GE NE S CO IN C. | GEN ES CO PAR K | P.O. B OX 731 | N ASHV ILLE , TN 37202 -073 1
THE BUSINESS OF GENESCO
The Company’s business includes the sourcing and design, 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 H.S. 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 1,225 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 28, 2017, the Company operated 2,794 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, 2012 and the reinvestment monthly of all dividends.
COMPARISON OF CUMULATIVE 5 YEAR TOTAL RETURN
250
200
150
100
50
0
FYE 12
Comparison of Cumulative Five Year Total Return
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
FYE 13
FYE 14
FYE 15
FYE 16
FYE 17
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
ANNUAL RETURN PERCENTAGE
Years Ending
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
1.98
17.60
2.70
11.76
20.31
36.80
1.75
14.22
24.49
-7.43
-0.67
29.33
-10.34
20.87
-11.31
INDEXED RETURNS
Years Ending
Jan 13
101.98
117.60
102.70
Jan 14
113.98
141.48
140.49
Jan 15
115.97
161.61
174.90
Jan 16
107.35
160.53
226.21
Jan 17
96.25
194.03
200.63
Base
Period
Jan 12
100
100
100
*The S&P 1500 Footwear Index consists of Crocs, Inc., Deckers Outdoor Corporation, Nike, Inc., 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 22, 2017, 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 2017 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 28, 2017
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
Name of Exchange
on which Registered
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 July 30, 2016, the last business day of
the registrant’s most recently completed second fiscal quarter, was approximately $1,432,000,000. The market value
calculation was determined using a per share price of $69.42, 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 10, 2017, 19,611,875 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the proxy statement for the June 22, 2017 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.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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
Item 16.
Form 10-K Summary
PART IV
2
ITEM 1, BUSINESS
General
PART I
Genesco Inc. ("Genesco" or the “Company”), incorporated in 1934 in the State of Tennessee, is a leading retailer and
wholesaler of branded footwear, apparel and accessories with net sales for Fiscal 2017 of $2.87 billion. During Fiscal
2017, 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, and (d) e-commerce operations (an athletic team dealer
business operating as Lids Team Sports 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 H.S.Trask® brands; and (v) Licensed Brands, comprised of Dockers®
Footwear, sourced and marketed under a license from Levi Strauss & Company, SureGrip® Footwear which was sold in
the fourth quarter of Fiscal 2017, G.H. Bass Footwear operated under a license from G-III Apparel Group, Ltd., and
other brands.
At January 28, 2017, the Company operated 2,794 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 147 headwear
and sports apparel and accessory stores and 87 footwear stores in Canada and 128 footwear stores in the United
Kingdom, the Republic of Ireland and Germany. The Company currently plans to open a total of approximately 101 new
retail stores and to close approximately 133 retail stores in Fiscal 2018. At January 28, 2017, Journeys Group operated
1,249 stores, Schuh Group operated 128 stores, Lids Sports Group operated 1,240 stores and leased departments and
Johnston & Murphy Group operated 177 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
2013
Fiscal
2014
Fiscal
2015
Fiscal
2016
Fiscal
2017
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
2,852
81
—
(139 )
2,794
The Company also sources, designs, 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 1,225
retail accounts in the United States, including a number of leading department, discount, and specialty stores.
Shorthand references to fiscal years (e.g., “Fiscal 2017”) refer to the fiscal year ended on the Saturday nearest
January 31st in the named year (e.g., January 28, 2017). 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 Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which
is referred to in this Item 1 of this report, is incorporated by such reference in Item 1. This report contains forward-
3
looking statements. Actual results may vary materially and adversely from the expectations reflected in these statements.
For a 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, e-commerce operations and catalog, accounted for approximately 44% of the Company’s net sales
in Fiscal 2017. 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. For Fiscal 2017, same store sales decreased 5%, comparable direct sales increased 12% and
comparable sales, including both store and direct sales, decreased 4% from Fiscal 2016. Earnings from operations
attributable to Journeys Group were $85.9 million in Fiscal 2017, with an operating margin of 6.9%.
At January 28, 2017, Journeys Group operated 1,249 stores, including 230 Journeys Kidz stores, 39 Shi by Journeys
stores, 36 Little Burgundy stores and 95 Underground by Journeys stores averaging approximately 1,950 square feet,
located primarily in malls and factory outlet centers throughout the United States and in Puerto Rico and Canada, selling
footwear and accessories for young men, women and children. The Underground by Journeys stores have been added to
the Journeys stores starting in Fiscal 2018 since the stores are similarly merchandised.
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. In Fiscal 2017, the
Journeys Group added 27 net new stores, and plans to open approximately 10 net new stores in Fiscal 2018.
Lids Sports Group
The Lids Sports Group segment, as described above, accounted for approximately 29% of the Company’s net sales in
Fiscal 2017. For Fiscal 2017, same store sales increased 4%, comparable direct sales increased 2% and comparable
sales, including both store and direct sales, increased 3% from Fiscal 2016. Earnings from operations attributable to
Lids Sports Group was $41.6 million in Fiscal 2017, with an operating margin of 4.9%.
4
At January 28, 2017, Lids Sports Group operated 1,240 stores and leased departments, including 882 Lids stores, 207
Lids Locker Room and Clubhouse stores and 151 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 15 new stores
and leased departments but closed 107 stores and leased departments in Fiscal 2017, and plans to close a net of 53 stores
and leased departments in Fiscal 2018.
The core headwear stores and kiosks, located in malls, airports, street and factory outlet centers 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 generally focused on the particular Macy's department store's geographic
location.
Schuh Group
The Schuh Group segment, including e-commerce operations, accounted for approximately 13% of the Company’s net
sales in Fiscal 2017. For Fiscal 2017, same store sales decreased 2%, comparable direct sales increased 6% and
comparable sales, including both store and direct sales, decreased 1%. Earnings from operations attributable to Schuh
Group was $20.5 million in Fiscal 2017, with an operating margin of 5.5%.
At January 28, 2017, Schuh Group operated 128 Schuh stores, averaging approximately 4,875 square feet, which include
both street-level and mall locations in the United Kingdom and the Republic of Ireland and mall locations in Germany.
Schuh Group opened three net new stores in Fiscal 2017 and plans to open approximately seven net new Schuh stores in
Fiscal 2018. 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, e-commerce and catalog operations and wholesale
distribution, accounted for approximately 10% of the Company’s net sales in Fiscal 2017. Same store sales for
Johnston & Murphy retail operations increased 1%, comparable direct sales increased 8% and comparable sales,
including both store and direct sales, increased 2% for Fiscal 2017. Earnings from operations attributable to Johnston &
Murphy Group was $19.7 million in Fiscal 2017, with an operating margin of 6.8%. 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 28, 2017, Johnston & Murphy operated 177 retail shops and factory
stores throughout the United States and in Canada averaging approximately 1,900 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. Footwear accounted for 64% of Johnston & Murphy retail sales in Fiscal 2017, with the balance consisting
primarily of apparel and accessories. Johnston & Murphy Group added four net new shops and factory stores in Fiscal
2017 and plans to open approximately four net new shops and factory stores in Fiscal 2018.
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
5
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 2017. Earnings
from operations attributable to Licensed Brands was $4.6 million in Fiscal 2017, with an operating margin of 4.3%.
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” below. 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 sold Keuka Footwear, Inc. and the related SureGrip Footwear brand, a slip-resistant
occupational footwear business operated within the Licensed Brands segment since Fiscal 2011, in the fourth quarter of
Fiscal 2017. 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,
Canada, China, Dominican Republic, El Salvador, France, Germany, Hong Kong, India, Indonesia, Italy, Mexico,
Pakistan, Portugal, Peru, Romania, Taiwan, Tunisia and Vietnam. The Company’s retail operations sell 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, technology, infrastructure and speed of delivery to support e-commerce and the ability to offer
distinctive products.
Licenses
The Company owns its Johnston & Murphy® and H.S. Trask® brands and owns or licenses the trade names of its retail
concepts either directly or through wholly-owned subsidiaries. The Dockers® 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's
current term expires on November 30, 2018. Net sales of Dockers products were approximately $67 million in Fiscal
2017 and approximately $78 million in Fiscal 2016. The Company licenses certain of its footwear brands, mostly in
foreign markets. License royalty income was not material in Fiscal 2017.
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
25, 2017, the Company’s wholesale operations had a backlog of orders, including unconfirmed customer purchase
orders, amounting to approximately $34.9 million, compared to approximately $32.8 million on February 27, 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 27,200 employees at January 28, 2017, approximately 150 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 19,775 of the Company’s employees were part-time at January 28, 2017.
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 28, 2017, the Company operated 2,794 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 20 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
Indianapolis, IN
Bathgate, Scotland
Chapel Hill, TN
Fayetteville, TN
Zionsville, IN
Deans Industrial Estate,
Livingston, Scotland
Nashville, TN
Mississauga, Ontario,
Canada
Leased/
Subleased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Lids Sports
Group
Schuh
Group
Licensed
Brands
Johnston &
Murphy
Group
Lids Sports
Group
Schuh
Group
Journeys
Group
Lids Sports
Group
Distribution warehouse
320,000
Distribution warehouse
311,600
Executive & footwear
operations offices
306,455
*
Distribution warehouse
271,825
**
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 97% 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 2022. 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 in general and on our
product category. 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.
These same factors could impact our wholesale customers, limiting their ability to buy or pay for merchandise offered by
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 execute any of these
9
activities successfully could result in adverse consequences, including lower sales, product margins, operating income
and cash flows.
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 fuel 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 adverse
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. The
British decision to exit the European Union could impact consumer demand, currency rates and supply chain. 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;
• expansion of direct-to-consumer by our vendors;
• entry by new competitors into markets in which we currently operate; and
• adoption by existing retail competitors of innovative store formats or sales methods.
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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.
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
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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;
▪ 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
12
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.
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 has been 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 second 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.
13
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
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.
14
We face a number of risks in opening new stores.
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;
• 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 in part due to the consolidation in the commercial real estate market;
• 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;
15
• 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, including the possible
disallowance of border tax deductions for imported merchandise, tax treaties, interpretation of existing laws, and our
ability to sustain our reporting positions on examination. Changes in any of those factors could change our effective tax
rate, which could adversely affect our net earnings and liquidity. 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 and the ability of those businesses to
adjust to fashion changes on a timely basis;
• closing of department stores that anchor malls;
• competition;
• declining mall traffic due to changing customer preferences in the way they shop;
• 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.
16
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 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.
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 $271.2 million of goodwill on
its Consolidated Balance Sheets at January 28, 2017, 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 at the beginning of its fourth quarter, 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
17
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.
ITEM 1B, UNRESOLVED STAFF COMMENTS
None.
ITEM 2, PROPERTIES
See Item 1, "Business — Properties".
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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 United States Environmental Protection
Agency (“EPA”), which 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-situ chemical oxidation.
In September 2015, the EPA adopted an amendment to the Record of Decision eliminating the separate ground-water
extraction and treatment systems and the use of in-situ oxidation from the remedy adopted in the 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"). It also requires the Company to perform certain
ongoing monitoring, operation and maintenance activities and to reimburse EPA's future oversight cost, involving future
costs to the Company estimated at $1.7 million to $2.0 million, and to reimburse EPA for approximately $1.25 million of
interim oversight costs. On August 15, 2016, the Court entered a Consent Judgment implementing the remedy provided
for by the amendment.
The Village 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 estimated 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.
In June 2016 the Company and the Village reached an agreement 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 of $10.0 million by the Company. On
August 25, 2016, the Village Lawsuit was dismissed with prejudice. The cost of the settlement with the Village and the
estimated costs associated with the Company's compliance with the Consent Judgment were covered by the Company's
existing provision for the site. The settlement with the Village did not have, and the Company expects that the Consent
Judgment will not 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. In February 2017, the Company and EPA
entered into a settlement agreement resolving EPA's claim for past response costs in exchange for a payment by the
Company of $1.5 million. The Company's environmental insurance carrier has agreed to reimburse the Company for
75% of the settlement amount, subject to a $500,000 self-insured retention. The Company does not expect that the matter
will have a material effect on its financial condition or results of operations.
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.
19
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 $4.4 million as of January 28, 2017,
$14.5 million as of January 30, 2016 and $14.1 million as of January 31, 2015. 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. The Company paid $10.0 million of
the accrued total at January 30, 2016 in August 2016. 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 Condensed 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 $0.6 million in Fiscal 2017, $0.8 million in Fiscal 2016 and $2.8 million in
Fiscal 2015. These charges are included in provision for discontinued operations, net in the Consolidated Statements of
Operations and represent changes in estimates.
Other Matters
On February 22, 2017, a former employee of a subsidiary of the Company filed a putative class and collective action,
Shumate v. Genesco, Inc., et al., in the U.S district Court for the Southern District of Ohio, alleging violations of the
federal Fair Labor Standards Act and Ohio wages and hours leave including failure to pay minimum wages and overtime
to the subsidiary's store managers and seeking back pay, damages, penalties, and declaratory and injunctive relief. The
Company disputes the material allegations in the complaint and intends to defend the matter.
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 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. 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
(collectively, "Visa") seeking to recover $13.3 million in non-compliance fines and issuer reimbursement assessments
collected from the Company in connection with the intrusion. In May 2016, the Company and Visa reached an
agreement to settle the litigation. The Company recognized a pretax gain of $9.0 million in connection with the
settlement in the second quarter of Fiscal 2017.
In addition to the matters specifically described in this Item 3, 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
20
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, 63, 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, 50, 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.
David E. Baxter, 50, Senior Vice President. Mr. Baxter joined the Company in June 2016 as president and chief
executive officer of the Lids Sports Group and a senior vice president of the Company. From 2014 until he joined the
Company in 2016, Mr. Baxter was a business consultant specializing in sports licensing. From 2006 to 2014, he was
president, Sports Licensed Division, adidas/Reebok. Mr. Baxter was named vice president, Sports Performance, adidas
America in 2010.
Jonathan D. Caplan, 63, 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, 65, 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, 53, 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, 42, 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
22
McKinsey and Company, including seven years as a partner. Previously, Mr. Desai also held business development and
technology positions at Outpace Systems and Booz Allen & Hamilton.
Paul D. Williams, 62, 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.
Matthew N. Johnson, 52, 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 30, 2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year ended January 28, 2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
High
Low
74.74 $
70.47
65.78
66.16
65.59
61.07
54.03
50.64
High
Low
72.63 $
69.94
74.21
72.00
60.81
57.23
47.66
51.91
There were approximately 2,400 common shareholders of record on March 10, 2017.
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.
Issuer Purchases of Equity Securities
None.
Equity Compensation Plan Information
Refer to Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters" included elsewhere in this report.
24
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
2017
2016
2015
2014
2013
Fiscal Year End
$ 2,868,341
75,768
141,960
$ 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
151,414
97,859
151,533
95,381
156,989
99,373
158,860
92,982
164,832
112,897
(428 )
(812 )
$
97,431
$
94,569
$
(1,648 )
97,725
$
(329 )
92,653
(462 )
$ 112,435
$
$
4.87
4.85
$
4.17
4.15
$
4.23
4.19
$
3.99
3.94
4.78
4.69
(0.02 )
(0.02 )
(0.04 )
(0.04 )
(0.07 )
(0.07 )
(0.01 )
(0.02 )
4.85
4.83
4.13
4.11
4.16
4.12
3.98
3.92
(0.02 )
(0.01 )
4.76
4.68
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
$ 1,448,906
82,905
1,060
919,993
93,970
$ 1,541,190
111,765
1,077
954,079
100,652
$ 1,582,890
28,958
1,274
995,533
103,111
$ 1,438,987
33,433
1,305
914,885
98,456
$ 1,325,976
50,586
3,924
817,936
71,737
4.9 %
5.0 %
5.8 %
6.2 %
6.5 %
$
46.31
$ 428,781
2.4
$
43.70
$ 476,469
2.5
$
41.43
$ 441,742
2.1
$
38.25
$ 451,297
2.5
$
34.09
$ 407,073
2.5
8.2 %
10.5 %
2.8 %
3.5 %
5.8 %
2,794
27,200
2,852
27,500
2,824
27,325
2,568
22,250
2,459
22,700
* Includes 36 Little Burgundy stores added in Fiscal 2016 that were acquired on November 3, 2015. Also includes
151,185, 190 and 26 Locker Room by Lids leased departments in Macy's stores in Fiscal 2017, 2016, 2015 and
2014, respectively.
25
Reflected in earnings from continuing operations for Fiscal 2017 was a gain of $12.3 million from the sale of SureGrip
Footwear and a gain of $2.4 million from the sale of Lids Team Sports, for Fiscal 2016 was a gain of $4.7 million from the sale
of Lids Team Sports and for Fiscal 2015 was a charge of $7.1 million for an indemnification asset write-off.
Also reflected in earnings from continuing operations for Fiscal 2017, 2016, 2015, 2014 and 2013 were asset impairment and
other charges (gains) of ($0.8) million, $7.9 million, $2.3 million, $1.3 million and $17.0 million, respectively. See Note 3 to
the Consolidated Financial Statements for additional information regarding these charges.
Long-term debt includes current obligations. 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.
*In accordance with ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", the Company has reclassified its
deferred financing costs for term loans from other noncurrent assets to long-term debt on a retrospective basis. In connection
with the adoption of ASU 2015-03, deferred financing costs of $0.3 million, $0.2 million, $0.3 million and $0.1 million as of
January 30, 2016, January 31, 2015, February 1, 2014 and February 2, 2013, respectively, were reclassified to long-term debt
from noncurrent assets.
26
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
effectiveness of our omnichannel initiatives, costs associated with changes in minimum wage and overtime
requirements, the level of chargebacks from credit card users for fraudulent purchases or other reasons, 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, weakness in shopping mall traffic and challenges to the
viability of malls where the Company operates stores, related to planned closings of department stores or other factors,
the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, 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 effects of the British decision to exit the European Union, including potential
effects on consumer demand, currency exchange rates, and the supply chain, 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 businesses. 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, disruptions in the Company's information technology systems
either by security breaches and incidents or by potential problems associated with the implementation of new or
upgraded systems, 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 sourcing and design, 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 H.S.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 1,225 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
27
license agreement with Macy's, and (iv) e-commerce operations. Including both the footwear businesses and the Lids
Sports business, at January 28, 2017, the Company operated 2,794 retail stores and leased departments in the U.S.,
Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
During Fiscal 2017, 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
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 (An athletic
team dealer business operating as Lids Team Sports 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, which
was sold in the fourth quarter of Fiscal 2017; G.H. Bass Footwear operated under a license from G-III Apparel Group,
Ltd.; 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 2,050 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for
younger children, ages five to 12. These stores average approximately 1,500 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 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 80 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 4,875
square feet, include both street-level and mall locations in the United Kingdom, the Republic of Ireland and Germany.
During the second quarter of Fiscal 2017, the Schuh Group opened its third Schuh store in Germany. The Schuh Group
now operates three stores in Germany. 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 2,800 square feet in malls and other locations primarily in the United
States. The Lids Sports Group operates 147 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 28, 2017, the Company had 151 Locker Room by Lids leased departments averaging approximately 675 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
1,575 square feet and are located primarily in better malls and in airports throughout the United States and in Canada. As
of January 28, 2017, 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
28
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 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 sold SureGrip
Footwear, a slip-resistant occupational footwear business operated within the Licensed Brands segment since Fiscal
2011, in the fourth quarter of Fiscal 2017. 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. As a result of the degree of penetration of many of our
concepts in their current geographic markets and the increasing trend of consumer purchases through e-commerce
channels, the Company anticipates opening fewer new stores in the future as well as closing certain stores, perhaps
reducing the overall square footage from current levels, and has enhanced its investments in technology and
infrastructure to support omnichannel retailing.
To supplement its organic growth potential, the Company has made acquisitions, including the acquisition of the Schuh
Group in June 2011, Little Burgundy in December 2015, 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 third Schuh store in Germany in the second quarter of Fiscal 2017.
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
29
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.
Summary of Results of Operations
The Company’s net sales decreased 5.1% during Fiscal 2017 compared to Fiscal 2016. The decrease reflected a 13%
decrease in Lids Sports Group sales, reflecting the sale of the Lids Team Sports business in the fourth quarter of Fiscal
2016, an 8% decrease in Schuh Group sales, reflecting primarily the depreciation in the British Pound, and a 3%
decrease in Licensed Brands sales, partially offset by a 4% increase in Johnston & Murphy Group sales, while Journeys
Group sales remained flat for Fiscal 2017. Gross margin increased as a percentage of net sales from 47.8% in Fiscal
2016 to 49.4% in Fiscal 2017, reflecting gross margin increases as a percentage of net sales in Schuh Group, Lids Sports
Group and Johnston & Murphy Group, partially offset by decreased gross margin as a percentage of net sales in
Journeys Group and Licensed Brands. Selling and administrative expenses increased as a percentage of net sales from
42.5% in Fiscal 2016 to 44.5% in Fiscal 2017, reflecting increased expenses as a percentage of net sales in Journeys
Group, Lids Sports Group, Licensed Brands and Corporate, partially offset by decreased expenses as a percentage of net
sales in Schuh Group and Johnston & Murphy Group. Earnings from operations decreased as a percentage of net sales
from 5.0% in Fiscal 2016 to 4.9% in Fiscal 2017, reflecting decreased earnings in Journeys Group and Licensed Brands,
partially offset by improved earnings from operations in Schuh Group, Lids Sports Group and Johnston & Murphy
Group.
Significant Developments
Sale of SureGrip Footwear
On December 25, 2016, the Company completed the sale of all the stock of the Company's subsidiary, Keuka Footwear,
Inc., that operates the SureGrip occupational, slip-resistant footwear business, operated within the Licensed Brands
Group, to Shoes for Crews, LLC. The Company recognized a gain on the sale, in Fiscal 2017, estimated at $12.3
million, net of transaction-related expenses before tax and subject to post-closing working capital adjustments.
Pension Plan Partial Buyout
In June 2016, the Company's board of directors authorized an offer to vested former employees and active employees
over the age of 62 in the Company's defined benefits pension plan to buy out their future benefits under the plan for a
lump sum cash payment. The Company made the buyout offer in the third quarter of Fiscal 2017, and completed it in
the fourth quarter of Fiscal 2017. The Company incurred a one-time charge to earnings of $2.5 million in the fourth
quarter of Fiscal 2017 in connection with the pension plan buyout. The Company initiated the buyout offer in an effort
to lower the Company's risk exposure to the pension plan by lowering the Plan's assets and liabilities.
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. In Fiscal 2016, the Company recognized a gain on
the sale estimated at $4.7 million, net of transaction-related expenses before tax. In Fiscal 2017, the Company
recognized an additional pretax gain of $2.4 million on the sale of Lids Team Sports related to final working capital
adjustments. The sale of 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.
30
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 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. The stores acquired in Fiscal 2015 are operated within the Lids Sports Group. The
wholesale business acquired in Fiscal 2015 was operated within Lids Team Sports, which was sold on January 19, 2016.
Asset Impairment and Other Charges
The Company recorded a pretax gain to earnings of $0.8 million in Fiscal 2017, including a gain of $8.9 million for
network intrusion expenses as a result of a litigation settlement and a gain of $0.8 million for other legal matters,
partially offset by $6.4 million for retail store asset impairments and $2.5 million for pension settlement expense.
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.
Postretirement Benefit Liability Adjustments
The return on pension plan assets was $12.5 million for Fiscal 2017, compared to an expected return of $5.6 million. The
discount rate used to measure benefit obligations decreased from 4.30% to 3.95% in Fiscal 2017. As a result of the lump
sums paid as part of the vested terminated pension plan buyout and higher than expected asset returns, partially offset by
a decrease in the discount rate, the pension liability reflected in the Consolidated Balance Sheets decreased to $6.3
million compared to $10.0 million at the end of Fiscal 2016. There was a decrease in the pension liability adjustment of
$3.6 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 2017, Fiscal 2016 and Fiscal 2015, the Company recorded an additional charge to earnings of $0.7 million
($0.4 million net of tax), $1.3 million ($0.8 million net of tax) and $2.7 million ($1.6 million net of tax), respectively,
reflected in discontinued operations, primarily for anticipated costs of environmental remedial alternatives related to
31
former facilities operated by the Company. For additional information, see Notes 3 and 13 to the Consolidated Financial
Statements.
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 $1.6 million at January 28,
2017.
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
32
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. 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 beginning 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.
During the quarter ended January 28, 2017, the Company voluntarily changed the date of its annual goodwill impairment
test and other intangible assets impairment test from the last day of the fiscal year to the first day of the fourth fiscal
quarter. This voluntary change is preferable under the circumstances as it aligns with the Company's five-year strategic
planning cycle that is completed in early October. This voluntary change in accounting principle was not made to delay,
accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so
because retrospective application would require the application of significant estimates and assumptions with the use of
hindsight. Accordingly, the change will be applied prospectively.
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 $0.6 million reflected in Fiscal 2017, $0.8
million reflected in Fiscal 2016 and $2.8 million reflected in Fiscal 2015. 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
33
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
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 28, 2017, the Company had a deferred tax valuation allowance
of $4.3 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.
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
34
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.
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 6.05%. 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 2017, 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 3.95%, 4.30% and 3.55% for Fiscal 2017, 2016 and 2015,
respectively. The discount rate at January 28, 2017 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 2017, if the discount rate
had been increased by 0.5%, net pension expense would have decreased by $0.1 million, and if the discount rate had
been decreased by 0.5%, net pension expense would have increased by $0.2 million. In addition, if the discount rate had
been increased by 0.5%, the projected benefit obligation would have decreased by $4.5 million and the accumulated
benefit obligation would have decreased by $4.5 million. If the discount rate had been decreased by 0.5%, the projected
benefit obligation would have been increased by $4.8 million and the accumulated benefit obligation would have
increased by $4.8 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 2017, the Company
had unrecognized actuarial losses of $15.4 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 ten 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 $2.3 million, $3.9 million and $2.6 million in
Fiscal 2017, 2016 and 2015, respectively. Fiscal 2017 includes a settlement charge of $2.5 million as a result of the
pension plan buyout. The Company’s pension expense is expected to increase in Fiscal 2018 by approximately $0.4
million before considering the settlement charge due to a lower expected return on assets. Additionally, the amortization
period for gains and losses has increased due to the lump sum buyout which included active participants over age 62.
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 2017 Compared to Fiscal 2016
The Company’s net sales for Fiscal 2017 decreased 5.1% to $2.87 billion from $3.02 billion in Fiscal 2016. The
decrease in net sales was a result of decreased sales in Lids Sports Group, reflecting the sale of the Lids Team Sports
business in the fourth quarter of Fiscal 2016, and decreased sales in Schuh Group and Licensed Brands, partially offset
35
by increased sales in Johnston & Murphy Group, while Journeys Group sales remained flat for Fiscal 2017. Net sales of
the Company's businesses other than Lids Team Sports decreased less than 1% for Fiscal 2017. Gross margin decreased
1.8% to $1.42 billion in Fiscal 2017 from $1.44 billion in Fiscal 2016, but increased as a percentage of net sales from
47.8% in Fiscal 2016 to 49.4% in Fiscal 2017, primarily reflecting increased gross margin as a percentage of net sales in
the Lids Sports Group, Schuh Group and Johnston & Murphy Group, partially offset by decreased gross margin as a
percentage of net sales in Journeys Group and Licensed Brands. Selling and administrative expenses in Fiscal 2017
decreased 0.6% from Fiscal 2016 but increased as a percentage of net sales from 42.5% to 44.5%, primarily reflecting
expense increases in Journeys Group, Lids Sports Group, Licensed Brands and Corporate, partially offset by decreased
expenses in Schuh Group and Johnston & Murphy Group. 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 2017 were $151.4 million,
compared to $151.5 million for Fiscal 2016. Pretax earnings for Fiscal 2017 included an asset impairment and other gain
of $0.8 million, including an $8.9 million gain for network intrusion expenses as result of a litigation settlement and a
$0.8 million gain for other legal matters, partially offset by $6.4 million for retail store asset impairments and $2.5
million pension settlement expense. Pretax earnings for Fiscal 2017 also included a gain of $12.3 million on the sale of
SureGrip Footwear and a $2.4 million gain on the sale of Lids Team Sports. 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.
Net earnings for Fiscal 2017 were $97.4 million ($4.83 diluted earnings per share) compared to $94.6 million ($4.11
diluted earnings per share) for Fiscal 2016. Net earnings for Fiscal 2017 included a $0.4 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. Net earnings for Fiscal 2016 included a $0.8 million ($0.04 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 income tax rate of 35.4% for Fiscal 2017
compared to 37.1% for Fiscal 2016 and 36.7% for Fiscal 2015. The effective tax rate for Fiscal 2017 was lower
compared to Fiscal 2016 due to the release of tax reserves. 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, while the effective tax rate for Fiscal 2015 benefited from
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 the Company resolved favorably 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
2017
2016
(dollars in thousands)
%
Change
$ 1,251,646
85,875
$
$ 1,251,637
126,248
$
— %
(32.0 )%
6.9 %
10.1 %
Net sales from Journeys Group were flat at $1.25 billion for Fiscal 2017 and 2016. Journeys Group's comparable sales
were down 4% in Fiscal 2017 which includes a 5% decrease in same store sales and a 12% increase in comparable direct
36
sales. 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) increased 4% during Fiscal 2017. The comparable
store sales decrease reflected an 8% decrease in footwear unit comparable sales while the average price per pair of shoes
increased 3%. The store count for Journeys Group was 1,249 stores at the end of Fiscal 2017, including 230 Journeys
Kidz stores, 39 Shi by Journeys stores, 95 Underground by Journeys stores, 44 Journeys stores in Canada and 36 Little
Burgundy stores in Canada, compared to 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.
Journeys Group earnings from operations for Fiscal 2017 decreased 32.0% to $85.9 million, compared to $126.2 million
for Fiscal 2016. The decrease in earnings from operations was primarily due to increased expenses as a percentage of
net sales as Journeys Group could not leverage store-related expenses, primarily occupancy, advertising and credit card
expenses, and to decreased gross margin as a percentage of net sales, reflecting increased markdowns.
Schuh Group
Fiscal Year Ended
2017
2016
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
372,872
20,530
405,674
19,124
5.5 %
4.7 %
(8.1 )%
7.4 %
Net sales from the Schuh Group decreased 8.1% to $372.9 million for Fiscal 2017, compared to $405.7 million for
Fiscal 2016. The sales decrease reflects primarily a decrease of $49.3 million in sales due to the depreciation of the
British Pound and a 1% decrease in comparable sales which includes a 2% decrease in same store sales and a 6%
increase in comparable direct sales, partially offset by a 10% increase in average stores operated. Schuh Group operated
128 stores at the end of Fiscal 2017 compared to 125 stores at the end of Fiscal 2016.
Schuh Group earnings from operations increased 7.4% to $20.5 million in Fiscal 2017 compared to $19.1 million for
Fiscal 2016. Earnings for Fiscal 2016 included $1.5 million in compensation expense related to a deferred purchase
price obligation in connection with the Schuh acquisition. The increase in earnings from operations was primarily due to
the absence of the deferred purchase price expense, which contributed 40 basis points to the operating margin
improvement as a percentage of sales. The remaining operating margin improvement was due to increased gross margin
as a percentage of net sales, reflecting less promotional activity, changes in sales mix and improved margin in certain
product categories. The operating margin improvement from gains on foreign currency was offset by increased
expenses, primarily occupancy, depreciation and bonus expense. Schuh Group's earnings from operations for Fiscal
2017 were negatively impacted by $4.1 million due to changes in foreign exchange rates.
Lids Sports Group
Fiscal Year Ended
2017
2016
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
847,510
41,563
975,504
17,040
4.9 %
1.7 %
(13.1 )%
143.9 %
Net sales from the Lids Sports Group decreased 13.1% to $847.5 million for Fiscal 2017 from $975.5 million for Fiscal
2016. A 14% reduction in sales due to the sale of the Lids Team Sports business in the fourth quarter of Fiscal 2016
accounted for all of the decline in sales for the segment. Comparable sales increased 3% for Fiscal 2017, which
37
includes a 4% increase in same store sales and a 2% increase in comparable direct sales, while the average number of
Lids Sports Group stores operated decreased 3%, excluding leased departments. The comparable sales increase reflected
a 4% increase in the average price per hat, while comparable store hat units sold decreased 1%. Lids Sports Group
operated 1,240 stores at the end of Fiscal 2017, including 112 Lids stores in Canada, 207 Lids Locker Room and
Clubhouse stores, which include 35 Locker Room stores in Canada, and 151 Locker Room by Lids leased departments at
Macy's, compared to 1,332 stores at the end of Fiscal 2016, including 113 Lids stores in Canada and 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.
Lids Sports Group earnings from operations for Fiscal 2017 increased 143.9% to $41.6 million compared to $17.0
million for Fiscal 2016. The increase was due to increased gross margin as a percentage of net sales, reflecting the sale
of the lower margin Lids Team Sports business and decreased shipping and warehouse expense and decreased
promotional activity in the retail business. The improvement in gross margin more than offset increased expenses as a
percentage of net sales, resulting from (i) the sale of Lids Team Sports, which had lower expenses, (ii) increased store-
related expenses, primarily occupancy and credit card expenses, and (iii) increased bonus expenses.
Johnston & Murphy Group
Fiscal Year Ended
2017
2016
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
289,324
19,682
278,681
17,761
6.8 %
6.4 %
3.8 %
10.8 %
Johnston & Murphy Group net sales increased 3.8% to $289.3 million for Fiscal 2017 from $278.7 million for Fiscal
2016. The increase reflected primarily a 2% increase in comparable sales which includes a 1% increase in same store
sales and an 8% increase in comparable direct sales, a 1% increase in average stores operated for Johnston & Murphy
retail operations and a 5% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy
wholesale business increased 6% in Fiscal 2017 while the average price per pair of shoes decreased 2% for the same
period. Retail operations accounted for 71.4% of the Johnston & Murphy Group's sales in Fiscal 2017, down slightly
from 71.7% in Fiscal 2016. The comparable sales increase in Fiscal 2017 reflects a 2% increase in footwear unit
comparable sales while the average price per pair of shoes for Johnston & Murphy retail operations decreased 3%. The
store count for Johnston & Murphy retail operations at the end of Fiscal 2017 included 177 Johnston & Murphy shops
and factory stores, including seven stores in Canada, compared to 173 Johnston & Murphy shops and factory stores,
including seven stores in Canada, at the end of Fiscal 2016.
Johnston & Murphy earnings from operations for Fiscal 2017 increased 10.8% to $19.7 million from $17.8 million for
Fiscal 2016, primarily due to increased net sales, a slight increase in gross margin as a percentage of net sales, and
decreased expenses as a percentage of net sales, reflecting slightly lower store-related expenses, primarily selling
salaries and occupancy expenses and an increase as a percent of the total in wholesale which carries lower expenses than
retail.
Licensed Brands
Net sales
Earnings from operations
Operating margin
$
$
38
Fiscal Year Ended
2017
2016
%
Change
(dollars in thousands)
$
$
106,372
4,566
109,826
9,236
4.3 %
8.4 %
(3.1 )%
(50.6 )%
Licensed Brands’ net sales decreased 3.1% to $106.4 million for Fiscal 2017 from $109.8 million for Fiscal 2016. The
sales decrease reflects decreased sales of Dockers and Chaps Footwear, partially offset by the addition of sales for G.H.
Bass Footwear. SureGrip Footwear, which was sold in the fourth quarter, had net sales of $15.6 million in Fiscal 2017.
The sales decrease in Dockers and Chaps Footwear reflects weakness in the department store and footwear chain
channels. Unit sales for Dockers Footwear decreased 6% for Fiscal 2017 and the average price per pair of shoes
decreased 8% for the same period.
Licensed Brands’ earnings from operations for Fiscal 2017 decreased 50.6%, from $9.2 million for Fiscal 2016 to $4.6
million, primarily due to increased expenses as a percentage of net sales, reflecting increased expenses associated with
the start-up of the Bass Footwear licensed business and increased shipping and warehouse, freight and royalty expenses,
and to decreased gross margin as a percentage of net sales, reflecting sales of products with lower initial margins.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2017 was $30.3 million compared to $38.2 million for Fiscal 2016. Corporate
expense in Fiscal 2017 included a $0.8 million gain in asset impairment and other charges, primarily for a gain on
network intrusion expenses as a result of a litigation settlement and a gain for other legal matters, partially offset by
retail store asset impairments and pension settlement expenses. 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. Excluding the gains and charges listed above, corporate and other expense increased
primarily due to increased bonus accruals and bank fees, partially offset by foreign exchange gains, life insurance
proceeds and decreased professional fees.
Net interest expense increased 19.2% from $4.4 million in Fiscal 2016 to $5.2 million in Fiscal 2017 primarily due to
increased revolver borrowings compared to the previous year as a result of the Little Burgundy acquisition in the fourth
quarter of Fiscal 2016 and share repurchases.
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
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 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
39
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
%
Change
(dollars in thousands)
$ 1,251,637
126,248
$
$ 1,179,476
114,784
$
10.1 %
9.7 %
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
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
Net sales
Earnings from operations
Operating margin
$
$
40
Fiscal Year Ended
2016
2015
%
Change
(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.
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
$
$
41
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.
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.
42
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. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
(dollars in millions)
$
$
$
48.3 $
428.8 $
82.9 $
133.3 $
476.5 $
111.8 $
112.9
441.7
29.0
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.
Cash provided by operating activities was $161.5 million in Fiscal 2017 compared to $145.1 million in Fiscal 2016. The
$16.4 million increase from operating activities from Fiscal 2016 reflects an increase in cash flow from changes in other
accrued liabilities, accounts payable, accounts receivable and prepaids and other current assets of $54.6 million, $22.0
million, $8.0 million and $6.6 million, respectively, partially offset by a $73.2 million decrease in cash flow from
changes in inventory.
The $54.6 million increase in cash flow from other accrued liabilities when comparing the change from Fiscal 2017 and
2016 with the change from Fiscal 2016 and 2015 reflects the reduction of Schuh acquisition related accruals due to
payments in Fiscal 2016. The $22.0 million increase in cash flow from accounts payable reflects changes in buying
patterns and payment terms negotiated with individual vendors and is related to the increase in inventory. The $8.0
million increase in cash from accounts receivable reflects lower wholesale sales in Fiscal 2017 compared to increased
wholesale sales and increased receivables related to the sale of Lids Team Sports in Fiscal 2016. The $6.6 million
increase in prepaids and other current assets primarily reflects increases in Fiscal 2016 for prepaid taxes and rent. The
$73.2 million decrease in cash flow from inventory primarily reflects an increase in Journeys Group and Lids Sports
Group inventory.
The $45.4 million increase in inventories at January 28, 2017 from January 30, 2016 levels primarily reflects increases
in Journeys Group, Lids Sports Group and Johnston & Murphy Group.
Accounts receivable at January 28, 2017 decreased $1.4 million compared to January 30, 2016 primarily due to
decreased sales in the Licensed Brands business.
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.
43
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 was due reimbursement from the
buyer of that business.
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, capital expenditures and stock
repurchases 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
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, as amended, 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
44
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 $19.3 million in UK term loans and $13.8 million in UK revolver loans outstanding at January 28, 2017.
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 28, 2017. 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 $100.1 million during Fiscal 2017 and $49.6 million during Fiscal
2016, as cash on hand, cash generated from operations and revolver borrowings primarily funded seasonal working
capital requirements, capital expenditures and stock repurchases for Fiscal 2017 and Fiscal 2016. The borrowings
outstanding during Fiscal 2017 reflect funds borrowed for the acquisition of Little Burgundy in the fourth quarter of
Fiscal 2016, the Schuh deferred purchase price payments in the second quarter of Fiscal 2016 and stock repurchases
made throughout Fiscal 2017.
There were $11.2 million of letters of credit outstanding and $49.9 million of revolver borrowings outstanding, including
$20.1 million (£16.0 million) related to Genesco (UK) Limited and $29.8 million (C$39.1 million) related to GCO
Canada, under the Credit Facility at January 28, 2017. 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
case for such period, to (b) fixed charges for such period, of not less than 1.0:1.0. Excess Availability was $298.2 million
at January 28, 2017. 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 28 2017.
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 2018.
Off-Balance Sheet Arrangements
None.
45
Contractual Obligations
The following tables set forth aggregate contractual obligations and commitments as of January 28, 2017.
(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
82,905 $
1,379,877
646,603
615
1,077
2,111,077 $
Less than 1
year
1 - 3
years
3 - 5
years
9,175 $
245,160
646,603
268
177
901,383 $
51,445 $
407,086
—
221
353
459,105 $
22,285 $
325,619
—
126
353
348,383 $
(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
—
402,012
—
—
194
402,206
More
than 5
years
Letters of Credit
Total Commercial Commitments
$
$
11,203 $
11,203 $
11,203 $
11,203 $
— $
— $
— $
— $
—
—
(1) Represents open purchase orders for inventory.
(2) Includes interest on the UK term loans. 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 $5.4 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 28, 2017, was $15.2
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 $94.0 million, $100.7 million and $103.1 million for Fiscal 2017, 2016 and 2015,
respectively. The $6.7 million decrease in Fiscal 2017 capital expenditures as compared to Fiscal 2016 is primarily due
to decreases in capital expenditures of Lids Sports Group and Schuh Group, partially offset by increased capital
expenditures in Journeys Group. 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.
Total capital expenditures in Fiscal 2018 are expected to be approximately $135 million to $145 million. These include
retail capital expenditures of approximately $124 million to $134 million to open approximately 60 Journeys Group
stores, including five in Canada, 35 Journeys Kidz stores and five Little Burgundy stores, ten Schuh stores, nine
Johnston & Murphy shops and factory stores, and 22 Lids Sports Group stores, including 20 Lids stores, with six stores
in Canada, and two Clubhouse stores, and to complete approximately 295 major store renovations. In addition, retail
capital expenditures include $33 million for the expansion of the Journeys Group's warehouse. The planned amount of
capital expenditures in Fiscal 2018 for wholesale operations and other purposes is approximately $11 million, including
approximately $5 million for new systems.
46
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 stock repurchases during Fiscal
2018. The approximately $3.3 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 Facility.
The Company had total available cash and cash equivalents of $48.3 million and $133.3 million as of January 28, 2017
and January 30, 2016, respectively, of which approximately $22.9 million and $24.1 million was held by the Company's
foreign subsidiaries as of January 28, 2017 and January 30, 2016, 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 indefinitely 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
The weighted shares outstanding reflects the effect of the Company's Board-approved share repurchase program. The
Company repurchased 2,155,869 shares at a cost of $133.3 million during Fiscal 2017. The Company has repurchased
275,300 shares in the first quarter of Fiscal 2018, through March 24, 2017, at a cost of $16.2 million. The Company has
$24.0 million remaining as of March 24, 2017 under its current $100.0 million share repurchase authorization. The
Company repurchased 2,383,384 shares at a cost of $144.9 million during Fiscal 2016. The Company repurchased
64,709 shares at a cost of $4.6 million during Fiscal 2015.
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 $0.6
million reflected in Fiscal 2017, $0.8 million reflected in Fiscal 2016 and $2.8 million reflected in Fiscal 2015. 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 $19.3 million of outstanding U.K. term loans at a weighted
average interest rate of 2.64% as of January 28, 2017. A 100 basis point increase in interest rates would increase annual
interest expense by $0.2 million on the $19.3 million term loans. The Company has $13.8 million of outstanding U.K.
revolver borrowings at a weighted average interest rate of 2.60% as of January 28, 2017. A 100 basis point increase in
interest rates would increase annual interest expense by $0.1 million on the $13.8 million revolver borrowings. The
Company has $49.9 million of outstanding U.S. revolver borrowings at a weighted average interest rate of 2.10% as of
47
January 28, 2017. A 100 basis point increase in interest rates would increase annual interest expense by $0.5 million on
the $49.9 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 28, 2017. As a result, the Company considers the interest rate market risk implicit in
these investments at January 28, 2017 to be low.
Summary – Based on the Company’s overall market interest rate exposure at January 28, 2017, 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 28, 2017 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 businesses, one customer each accounted for 15%, 13% and 10% of the
Company’s total trade receivables balance, while no other customer accounted for more than 7% of the Company’s total
trade receivables balance as of January 28, 2017. 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. Schuh Group's net sales and
earnings from operations for Fiscal 2017 were negatively impacted by $49.3 million and $4.1 million, respectively, due
to the decline in foreign exchange rates.
New Accounting Principles
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment.” ASU 2017-04 simplifies the measurement of goodwill by eliminating the second step from
the goodwill impairment test, which requires the comparison of the implied fair value of goodwill with the current
carrying amount of goodwill. Instead, under the amendments in this guidance, an entity shall perform a goodwill
impairment test by comparing the fair value of each reporting unit with its carrying amount and an impairment charge is
to be recorded for the amount, if any, in which the carrying value exceeds the reporting unit’s fair value. This guidance
should be applied prospectively and is effective for public business entities that are United States Securities and
Exchange Commission filers for fiscal years beginning after December 15, 2019, with early adoption permitted for
interim or annual goodwill impairment tests performed after January 1, 2017.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting” (“ASU 2016-09”). The update addresses several aspects of the accounting
for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b)
classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather
than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows. The updated
guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years,
with early adoption permitted. If the Company had adopted the standard in Fiscal 2017, reported earnings per share
would have decreased $0.03 per share for Fiscal 2017. The Company will adopt ASU 2016-09 in the first quarter of
Fiscal 2018.
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
48
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 28, 2017, the Company has $21.2 million of current deferred tax assets that will be reclassed to noncurrent
deferred tax assets on its Consolidated Balance Sheets. The Company is currently assessing which transition method
will be adopted.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." ASU
2015-11 requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail
inventory method to measure inventory at the lower of cost and net realizable value. ASU 2015-11 requires prospective
application and is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal
years, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a
material impact on its Consolidated Financial Statements and related disclosures.
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 required 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
adopted these ASUs in the first quarter of Fiscal 2017. The $0.3 million in deferred financing costs related to the
Company's term loans were reclassified to long-term debt from noncurrent assets as of January 30, 2016.
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). Based on an evaluation of the standard as a whole, the Company has identified catalog
costs, customer incentives and principal versus agent considerations as the areas that will most likely be affected by the
new revenue recognition guidance. The Company continues to evaluate the adoption of this standard, including the
transition method, and will provide updates in Fiscal 2018 related to the expected impact of adopting this standard.
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."
50
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 28, 2017 and January 30, 2016
Consolidated Statements of Operations, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Equity, each of the three fiscal years ended 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
52
53
54
56
57
58
59
60
51
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 28, 2017, 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 28, 2017, 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 28, 2017 and January 30, 2016, 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 28, 2017, and our report dated March 29, 2017 expressed an unqualified opinion thereon. Our audits also
included the financial statement schedule listed in the Index at Item 15.
Nashville, Tennessee
March 29, 2017
/s/ Ernst & Young LLP
52
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 28, 2017 and January 30, 2016, 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 28, 2017. 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 28, 2017 and January 30, 2016, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period ended January 28, 2017, 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 28, 2017, 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 29, 2017 expressed an unqualified opinion thereon.
Nashville, Tennessee
March 29, 2017
/s/ Ernst & Young LLP
53
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 $3,073 at January 28,
2017 and $2,960 at January 30, 2016
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 $5,574 at
January 28, 2017 and $5,039 at January 30, 2016
Other intangibles, net of accumulated amortization of $16,200 at
January 28, 2017 and $15,947 at January 30, 2016
Other noncurrent assets
Total Assets
As of Fiscal Year End
January 28,
2017
January 30,
2016
$
48,301 $
133,288
43,525
563,677
21,194
61,470
738,167
7,773
52,673
179,926
211,833
33,660
366,186
852,051
(521,440 )
330,611
85
271,222
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
84,327
86,740
2,392
22,102
1,448,906 $
3,569
45,123
1,541,190
$
54
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 28, 2017 – 20,354,272/19,865,808
January 30, 2016 – 22,322,799/21,834,335
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 28,
2017
January 30,
2016
$
170,751 $
31,128
23,101
7,568
9,175
64,333
3,330
309,386
73,730
6,265
135,291
1,713
526,385
154,241
23,666
24,508
16,349
14,182
79,282
11,389
323,617
97,583
9,957
149,020
4,230
584,407
1,060
1,077
20,354
237,677
731,111
(51,292 )
(17,857 )
921,053
1,468
922,521
1,448,906 $
22,323
224,004
768,222
(42,613 )
(17,857 )
955,156
1,627
956,783
1,541,190
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
55
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 SureGrip Footwear
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
2017
$ 2,868,341 $
1,450,815
1,276,368
(802 )
141,960
(12,297 )
(2,404 )
—
5,294
(47 )
5,247
151,414
53,555
97,859
(428 )
97,431 $
4.87 $
(0.02 )
4.85 $
4.85 $
(0.02 )
4.83 $
$
$
$
$
$
Fiscal Year
2016
3,022,234 $
1,578,768
1,284,322
7,893
151,251
—
(4,685 )
—
4,414
(11 )
4,403
151,533
56,152
95,381
(812 )
94,569 $
4.17 $
(0.04 )
4.13 $
4.15 $
(0.04 )
4.11 $
2015
2,859,844
1,459,433
1,230,864
2,281
167,266
—
—
7,050
3,337
(110 )
3,227
156,989
57,616
99,373
(1,648 )
97,725
4.23
(0.07 )
4.16
4.19
(0.07 )
4.12
The accompanying Notes are an integral part of these Consolidated Financial Statements.
56
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 $2.4 million,
$6.3 million and $4.0 million for 2017, 2016 and
2015, respectively
Postretirement liability adjustment net of tax of $0.4
million for all periods
Foreign currency translation adjustments
Total other comprehensive loss
Comprehensive Income
2017
2016
$ 97,431 $ 94,569 $ 97,725
2015
3,618
9,756
(6,343 )
(674 )
(11,623 )
666
(12,459 )
(644 )
(16,822 )
(8,679 )
(23,809 )
$ 88,752 $ 92,532 $ 73,916
(2,037 )
The accompanying Notes are an integral part of these Consolidated Financial Statements.
57
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 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
Gain on sale of SureGrip Footwear
Loss on pension buyout
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 businesses
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
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
Fiscal Year
2017
2016
2015
$
97,431 $
94,569 $
97,725
75,768
839
5,394
442
—
6,409
13,481
701
(2,404 )
(12,297 )
2,456
(313 )
1,599
1,362
(45,396 )
(2,258 )
24,527
(16,302 )
10,062
161,501
(93,970 )
(22 )
23,053
(70,939 )
(6,591 )
—
340,920
(357,685 )
313
(140,499 )
(8,349 )
—
1,018
(3,594 )
(174,467 )
(1,082 )
(84,987 )
133,288
48,301 $
4,263 $
52,384
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 $
3,408 $
58,940
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
(137,693 )
(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
2,632
42,816
$
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
58
Genesco Inc.
and Subsidiaries
Consolidated Statements of Equity
Non-
Redeemable
Preferred
Stock
1,305 $
—
—
—
$
Common
Stock
24,408 $
—
—
69
Additional
Paid-In
Capital
190,568 $
—
—
1,749
Retained
Earnings
734,533 $
97,725
—
—
Accumulated
Other
Comprehensive
Loss
Non
Controlling
Interest
Non-
Redeemable
Treasury
Shares
(16,767 ) $
—
(23,809 )
—
(17,857 ) $
—
—
—
—
—
—
—
—
—
—
—
(40,576 )
—
(2,037 )
—
—
—
—
—
—
—
—
—
(42,613 )
—
(8,679 )
—
—
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
Total
Equity
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
1,933 $
—
—
—
—
—
—
—
—
—
—
37
1,970
—
—
—
—
134
—
—
—
13,758
—
(4,408 )
—
—
—
(343 )
1,627
—
—
—
—
—
—
(90 )
(144,885 )
—
(343 )
956,783
97,431
(8,679 )
1,018
13,481
—
(3,435 )
—
—
—
—
—
—
(31 )
—
1,274
—
—
—
—
—
—
—
—
—
(197 )
—
1,077
—
—
—
—
—
3
188
—
—
202
(88 )
—
(65 )
(14 )
—
24,515
—
—
35
13,392
(202 )
88
3,061
—
44
—
208,888
—
—
1,273
—
—
(7,125 )
—
(4,570 )
—
—
820,563
94,569
—
—
3
131
—
—
239
(66 )
—
(2,383 )
(20 )
—
22,323
—
—
27
—
236
(56 )
13,758
(239 )
66
(90 )
—
217
—
224,004
—
—
991
13,481
(236 )
—
—
(4,408 )
—
(142,502 )
—
—
768,222
97,431
—
—
—
—
56
(3,435 )
In Thousands
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
Net earnings
Other comprehensive loss
Exercise of stock options
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
—
—
(17 )
—
1,060 $
—
(2,156 )
(20 )
—
20,354 $
(657 )
—
38
—
237,677 $
—
(131,107 )
—
—
731,111 $
—
—
—
—
(51,292 ) $
—
—
—
—
(17,857 ) $
—
—
—
(159 )
1,468 $
(657 )
(133,263 )
1
(159 )
922,521
Balance January 28, 2017
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
59
Note 1
Summary of Significant Accounting Policies
journeys.com,
journeyskidz.com,
journeys.ca, shibyjourneys.com,
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company") business includes the sourcing and
design, 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
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. 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 banner; 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 neweracap.com.
Including both the footwear businesses and the Lids Sports Group business, at January 28, 2017, the
Company operated 2,794 retail stores and leased departments in the U.S., Puerto Rico, Canada, the
United Kingdom, the Republic of Ireland and Germany.
During Fiscal 2017, 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 (An athletic team dealer
business operating as Lids Team Sports was sold in the fourth quarter of Fiscal 2016.);
(iv) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce and
catalog operations and wholesale distribution of products under the Johnston & Murphy® and H.S.
Trask® brands; and (v) Licensed Brands, comprised of Dockers® Footwear, sourced and marketed
under a license from Levi Strauss & Company; SureGrip® Footwear, which was sold in the fourth
quarter of Fiscal 2017; G.H. Bass Footwear operated under a license from G-III Apparel Group,
Ltd.; and other brands.
Principles of Consolidation
All subsidiaries are consolidated in the consolidated financial statements. All significant
intercompany transactions and accounts have been eliminated.
60
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 2017, 2016 and
2015 were 52-week years with 364 days. Fiscal 2017 ended on January 28, 2017, Fiscal 2016 ended on
January 30, 2016 and Fiscal 2015 ended on January 31, 2015.
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.
61
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. 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.
62
Note 1
Summary of Significant Accounting Policies, Continued
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 beginning 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.
During the quarter ended January 28, 2017, the Company voluntarily changed the date of its
annual goodwill impairment test and other intangible assets impairment test from the last day of
the fiscal year to the first day of the fourth fiscal quarter. This voluntary change is preferable
under the circumstances as it aligns with the Company's five-year strategic planning cycle that is
completed in early October. This voluntary change in accounting principle was not made to delay,
accelerate or avoid an impairment charge. This change is not applied retrospectively as it is
impracticable to do so because retrospective application would require the application of
significant estimates and assumptions with the use of hindsight. Accordingly, the change will be
applied prospectively.
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 $0.6 million in Fiscal 2017, $0.8 million in Fiscal 2016 and $2.8 million
in Fiscal 2015.
63
Note 1
Summary of Significant Accounting Policies, Continued
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. 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.
64
Note 1
Summary of Significant Accounting Policies, Continued
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 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 28, 2017,
the Company had a deferred tax valuation allowance of $4.3 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.
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.
65
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 10 years.
Cash and Cash Equivalents
The Company had total available cash and cash equivalents of $48.3 million and $133.3 million as
of January 28, 2017 and January 30, 2016, respectively, of which approximately $22.9 million and
$24.1 million was held by the Company's foreign subsidiaries as of January 28, 2017 and January
30, 2016, 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
indefinitely 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 28, 2017 and January 30, 2016. Cash
equivalents are highly-liquid financial instruments having an original maturity of three months or
less.
At January 28, 2017, 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.
66
Note 1
Summary of Significant Accounting Policies, Continued
At January 28, 2017 and January 30, 2016, outstanding checks drawn on zero-balance accounts at
certain domestic banks exceeded book cash balances at those banks by approximately $36.7 million
and $45.0 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 each accounted for 15%, 13% and 10% of the Company’s total trade receivables balance,
while no other customer accounted for more than 7% of the Company’s total trade receivables
balance as of January 28, 2017.
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 $74.9 million, $76.2
million and $71.0 million for Fiscal 2017, 2016 and 2015, 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.
67
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 $10.3
million and $10.6 million as of January 28, 2017 and January 30, 2016, 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 $181.6 million for the Lids Sports Group,
$79.8 million for the Schuh Group and $9.8 million for Journeys Group at January 28, 2017, and
$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. 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.
68
Note 1
Summary of Significant Accounting Policies, Continued
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.
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 at the beginning of its fourth quarter, or more frequently if events or
circumstances indicate that the value of the asset might be impaired. During the quarter ended
January 28, 2017, the Company voluntarily changed the date of its annual goodwill impairment test
and other intangible assets impairment test from the last day of the fiscal year to the first day of the
fourth fiscal quarter. This voluntary change is preferable under the circumstances as it aligns with
the Company's five-year strategic planning cycle that is completed in early October.
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 28, 2017 and
January 30, 2016 are:
In thousands
U.S. Revolver Borrowings
UK Term Loans
UK Revolver Borrowings
January 28, 2017
January 30, 2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
49,879 $
19,230
13,796
50,396 $
19,541
13,956
58,344 $
28,603
24,818
58,480
28,901
24,630
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.
69
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 $6.2 million, $9.6 million and $9.1 million for Fiscal 2017, 2016 and 2015, 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.
70
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 $1.4 million, $1.2 million and $1.0 million for Fiscal 2017, 2016 and 2015, respectively. The
Consolidated Balance Sheets include an accrued liability for gift cards of $17.7 million and $16.9
million at January 28, 2017 and January 30, 2016, 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 $450.9 million,
$432.9 million and $413.6 million for Fiscal 2017, 2016 and 2015, 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.
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.
71
Note 1
Summary of Significant Accounting Policies, Continued
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 $76.7 million,
$73.7 million and $67.0 million for Fiscal 2017, 2016 and 2015, 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 $1.2
million at January 28, 2017 and $2.0 million at January 30, 2016.
72
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 $3.6 million,
$3.4 million and $3.3 million for Fiscal 2017, 2016 and 2015, respectively. During Fiscal 2017,
2016 and 2015, 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.
73
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 $8.5 million, $6.4 million and $4.1 million for Fiscal 2017, 2016 and
2015, respectively. During Fiscal 2017, 2016 and 2015, 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 (gain) loss of $(1.2) million, $2.7 million and $2.4 million
for Fiscal 2017, 2016 and 2015, 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.
74
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 28, 2017 consisted of $9.4 million of cumulative pension liability
adjustment, net of tax, a cumulative post retirement liability adjustment of $1.6 million, net of tax,
and a cumulative foreign currency translation adjustment of $40.3 million.
The following table summarizes the components of accumulated other comprehensive loss for the
year ended January 28, 2017:
(In thousands)
Balance January 30, 2016
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment
Gain on intra-entity foreign currency transactions
(long-term investment nature)
Net actuarial gain
Amounts reclassified from AOCI:
Amortization of net actuarial loss (1)
Income tax expense
Foreign
Currency
Translation
Unrecognized
Pension/
Postretirement
Benefit Costs
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
(28,706 ) $
(13,907 ) $
(42,613 )
(13,412 )
1,789
—
—
—
—
—
3,949
935
1,940
2,944
(13,412 )
1,789
3,949
935
1,940
(8,679 )
Current period other comprehensive income (loss), net of tax
(11,623 )
Balance January 28, 2017
$
(40,329 ) $
(10,963 ) $
(51,292 )
(1) Amount is included in net periodic benefit cost, which is recorded in selling and administrative expense on
the Consolidated Statements of Operations.
75
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 January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the measurement of
goodwill by eliminating the second step from the goodwill impairment test, which requires the
comparison of the implied fair value of goodwill with the current carrying amount of goodwill.
Instead, under the amendments in this guidance, an entity shall perform a goodwill impairment test
by comparing the fair value of each reporting unit with its carrying amount and an impairment
charge is to be recorded for the amount, if any, in which the carrying value exceeds the reporting
unit’s fair value. This guidance should be applied prospectively and is effective for public business
entities that are United States Securities and Exchange Commission filers for fiscal years beginning
after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment
tests performed after January 1, 2017.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The update
addresses several aspects of the accounting for share-based compensation transactions including: (a)
income tax consequences when awards vest or are settled, (b) classification of awards as either
equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an
estimated basis and (d) classification of excess tax impacts on the statement of cash flows. The
updated guidance is effective for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years, with early adoption permitted. If the Company had adopted the
standard in Fiscal 2017, reported earnings per share would have decreased $0.03 per share for Fiscal
2017. The Company will adopt ASU 2016-09 in the first quarter of Fiscal 2018.
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.
76
Note 1
Summary of Significant Accounting Policies, Continued
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 28, 2017,
the Company has $21.2 million of current deferred tax assets that will be reclassed to noncurrent
deferred tax assets on its Consolidated Balance Sheets. The Company is currently assessing which
transition method will be adopted.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement
of Inventory." ASU 2015-11 requires an entity that determines the cost of inventory by methods
other than last-in, first-out and the retail inventory method to measure inventory at the lower of cost
and net realizable value. ASU 2015-11 requires prospective application and is effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years, with early
adoption permitted. The Company does not expect that the adoption of this guidance will have a
material impact on its Consolidated Financial Statements and related disclosures.
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 required 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 adopted
these ASUs in the first quarter of Fiscal 2017. The $0.3 million in deferred financing costs related to
the Company's term loans were reclassified to long-term debt from noncurrent assets as of January
30, 2016.
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.
77
Note 1
Summary of Significant Accounting Policies, Continued
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). Based on an evaluation of the standard as a
whole, the Company has identified catalog costs, customer incentives and principal versus agent
considerations as the areas that will most likely be affected by the new revenue recognition
guidance. The Company continues to evaluate the adoption of this standard, including the transition
method, and will provide updates in Fiscal 2018 related to the expected impact of adopting this
standard.
78
Note 2
Acquisitions, Intangible Assets and Sale of Businesses
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. The stores acquired in Fiscal 2015 are operated within the Lids Sports Group. The
wholesale business acquired in Fiscal 2015 was operated within Lids Team Sports, which was sold
on January 19, 2016.
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. 28,
2017
Jan. 30,
2016
$ 14,625 $ 14,841 $
(12,637 )
2,204 $
(12,938 )
1,687 $
$
Jan. 28,
2017
1,958 $
(1,956 )
2 $
Jan. 30,
2016
2,622 $
(2,264 )
358 $
Jan. 28,
2017
2,009 $
(1,306 )
703 $
Jan. 30,
Jan. 30,
Jan. 28,
2016
2016
2017
2,053 $ 18,592 $ 19,516
(15,947 )
(1,046 )
(16,200 )
3,569
2,392 $
1,007 $
*Includes non-compete agreements, vendor contract and backlog.
The amortization of intangibles, including trademarks, was $0.9 million, $2.9 million and $3.3
million for Fiscal 2017, 2016 and 2015, respectively. The amortization of intangibles, including
trademarks, will be $0.2 million and $0.1 million for Fiscal 2018 and 2019, respectively, and less
than $0.1 million for Fiscal 2020, 2021 and 2022.
Sale of Businesses
On December 25, 2016, the Company completed the sale of all the stock of the Company's
subsidiary, Keuka Footwear, Inc., that operates the SureGrip occupational, slip-resistant footwear
business, operated within the Licensed Brands Group, to Shoes for Crews, LLC. The Company
recognized a gain on the sale, in Fiscal 2017, estimated at $(12.3) million, net of transaction-related
expenses before tax and subject to post-closing working capital adjustments.
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, in Fiscal 2016, estimated at $(4.7) million, net of
transaction-related expenses before tax.
79
Note 2
Acquisitions, Intangible Assets and Sale of Businesses, continued
In Fiscal 2017, the Company recognized an additional pretax gain of $(2.4) million on the sale of
Lids Team Sports related to final working capital adjustments.
The sales of SureGrip Footwear and Lids Team Sports were not strategic shifts that will have a
major effect on operations and financial results, and therefore the businesses were not presented as
discontinued operations in the Company's Consolidated Financial Statements.
80
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 gain to earnings of $(0.8) million in Fiscal 2017, including a gain of
$(8.9) million for network intrusion expenses as a result of a litigation settlement and a gain of
$(0.7) million for other legal matters, partially offset by $6.4 million for retail store asset
impairments and $2.5 million for pension settlement expense.
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.
Discontinued Operations
In Fiscal 2017, Fiscal 2016 and Fiscal 2015, the Company recorded an additional charge to earnings
of $0.7 million ($0.4 million net of tax), $1.3 million ($0.8 million net of tax) and $2.7 million ($1.6
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).
81
Note 3
Asset Impairments and Other Charges and Discontinued Operations, Continued
Accrued Provision for Discontinued Operations
In thousands
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
Additional provision Fiscal 2017
Charges and adjustments, net
Balance January 28, 2017*
Current provision for discontinued operations
Total Noncurrent Provision for Discontinued Operations
Facility
Shutdown
Costs
11,375
2,711
673
14,759
1,333
(473 )
15,619
701
(11,277 )
5,043
3,330
1,713
$
$
*Includes a $4.4 million environmental provision, including $3.3 million in current provision for
discontinued operations.
Note 4
Inventories
In thousands
Raw materials
Wholesale finished goods
Retail merchandise
Total Inventories
January 28,
2017
389 $
61,575
501,713
$
January 30,
2016
469
58,773
470,516
$
563,677
$
529,758
82
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 28, 2017 aggregated by the level in the fair value hierarchy within
which those measurements fall (in thousands):
Measured as of April 30, 2016
Measured as of July 30, 2016
Measured as of October 29, 2016
Measured as of January 28, 2017
Total Asset Impairment Fiscal 2017
Long-Lived
Assets
Held and Used
$
694 $
618
480
206
Level 1
Level 2
Level 3
— $
—
—
—
— $
—
—
—
Impairment
Charges
3,436
1,017
579
1,377
6,409
694 $
618
480
206
$
In accordance with the Property, Plant and Equipment Topic of the Codification, the Company
recorded $6.4 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 28, 2017. These charges are reflected in asset impairments and other, net on the
Consolidated Statements of Operations.
83
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
U.S. Revolver borrowings
UK term loans
UK revolver borrowings
Deferred note expense on term loans
Total long-term debt
Current portion
Total Noncurrent Portion of Long-Term Debt
January 28,
2017
January 30,
2016
$
$
49,879 $
19,345
13,796
(115 )
82,905
9,175
73,730 $
58,344
28,896
24,818
(293 )
111,765
14,182
97,583
Long-term debt maturing during each of the next five years ending in January each year is $9.2
million, $51.4 million, $22.4 million, $0.0 million and $0.0 million, respectively.
The Company had $49.9 million of revolver borrowings outstanding under the Credit Facility at
January 28, 2017, which includes $20.1 million (£16.0 million) related to Genesco (UK) Limited
and $29.8 million (C$39.1 million) related to GCO Canada, and had $19.3 million (£15.4 million) in
term loans outstanding and $13.8 million (£11.0 million) in revolver loans outstanding under the
U.K. Credit Facilities (described below) at January 28, 2017. The Company had outstanding letters
of credit of $11.2 million under the Credit Facility at January 28, 2017. These letters of credit
support product purchases and lease and insurance indemnifications.
U. S. 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.
84
Note 6
Long-Term Debt, continued
Deferred financing costs incurred of $3.1 million related to the Credit Facility were capitalized and
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 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.
85
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.
86
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 $298.2 million
at January 28, 2017. 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 28, 2017.
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.
87
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.
88
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 28, 2017.
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 4% 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
2017
2016
2015
$
$
264,129 $
9,957
(1,863 )
272,223 $
255,083 $
11,044
(825 )
265,302 $
250,077
9,217
(852 )
258,442
89
Note 7
Commitments Under Long-Term Leases, Continued
Minimum rental commitments payable in future years are:
Fiscal Years
2018
2019
2020
2021
2022
Later years
In thousands
245,159
215,230
191,857
172,763
152,855
402,013
1,379,877
$
$
Total
Minimum
Rental
For leases that contain predetermined fixed escalations of the minimum rentals, the related rental
Commitme
expense is recognized on a straight-line basis and the cumulative expense recognized on the straight-
nts
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 for both Fiscal 2017 and 2016, and
deferred rent of $51.9 million and $48.0 million for Fiscal 2017 and 2016, respectively, are included
in deferred rent and other long-term liabilities on the Consolidated Balance Sheets.
90
Note 8
Equity
Non-Redeemable Preferred Stock
Class
Employees’ Subordinated
Convertible Preferred
Shares
Authorized
Number of Shares
Amounts in Thousands
2017
2016
2015
2017
2016
2015
5,000,000
37,646
38,196
44,836
1,129
1,146
1,345
Stated Value of Issued
Shares
Employees’ Preferred
Stock Purchase Accounts
Total Non-Redeemable
Preferred Stock
Subordinated Serial Preferred Stock:
1,129
1,146
1,345
(69 )
(69 )
(71 )
$ 1,060
$ 1,077
$ 1,274
The Company's charter permits the Board of Directors to issue Subordinated Serial Preferred Stock
(3,000,000 shares, in aggregate, are authorized) in as many series, each with as many shares and
such rights and preferences as the board may designate. The Company has shares authorized for
$2.30 Series 1, $4.75 Series 3, $4.75 Series 4, Series 6 and $1.50 Subordinated Cumulative Preferred
stocks in amounts of 64,368 shares, 40,449 shares, 53,764 shares, 800,000 shares and 5,000,000
shares, respectively. All of these preferred stocks were mandatorily redeemed by the Company in
Fiscal 2014. As a result, there are no outstanding shares for any preferred issues of stock other than
Employees' Subordinated Convertible Preferred stock shown in the table above.
Preferred Stock Transactions
In thousands
Balance February 2, 2014
Other stock conversions
Balance January 31, 2015
Other stock conversions
Balance January 30, 2016
Other stock conversions
Balance January 28, 2017
Non-Redeemable
Employees’
Preferred Stock
Employees’
Preferred
Stock
Purchase
Accounts
Total
Non-Redeemable
Preferred Stock
$
$
1,382 $
(37 )
1,345
(199 )
1,146
(17 )
1,129 $
91
(77 ) $
6
(71 )
2
(69 )
—
(69 ) $
1,305
(31 )
1,274
(197 )
1,077
(17 )
1,060
Note 8
Equity, Continued
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. Each share of
this issue of preferred stock is convertible into one share of common stock and has one vote per
share.
Common Stock:
Common stock-$1 par value. Authorized: 80,000,000 shares; issued: January 28, 2017 – 20,354,272
shares; January 30, 2016 –22,322,799 shares. There were 488,464 shares held in treasury at January
28, 2017 and January 30, 2016. Each outstanding share is entitled to one vote. At January 28, 2017,
common shares were reserved as follows: 37,646 shares for conversion of preferred stock and
2,556,824 shares for the 2009 Amended and Restated Stock Incentive Plan.
For the year ended January 31, 2017, 26,696 shares of common stock were issued for the exercise of
stock options at an average weighted exercise price of $38.13, for a total of $1.0 million; 236,364
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"); 23,252 shares were issued to directors in
exchange for their services; 55,563 shares were withheld for taxes on restricted stock vested in Fiscal
2017; 43,998 shares of restricted stock were forfeited in Fiscal 2017; and 591 shares were issued in
miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the
Company repurchased and retired 2,155,869 shares of common stock at an average weighted market
price of $61.81 for a total of $133.3 million.
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 2009 Plan; 2,470 shares of
common stock were issued for the purchase of shares under the Employee Stock Purchase Plan
("ESPP") at an average weighted market price of $54.22, for a total of $0.1 million; 19,769 shares
were issued to directors in exchange for their services; 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.
92
Note 8
Equity, Continued
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 in exchange for
their services; 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.
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 (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 $0.5 million 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.
The Company’s UK Credit Facility prohibits the payment of any dividends by Schuh or its
subsidiaries to the Company.
93
Note 8
Equity, Continued
Changes in the Shares of the Company’s Capital Stock
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
Exercise of options
Issue restricted stock
Shares repurchased
Other
Issued at January 28, 2017
Less shares repurchased and held in treasury
Outstanding at January 28, 2017
Common
Stock
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
26,696
236,364
(2,155,869 )
(75,718 )
20,354,272
488,464
19,865,808
Employees’
Preferred
Stock
46,069
—
—
—
—
(1,233 )
44,836
—
—
—
—
(6,640 )
38,196
—
—
—
(550 )
37,646
—
37,646
94
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 $
2017
129,819 $
21,595
151,414 $
2016
136,178 $
15,355
151,533 $
2015
150,682
6,307
156,989
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
2017
2016
2015
$
$
36,998 $
5,245
5,918
48,161
2,980
1,182
1,232
5,394
53,555 $
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
Discontinued operations were recorded net of income tax expense (benefit) of approximately $(0.3)
million, $(0.5) million and $(1.1) million in Fiscal 2017, 2016 and 2015, respectively.
As a result of the exercise of stock options and vesting of restricted stock during Fiscal 2017, 2016
and 2015, the Company realized an additional income tax benefit of approximately $0.3 million,
$0.2 million and $3.1 million, respectively. These tax benefits are reflected as an adjustment to
additional paid-in capital.
95
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 28,
2017
January 30,
2016
$
$
(31,079 ) $
(3,274 )
(1,196 )
(3,014 )
(38,563 )
—
5,488
3,396
10,413
16,361
—
2,179
3,728
2,450
491
7,147
4,458
56,111
(4,305 )
51,806
13,243 $
(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
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
2017
2016
21,194 $
85
(8,036 )
13,243 $
28,965
959
(1,133 )
28,791
$
$
96
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
2017
2016
2015
35.00 %
3.46
(2.93 )
0.88
1.11
(0.90 )
(1.25 )
35.37 %
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 %
The provision for income taxes resulted in an effective tax rate for continuing operations of 35.37%
for Fiscal 2017, compared with an effective tax rate of 37.06% for Fiscal 2016. The tax rate for
Fiscal 2017 was lower primarily due to the release of tax reserves.
As of January 28, 2017, January 30, 2016 and January 31, 2015, the Company had a federal net
operating loss carryforward, which was assumed in one of the prior year acquisitions, of $0.0
million, $1.0 million and $1.2 million, respectively, which expire in fiscal years 2025 through 2030.
The reduction of the federal net operating loss carryforward for Fiscal 2017 resulted from the
SureGrip Footwear sale on December 25, 2016.
As of January 28, 2017, January 30, 2016 and January 31, 2015, the Company had state net
operating loss carryforwards of $0.4 million, $0.5 million and $0.0 million, respectively, which
expire in fiscal years 2020 through 2037.
As of January 28, 2017, January 30, 2016 and January 31, 2015, the Company had state tax credits
of $0.4 million, $0.6 million and $0.4 million, respectively. These credits expire in fiscal years 2018
through 2024.
As of January 28, 2017, January 30, 2016 and January 31, 2015, the Company had foreign net
operating loss carryforwards of $7.3 million, $7.4 million and $6.8 million, respectively, which have
no expiration.
As of January 28, 2017, the Company has provided a valuation allowance of approximately $4.3
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.
97
Note 9
Income Taxes, Continued
The $0.9 million net increase in the valuation allowance during Fiscal 2017 from the $3.4 million
provided for as of January 30, 2016 relates to increases of $0.8 million in foreign net operating
losses and increases of $0.1 million in fixed asset-related deferred tax assets that will likely 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 28, 2017, the Company has not provided for withholding or United States federal
income taxes on approximately $64.4 million of accumulated undistributed earnings of its foreign
subsidiaries as they are considered by management to be indefinitely reinvested. If these
undistributed earnings were not considered to be indefinitely 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
2017, 2016 and 2015.
In thousands
2017
2016
2015
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
$
$
14,639 $
(7,585 )
491
(742 )
(1,181 )
5,622 $
3,997 $
9,328
1,403
—
(89 )
14,639 $
10,960
231
(287 )
—
(6,907 )
3,997
The amount of unrecognized tax benefits as of January 28, 2017, January 30, 2016 and January 31,
2015 which would impact the annual effective rate if recognized were $2.5 million, $3.9 million and
$2.7 million, respectively. The amount of unrecognized tax benefits may change during the next
twelve months but the Company does not believe the change, if any, will be material to the
Company's consolidated financial position or results of operations.
98
Note 9
Income Taxes, Continued
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
$0.8 million benefit and $0.0 million benefit, respectively, during Fiscal 2017, $0.6 million expense
and $0.0 million benefit, respectively, during Fiscal 2016 and $(0.1) million and $0.0 million
benefit, respectively, during Fiscal 2015. The Company recognized a liability for accrued interest
and penalties of $0.6 million and $0.1 million, respectively, as of January 28, 2017, $1.5 million and
$0.1 million, respectively, as of January 30, 2016 and $0.8 million and $0.1 million, respectively, as
of January 31, 2015. 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 1, 2014 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's US federal income
tax return for the fiscal years ended January 31, 2015 and beyond remain subject to examination.
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.
99
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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.
In June 2016, the Company's board of directors authorized an offer to vested former employees and
active employees over the age of 62 in the Company's defined benefits pension plan to buy out their
future benefits under the plan for a lump sum cash payment. The Company made the buyout offer in
the third quarter of Fiscal 2017, and completed it in the fourth quarter of Fiscal 2017. The Company
incurred a one-time charge to earnings of $2.5 million in the fourth quarter of Fiscal 2017 in
connection with the pension plan buyout.
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.
Obligations and Funded Status
The measurement date of the assets and liabilities for the defined benefit pension plan and
postretirement medical and life insurance plans is the month-end date that is closest to the
Company's fiscal year end.
100
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Change in Benefit Obligation
In thousands
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Plan settlements
Curtailment gain
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
Plan settlements
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
2017
100,290 $
550
4,118
—
(13,862 )
—
(8,308 )
4,159
86,947 $
2016
125,764 $
450
4,263
—
—
—
(8,841 )
(21,346 )
100,290 $
2017
6,826 $
704
286
158
—
—
(257 )
1,226
8,943 $
2016
6,886
821
245
124
—
(755 )
(341 )
(154 )
6,826
Pension Benefits
Other Benefits
2017
90,333 $
12,531
(13,874 )
—
—
(8,308 )
80,682 $
(6,265 ) $
2016
103,580 $
(4,406 )
—
—
—
(8,841 )
90,333
(9,957 ) $
2017
— $
—
—
99
158
(257 )
—
(8,943 ) $
2016
—
—
—
217
124
(341 )
—
(6,826 )
$
$
$
$
$
101
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Amounts recognized in the Consolidated Balance Sheets consist of:
In thousands
Current liabilities
Noncurrent liabilities
Net Amount Recognized
Pension Benefits
2017
— $
(6,265 )
(6,265 ) $
$
$
2016
— $
(9,957 )
(9,957 ) $
Other Benefits
2017
2016
(343 ) $
(8,600 )
(8,943 ) $
(274 )
(6,552 )
(6,826 )
Amounts recognized in accumulated other comprehensive income consist of:
In thousands
Net loss
Total Recognized in Accumulated Other
Comprehensive Loss
Pension Benefits
Other Benefits
2017
15,430 $
2016
21,415 $
2017
2,518 $
2016
1,417
15,430
$
21,415
$
2,518
$
1,417
$
$
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
In thousands
Service cost
Interest cost
Expected return on plan assets
Settlement loss recognized
Amortization:
Prior service cost
Losses
Net amortization
Net Periodic Benefit Cost
$
$
$
January 28,
2017
$
86,947 $
86,947
80,682
January 30,
2016
100,290
100,290
90,333
2017
Pension Benefits
2016
550 $
450 $
4,118
(5,641 )
2,456
4,263
(5,785 )
—
2015
450 $
4,664
(6,069 )
—
Other Benefits
2016
2017
704 $
286
—
—
821 $
245
—
—
2015
526
226
—
—
—
810
810 $
2,293 $
—
4,948
4,948 $
3,876 $
—
3,546
3,546 $
2,591 $
—
125
125 $
1,115 $
—
189
189 $
1,255 $
—
102
102
854
102
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Reconciliation of Accumulated Other Comprehensive Income
In thousands
Net (gain) loss
Amortization of net actuarial loss
$
Total Recognized in Other Comprehensive Income
$
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income $
2017
(2,729 ) $
(3,256 )
(5,985 ) $
(3,692 ) $
2017
1,226
(125 )
1,101
2,216
Pension Benefits Other Benefits
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 $0.2 million.
Weighted-average assumptions used to determine benefit obligations
Discount rate
Rate of compensation increase
Pension Benefits
2016
2017
3.95 %
NA
4.30 %
NA
Other Benefits
2017
3.98 %
—
2016
4.04 %
—
For Fiscal 2017 and 2016, 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.
The decrease in the discount rate for Fiscal 2017 increased the accumulated benefit obligation by
$3.2 million and increased the projected benefit obligation by $3.2 million. The increase in the
discount rate for Fiscal 2016 decreased the accumulated benefit obligation by $7.5 million and
decreased the projected benefit obligation by $7.5 million.
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
2016
2017
2015
2017
Other Benefits
2016
2015
4.30 %
3.55 %
4.40 %
4.04 %
3.31 %
4.40 %
6.35 %
6.35 %
6.75 %
NA
NA
NA
—
—
—
—
—
—
103
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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.
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
2017
2016
8.0 %
5 %
2027
7.5 %
5 %
2021
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
$
$
142 $
1,427 $
237
1,169
The Company’s pension plan weighted average asset allocations as of January 28, 2017 and January
30, 2016, by asset category are as follows:
Asset Category
Equity securities
Debt securities
Total
Plan Assets
January 28,
2017
January 30,
2016
65 %
35 %
100 %
64 %
36 %
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.
104
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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.
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 28, 2017 and January 30, 2016, 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.
105
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
The following tables present the pension plan assets by level within the fair value hierarchy as of
January 28, 2017 and January 30, 2016.
January 28, 2017 (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 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
Cash Flows
Level 1
Level 2
Level 3
Total
10,367 $
42,041
27,987
426
(139 )
80,682 $
— $
—
—
—
—
— $
— $
—
—
—
—
— $
10,367
42,041
27,987
426
(139 )
80,682
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
$
$
$
$
Return of Assets
There was no return of assets from the plan to the Company in Fiscal 2017 and no plan assets are
projected to be returned to the Company in Fiscal 2018.
Contributions
There was no Employee Retirement Income Security Act of 1974, as amended ("ERISA") cash
requirement for the plan in 2016 and none is projected to be required in 2017. It is the Company’s policy
to contribute enough cash to maintain at least an 80% funding level.
106
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Estimated Future Benefit Payments
Expected benefit payments from the trust, including future service and pay, are as follows:
Estimated future payments
2017
2018
2019
2020
2021
2022 – 2026
Section 401(k) Savings Plan
Pension
Benefits
($ in millions)
7.3 $
$
7.2
7.0
6.8
6.6
30.0
Other
Benefits
($ in millions)
0.3
0.4
0.4
0.4
0.5
2.4
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 $5.5 million for
Fiscal 2017, $6.0 million for Fiscal 2016 and $5.5 million for Fiscal 2015.
107
Note 11
Earnings Per Share
For the Year Ended
January 28, 2017
For the Year Ended
January 30, 2016
For the Year Ended
January 31, 2015
(In thousands, except
per share amounts)
Income
(Numerator)
Shares
(Denominator) Per-Share
Amount
$
97,859
Income
(Numerator)
$
95,381
Shares
(Denominator) Per-Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$
99,373
Earnings from continuing
operations
Basic EPS from continuing
operations
Income from continuing
operations available to
common shareholders
Effect of Dilutive Securities
from continuing operations
Options and restricted
stock
Employees’
preferred
stock(1)
Diluted EPS from
continuing operations
Income from continuing
operations available to
common shareholders plus
assumed conversions
97,859
20,076
$
4.87
95,381
22,880
$
4.17
99,373
23,507
$
4.23
58
38
76
44
155
46
$
97,859
20,172
$
4.85
$
95,381
23,000
$
4.15
$
99,373
23,708
$
4.19
(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.
There were no outstanding options to purchase shares of common stock at the end of Fiscal 2017.
All outstanding options to purchase shares of common stock at the end of Fiscal 2016 and 2015 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 2,155,869 shares at a cost of $133.3 million during
Fiscal 2017. The Company has repurchased 275,300 shares in the first quarter of Fiscal 2018,
through March 24, 2017, at a cost of $16.2 million. The Company has $24.0 million remaining as of
March 24, 2017 under its current $100.0 million share repurchase authorization. The Company
repurchased 2,383,384 shares at a cost of $144.9 million during Fiscal 2016. The Company
repurchased 64,709 shares at a cost of $4.6 million during Fiscal 2015.
108
Note 12
Share-Based Compensation Plans
The Company’s stock-based compensation plans, as of January 28, 2017, 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 2.6 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 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 2017, 2016 and 2015, 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 $0.3 million, $0.2 million and $3.1 million as financing cash inflows
rather than as operating cash inflows on its Consolidated Statement of Cash Flows for Fiscal 2017,
2016 and 2015, respectively.
The Company did not grant any stock options in Fiscal 2017, 2016 or 2015.
109
Note 12
Share-Based Compensation Plans, Continued
A summary of stock option activity and changes for Fiscal 2017, 2016 and 2015 is presented below:
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate Intrinsic
Value (in
thousands)(1)
Outstanding, February 1, 2014
Granted
Exercised
Forfeited
Outstanding, January 31, 2015
Granted
Exercised
Forfeited
Outstanding, January 30, 2016
Granted
Exercised
Forfeited
Outstanding, January 28, 2017
Exercisable, January 28, 2017
130,854 $
—
(68,616 )
—
62,238 $
—
(35,542 )
—
26,696 $
—
(26,696 )
—
— $
— $
31.67
—
26.49
—
37.38
—
36.81
—
38.13
—
38.13
—
—
—
— $
— $
—
—
(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 2017, 2016 and 2015 was
$0.7 million, $0.9 million and $3.4 million, respectively.
As of January 28, 2017, the Company does not have any nonvested options under its stock incentive
plans.
As of January 28, 2017, 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 2017, 2016 and 2015 was $1.0 million, $1.3 million and $1.8 million,
respectively.
110
Note 12
Share-Based Compensation Plans, Continued
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 2017, 2016 and 2015. 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 760 additional shares in Fiscal 2017 to
two newly elected directors on the annual meeting date in Fiscal 2017 on the same terms as the
Fiscal 2017 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 2017, 2016 and 2015 grants were valued at $97,500 for each
year, 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
2017, 2016 and 2015, the Company issued 13,734 shares, 12,978 shares and 11,592 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 2017, 2016 and 2015, the Company issued 8,758 shares, 6,791 shares and 4,804 shares,
respectively, of Retainer Stock.
For Fiscal 2017, 2016 and 2015, the Company recognized $1.4 million, $1.4 million and $1.1
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 236,364 shares, 219,404 shares and 185,416 shares of
employee restricted stock in Fiscal 2017, 2016 and 2015, respectively. Shares of employee
restricted stock issued in Fiscal 2017, 2016 and 2015 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. In addition, the Company issued 2,523 restricted stock units to certain employees
at no cost that vest over three years.
111
Note 12
Share-Based Compensation Plans, Continued
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 $12.1 million, $12.4
million and $12.3 million for Fiscal 2017, 2016 and 2015, respectively.
A summary of the status of the Company’s nonvested shares of its employee restricted stock as of
January 28, 2017 is presented below:
Nonvested Restricted Shares
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
Granted
Vested
Withheld for federal taxes
Forfeited
Nonvested at January 28, 2017
Shares
581,274 $
185,416
(177,694 )
(88,003 )
(13,999 )
486,994
219,404
(141,795 )
(65,783 )
(27,221 )
471,599
236,364
(125,347 )
(55,563 )
(43,051 )
484,002 $
Weighted-Average
Grant-Date
Fair Value
52.21
80.85
44.77
45.27
65.71
66.70
66.43
60.08
60.62
69.31
69.26
65.99
67.23
67.52
70.60
68.27
As of January 28, 2017, there was $25.7 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 1.79 years.
Employee Stock Purchase Plan
The Company ended the ESPP in Fiscal 2016. The shares issued under the ESPP for Fiscal 2016
were the last shares issued under the ESPP. 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. Under the ESPP, the Company sold 2,470 shares and 2,688 shares to
employees in Fiscal 2016 and 2015, respectively.
112
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 United States Environmental Protection Agency (“EPA”),
which 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-situ chemical oxidation.
In September 2015, the EPA adopted an amendment to the Record of Decision eliminating the
separate ground-water extraction and treatment systems and the use of in-situ oxidation from the
remedy adopted in the 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"). It also requires the Company to perform certain ongoing
monitoring, operation and maintenance activities and to reimburse EPA's future oversight cost,
involving future costs to the Company estimated at $1.7 million to $2.0 million, and to reimburse
EPA for approximately $1.25 million of interim oversight costs. On August 15, 2016, the Court
entered a Consent Judgment implementing the remedy provided for by the amendment.
The Village 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 estimated 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.
In June 2016 the Company and the Village reached an agreement 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 of $10.0 million by the Company.
113
Note 13
Legal Proceedings, Continued
On August 25, 2016, the Village Lawsuit was dismissed with prejudice. The cost of the settlement
with the Village and the estimated costs associated with the Company's compliance with the Consent
Judgment were covered by the Company's existing provision for the site. The settlement with the
Village did not have, and the Company expects that the Consent Judgment will not 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. In February 2017, the Company and EPA entered into
a settlement agreement resolving EPA's claim for past response costs in exchange for a payment by
the Company of $1.5 million. The Company's environmental insurance carrier has agreed to
reimburse the Company for 75% of the settlement amount, subject to a $500,000 self-insured
retention. The Company does not expect that the matter will have a material effect on its financial
condition or results of operations.
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 $4.4 million as of
January 28, 2017, $14.5 million as of January 30, 2016 and $14.1 million as of January 31, 2015.
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. The Company paid $10.0 million of the accrued total
at January 30, 2016 in August 2016.
114
Note 13
Legal Proceedings, Continued
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 Condensed 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 $0.6 million in Fiscal 2017,
$0.8 million in Fiscal 2016 and $2.8 million in Fiscal 2015. These charges are included in provision
for discontinued operations, net in the Consolidated Statements of Operations and represent changes
in estimates.
Other Matters
On February 22, 2017, a former employee of a subsidiary of the Company filed a putative class and
collective action, Shumate v. Genesco, Inc., et al., in the U.S district Court for the Southern District
of Ohio, alleging violations of the federal Fair Labor Standards Act and Ohio wages and hours leave
including failure to pay minimum wages and overtime to the subsidiary's store managers and
seeking back pay, damages, penalties, and declaratory and injunctive relief. The Company disputes
the material allegations in the complaint and intends to defend the matter.
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 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. 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.
115
Note 13
Legal Proceedings, Continued
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
(collectively, "Visa") seeking to recover $13.3 million in non-compliance fines and issuer
reimbursement assessments collected from the Company in connection with the intrusion. In May
2016, the Company and Visa reached an agreement to settle the litigation. The Company recognized
a pretax gain of $9.0 million in connection with the settlement in the second quarter of Fiscal 2017.
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.
116
Note 14
Business Segment Information
During Fiscal 2017, 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 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, and certain e-commerce operations (an athletic team dealer business
operating as Lids Team Sports 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 H.S. Trask® brands; and
(v) Licensed Brands, comprised of Dockers® Footwear, sourced and marketed under a license from
Levi Strauss & Company; SureGrip® Footwear which was sold in the fourth quarter of Fiscal 2017;
G. H. Bass Footwear operated under a license from G-III Apparel Group, Ltd.; 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.
Corporate assets include cash, domestic prepaid rent expense, prepaid income taxes, deferred
income taxes, deferred note expense on revolver debt 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.
117
Note 14
Business Segment Information, Continued
Fiscal 2017
In thousands
Sales
Intercompany sales
Net sales to external customers
Segment operating income (loss)
Asset Impairments and other*
Earnings (loss) from operations
Gain on sale of SureGrip Footwear
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
Journeys
Group
Schuh
Group
$ 1,251,646 $ 372,872 $ 847,510 $
Lids
Sports
Group
Johnston
& Murphy
Group
289,324 $ 107,210 $
Licensed
Brands
—
—
—
—
(838 )
$ 1,251,646 $ 372,872 $ 847,510 $
41,563 $
—
85,875 $ 20,530 $
—
—
$
289,324 $ 106,372 $
4,566 $
19,682 $
—
—
Corporate
& Other
617 $
—
617 $
(31,058 ) $
802
85,875
—
—
—
—
20,530
—
—
—
—
41,563
—
—
—
—
19,682
—
—
—
—
4,566
—
—
—
—
(30,256 )
12,297
2,404
(5,294 )
47
Consolidated
2,869,179
(838 )
2,868,341
141,158
802
141,960
12,297
2,404
(5,294 )
47
$
85,875
$ 20,530
$
41,563
$
19,682
$
4,566
$
(20,802 ) $
151,414
$ 404,773 $ 214,886 $ 519,912 $
26,533
14,003
21,123
11,236
24,235
50,259
126,559 $
5,987
9,221
40,357 $
995
760
142,419 $
4,015
1,371
1,448,906
75,768
93,970
*Asset Impairments and other includes an $(8.9) million gain for network intrusion expenses as a result of a litigation settlement and a $(0.7) million
gain for other legal matters, partially offset by a $6.4 million charge for asset impairments, of which $5.1 million is in the Lids Sports Group, $0.8
million is in the Schuh Group and $0.5 million is in the Journeys Group and a $2.5 million charge for pension settlement expenses.
**Total assets for the Lids Sports Group, Schuh Group and Journeys Group include $181.6 million, $79.8 million and $9.8 million of goodwill,
respectively. Goodwill for Lids Sports Group and Journeys Group increased $0.7 million and $0.4 million, respectively, due to foreign currency
translation adjustments. Goodwill for Schuh Group decreased by $10.5 million due to foreign currency translation adjustments. Goodwill for Licensed
Brands decreased $0.8 million due to the sale of SureGrip Footwear in the fourth quarter of Fiscal 2017. Of the Company's $330.6 million of long-
lived assets, $54.3 million and $21.0 million relate to long-lived assets in the United Kingdom and Canada, respectively.
118
Note 14
Business Segment Information, Continued
Fiscal 2016
In thousands
Sales
Intercompany sales
Net sales to external customers
Segment operating income (loss)
Asset Impairments and other*
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
Journeys
Group
Schuh
Group
Lids
Sports
Group
Johnston
&
Murphy
Group
Licensed
Brands
Corporate
& Other
$ 1,251,637 $ 405,674 $ 976,372 $ 278,681 $
—
$ 1,251,637 $ 405,674 $ 975,504 $ 278,681 $
(868 )
—
—
$ 126,248
$
—
126,248
—
—
—
19,124
$
—
19,124
—
—
—
17,040
$
—
17,040
—
—
—
17,761
$
—
17,761
—
—
—
110,655 $
(829 )
109,826 $
9,236
$
—
9,236
—
—
—
Consolidated
3,023,931
(1,697 )
3,022,234
912 $
—
912 $
(30,265 ) $
159,144
(7,893 )
(38,158 )
4,685
(4,414 )
11
(7,893 )
151,251
4,685
(4,414 )
11
$
$
19,124
17,040
$
$
$ 126,248
$ 349,021 $ 241,924 $ 517,284 $ 118,913 $
5,677
7,796
30,196
37,396
14,814
19,065
22,504
33,251
17,761
$
9,236
50,718 $
911
774
(37,876 ) $
263,330 $
4,909
2,370
151,533
1,541,190
79,011
100,652
*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 expenses 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 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.
119
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
Journeys
Group
$ 1,179,476
—
$ 1,179,476
114,784
$
—
114,784
—
—
—
$ 114,784
$ 292,536
20,785
26,180
Schuh
Group
Lids
Sports
Group
$ 406,947 $ 903,451
—
(790 )
$
$ 406,947 $ 902,661
48,970
—
48,970
—
—
—
10,110 $
—
10,110
—
—
—
Johnston
&
Murphy
Group
$ 259,675
—
$ 259,675
14,856
—
14,856
—
—
—
$
Licensed
Brands
$ 110,896
(781 )
$
$ 110,115
10,459
—
10,459
—
—
—
Corporate
& Other
970
—
970
$
$
$
$
$
Consolidated
2,861,415
(1,571 )
2,859,844
169,547
(2,281 )
167,266
(7,050 )
(3,337 )
110
(29,632 ) $
(2,281 )
(31,913 )
(7,050 )
(3,337 )
110
10,110
48,970
$
$
$ 246,570 $ 660,833
29,711
43,013
14,114
21,382
$
$
14,856
$
$ 109,791
4,935
8,196
10,459
47,066
725
979
(42,190 ) $
$
$ 226,094
4,056
3,361
$
156,989
1,582,890
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 expenses 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 the 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.
120
Note 15
Quarterly Financial Information (Unaudited)
(In thousands,
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year
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
2017
2016
2017
2016
$ 648,793 $ 660,597
326,333
329,697
$ 625,557 $ 655,525
320,091
314,737
2017
$ 710,822
355,635
2016
$ 773,898
373,886
2017
$ 883,169
417,457
2016
$ 932,214
423,156
2017
2016
$ 2,868,341 $ 3,022,234
1,417,526 1,443,466
16,760
(1)
15,609
(3)
21,199
(5)
11,568
(7)
38,860
(9)
50,720
(11)
74,595
(13)
73,636
(15)
151,414
151,533
10,564
(2)
10,410
9,945
(4)
9,878
14,504
(6)
14,578
7,593
(8)
7,520
25,948
32,855
46,843
44,988
97,859
95,381
(10)
25,895
(12)
32,507
(14)
46,548
(16)
44,664
97,431
94,569
0.50
0.42
0.50
0.42
0.72
0.72
0.32
0.32
1.30
1.30
1.43
1.42
2.40
2.39
2.07
2.06
4.85
4.15
4.83
4.11
(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 $3.5 million (see Note 3).
Includes a loss of $0.2 million, net of tax, from discontinued operations (see Note 3).
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 $(7.9) million (see Note 3) and a gain of $(2.5) million on the
sale of Lids Team Sports (see Note 2).
Includes a gain 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 $0.6 million (see Note 3).
Includes a loss of $0.0 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 $3.0 million (see Note 3) and a loss of $0.1 million on the sale
of Lids Team Sports and a gain of $(12.3) million on the sale of SureGrip Footwear (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 $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).
121
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 28, 2017, 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 28, 2017. 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 28, 2017, 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.
122
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 22, 2017, 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 22, 2017, 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 22, 2017, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of January 28, 2017 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(1)
2,523 $
—
2,523 $
(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)) (2)
—
—
—
2,556,824
—
2,556,824
(1) Restricted stock units issued to certain employees at no cost.
(2) 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.
123
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 22, 2017, 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 22, 2017, to be filed with the
Securities and Exchange Commission.
124
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 28, 2017 and January 30, 2016
Consolidated Statements of Operations, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2017, 2016 and 2015
Consolidated Statements of Equity, each of the three fiscal years ended 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2017, 2016 and 2015
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 131.
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).
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).
125
(10)
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
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. Second Amended and Restated 2009 Equity Incentive Plan. Incorporated by
reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed June 28, 2016
(File No. 1-3083)
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. Incorporated by reference to Exhibit (10)q to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 2016 (File No. 1-3083).
126
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).
Subsidiaries of the Company
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm included on
page 129.
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
101.LAB
101.PRE
XBRL Instance Document
XBRL Schema Document
XBRL Calculation Linkbase Document
XBRL Definition Linkbase Document
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.
127
* 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.
ITEM 16, FORM 10-K SUMMARY
None.
128
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 29, 2017, 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 28, 2017.
Nashville, Tennessee
March 29, 2017
/s/ Ernst & Young LLP
129
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 29, 2017
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 29th day of March, 2017.
/s/Robert J. Dennis
Robert J. Dennis
/s/Mimi Eckel Vaughn
Mimi Eckel Vaughn
/s/Paul D. Williams
Paul D. Williams
Directors:
Joanna Barsh*
Leonard L. Berry *
James W. Bradford*
Matthew C. Diamond *
Marty G. Dickens *
*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)
Thurgood Marshall, Jr. *
Kathleen Mason *
Kevin P. McDermott*
David M. Tehle*
130
Genesco Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Schedule 2
Year Ended January 28, 2017
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Reserves (1)
Year Ended January 30, 2016
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Reserves (1)
Year Ended January 31, 2015
Beginning
Balance
Charged
to Profit
and Loss
Reductions
Ending
Balance
$
$
2,960 $
11,632 $
442 $
3,322 $
(329 ) $
(2,088 ) $
3,073
12,866
Beginning
Balance
Charged
to Profit
and Loss
Reductions
Ending
Balance
$
$
4,191 $
10,246 $
637 $
6,560 $
(1,868 ) $
(5,174 ) $
2,960
11,632
In Thousands
Reserves deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Reserves (1)
Beginning
Balance
Charged
to Profit
and Loss
Reductions
Ending
Balance
$
$
4,420 $
5,369 $
390 $
6,000 $
(619 ) $
(1,123 ) $
4,191
10,246
(1) Reflects adjustment of merchandise inventories to realizable value. Charged to Profit and Loss column represents increases
to the reserve and the Reductions column represents decreases to the reserve based on quarterly assessments of the reserve,
except for Fiscal 2016, which also reflects $4.7 million write-off of Lids Team Sports markdown reserve due to its sale in
January 2016.
131
BOARD OF DIRECTORS
Joanna Barsh
Director Emeritus; Independent Consultant
McKinsey & Company
New York, New York
Member of the compensation and nominating and governance committees
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
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
Kevin P. McDermott
Former Partner, KPMG LLP
Nashville, Tennessee
Chairman of the audit committee
David M. Tehle
Retired Executive Vice President and Chief Financial Officer
Dollar General Corporation
Nashville, Tennessee
Member of the audit committee
132
CORPORATE OFFICERS
Robert J. Dennis
Chairman, President and Chief Executive Officer
13 years with Genesco
Mimi E. Vaughn
Senior Vice President – Chief Financial Officer
13 years with Genesco
James C. Estepa
Senior Vice President - The Journeys Group
32 years with Genesco
Jonathan D. Caplan
Senior Vice President - Genesco Branded Group
24 years with Genesco
David E. Baxter
Senior Vice President – The Lids Sports Group
1 year with Genesco
Parag Desai
Senior Vice President – Strategy and Shared Services
3 years with Genesco
Roger G. Sisson
Senior Vice President - Corporate Secretary and General Counsel
23 years with Genesco
Matthew N. Johnson
Vice President and Treasurer
24 years with Genesco
Paul D. Williams
Vice President and Chief Accounting Officer
40 years with Genesco
Photo credits: All rights reserved. Permission is required for any other reproduction or distribution. Schuh storefront, lifestyle
and product shots provided by Genesco operating divisions.
133
GE NE SCO I NC. | G ENE S CO PA R K | P.O. B OX 731 | N AS HV ILLE, T N 37202 -073 1