, to be filed with the Securities and Exchange
Commission. Pursuant to General Instruction G(3), certain information concerning the executive officers of the Company
appears under Item 4A, “Executive Officers of the Registrant” in this report following Item 4, "Mine Safety Disclosures" of
Part I.
The Company has a code of ethics (the “Code of Ethics”) that applies to all of its directors, officers (including its chief
executive officer, chief financial officer and chief accounting officer) and employees. The Company has made the Code of
Ethics available and intends to post any legally required amendments to, or waivers of, such Code of Ethics on its website at
http://www.genesco.com. Our website address is provided as an inactive textual reference only. The information provided on
our website is not a part of this report, and therefore is not incorporated herein by reference.
ITEM 11, EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections entitled “Director Compensation,”
“Compensation Committee Report” and “Executive Compensation” in the Company’s definitive proxy statement for its annual
meeting of shareholders to be held June 23, 2016, to be filed with the Securities and Exchange Commission.
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Certain information required by this item is incorporated herein by reference to the section entitled “Security Ownership of
Officers, Directors and Principal Shareholders” in the Company’s definitive proxy statement for its annual meeting of
shareholders to be held June 23, 2016, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of January 30, 2016 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION*
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
Number of
securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(c)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(1)
26,696 $
—
26,696 $
38.13
—
38.13
778,226
—
778,226
(1) Such shares may be issued as restricted shares or other forms of stock-based compensation pursuant to our stock incentive
plans.
*
For additional information concerning our equity compensation plans, see the discussion in Note 1 in the Notes to
Consolidated Financial Statements—Summary of Significant Accounting Policies – Share-Based Compensation and
Note 12 Share-Based Compensation Plans.
121
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors” in the
Company’s definitive proxy statement for its annual meeting of shareholders to be held June 23, 2016, to be filed with the
Securities and Exchange Commission.
ITEM 14, PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section entitled “Audit Matters” in the
Company’s definitive proxy statement for its annual meeting of shareholders to be held June 23, 2016, to be filed with the
Securities and Exchange Commission.
122
PART IV
ITEM 15, EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The following consolidated financial statements of Genesco Inc. and Subsidiaries are filed as part of this report under Item 8,
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, January 30, 2016 and January 31, 2015
Consolidated Statements of Operations, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2016, 2015 and 2014
Consolidated Statements of Equity, each of the three fiscal years ended 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2016, 2015 and 2014
All other schedules are omitted because the required information is either not applicable or is presented in the financial
statements or related notes. These schedules begin on page 129.
Exhibits
(2)
(3)
(4)
a.
b.
c.
d.
a.
b.
a.
Agreement and Plan of Merger, dated as of February 5, 2004, by and among Genesco Inc.,
HWC Merger Sub, Inc. and Hat World Corporation. Incorporated by reference to Exhibit (2)a
to the current report on Form 8-K filed April 9, 2004 (File No. 1-3083).
Stock Purchase Agreement, dated December 9, 2006, by and among Hat World, Inc., Hat
Shack, Inc. and all the shareholders of Hat Shack, Inc. Incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed December 12, 2006 (File No. 1-3083).
Sale and Purchase Agreement, dated as of June 23, 2011, by and among Genesco Inc., Schuh
Group Limited, Genesco (UK) Limited and the persons listed on Schedule 1 thereto. (Pursuant
to Item 601(b)(2) of Regulation S-K, the schedules and exhibits from this agreement are
omitted, but will be provided supplementally to the Commission upon request.) Incorporated
by reference to Exhibit 2.1 to the current report on Form 8-K filed June 28, 2011 (File No. 1-
3083).
£25 million Loan Note Instrument of Genesco (UK) Limited dated June 23, 2011.
Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K filed June 28, 2011
(File No. 1-3083).
Amended and Restated Bylaws of Genesco Inc. Incorporated by reference to Exhibit 99.2 to
the current report on Form 8-K filed November 12, 2015 (File No. 1-3083).
Restated Charter of Genesco Inc., as amended. Incorporated by reference to Exhibit 1 to the
Genesco Inc. Registration Statement on Form 8-A/A filed with the SEC on May 1, 2003 (File
No.1-3083).
Second Amended and Restated Rights Agreement dated as of April 18, 2010. Incorporated by
reference to Exhibit 4.1 to the current report on Form 8-K filed April 9, 2010 (File No. 1-
3083).
123
b.
(10)
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
Form of Certificate for the Common Stock. Incorporated by reference to Exhibit 3 to the
Genesco Inc. Registration Statement on Form 8-A/A filed with the SEC on May 1, 2003 (File
No.1-3083).
First Amendment to Third Amended and Restated Credit Agreement, dated as of December 4,
2015, by and among Genesco Inc., certain subsidiaries of the Genesco Inc. party thereto, as
Other Domestic Borrowers, GCO Canada Inc., Genesco (UK) Limited, the lenders party
thereto and Bank of America, N.A., as Agent. Incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K filed December 7, 2015 (File No. 1-3083).
Amendment and Restatement Agreement dated November 1, 2013 between Schuh Group
Limited as Parent and others as Borrowers and Guarantors, Lloyds Bank PLC as Arranger,
Agent and Security Trustee. Incorporated by reference to Exhibit (10) b. to the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 2014 (File No. 1-3083).
Form of Split-Dollar Insurance Agreement with Executive Officers. Incorporated by reference
to Exhibit (10)a to the Company’s Annual Report on Form 10-K for the fiscal year ended
February 1, 1997 (File No.1-3083).
Genesco Inc. 2005 Equity Incentive Plan Amended and Restated as of October 24, 2007.
Incorporated by reference to Exhibit (10)d to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 2, 2008 (File No.1-3083).
Genesco Inc. 2009 Equity Incentive Plan. Incorporated by reference to Exhibit A to the
Company’s definitive proxy statement dated May 15, 2009. Amended and Restated Genesco
Inc. 2009 Equity Incentive Plan. Incorporated by reference to Exhibit A to the Company’s
definitive proxy statement dated May 13, 2011.
Amended and Restated EVA Incentive Compensation Plan. Incorporated by reference to
Exhibit (10)a to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 3,
2014 (File No. 1-3083).
Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit (10)c to the
Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2005 (File
No.1-3083).
Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit (10)d
to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2005
(File No.1-3083).
Form of Restricted Share Award Agreement for Executive Officers. Incorporated by reference
to Exhibit (10)e to the Company’s Quarterly Report on Form 10-Q for the quarter ended
October 29, 2005 (File No.1-3083).
Form of Restricted Share Award Agreement for Officers and Employees. Incorporated by
reference to Exhibit (10)f to the Company’s Quarterly Report on Form 10-Q for the quarter
ended October 29, 2005 (File No.1-3083).
Form of Restricted Share Award Agreement. Incorporated by reference to Exhibit (10)a to the
Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2009 (File No. 1-
3083).
Form of Indemnification Agreement For Directors. Incorporated by reference to Exhibit (10)m
to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 1993
(File No.1-3083).
Form of Non-Executive Director Indemnification Agreement. Incorporated by reference to
Exhibit (10.1) to the current report on Form 8-K filed November 3, 2008 (File No. 1-3083).
Form of Officer Indemnification Agreement. Incorporated by reference to Exhibit (10.2) to the
Company’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2008 (File
No.1-3083).
Form of Employment Protection Agreement between the Company and certain executive
officers dated as of February 26, 1997. Incorporated by reference to Exhibit (10)p to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 1997 (File
No.1-3083).
First Amendment to Form of Employment Protection Agreement. Incorporated by reference to
Exhibit (10)s to the Company’s Annual Report on Form 10-K for the fiscal year ended
January 30, 2010 (File No.1-3083).
Transition Agreement dated as of February 23, 2016 between the Company and Kenneth
Kocher.
124
r.
s.
t.
u.
v.
Trademark License Agreement, dated August 9, 2000, between Levi Strauss & Co. and
Genesco Inc. Incorporated by reference to Exhibit (10.1) to the Company’s Quarterly Report
on Form 10-Q for the quarter ended October 30, 2004 (File No.1-3083).*
Amendment No. 1 (Renewal) to Trademark License Agreement, dated October 18, 2004,
between Levi Strauss & Co. and Genesco Inc. Incorporated by reference to Exhibit (10.2) to
the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2004 (File
No.1-3083).*
Amendment No. 2 (Renewal) to Trademark License Agreement, dated November 1, 2006,
between Levi Strauss & Co. and Genesco. Inc. Incorporated by reference to Exhibit (10.1) to
the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2006 (File
No.1-3083).*
Amendment No. 4 (Renewal) to Trademark License Agreement, dated May 15, 2009, between
Levi Strauss & Co. and Genesco Inc. Incorporated by reference to Exhibit (10)b to the
Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2009 (File No.1-
3083).*
Amendment No. 5 (Renewal) to Trademark License Agreement, dated July 23, 2012, between
Levi Strauss & Co. and Genesco Inc. Incorporated by reference to Exhibit (10.1) to the
Company’s Current Report on Form 8-K filed July 25, 2012 (File No. 1-3083).*
w. Genesco Inc. Deferred Income Plan dated as of July 1, 2000. Incorporated by reference to
Exhibit (10)p to the Company’s Annual Report on Form 10-K for the fiscal year ended
January 29, 2005. Amended and Restated Deferred Income Plan dated August 22, 2007.
Incorporated by reference to Exhibit (10)r to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 2, 2008 (File No.1-3083).
The Schuh Group Limited 2015 Management Bonus Scheme. Incorporated by reference to
Exhibit (10)a to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 30,
2011 (File No.1-3083).
Basic Form of Exchange Agreement (Restricted Stock). Incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed April 29, 2009 (File No. 1-3083).
Basic Form of Exchange Agreement (Unrestricted Stock). Incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K filed April 29, 2009 (File No. 1-3083).
x.
y.
z.
aa. Form of Conversion Agreement. Incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K filed November 2, 2009 (File No. 1-3083).
bb. Form of Conversion Agreement. Incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K filed November 6, 2009 (File No. 1-3083).
cc. Settlement Agreement, dated as of March 3, 2008, by and among UBS Securities LLC and
UBS Loan Finance LLC, The Finish Line, Inc. and Headwind, Inc. and Genesco Inc.
Incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed March 4,
2008 (File No. 1-3083).
Subsidiaries of the Company
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm included on
page 127.
Power of Attorney
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(21)
(23)
(24)
(31.1)
(31.2)
(32.1)
(32.2)
101.INS
101.SCH
101.CAL
101.DEF
XBRL Instance Document
XBRL Schema Document
XBRL Calculation Linkbase Document
XBRL Definition Linkbase Document
125
101.LAB
101.PRE
XBRL Label Linkbase Document
XBRL Presentation Linkbase Document
Exhibits (10)c through (10)k, (10)o through (10)q and (10)w through (10)x are Management Contracts or Compensatory Plans
or Arrangements required to be filed as Exhibits to this Form 10-K.
* Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential
treatment has been granted with respect to the omitted portion.
A copy of any of the above described exhibits will be furnished to the shareholders upon written request, addressed to Director,
Corporate Relations, Genesco Inc., Genesco Park, Room 498, P.O. Box 731, Nashville, Tennessee 37202-0731, accompanied
by a check in the amount of $15.00 payable to Genesco Inc.
126
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration statement (Form S-8 No. 333-08463) of Genesco Inc.,
(2) Registration statement (Form S-8 No. 333-104908) of Genesco Inc.,
(3) Registration statement (Form S-8 No. 333-40249) of Genesco Inc.,
(4) Registration statement (Form S-8 No. 333-128201) of Genesco Inc.,
(5) Registration statement (Form S-8 No. 333-160339) of Genesco Inc., and
(6) Registration statement (Form S-8 No. 333-180463) of Genesco Inc.
of our reports dated March 30, 2016, with respect to the consolidated financial statements and schedule of Genesco Inc. and
Subsidiaries and the effectiveness of internal control over financial reporting of Genesco Inc. and Subsidiaries included in this
Annual Report (Form 10-K) of Genesco Inc. for the year ended January 30, 2016.
Nashville, Tennessee
March 30, 2016
/s/ Ernst & Young LLP
127
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GENESCO INC.
By:
/s/Mimi Eckel Vaughn
Mimi Eckel Vaughn
Senior Vice President – Finance and
Chief Financial Officer
Date: March 30, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on the 30th day of March, 2016.
/s/Robert J. Dennis
Robert J. Dennis
/s/Mimi Eckel Vaughn
Mimi Eckel Vaughn
/s/Paul D. Williams
Paul D. Williams
Directors:
Joanna Barsh*
James S. Beard*
Leonard L. Berry *
William F. Blaufuss, Jr.*
James W. Bradford*
Matthew C. Diamond *
*By
/s/Roger G. Sisson
Roger G. Sisson
Attorney-In-Fact
Chairman, President, Chief Executive Officer
and a Director
(Principal Executive Officer)
Senior Vice President – Finance and
Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Marty G. Dickens *
Thurgood Marshall, Jr. *
Kathleen Mason *
Kevin P. McDermott*
David M. Tehle*
128
Genesco Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Schedule 2
Beginning
Balance
Charged
to Profit
and Loss
Increases
(Decreases)
Ending
Balance
$
4,191 $
637 $
(1,868 )
$
2,960
Beginning
Balance
Charged
to Profit
and Loss
Increases
(Decreases)
Ending
Balance
$
4,420 $
390 $
(619 )
$
4,191
Year Ended January 30, 2016
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Year Ended January 31, 2015
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Year Ended February 1, 2014
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Beginning
Balance
Charged
to Profit
and Loss
Increases
(Decreases)
Ending
Balance
$
6,082 $
(525 ) $
(1,137 )
$
4,420
129
BOARD OF DIRECTORS
Joanna Barsh
Director Emeritus, McKinsey & Company
Independent Consultant
New York, New York
Member of the compensation and nominating and governance committees
James S. Beard
Retired President
Caterpillar Financial Services Corporation
Jupiter, Florida
Member of the audit committee
Leonard L. Berry
University Distinguished Professor of Marketing, Presidential Professor for Teaching Excellence, Regents Professor
Texas A&M University
College Station, Texas
Member of the compensation and nominating and governance committees
William F. Blaufuss, Jr.
Retired Partner, KPMG LLP
Certified Public Accountant
Nashville, Tennessee
Chairman of the audit committee
James W. Bradford
Retired Dean, Owen Graduate School of Management
Vanderbilt University
Nashville, Tennessee
Chairman of the nominating and governance committee, member of the compensation committee
Robert J. Dennis
Chairman, President and Chief Executive Officer
Genesco Inc.
Nashville, Tennessee
Matthew C. Diamond
Chief Executive Officer
Defy Media, LLC
New York, New York
Chairman of the compensation committee
Marty G. Dickens
Retired President
AT&T -Tennessee
Nashville, Tennessee
Member of the audit and the nominating and governance committees
Thurgood Marshall, Jr.
Partner
Morgan, Lewis & Bockius LLP
Washington, D.C.
Kathleen Mason
Former President and Chief Executive Officer
Tuesday Morning Corporation
Dallas, Texas
Member of the audit and compensation committees
130
Kevin P. McDermott
Former Partner, KPMG LLP
Nashville, Tennessee
David M. Tehle
Retired Executive Vice President and Chief Financial Officer
Dollar General Corporation
Nashville, Tennessee
131
CORPORATE OFFICERS
Robert J. Dennis
Chairman, President and Chief Executive Officer
12 years with Genesco
Mimi E. Vaughn
Senior Vice President – Chief Financial Officer
12 years with Genesco
James C. Estepa
Senior Vice President, Genesco Inc.
President and Chief Executive Officer, The Journeys Group
31 years with Genesco
Jonathan D. Caplan
Senior Vice President, Genesco Inc.
Chief Executive Officer, Genesco Branded Group
President, Johnston & Murphy
23 years with Genesco
Parag D. Desai
Senior Vice President – Strategy and Shared Services
2 years with Genesco
Roger G. Sisson
Senior Vice President – Corporate Secretary and General Counsel
22 years with Genesco
Matthew N. Johnson
Vice President and Treasurer
23 years with Genesco
Paul D. Williams
Vice President and Chief Accounting Officer
39 years with Genesco
Photo credits: Lifestyle and product shots provided by Genesco operating divisions.
132