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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® 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 1,200 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 February 3, 2018, the Company operated 2,694 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, 2013 and the reinvestment monthly of all dividends.
COMPARISON OF CUMULATIVE 5 YEAR TOTAL RETURN
300
250
200
150
100
50
0
FYE 13
Comparison of Cumulative Five Year Total Return
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
FYE 14
FYE 15
FYE 16
FYE 17
FYE 18
ANNUAL RETURN PERCENTAGE
Years Ending
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
Jan 14
11.76
20.31
36.80
Jan 15
1.75
14.22
24.49
Jan 16
-7.43
-0.67
29.33
Jan 17
-10.34
20.87
-11.31
Jan 18
-44.10
22.83
31.04
Company / Index
Genesco Inc.
S&P 500 Index
S&P 1500 Footwear Index
Base
Period
Jan 13
100
100
100
INDEXED RETURNS
Years Ending
Jan 14
111.76
120.31
136.80
Jan 15
113.72
137.42
170.30
Jan 16
105.27
136.51
220.26
Jan 17
94.38
164.99
195.35
Jan 18
52.76
202.67
256.00
*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.
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CORPORATE INFORMATION
Annual Meeting of Shareholders
The annual meeting of shareholders will be held Thursday, June 28, 2018, 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.
Regular Mail
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
UNITED STATES
Overnight Delivery
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40233-5000
UNITED STATES
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 2018 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
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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 February 3, 2018
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 Stock Exchange
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
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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; a smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer (Do not check if smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging Growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
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 29, 2017, the last business day of
the registrant’s most recently completed second fiscal quarter, was approximately $640,000,000. The market value calculation
was determined using a per share price of $32.15, 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 16, 2018, 19,918,468 shares of the registrant’s common stock were outstanding.
Portions of the proxy statement for the June 28, 2018 annual meeting of shareholders are incorporated into Part III by
reference.
Documents Incorporated by Reference
Page
3
8
20
20
21
22
22
24
25
27
48
48
113
113
113
114
114
114
114
114
115
117
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Item 4A. Executive Officers
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
PART IV
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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 2018 of $2.91 billion. During Fiscal 2018,
the Company operated five reportable business segments (not including corporate): (i) Journeys Group, comprised of the
Journeys, Journeys Kidz, Shi by Journeys and Little Burgundy 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; (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, G.H. Bass Footwear operated under a license from G-
III Apparel Group, Ltd., which was terminated in January 2018, and other brands.
At February 3, 2018, the Company operated 2,694 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 143 headwear and
sports apparel and accessory stores and 93 footwear stores in Canada and 134 footwear stores in the United Kingdom, the
Republic of Ireland and Germany. At February 3, 2018, Journeys Group operated 1,220 stores, Schuh Group operated 134
stores, Lids Sports Group operated 1,159 stores and leased departments and Johnston & Murphy Group operated 181 retail
shops and factory stores. The Company currently plans to open a total of approximately 55 new retail stores and to close
approximately 92 retail stores in Fiscal 2019.
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
2014
Fiscal
2015
Fiscal
2016
Fiscal
2017
Fiscal
2018
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
2,794
77
—
(177 )
2,694
The Company also sources, designs, markets and distributes footwear under its own Johnston & Murphy® brand, the H.S.
Trask® brand, the licensed Dockers® brand and other brands that the Company licenses for footwear to over 1,200 retail
accounts in the United States, including a number of leading department, discount, and specialty stores.
Shorthand references to fiscal years (e.g., “Fiscal 2018”) refer to the fiscal year ended on the Saturday nearest January 31st in
the named year (e.g., February 3, 2018). 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-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.”
3
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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, Nominating and
Governance Committee and Strategic Alternatives 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 and Little Burgundy retail stores, e-
commerce and catalog operations, accounted for approximately 46% of the Company’s net sales in Fiscal 2018. 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.
Fiscal 2018 comparable sales, including both store and direct sales, increased 4% from Fiscal 2017. Earnings from
operations attributable to Journeys Group were $76.1 million in Fiscal 2018, with an operating margin of 5.7%.
At February 3, 2018, Journeys Group operated 1,220 stores, including 918 Journeys stores, 242 Journeys Kidz stores, 21 Shi
by Journeys stores and 39 Little Burgundy stores averaging approximately 1,950 square feet, located primarily in malls and
factory outlet centers throughout the United States, Puerto Rico and Canada, selling footwear and accessories for young men,
women and children.
Journeys retail footwear stores target customers in the 13 to 22 year age group through the use of youth-oriented decor and
multi-channel media. Journeys stores carry predominately branded merchandise across a wide range of prices. The Journeys
Kidz retail footwear stores sell footwear and accessories primarily for younger children ages five to 12. Shi by Journeys retail
footwear stores sell footwear and accessories to a target customer group consisting of fashion-conscious women in their early
20’s to mid 30’s. Little Burgundy retail footwear stores sell footwear and accessories to fashion-oriented men and women in
the 18 to 34 age group ranging from students to young professionals. In Fiscal 2018, the Journeys Group closed a net of 29
stores, and currently has plans to close a net of approximately two stores in Fiscal 2019.
Lids Sports Group
The Lids Sports Group segment, as described above, accounted for approximately 27% of the Company’s net sales in Fiscal
2018. Fiscal 2018 comparable sales, including both store and direct sales, decreased 7% from Fiscal 2017. Earnings from
operations attributable to Lids Sports Group was $11.7 million in Fiscal 2018, with an operating margin of 1.5%.
At February 3, 2018, Lids Sports Group operated 1,159 stores and leased departments, including 853 Lids stores, 184 Lids
Locker Room and Clubhouse stores and 122 Locker Room by Lids leased departments, averaging approximately 1,175
square feet, throughout the United States, Puerto Rico and Canada. Lids Sports Group closed a net of 81 stores and leased
departments in Fiscal 2018, and currently has plans to close a net of approximately 44 stores and leased departments in Fiscal
2019.
The core headwear stores and kiosks, located in malls, airports, street and factory outlet centers throughout the United States,
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
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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 14% of the Company’s net sales
in Fiscal 2018. For Fiscal 2018 comparable sales, including both store and direct sales, increased 4%. Earnings from
operations attributable to Schuh Group was $20.1 million in Fiscal 2018, with an operating margin of 5.0%.
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. At February 3, 2018, Schuh Group operated 134 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 six net new stores in Fiscal 2018 and currently plans to open
approximately five net new Schuh stores in Fiscal 2019.
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 2018. Comparable sales for Johnston &
Murphy retail operations, including both store and direct sales, were flat for Fiscal 2018. Earnings from operations
attributable to Johnston & Murphy Group was $20.0 million in Fiscal 2018, with an operating margin of 6.6%. 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 February 3, 2018, Johnston & Murphy operated 181 retail shops and factory stores
throughout the United States and 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
higher-end 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. Footwear accounted for 64% of Johnston & Murphy retail sales in Fiscal 2018, with the balance consisting
primarily of apparel and accessories. Johnston & Murphy Group added four net new shops and factory stores in Fiscal 2018
and currently plans to open approximately four net new shops and factory stores in Fiscal 2019.
Johnston & Murphy Wholesale Operations. Johnston & Murphy men’s and women's footwear and accessories are sold at
wholesale, primarily to better department stores, independent specialty stores and e-commerce. Johnston & Murphy’s
wholesale customers offer the brand’s footwear for dress, dress casual, and casual occasions, with the majority of styles
offered in these channels selling from $100 to $195. Additionally, the Company offers the H.S. 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 typically range from $195 to $495.
Licensed Brands
The Licensed Brands segment accounted for approximately 3% of the Company’s net sales in Fiscal 2018. The loss from
operations attributable to Licensed Brands was $(0.2) million in Fiscal 2018, with an operating margin of (0.2%). 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 also sells
footwear under other licenses.
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, Nicaragua,
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Pakistan, Portugal, Peru, Romania, Taiwan, 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 $70 million in Fiscal 2018 and
approximately $67 million in Fiscal 2017. The Company licenses certain of its footwear brands, mostly in foreign markets.
License royalty income was not material in Fiscal 2018.
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 March 3, 2018, the
Company’s wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to
approximately $34.3 million, compared to approximately $34.9 million on February 25, 2017. 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 30,500 employees at February 3, 2018, 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 22,300 of the Company’s employees were part-time at February 3, 2018.
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 February 3, 2018, the Company operated 2,694 retail footwear, headwear and sports apparel and accessory stores and
leased departments throughout the United States, Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and
Germany. New shopping center store leases in the United States, Puerto Rico and Canada typically are for a term of
approximately 10 years. New store leases in the United Kingdom, the Republic of Ireland and Germany typically have terms
of between 10 and 15 years. All typically provide for rent based on a percentage of sales against a fixed minimum rent based
on the square footage leased.
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The general location, use and approximate size of the Company’s principal properties are set forth below:
Location
Lebanon, TN
Indianapolis, IN
Nashville, TN
Indianapolis, IN
Bathgate, Scotland
Chapel Hill, TN
Fayetteville, TN
Zionsville, IN
Deans Industrial Estate,
Livingston, Scotland
Nashville, TN
Mississauga, Ontario,
Canada
Owned/Leased
Owned
Leased
Segment
Journeys
Group
Lids Sports
Group
Leased
Leased/
Subleased
Various
Lids Sports
Group
Use
Distribution warehouse and
administrative offices
Distribution warehouse
Executive & footwear
operations offices
Approximate
Area
Square Feet
563,000
311,600
306,455
*
Distribution warehouse
271,825
**
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Schuh
Group
Licensed
Brands
Johnston &
Murphy
Group
Lids Sports
Group
Distribution warehouse
244,644
Distribution warehouse
182,000
Distribution warehouse
178,500
Administrative offices
150,000
Schuh
Group
Distribution warehouse and
administrative offices
106,813
Journeys
Group
Lids Sports
Group
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".
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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.
Competitive, Demand-Related and Reputational Risks
Failure to protect our reputation could have a material adverse effect on our brand names.
Our success depends in part on the value and strength of the names of our business units. These names are integral to our
businesses as well as to the implementation of our strategies for expanding our businesses. Maintaining, promoting, and
positioning our brands will depend largely on the success of our marketing and merchandising efforts and our ability to
provide high quality merchandise and a consistent, high quality customer experience. Our brands could be adversely affected
if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. Failure to
comply or accusation of failure to comply with ethical, social, product, labor, data privacy, and environmental standards
could also jeopardize our reputation and potentially lead to various adverse consumer actions. Any of these events could
result in decreased revenue or otherwise adversely affect our business.
Consumer spending is affected by poor economic conditions and other factors 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 categories. 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.
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Sales in the Lids Sports Group businesses may be affected by developments in team sports.
Sales in the Lids Sports Group segment may be affected by developments in team sports, including but not limited to the
win/loss records of certain teams, the identity of teams in league playoffs and championships, player strikes or other
disruptions to seasons, and the performance and reputations of and injuries to certain players. All of these factors are beyond
the Company's control.
The Company has initiated a formal process to explore the sale of its Lids Sports Group business, and there can be no
assurance that the Company will be successful in consummating a sale of the Lids Sports Group business or that the
process will not have an adverse impact on the Company’s business.
In February 2018, the Company announced that, as a result of the Board of Directors’ strategic review process, the Company
had initiated a formal process to explore the sale of its Lids Sports Group business and that it had retained PJ Solomon as a
financial advisor to the Board of Directors and its special committee of four independent directors. No decision has been
made to enter into any transaction at this time, and there can be no assurance that this process will result in the sale of the
Company’s Lids Sports Group business or the adoption of any other strategic alternative. The sale process may be time-
consuming and disruptive to the Company’s business operations, and if the Company is unable to effectively manage the
process, the Company’s business, financial condition and results of operations could be adversely affected. Additionally, the
sale process may result in the incurrence of expenses and could expose the Company to increased risk of claims or other
litigation arising in connection with the pursuit of a sale of the Lids Sports Group business.
Any strategic decision will involve risks and uncertainties, and the Company cannot assure its shareholders that the sale of
the Lids Sports Group business or any other strategic alternative, if identified, evaluated and consummated, will provide
greater value to the Company’s shareholders than that reflected in the Company’s current stock price. Any potential
transaction would be dependent upon a number of factors that may be beyond the Company’s control, including, among other
factors, market conditions, industry trends and the interest of third parties in the Company’s business.
The Company does not intend to comment regarding the evaluation of the potential sale of the Lids Sports Group business or
any other strategic alternatives until such time as the Company’s board of directors has determined the outcome of the
process or has deemed disclosure is appropriate. As a consequence, perceived uncertainties related to the future of the
Company may result in the loss of potential business opportunities and may make it more difficult for the Company to attract
and retain qualified personnel and business partners.
Our business involves a degree of risk related to fashion and other extrinsic demand drivers that are beyond our
control.
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 activities successfully
could result in adverse consequences, including lower sales, product margins, operating income and cash flows.
Our future success also depends on our ability to respond to changing consumer preferences, identify and interpret
consumer trends, and successfully market new products.
The industry in which we operate is subject to rapidly changing consumer preferences. The continued popularity of our
footwear and the development of new lines and styles of footwear with widespread consumer appeal, including consumer
acceptance of our footwear, requires us to accurately identify and interpret changing consumer trends and preferences, and to
effectively respond in a timely manner. Continuing demand and market acceptance for both existing and new products are
uncertain and depend on the following factors:
• substantial investment in product innovation, design and development;
• commitment to product quality; and
• significant and sustained marketing efforts and expenditures, including with respect to the monitoring of consumer
trends in footwear specifically and in fashion and lifestyle categories generally.
In assessing our response to anticipated changing consumer preferences and trends, we frequently must make decisions about
product designs and marketing expenditures several months in advance of the time when actual consumer acceptance can be
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determined. As a result, we may not be successful in responding to shifting consumer preferences and trends with new
products that achieve market acceptance. Because of the ever-changing nature of consumer preferences and market trends, a
number of companies in our industry, experience periods of both rapid growth, followed by declines, in revenue and earnings.
If we fail to identify and interpret changing consumer preferences and trends, or are not successful in responding to these
changes with the timely development or sourcing of products that achieve market acceptance, we could experience excess
inventories and higher than normal markdowns, returns, order cancellations or an inability to profitably sell our products, and
our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Our results may be adversely affected by declines in consumer traffic in malls.
The majority of our stores are located within shopping malls and depend to varying degrees on consumer traffic in the malls
to generate sales. Declines in mall traffic, whether caused by a shift in consumer shopping preferences or by other factors,
may negatively impact our ability to maintain or grow our sales in existing stores, which could have an adverse effect on our
financial condition or results of operations.
Our results of operations are subject to seasonal and quarterly fluctuations, which could have a material adverse
effect on the market price of our stock.
Our business is seasonal, with a significant portion of our net sales and operating income generated during the fourth quarter,
which includes the holiday shopping season. Because of this seasonality, we have limited ability to compensate for shortfalls
in fourth quarter sales or earnings by changes in our operations or strategies in other quarters. A significant shortfall in results
for the fourth quarter of any year could have a material adverse effect on our annual results of operations and on the market
price of our stock. Our quarterly results of operations also may fluctuate significantly based on such factors as:
• the timing of new store openings and renewals;
• the amount of net sales contributed by new and existing stores;
• the timing of certain holidays and sales events;
• changes in quarter end dates due to the 53 week year;
• changes in our merchandise mix;
• general economic, industry and weather conditions that affect consumer spending; and
• actions of competitors, including promotional activity.
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 and gross margin,
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;
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• timing and type of sales events, promotional activities or other advertising;
• our ability to adapt to changing customer preferences in the ways they digitally shop;
• new merchandise introductions;
• our ability to execute our business strategy effectively; and
• other external events beyond our control.
Our comparable sales have fluctuated in the past, including the composition of our comparable sales between store and
digital, 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.
Changes in the retail industry could have a material adverse effect on our business or financial condition.
In recent years, the retail industry has experienced consolidation, store closures, bankruptcies and other ownership changes.
In the future, retailers in the United States and in foreign markets may further consolidate, undergo restructurings or
reorganizations, or realign their affiliations, any of which could decrease the number of stores that carry our products or our
licensees’ products or increase the ownership concentration within the retail industry. Changing shopping patterns, including
the rapid expansion of online retail shopping, have adversely affected customer traffic in mall and outlet centers, particularly
in North America. We expect competition in the e-commerce market will intensify. As a greater portion of consumer
expenditures with retailers occurs online and through mobile commerce applications, our brick-and-mortar wholesale
customers who fail to successfully integrate their physical retail stores and digital retail may experience financial difficulties,
including store closures, bankruptcies or liquidations. We cannot control the success of individual malls, and an increase in
store closures by other retailers may lead to mall vacancies and reduced foot traffic. A continuation or worsening of these
trends could cause financial difficulties for one or more of our segments, which, in turn, could substantially increase our
credit risk and have a material adverse effect on our results of operations, financial condition and cash flows.
Our future success will be determined, in part, on our ability to manage the impact of the rapidly changing retail environment
and identify and capitalize on retail trends, including technology, e-commerce and other process efficiencies that will better
service our customers. If we fail to compete successfully, our businesses, market share, results of operations and financial
condition will be materially and adversely affected.
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.
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.
Investments and Infrastructure Risks
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.
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,
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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. 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.
Goodwill recorded with acquisitions is subject to impairment which could reduce the Company's profitability.
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, where the Company has the option first to assess qualitative
factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If
after such assessment the Company concludes that the asset is not impaired, no further action is required. However, if the
Company concludes otherwise, it is required to determine the fair value of the asset using a quantitative impairment test 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.
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 $100.3 million of goodwill on its Consolidated
Balance Sheets at February 3, 2018, resulting in the reduction of net assets and a corresponding non-cash charge to earnings
in the amount of the impairment. During Fiscal 2018, the Company fully impaired goodwill attributed to Lids Sports Group
and recorded a non-cash impairment charge $182.2 million.
Technology, Data Security and Privacy Risks
The operation of the Company’s business is heavily dependent on its information systems.
We depend on a variety of information technology systems for the efficient functioning of our business and security of
information. Much information essential to our business is maintained electronically, including competitively sensitive
information and potentially sensitive personal information about customers and employees. Our insurance policies may not
provide coverage for security breaches and similar incidents or may have coverage limits which may not be adequate to
reimburse us for losses caused by security breaches. We also rely on certain hardware and software vendors to maintain and
periodically upgrade many of these systems so that they can continue to support our business. The software programs
supporting many of our systems were licensed to the Company by independent software developers. The inability of these
developers or the Company to continue to maintain and upgrade these information systems and software programs could
disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with
the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems
could also disrupt or reduce the efficiency of our operations or leave the Company vulnerable to security breaches.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area, we may not be
able to fulfill our technology initiatives or to provide maintenance on existing systems.
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
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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, such as the European Union's General Protection Regulation
and compliance with those requirements could result in additional costs or accelerate these costs with additional legal and
financial exposure for noncompliance. 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 completed the implementation of EMV technology and received certification in Fiscal 2018,
however future upgrades to the Company's systems could expose the Company to the fraudulent use of credit cards and
increased costs, including possible fines and restrictions on the Company's ability to accept payments by credit or debit cards,
if the Company were not to receive recertification. Because we accept debit and credit cards for payment, we are also subject
to industry data protection standards and protocols, such as the Payment Card Industry Data Security Standards (“PCI DSS”),
issued by the Payment Card Industry Security Standards Council. Additionally, we have implemented technology in our
stores to allow for the acceptance of Europay, Mastercard and Visa (EMV) credit transactions and point-to-point encryption.
Complying with PCI DSS standards and implementing related procedures, technology and information security measures
require significant resources and ongoing attention. However, even as we comply with PCI DSS standards and offer
EMV and point-to-point encryption technology in our stores, we may be vulnerable to, and unable to detect and appropriately
respond to, data security breaches and data loss, including cybersecurity attacks or other breach of cardholder data.
In addition, the Payment Card Industry is controlled by a limited number of vendors who have the ability to impose changes
in the Payment Card Industry’s fee structure and operational requirements on us without negotiation. Such changes in fees
and operational requirements may result in our failure to comply with PCI DSS, as well as significant unanticipated expenses.
A privacy breach, through a cybersecurity incident or otherwise, or failure to comply with privacy laws could
materially adversely affect our business.
As part of normal operations, we and our third-party vendors and partners, receive and maintain confidential and personally
identifiable information about our customers and employees, and confidential financial, intellectual property, and other
information. We regard the protection of our customer, employee, and company information as critical. The regulatory
environment surrounding information security and privacy is very demanding, with the frequent imposition of new and
changing requirements some of which involve significant costs to implement and significant penalties if not followed
properly. Despite our efforts and technology to secure our computer network and systems, a cybersecurity breach, whether
targeted, random, or inadvertent, and whether at the hands of cyber criminals, hackers, rogue employees or other persons,
may occur and could go undetected for a period of time, resulting in a material disruption of our computer network, a loss of
information valuable to our business, including without limitation customer or employee personally identifiable information,
and/or theft. A similar breach to the computer networks and systems of our third-party vendors and partners, including those
that are cloud-based, over which we have no control may occur, leading to a material disruption of our computer network
and/or the areas of our business dependent on the support, services and other products provided by our third-party vendors
and partners which may be adversely affected by such breach, a decrease in e-commerce sales and/or a loss of information
valuable to our business, including without limitation customer or employee personally identifiable information. Such a
cyber-incident could result in any of the following:
• theft, destruction, loss, misappropriation, or release of confidential financial and other data, intellectual property,
customer awards or loyalty points, or customer or employee information, including personally identifiable information
such as payment card information, email addresses, passwords, social security numbers, home addresses, or health
information;
• operational or business delays resulting from the disruption of our e-commerce sites, computer networks or the
computer networks of our third-party vendors and partners and subsequent material clean-up and mitigation costs and
activities;
• negative publicity resulting in material reputation or brand damage with our customers, vendors, third-party partners
or industry peers;
• loss of sales, including those generated through our e-commerce websites; and
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• governmental penalties, fines and/or enforcement actions, payment and industry penalties and fines and/or class
action and other lawsuits.
Any of the above risks, individually or in aggregation, could materially damage our reputation and result in lost sales,
governmental and payment card industry fines, and/or class action and other lawsuits, which in turn could have a material
adverse effect on our financial position, results of operations, and cash flows. Although we carry cybersecurity insurance, in
the event of a cyber-incident, that insurance may not be extensive enough or adequate in scope of coverage or amount to
reimburse us for damages we may incur. Further, a significant breach of federal, state, provincial, local or international
privacy laws could have a material adverse effect on our reputation, financial position, results of operations, and cash flows.
A disruption of information technology systems and websites could materially adversely affect other business.
We are heavily dependent upon our information technology systems to record and process transactions and manage and operate
all aspects of our business ranging from product design and testing, production, forecasting, ordering, transportation, sales and
distribution, invoicing and accounts receivable management, quick response replenishment, point of sale support and financial
management reporting functions. In addition, we have e-commerce websites. Given the nature of our business and the
significant number of transactions in which we engage on an annual basis, it is essential that we maintain constant operation of
our information technology systems and websites and that these systems and our websites operate effectively. We depend on
our in-house information technology employees and third-parties including “cloud” service providers to maintain and
periodically update and/or upgrade these systems and our websites to support the growth of our business. Despite our
preventative efforts, our information technology systems and websites may, from time to time, be vulnerable to damage or
interruption from events such as difficulties in replacing or integrating the systems of acquired businesses, computer viruses,
security breaches and power outages. Cybersecurity attacks are becoming increasingly sophisticated and run the gamut from
malicious software and ransomware to electronic security breaches to corruption of data and beyond. We are continually
evaluating, improving and upgrading our information technology systems and websites in an effort to address these concerns.
Any such problems or interruptions could result in loss of valuable business data, our customers' or employees' personal
information, disruption of our operations and other adverse impacts to our business and require significant expenditures by us
to remediate any such failure, problem or breach.
Operational, Supply Chain and Third Party Risks
Increased operating costs, including those resulting from potential increases in the minimum wage, 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 and slow our ability to open stores. 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.
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.
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The loss of, or disruption in, one of our distribution centers and other factors affecting the distribution of
merchandise, including freight cost, 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 e-commerce/retail customers. 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 Federal Express for shipment of a significant amount of
merchandise. Interruptions in the services provided by Federal Express may occasionally result from damage or destruction
to our distribution centers; weather-related events; natural disasters; trade policy changes or restrictions; tariffs or import-
related taxes; third-party strikes, lock-outs, work stoppages or slowdowns; shipping capacity constraints; third-party contract
disputes; military conflicts; acts of terrorism; or other factors beyond our control. An interruption in service by Federal
Express 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 and selling and administrative expenses.
An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and
profits.
Merchandise originally manufactured and imported from overseas makes up a large proportion of our total inventory. A
disruption in the shipping of our imported merchandise or an increase in the cost of those products may significantly decrease
our sales and profits. We may be unable to meet our customers’ demands or pass on price increases to our customers. In
addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur
in time to meet demand. Products from alternative sources may also be of lesser quality or more expensive than those we
currently import. Risks associated with our reliance on imported products include:
disruptions in the shipping and importation of imported products because of factors such as:
▪ raw material shortages, work stoppages, strikes and political unrest;
▪ problems with oceanic shipping, including shipping container shortages and delays in ports;
▪ 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;
• changes in 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.
If we or our suppliers or licensees are unable to source raw materials or finished goods from the countries where we or they
wish to purchase them, either because of a regulatory change or for any other reason, or if the cost of doing so should
increase, it could have a material adverse effect on our sales and profits.
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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 any hedging
activities.
Our manufacturing and distributing operations are subject to the risks of doing business abroad, particularly in
China, which could affect our ability to obtain products from foreign suppliers or control the costs of our products.
Because most of our products are manufactured in China, the possibility of adverse changes in trade or political relations with
China, political instability in China, increases in labor costs, the occurrence of prolonged adverse weather conditions or a
natural disaster such as an earthquake or typhoon, or the outbreak of a pandemic disease in China could severely interfere
with the manufacturing and/or shipment of our products and would have a material adverse effect on our operations. Our
business operations may be adversely affected by the current and future political environment in the Communist Party of
China. China’s government has exercised and continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Our ability to source products from China may be adversely
affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw
materials, environmental regulations, land use rights, property and other matters. Under its current leadership, China’s
government has been pursuing economic reform policies that encourage private economic activity and greater economic
decentralization. There is no assurance, however, that China’s government will continue to pursue these policies, or that it
will not significantly alter these policies from time to time without notice. A change in policies by the Chinese government
could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof,
confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or
nationalization of private enterprises. In addition, electrical shortages, labor shortages or work stoppages may extend the
production time necessary to produce our orders, and there may be circumstances in the future where we may have to incur
premium freight charges to expedite the delivery of product to our customers. If we incur a significant amount of premium
freight charges, our gross profit will be negatively affected if we are unable to pass on those charges to our customers.
We are dependent on third-party vendors and licensors 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 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.
Our Licensed Brands business is dependent on third-party licenses. The Dockers license agreement expires November 30,
2018. If the Company is unable to renew the license under satisfactory terms and conditions, the Company could lose
approximately $70 million in sales from the loss of the footwear license.
Legal, Regulatory, Global and Other External Risks
Use of social media may 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.
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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.
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, prices 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.
As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits are reduced when converted
into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. Although the
Company typically has sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price
increases and further actions to reduce costs, the Company may not be able to fully offset the impact, if at all. The Company’s
success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S.
dollar relative to other currencies could have a material adverse effect on the Company’s business and results of operations.
Our ability to source our merchandise profitably or at all could be hurt if new trade restrictions are imposed, existing
trade restrictions become more burdensome or disruptions occur at our suppliers or at the ports.
Trade restrictions, including increased tariffs, safeguards or quotas, on apparel and accessories could increase the cost or
reduce the supply of merchandise available to us. We source our 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, and our retail operations sell
primarily branded products from third parties who source primarily overseas. The investments we are making to develop our
sourcing capabilities may not be successful and may, in turn, have an adverse impact on our financial position and results of
operations.
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There are quotas and trade restrictions on certain categories of goods and apparel from China and countries that are not
subject to the World Trade Organization Agreement, which could have a significant impact on our sourcing patterns in the
future. In addition, political uncertainty in the United States may result in significant changes to United States trade policies,
treaties and tariffs, including trade policies and tariffs regarding China, including the potential disallowance of tax deductions
for imported merchandise or the imposition of unilateral tariffs on imported products. These developments, or the perception
that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global
financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United
States. Any of these factors could depress economic activity, restrict our sourcing from suppliers and have a material adverse
effect on our business, financial condition and results of operations and affect our strategy in Asia and elsewhere around the
world. We cannot predict whether any of the countries in which our merchandise is currently manufactured or may be
manufactured in the future will be subject to additional trade restrictions imposed by the U.S. and foreign governments, nor
can we predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas,
embargoes, safeguards and customs restrictions against items we source from foreign manufacturers could increase the cost,
delay shipping or reduce the supply of products available to us or may require us to modify our current business practices,
any of which could hurt our profitability.
We rely on our suppliers to manufacture and ship the products they produce for us in a timely manner. We also rely on the
free flow of goods through open and operational ports worldwide. Labor disputes at various ports or at our suppliers could
increase costs for us and delay our receipt of merchandise, particularly if these disputes result in work slowdowns, lockouts,
strikes or other disruptions.
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 the United 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.
New accounting guidance or changes in the interpretation or application of existing accounting guidance could
adversely affect our financial performance.
The implementation of new accounting standards could require certain systems, internal process and other changes that could
increase our operating costs, and also could result in changes to our financial statements. In particular, the implementation of
accounting standards related to leases, as issued by the Financial Accounting Standards Board (“FASB”) are requiring us to
make significant changes to our lease management and other accounting systems, and will result in a material impact to our
consolidated financial statements.
U.S. generally accepted accounting principles and related accounting pronouncements, implementation guidelines and
interpretations with regard to a wide range of matters that are relevant to our business involve many subjective assumptions,
estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying
assumptions, estimates or judgments by our management could significantly change our reported or expected financial
performance.
Financial Risks
Pension funding and costs are dependent upon several economic assumptions which if changed may cause our future
earnings and cash flow to fluctuate significantly.
The impact of our pension plan on our U.S. generally accepted accounting principles earnings may be volatile in that the
amount of expense we record for our pension plan may materially change from year to year because those calculations are
sensitive to funding levels as well as changes in several key economic assumptions, including interest rates, rates of return on
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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.
Changes in our effective income tax rate could adversely affect our net earnings.
A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of
existing laws, including the newly enacted Tax Cuts and Jobs Act of 2017 (the "Act"), 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.
The Act significantly revised U.S. federal corporate income tax law, including the creation of a one-time "transition tax" on
untaxed accumulated earnings and profits of certain non-U.S. corporations. While our analysis of the Act’s impact on
our cash tax liability and financial condition has not identified any overall material adverse effect, we are still evaluating the
effects of the Act on us and there are a number of uncertainties and ambiguities as to the interpretation and application of
many of the provisions in the Act. In the absence of guidance on these issues, we will use what we believe are reasonable
interpretations and assumptions in interpreting and applying the Act for purposes of determining our cash and book tax
liabilities and results of operations, which may change as we receive additional clarification and implementation guidance
and as the interpretation of the Act evolves over time. It is possible that the Internal Revenue Service could issue subsequent
guidance or take positions on audit that differ from the interpretations and assumptions that we previously made, which could
have a material adverse effect on our cash tax liabilities, results of operations and financial condition.
Actions of activist shareholders could cause us to incur substantial costs, divert management’s attention and
resources, and have an adverse effect on our business.
Our shareholders may from time to time engage in proxy solicitations, advance shareholders proposals or otherwise attempt
to affect changes or acquire control over the Company. If activist shareholder activities ensue, our business could be
adversely affected because responding to proxy contests and reacting to other actions by activist shareholders can be costly
and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we may
be required to retain the services of various professionals to advise us on activist shareholder matters, including legal,
financial and communications advisors, the costs of which may negatively impact our future financial results. In addition,
perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholders
initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and
employees, and cause our stock price to experience periods of volatility or stagnation.
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 April 2015, the Company received from The United States Environmental Protection Agency (“EPA”), a Notice of
Potential Liability and Demand for Costs pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”) (the "Notice") 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 which was paid in May 2017. The Company's environmental insurance carrier has
reimbursed 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 $3.0 million as of February 3, 2018, $4.4
million as of January 28, 2017 and $14.5 million as of January 30, 2016. 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 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 2018, $0.6 million in Fiscal 2017 and $0.8 million in Fiscal 2016. 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 ("FLSA") and Ohio wages and hours law 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. On April 21,
2017, a former employee of the same subsidiary filed a putative class and collective action, Ward v. Hat World, Inc., in the
Superior Court for the State of Washington, alleging violations of the FLSA and certain Washington wages and hours laws,
including, among others, failure to pay overtime to certain loss prevention investigators, and seeking back pay, damages,
attorneys' fees and other relief. A total of seven loss prevention investigators elected to join the suit at the expiration of the
opt-in period. The Company has removed the case to federal court and the court has approved its transfer to the U.S. District
Court for the Southern District of Indiana. On May 19, 2017, two former employees of the same subsidiary filed a putative
class and collective action, Chen and Salas v. Genesco Inc., et al., in the U.S. District Court for the Northern District of
Illinois alleging violations of the FLSA and certain Illinois and New York wages and hours laws, including, among others,
failure to pay overtime to store managers, and also seeking back pay, damages, statutory penalties, and declaratory and
injunctive relief. On March 8, 2018, the court granted the Company's motion to transfer venue to the U.S. District Court for
the Southern District of Indiana. On March 9, 2018, a former employee of the same subsidiary filed a putative class action in
the Superior Court of the Commonwealth of Massachusetts claiming violations of the Massachusetts Overtime Law,
M.G.L.C. 151§1A, by failing to pay overtime to employees classified as store managers, and seeking restitution, an incentive
award, treble damages, interest, attorneys fees and costs. The Company disputes the material allegations in each of these
complaints and intends to defend the matters.
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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. On March 5, 2018, the court issued a proposed statement of decision in the first phase of the case,
tentatively finding that the plaintiff is an "aggrieved employee" with regard to meal period and rest break claims only, and not
with respect to any other violations alleged in the complaint and that she can represent other employees only with respect to
meal and rest break claims. The Company disputes the material allegations in the complaint and intends to continue
defending the matter.
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
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.
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 death, 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, 64, 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, 51, 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. The Company has announced Ms. Vaughn will be named
chief operating officer upon the appointment of her successor as chief financial officer. 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, 51, 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, 64, 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.
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Roger G. Sisson, 54, 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, 43, Senior Vice President of Strategy and Shared Services. Mr. Desai joined the Company in 2014 as senior
vice president of strategy and shared services. Prior to joining the Company, Mr. Desai spent 14 years with McKinsey and
Company, including seven years as a partner. Previously, Mr. Desai also held business development and technology positions
at Outpace Systems and Booz Allen & Hamilton.
Paul D. Williams, 63, 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, 53, 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.
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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 28, 2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year ended February 3, 2018
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
High
Low
72.63 $
69.94
74.21
72.00
60.81
57.23
47.66
51.91
High
Low
63.50 $
55.30
33.75
37.05
49.85
28.88
20.90
23.25
There were approximately 1,600 common shareholders of record on March 16, 2018.
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.
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ITEM 6, SELECTED FINANCIAL DATA
Financial Summary
In Thousands except per common share data,
Financial Statistics and Other Data (End of Year)
Fiscal Year End
Results of Operations Data
Net sales
Depreciation and amortization
Earnings (loss) from operations
Earnings (loss) from continuing operations
before income taxes
Earnings (loss) from continuing operations
Provision for discontinued operations, net
Net earnings (loss)
Per Common Share Data
Earnings (loss) from continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Net earnings (loss)
Basic
Diluted
Balance Sheet and Cash Flow Data
Total assets**
Long-term debt
Non-redeemable preferred stock
Common equity
Capital expenditures
2018
2017
2016
2015
2014
$ 2,907,016
78,326
(96,249 )
$ 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
(101,661 )
(111,430 )
(409 )
$ (111,839 )
151,414
97,859
151,533
95,381
(428 )
(812 )
$
97,431
$
94,569
$
156,989
99,373
(1,648 )
97,725
$
158,860
92,982
(329 )
92,653
$
(5.80 )
$
(5.80 )
(0.02 )
(0.02 )
(5.82 )
(5.82 )
$
4.87
4.85
$
4.17
4.15
$
4.23
4.19
3.99
3.94
(0.02 )
(0.02 )
(0.04 )
(0.04 )
(0.07 )
(0.07 )
4.85
4.83
4.13
4.11
4.16
4.12
(0.01 )
(0.02 )
3.98
3.92
$ 1,315,353
88,385
1,052
828,122
127,853
$ 1,440,999
82,905
1,060
919,993
93,970
$ 1,540,057
111,765
1,077
954,079
100,652
$ 1,578,991
28,958
1,274
995,533
103,111
$ 1,437,131
33,433
1,305
914,885
98,456
Financial Statistics
Earnings (loss) from operations as a percent of
net sales
(3.3 )%
4.9 %
5.0 %
5.8 %
6.2 %
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
$
41.61
$ 438,020
2.7
9.6 %
$
46.31
$ 407,587
2.3
8.2 %
$
43.70
$ 447,504
2.4
10.5 %
$
41.43
$ 413,449
2.0
2.8 %
$
38.25
$ 428,208
2.4
3.5 %
2,694
30,500
2,794
31,400
2,852
27,500
2,824
27,325
2,568
22,250
* Includes 36 Little Burgundy stores added in Fiscal 2016 that were acquired on November 3, 2015. Also includes
122, 151,185, 190 and 26 Locker Room by Lids leased departments in Macy's stores in Fiscal 2018, 2017, 2016,
2015 and 2014, respectively.
**In accordance with ASU 2015-17, "Balance Sheet Classification of Deferred Taxes", the Company has reclassified its
current deferred taxes from prepaids and other current assets to noncurrent deferred tax assets on a retrospective basis. In
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connection with the adoption of ASU 2015-17, current deferred taxes of $21.2 million, $29.0 million, $28.3 million and
$23.1 million as of January 28, 2017, January 30, 2016, January 31, 2015 and February 1, 2014, respectively, were
reclassified to noncurrent deferred tax assets from prepaids and other current assets. In addition, with the reclassification,
working capital and current ratios were recalculated for prior periods.
Reflected in earnings (loss) from continuing operations for Fiscal 2018 was a charge of $182.2 million for goodwill
impairment, a gain of $12.3 million from the sale of SureGrip Footwear for Fiscal 2017 and a gain of $2.4 million from the
sale of Lids Team Sports for Fiscal 2017, a gain of $4.7 million from the sale of Lids Team Sports for Fiscal 2016 and a
charge of $7.1 million for an indemnification asset write-off for Fiscal 2015.
Also reflected in earnings (loss) from continuing operations for Fiscal 2018, 2017, 2016, 2015 and 2014 were asset
impairment and other charges (gains) of $8.8 million, ($0.8) million, $7.9 million, $2.3 million and $1.3 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.
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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, including online and including competition from some of the Company's vendors in
both the licensed sports and branded footwear 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 effects of the implementation
of federal tax reform on the estimated tax rate reflected in certain forward-looking statements, 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 NBA finals,
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, costs and reputational harm
as a result of 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® and Johnston & Murphy® in the U.S.,
Puerto Rico and Canada; 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 footwear. The Company’s
wholesale footwear brands are distributed to more than 1,200 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 February 3, 2018, the Company operated 2,694 retail stores and leased
departments in the U.S., Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
During Fiscal 2018, the Company operated five reportable business segments (not including corporate): (i) Journeys Group,
comprised of Journeys, Journeys Kidz, Shi by Journeys and Little Burgundy retail footwear chains, e-commerce operations
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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; (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; G.H. Bass Footwear operated under a license from G-III Apparel Group, Ltd., which
was terminated in January 2018; 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 2,075 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for younger
children, ages five to 12. These stores average approximately 1,525 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
2,125 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 1,875 square feet. With the 39 Little Burgundy stores,
Journeys Group now operates 85 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. The Schuh Group
also sells footwear and accessories 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 900
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 2,850 square feet in malls and other locations primarily in the United States. The Lids Sports Group operates
143 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 February 3, 2018, the Company had 122 Locker Room by
Lids leased departments averaging approximately 650 square feet. The Lids Sports Group also sells headwear and accessories
through e-commerce operations.
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 higher-end malls and in airports throughout the United States and in Canada. As of
February 3, 2018, Johnston & Murphy operated eight stores in Canada. The Company also has license and distribution
agreements for wholesale and retail sales of Johnston & Murphy products in various non - U.S. jurisdictions. The Company
also sells Johnston & Murphy footwear and accessories in factory stores, averaging approximately 2,400 square feet, located
in factory outlet malls, and through a direct-to-consumer catalog and e-commerce operations. In addition, Johnston &
Murphy shoes are distributed through the Company’s wholesale operations to better department, independent specialty stores
and e-commerce. Additionally, the Company sells the H. S. 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 United States. 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 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. This license was terminated in January 2018.
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Strategy
The Company’s long-term strategy has been to seek organic growth by: 1) improving comparable sales, both in stores and
digital commerce, 2) increasing the Company's store base in its newer concepts and opportunistically in more mature
concepts, 3) expanding retail square footage in proven locations with upside opportunity, 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, concentrating on locations that the Company believes will be most productive, as well
as closing certain stores, perhaps reducing the overall square footage and store count from current levels, and has enhanced
its investments in technology and infrastructure to support omnichannel retailing. In recognition of a continuing shift in
consumer shopping patterns toward online purchasing, the need for investment to support omnichannel retailing, and the
added expense associated with omnichannel operations, the Company has undertaken a profit enhancement initiative,
targeting annualized expense reductions in the range of $35 million to $40 million in an effort to reduce the fixed cost
structure of its retail stores and improve efficiency in e-commerce.
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. The Company typically tests such extensions on
a relatively small scale to determine their viability and to refine their strategies and operations before making significant,
long-term commitments.
More generally, the Company attempts to develop strategies to mitigate the risks it views as material, including those
discussed under the caption “Forward Looking Statements,” above, and those discussed in Item 1A, "Risk Factors". Among
the most important of these factors are those related to consumer demand. Conditions in the economy can affect demand,
resulting in changes in sales and, as prices are adjusted to drive sales and manage inventories, in gross margins. Because
fashion trends influencing many of the Company’s target customers can change rapidly, the Company believes that its ability
to react quickly to those changes has been important to its success. Even when the Company succeeds in aligning its
merchandise offerings with consumer preferences, those preferences may affect results by, for example, driving sales of
products with lower average selling prices or products which are more widely available in the marketplace and thus more
subject to competitive pressures than the Company's typical offering. Moreover, economic factors, such as persistent
unemployment and any future economic contraction and changes in tax policies, may reduce the consumer’s disposable
income or his or her willingness to purchase discretionary items, and thus may reduce demand for the Company’s
merchandise, regardless of the Company’s skill in detecting and responding to fashion trends. The Company believes its
experience and discipline in merchandising and the buying power associated with its relative size and importance in the
industry segments in which it competes are important to its ability to mitigate risks associated with changing customer
preferences and other changes in consumer demand.
Summary of Results of Operations
The Company’s net sales increased 1.3% during Fiscal 2018 compared to Fiscal 2017. The increase reflected a 6% increase in
Journeys Group sales, an 8% increase in Schuh Group sales and a 5% increase in Johnston & Murphy sales, partially offset
by an 8% decrease in Lids Sports Group sales and a 16% decrease in Licensed Brands. Included in Fiscal 2018 was a 53rd
week compared to a 52-week year for Fiscal 2017. Excluding the 53rd week, the impact of exchange rates and the sale of a
small business in Fiscal 2017, net sales increased 1% for Fiscal 2018. Gross margin decreased as a percentage of net sales
from 49.4% in Fiscal 2017 to 48.7% in Fiscal 2018, reflecting gross margin decreases as a percentage of net sales in all of the
Company's business segments except Johnston & Murphy Group. Selling and administrative expenses increased as a
percentage of net sales from 44.5% in Fiscal 2017 to 45.5% in Fiscal 2018, reflecting increased expenses as a percentage of
net sales in Journeys Group, Lids Sports Group and Johnston & Murphy Group, partially offset by decreased expenses as a
percentage of net sales in Schuh Group and Licensed Brands, while Corporate expenses were flat. Earnings (loss) from
operations decreased as a percentage of net sales from 4.9% in Fiscal 2017 to (3.3)% in Fiscal 2018, reflecting decreased
earnings in all of the Company's business segments as well as a goodwill impairment charge of $182.2 million in Fiscal 2018.
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Significant Developments
The potential sale of Lids Sports Group
The Company announced in February it is initiating a formal process to explore the sale of its Lids Sports Group business.
The Company's board of directors concluded through a strategic review process that it is in the best interest of the Company
and its shareholders to focus on its industry-leading footwear businesses, which it believes is the optimal platform to deliver
enhanced shareholder value over the long term.
2017 Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act includes a number
of changes to existing U.S. tax laws that impact the Company including the reduction of the U.S. corporate income tax rate
from 35% to 21% for tax years beginning after December 31, 2017. The Act also provides for a one-time transition tax on
indefinitely reinvested foreign earnings and the acceleration of depreciation for certain assets placed into service after
September 27, 2017, as well as prospective changes beginning in 2018, including the elimination of certain domestic
deductions and credits and additional limitations on the deductibility of executive compensation. See additional information
regarding the impact of the Act in Item 8, Note 9, "Income Taxes", to the Company's Consolidated Financial Statements
included in this Annual Report on Form 10-K.
Goodwill Impairment
During the third quarter of Fiscal 2018, the Company identified qualitative indicators of impairment, including a significant
decline in the Company's stock price and market capitalization for a sustained period since the last consideration of indicators
of impairment in the second quarter of Fiscal 2018, underperformance relative to projected operating results, particularly in
the Lids Sports Group reporting unit, and an increased competitive environment in the licensed sports business.
In accordance with Accounting Standards Codification Topic 350 ("ASC 350"), when indicators of impairment are present on
an interim basis, the Company must assess whether it is “more likely than not” (i.e., a greater than 50% chance) that an
impairment has occurred. In our Fiscal 2017 annual evaluation of goodwill, the Company determined that the fair value of
the Lids Sports Group and Schuh Group reporting units exceeded the carrying value of the reporting units’ assets by
approximately 15% and 28%, respectively. Due to the identified indicators of impairment during the the third quarter of
Fiscal 2018, the Company determined that it was "more likely than not" that an impairment had occurred and performed a
full valuation of its reporting units as required under ASC 350 and reconciled the aggregate fair values of the individual
reporting units to the Company’s market capitalization.
Based upon the results of these analyses, the Company concluded the goodwill attributed to Lids Sports Group was fully
impaired. As a result, the Company recorded a non-cash impairment charge of $182.2 million in the third quarter of Fiscal
2018.
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.,
which operated the SureGrip occupational, slip-resistant footwear business within the Licensed Brands Group, to Shoes for
Crews, LLC. The Company recognized a gain on the sale in Fiscal 2017 of $12.3 million, net of transaction-related expenses
before tax. The sale of SureGrip Footwear was not a strategic shift that would have a major effect on operations and financial
results, and therefore this business was not presented as a discontinued operation in the Company's Consolidated Financial
Statements.
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.
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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 had operated
within its Lids Sports Group segment, to BSN Sports, LLC. In Fiscal 2016, the Company recognized a gain on the sale of
$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 was not a strategic shift that would have a major effect on operations and financial results, and therefore this business
was not presented as a discontinued operation in the Company's Consolidated Financial Statements.
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.
Asset Impairment and Other Charges
The Company recorded a pretax charge to earnings of $8.8 million in Fiscal 2018, including $5.2 million in licensing
termination expenses, $2.7 million for retail store asset impairments and $0.9 million for hurricane losses.
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.
Postretirement Benefit Liability Adjustments
The return on pension plan assets was $12.9 million for Fiscal 2018, compared to an expected return of $4.5 million. The
discount rate used to measure benefit obligations decreased from 3.95% to 3.70% in Fiscal 2018. As a result of 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 $0.0 million compared to $6.3 million at the end of Fiscal 2017 and a pension asset of $0.7
million was recorded at the end of Fiscal 2018. There was a decrease in the pension liability adjustment of $7.1 million pretax
in accumulated other comprehensive loss 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 2018, Fiscal 2017 and Fiscal 2016, the Company recorded an additional charge to earnings of $0.6 million ($0.4
million net of tax), $0.7 million ($0.4 million net of tax) and $1.3 million ($0.8 million net of tax), respectively, reflected in
discontinued operations, primarily for anticipated costs of environmental remedial alternatives related to former facilities
operated by the Company. For additional information, see Notes 3 and 13 to the Consolidated Financial Statements.
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
net realizable value in its wholesale, Schuh Group and Lids Sports Group segments.
In its footwear wholesale operations and its Schuh Group segment, cost is determined using the first-in, first-out ("FIFO")
method. Net realizable 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 a valuation allowance when the inventory has not been marked down to net
realizable 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
specific analysis, and estimates shrink based on historical experience, 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,
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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 allowances, the Company maintains reserves 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 amounts for
markdowns, shrinkage and damaged goods would have changed inventory by $1.7 million at February 3, 2018.
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.
As discussed in Note 1 to the Consolidated Financial Statements,the Company annually assesses its goodwill and indefinite
lived trade names for impairment and on an interim basis if indicators of impairment are present. The Company’s annual
assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
In accordance with ASC 350, the Company has the option first to assess qualitative factors to determine whether events and
circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment the Company
concludes that the asset is not impaired, no further action is required. However, if the Company concludes otherwise, it is
required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for
goodwill compares the fair value of each reporting unit with the carrying value of the business unit with which the goodwill
is associated. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge
would be recorded for the amount, if any, in which the carrying value exceeds the reporting unit's fair value. 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 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. See Notes 2 and 3 to the Company’s Consolidated
Financial Statements for additional information regarding impairment of long-lived assets.
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 2018, $0.6 million reflected in Fiscal
2017 and $0.8 million reflected in Fiscal 2016. 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
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litigation generally and in environmental proceedings in particular, there can be no assurance that future developments will
not require additional provisions, that some or all liabilities will be adequate or that the amounts of any such additional
provisions or any such inadequacy will not have a material adverse effect upon the Company’s financial condition or results
of operations.
Revenue Recognition
Retail sales are recorded at the point of sale and are net of estimated returns and exclude sales and value added taxes. Catalog
and internet sales are recorded at time of delivery to the customer and are net of estimated returns and exclude sales and value
added taxes. Wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and
miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Shipping and
handling costs charged to customers are included in net sales. Estimated returns are based on historical returns and claims.
Actual amounts of markdowns have not differed materially from estimates. Actual returns and claims in any future period
may differ from historical experience. The FASB issued ASU 2016-02, "Revenue from Contracts with Customers (Topic
606)" (Accounting Standards Codification 606) ("ASC 606") in May 2014. The Company will adopt this standard in the first
quarter of Fiscal 2019. For additional information on the new revenue recognition standard, see Item 8, Note 1, "Summary of
Significant Accounting Policies", to the Company's Consolidated Financial Statements included in this Annual Report on
Form 10-K.
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 a portion or all of the deferred tax valuation allowance released. At
February 3, 2018, the Company had a deferred tax valuation allowance of $6.4 million.
Income tax reserves for uncertain tax positions are determined using the methodology required by the Income Tax Topic of
the Accounting Standards Codification (“Codification”). This methodology requires companies to assess each income tax
position taken using a two step process. A determination is first made as to whether it is more likely than not that the position
will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected
to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than
50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require
determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or
varying interpretation. If the Company’s determinations and estimates prove to be inaccurate, the resulting adjustments could
be material to its future financial results. See Item 8, Note 9, "Income Taxes", to the Company's Consolidated Financial
Statements included in this Annual Report on Form 10-K for the impact on income taxes of the Act enacted on December 22,
2017.
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
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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.
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 5.65%. 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 38% U.S. equities,
12% international equities, 49% U.S. fixed income securities and 1% cash equivalents. For Fiscal 2018, if the expected rate
of return had been decreased by 1%, net pension expense would have increased by $0.7 million, and if the expected rate of
return had been increased by 1%, net pension expense would have decreased by $0.7 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 3.70%, 3.95% and 4.30% for Fiscal 2018, 2017 and 2016, respectively.
The discount rate at February 3, 2018 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 2018, if the discount rate had been increased by 0.5%,
net pension expense would have decreased by $0.0 million, and if the discount rate had been decreased by 0.5%, net pension
expense would have increased by $0.1 million. In addition, if the discount rate had been increased by 0.5%, the projected
benefit obligation would have decreased by $3.7 million and the accumulated benefit obligation would have decreased by
$3.7 million. If the discount rate had been decreased by 0.5%, the projected benefit obligation would have increased by $4.0
million and the accumulated benefit obligation would have increased by $4.0 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 2018, the Company had
unrecognized actuarial losses of $8.3 million. Generally accepted accounting principles 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 $0.2 million, $2.3 million and $3.9 million in
Fiscal 2018, 2017 and 2016, 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 decrease in Fiscal 2019 by approximately $0.1 million as lower
expected return on assets due to a change in the Company's investment strategy was more than offset by lower interest costs,
service costs and lower amortization of the actuarial losses.
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 2018 Compared to Fiscal 2017
The Company’s net sales for Fiscal 2018 (53 weeks) increased 1.3% to $2.91 billion from $2.87 billion in Fiscal 2017 (52
weeks). The increase in net sales was a result of increased sales in Journeys Group, Schuh Group and Johnston & Murphy
Group, partially offset by decreased sales in Lids Sports Group and Licensed Brands. Net sales for Fiscal 2018 included an
estimated $36.6 million of sales due to the fifty-third week. Excluding the 53rd week, impact of exchange rates and the sale
of a small business last year, net sales increased 1% for Fiscal 2018. Gross margin decreased 0.1% to $1.416 billion in Fiscal
2018 from $1.418 billion in Fiscal 2017, and decreased as a percentage of net sales from 49.4% in Fiscal 2017 to 48.7% in
Fiscal 2018, primarily reflecting decreased gross margin as a percentage of net sales in all of the Company's business
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segments except Johnston & Murphy Group. The Company expects continued pressure on gross margins as e-commerce
grows as percentage of its business. Selling and administrative expenses in Fiscal 2018 increased 3.5% from Fiscal 2017 and
increased as a percentage of net sales from 44.5% to 45.5%, primarily reflecting expense increases in Journeys Group, Lids
Sports Group and Johnston & Murphy Group, partially offset by decreased expenses in Schuh Group and Licensed Brands,
while Corporate expenses remained flat. 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 and
selling and administrative expense are not 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 (loss) from continuing operations before income taxes (“pretax earnings (loss)”) for Fiscal 2018 were $(101.7)
million, compared to $151.4 million for Fiscal 2017. The pretax loss for Fiscal 2018 included a goodwill impairment charge
of $182.2 million and an asset impairment and other charges of $8.8 million for licensing termination expenses, retail store
asset impairments and hurricane losses. 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.
The net loss for Fiscal 2018 was $(111.8) million ($5.82 diluted loss per share) compared to net earnings of $97.4 million
($4.83 diluted earnings per share) for Fiscal 2017. The net loss for Fiscal 2018 and net earnings for Fiscal 2017 both 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. The Company recorded an effective income tax
rate of (9.6)% for Fiscal 2018 compared to 35.4% for Fiscal 2017 and 37.1% for Fiscal 2016. The effective tax rate for
Fiscal 2018 was lower compared to Fiscal 2017 due to the impact of the non-deductibility of a significant portion of the
goodwill impairment charge and by $9.8 million of one-time income tax expense related to the passage of the Act. 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. See Note 9 to the Consolidated Financial
Statements for additional information.
Journeys Group
Net sales
Earnings from operations
Operating margin
Fiscal Year Ended
2018
2017
(dollars in thousands)
%
Change
$ 1,329,460
76,094
$
$ 1,251,646
85,875
$
6.2 %
(11.4 )%
5.7 %
6.9 %
Net sales from Journeys Group increased 6.2% to $1.33 billion for Fiscal 2018 and compared to $1.25 billion for Fiscal 2017.
The increase reflected a 4% increase in comparable 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) for Fiscal 2018. The comparable sales increase reflected a 1% increase in footwear unit comparable sales and the
average price per pair of shoes increased 3%. The store count for Journeys Group was 1,220 stores at the end of Fiscal 2018,
including 242 Journeys Kidz stores, 21 Shi by Journeys stores, 46 Journeys stores in Canada and 39 Little Burgundy stores in
Canada, compared to 1,249 stores at the end of Fiscal 2017, including 230 Journeys Kidz stores, 39 Shi by Journeys stores,
44 Journeys stores in Canada and 36 Little Burgundy stores in Canada.
Journeys Group earnings from operations for Fiscal 2018 decreased 11.4% to $76.1 million, compared to $85.9 million for
Fiscal 2017. The decrease in earnings from operations was primarily due to (i) decreased gross margin as a percentage of
sales, reflecting lower initial margins due to changes in product mix and higher shipping and warehouse expenses, as e-
commerce grew as a percent of the business and (ii) increased expenses as a percentage of net sales as Journeys Group could
not leverage store-related expenses, primarily rent, selling salaries and advertising.
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Schuh Group
Net sales
Earnings from operations
Operating margin
$
$
Fiscal Year Ended
2018
2017
%
Change
(dollars in thousands)
$
$
403,698
20,104
372,872
20,530
5.0 %
5.5 %
8.3 %
(2.1 )%
Net sales from the Schuh Group increased 8.3% to $403.7 million for Fiscal 2018, compared to $372.9 million for Fiscal
2017. The sales increase reflects primarily a 4% increase in comparable sales and a 4% increase in average stores operated,
partially offset by a decrease of $5.1 million in sales due to the depreciation of the British Pound. Schuh Group operated 134
stores at the end of Fiscal 2018 compared to 128 at the end of Fiscal 2017.
Schuh Group earnings from operations decreased 2.1% to $20.1 million in Fiscal 2018 compared to $20.5 million for Fiscal
2017. The decrease in earnings this year reflects decreased gross margin as a percentage of net sales due primarily to
increased promotional activity and increased shipping and warehouse expense. The decrease in gross margin was partially
offset by decreased expenses as a percentage of net sales primarily due to decreased selling salaries, depreciation and bonus
expenses, partially offset by increased advertising expense and lower foreign exchange gains compared to the prior year.
Schuh Group's earnings from operations for Fiscal 2018 were positively impacted by $0.4 million due to changes in foreign
exchange rates.
Lids Sports Group
Fiscal Year Ended
2018
2017
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(dollars in thousands)
$
$
779,469
11,684
847,510
41,563
1.5 %
4.9 %
(8.0 )%
(71.9 )%
Net sales from the Lids Sports Group decreased 8.0% to $779.5 million for Fiscal 2018 from $847.5 million for Fiscal 2017.
The decrease reflects primarily a comparable sales decrease of 7% and a decrease of 5% in the average number of Lids Sports
Group stores operated, excluding leased departments, for Fiscal 2018. The comparable sales decrease reflected a 9%
decrease in comparable store hat and apparel units sold, partially offset by a 3% increase in the average price. Lids Sports
Group operated 1,159 stores at the end of Fiscal 2018, including 114 Lids stores in Canada, 184 Lids Locker Room and
Clubhouse stores, which include 29 Locker Room stores in Canada, and 122 Locker Room by Lids leased departments at
Macy's, compared to 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.
Lids Sports Group earnings from operations for Fiscal 2018 decreased 71.9% to $11.7 million compared to $41.6 million for
Fiscal 2017. The decrease was due to (i) decreased net sales, (ii) decreased gross margin as a percentage of net sales,
reflecting increased shipping and warehouse expense, and (iii) increased expenses as a percentage of net sales, reflecting the
inability to leverage expenses due to the negative comparable sales, partially offset by decreased bonus expenses.
Johnston & Murphy Group
Net sales
Earnings from operations
Operating margin
$
$
36
Fiscal Year Ended
2018
2017
%
Change
(dollars in thousands)
$
$
304,160
20,047
289,324
19,682
6.6 %
6.8 %
5.1 %
1.9 %
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Johnston & Murphy Group net sales increased 5.1% to $304.2 million for Fiscal 2018 from $289.3 million for Fiscal 2017.
The increase reflected primarily a 3% increase in average stores operated for Johnston & Murphy retail operations and a 5%
increase in Johnston & Murphy wholesale sales, while comparable sales remained flat for Fiscal 2018. Unit sales for the
Johnston & Murphy wholesale business increased 7% in Fiscal 2018 while the average price per pair of shoes decreased 2%
for the same period. Retail operations accounted for 71.6% of the Johnston & Murphy Group's sales in Fiscal 2018, up
slightly from 71.4% in Fiscal 2017. The store count for Johnston & Murphy retail operations at the end of Fiscal 2018
included 181 Johnston & Murphy shops and factory stores, including eight stores in Canada, compared to 177 Johnston &
Murphy shops and factory stores, including seven stores in Canada, at the end of Fiscal 2017.
Johnston & Murphy earnings from operations for Fiscal 2018 increased 1.9% to $20.0 million from $19.7 million for Fiscal
2017, primarily due to increased net sales and increased gross margin as a percentage of net sales, reflecting decreased
markdowns and improved initial margins. Expenses as a percentage of net sales increased for Fiscal 2018 primarily due to
increased occupancy and compensation expenses, partially offset by decreased advertising expenses.
Licensed Brands
Fiscal Year Ended
2018
2017
%
Change
Net sales
Earnings (loss) from operations
Operating margin
$
$
(dollars in thousands)
$
$
89,809
(163 )
(0.2 )%
106,372
4,566
4.3 %
(15.6 )%
NM
Licensed Brands’ net sales decreased 15.6% to $89.8 million for Fiscal 2018 from $106.4 million for Fiscal 2017. The sales
decrease primarily reflects the loss of sales for SureGrip footwear, which was sold in December 2016, and the expiration of a
small footwear license. SureGrip Footwear had net sales of $15.6 million in Fiscal 2017. Unit sales for Dockers Footwear
increased 2% for Fiscal 2018 and the average price per pair of shoes increased 1% for the same period.
Licensed Brands’ earnings from operations decreased from $4.6 million for Fiscal 2017 to a loss of $(0.2) million for Fiscal
2018, primarily due to decreased net sales and decreased gross margin as a percentage of net sales, reflecting the sale of
SureGrip footwear, which carried the group's highest gross margin, and changes in product mix and increased promotional
activities in the remaining businesses. The Company anticipates decreased sales in Licensed Brands in Fiscal 2019 as a result
of its termination of the Bass license.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2018, excluding the $182.2 million goodwill impairment charge, was $41.8 million
compared to $30.3 million for Fiscal 2017. Corporate expense in Fiscal 2018 included an $8.8 million charge in asset
impairment and other charges, primarily for licensing termination expense, retail store asset impairments and hurricane
losses. 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. Excluding the gains and charges listed above, corporate and
other expense increased primarily due to increased professional fees and other corporate expenses, partially offset by
decreased bonus expense.
Net interest expense increased 3.1% from $5.2 million in Fiscal 2017 to $5.4 million in Fiscal 2018 primarily due to
increased interest rates and to increased revolver borrowings compared to the previous year as a result of increased capital
expenditures.
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 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
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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 and selling and administrative expense is
not comparable to other retailers that include these costs in the calculation of gross margin. Explanations of the changes in
results of operations are provided by business segment in discussions following these introductory paragraphs.
Pretax earnings for Fiscal 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 sales.
Average Journeys stores operated 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.
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Schuh Group
Net sales
Earnings from operations
Operating margin
$
$
Fiscal Year Ended
2017
2016
%
Change
(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 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.
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Johnston & Murphy Group
Net sales
Earnings from operations
Operating margin
$
$
Fiscal Year Ended
2017
2016
%
Change
(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
Fiscal Year Ended
2017
2016
%
Change
Net sales
Earnings from operations
Operating margin
$
$
(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.
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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.
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
Feb. 3, 2018
Jan. 28, 2017
Jan. 30, 2016
(dollars in millions)
$
$
$
39.9 $
438.0 $
88.4 $
48.3 $
407.6 $
82.9 $
133.3
447.5
111.8
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 $164.6 million in Fiscal 2018 compared to $165.2 million in Fiscal 2017. The $0.6
million decrease from operating activities from Fiscal 2017 reflects a decrease in cash flow from decreased earnings and
changes in accounts payable of $31.9 million, partially offset by an increase in cash flow from changes in inventory of $77.0
million.
The $31.9 million decrease in cash flow from accounts payable reflects changes in buying patterns, vendor mix and lower
inventory levels. The $77.0 million increase in cash flow from inventory primarily reflects a reduction in the growth in
inventory in Lids Sports Group, Journeys Group, Licensed Brands and Johnston & Murphy Group, on a year over year basis,
partially offset by increased inventory in Schuh Group.
The $31.6 million decrease in inventories at February 3, 2018 from January 28, 2017 levels primarily reflects decreases in all
of the Company's business segments except Schuh Group.
Accounts receivable at February 3, 2018 decreased $0.8 million compared to January 28, 2017 primarily due to decreased
sales in the Licensed Brands business.
Cash provided by operating activities was $165.2 million in Fiscal 2017 compared to $149.7 million in Fiscal 2016. The
$15.5 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 $53.6 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 $53.6 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.
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Sources of Liquidity
The Company has three principal sources of liquidity: cash flow 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 flow 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 January 31, 2018, the Company entered into the Fourth Amended and Restated Credit Agreement (the “Credit Facility”)
by and among the Company, certain subsidiaries of the Company party thereto, as other borrowers, with the lenders party
thereto (the "Lenders") 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, including (i) for the Company and the other borrowers formed in the U.S.,
a $70.0 million sublimit for the issuance of letters of credit and a domestic swingline subfacility of up to $45.0 million, (ii)
for GCO Canada Inc., a revolving credit subfacility 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 a swingline subfacility of up to $5.0 million, and (iii) for
Genesco (UK) Limited, a revolving credit subfacility in an aggregate amount not to exceed $100.0 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
expires January 31, 2023. Any swingline loans and any letters of credit and borrowings under the Canadian and UK
subfacilities 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 $200.0 million subject to, among other things, the receipt of commitments for the increased amount. In connection
with this increased facility, the Canadian revolving credit subfacility may be increased by no more than $15.0 million and the
UK revolving credit subfacility may be increased by no more than $100.0 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 $600.0 million) or the "Borrowing
Base", which generally is based on 90% of eligible inventory (increased to 92.5% during fiscal months September through
November) plus 85% of eligible wholesale receivables plus 90% of eligible credit card and debit card receivables of the
Company and the other borrowers formed in the U.S. and GCO Canada Inc. less applicable reserves (the "Loan Cap"). If
requested by the Company and Genesco (UK) Limited and agreed to by the required percentage of Lenders, the relevant
assets of Genesco (UK) Limited will be included in the Borrowing Base, provided that amounts borrowed by Genesco (UK)
Limited based solely on its own borrowing base will be limited to $100.0 million, subject to the increased facility as
described above. At no time can the total loans outstanding to Genesco (UK) Limited and to GCO Canada Inc. exceed 50%
of the Loan Cap. In the event that the availability for GCO Canada Inc. to borrow loans based solely on its own borrowing
base is completely utilized, GCO Canada Inc. will have the ability, subject to certain terms and conditions, to obtain
additional loans (but not to exceed its total revolving credit subfacility amount) to the extent of the then unused portion of the
domestic 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 April 2017, Schuh Group Limited entered into an Amendment and Restatement Agreement which amended the Form of
Amended and Restated Facilities Agreement and Working Capital Facility Letter ("UK Credit Facilities") dated May 2015.
The amendment includes a new Facility A of £1.0 million, a Facility B of £9.4 million, a Facility C revolving credit
agreement of £16.5 million, a working capital facility of £2.5 million and an additional revolving credit facility, Facility D, of
€7.2 million for its operations in Ireland and Germany. The Facility A loan was paid off in 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. The Facility D bears interest at EURIBOR plus
2.2% per annum and expires in September 2019.
There were $11.5 million in UK term loans and $7.6 million in UK revolver loans outstanding at February 3, 2018. The UK
Credit Facilities contain certain covenants at the Schuh level including a minimum interest coverage covenant of 4.50x and a
maximum leverage covenant of 1.75x. The Company was in compliance with all the covenants at February 3, 2018. 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 $127.5 million during Fiscal 2018 and $100.1 million during Fiscal
2017, as cash on hand, cash generated from operations and revolver borrowings primarily funded seasonal working capital
requirements, capital expenditures and stock repurchases for Fiscal 2018 and Fiscal 2017. The borrowings outstanding
during Fiscal 2018 reflect increased funds borrowed to fund increased capital expenditures.
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There were $11.3 million of letters of credit outstanding and $69.4 million of revolver borrowings outstanding, including
$14.8 million (£10.5 million) related to Genesco (UK) Limited and $36.7 million (C$45.4 million) related to GCO Canada,
under the Credit Facility at February 3, 2018. The Company is not required to comply with any financial covenants under the
Credit Facility unless Excess Availability (as defined in the Credit Facility) 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 $263.3 million at February 3, 2018. 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
February 3, 2018.
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 Credit Facility prohibits the payment of dividends and other restricted payments unless, among other things, as of the
date of the making of any Restricted Payment (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 and (b) either (i) the Borrowers (as defined in the Credit Facility) have pro forma Excess Availability for the prior
60 day period equal to or greater than 20% of the Loan Cap, after giving pro forma effect to such Restricted Payment, or
(ii) (A) the Borrowers have pro forma Excess Availability for the prior 60 day period of less than 20% 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, will be equal to or greater than 1.0:1.0 and (c) after giving effect to such Restricted
Payment, the Borrowers are Solvent (as defined in the Credit Facility). Additionally, 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 2019.
Certain Covenants
The Company is not required to comply with any financial covenants unless Excess Availability (as defined in the Credit
Facility) is less than the greater of $25.0 million or 10% of the Loan Cap. If and during such time as Excess Availability is
less than the greater of $25.0 million or 10% 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.
The Credit Facility also permits the Company to incur senior debt in an amount up to the greater of $500.0 million or an
amount that would not cause the Company's ratio of consolidated total indebtedness to consolidated EBITDA to exceed
5.0:1.0 provided that certain terms and conditions are met.
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 to certain material documents 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 for 3 consecutive business days or if certain events of default
occur under the Credit Facility.
Off-Balance Sheet Arrangements
None.
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Contractual Obligations
The following tables set forth aggregate contractual obligations and commitments as of February 3, 2018.
(in thousands)
Contractual Obligations
Long-Term Debt Obligations
Operating Lease Obligations
Purchase Obligations(1)
Transition tax payable
Long-Term Obligations – Schuh(2)
Other Long-Term Liabilities
Total Contractual Obligations(3)
(in thousands)
Commercial Commitments
Letters of Credit
Total Commercial Commitments
$
$
$
$
Payments Due by Period
Total
88,385 $
1,453,503
661,277
4,461
361
1,011
2,208,998 $
Less than 1
year
1 - 3
years
3 - 5
years
1,766 $
256,249
661,277
357
230
175
920,054 $
17,247 $
437,064
—
714
131
349
455,505 $
69,372 $
347,590
—
714
—
349
418,025 $
Amount of Commitment Expiration Per Period
Total Amounts
Committed
Less than 1
year
1 - 3
years
3 - 5
years
More
than 5
years
—
412,600
—
2,676
—
138
415,414
More
than 5
years
11,262 $
11,262 $
11,262 $
11,262 $
— $
— $
— $
— $
—
—
(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 $3.7 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 February 3, 2018, was $10.6
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 $127.9 million, $94.0 million and $100.7 million for Fiscal 2018, 2017 and 2016, respectively. The
$33.9 million increase in Fiscal 2018 capital expenditures as compared to Fiscal 2017 is primarily due to the expansion of the
Journeys Group's warehouse as well as increased capital expenditures in Lids Sports Group. 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.
Total capital expenditures in Fiscal 2019 are expected to be approximately $75 million. These include retail capital
expenditures of approximately $70 million to open approximately 30 Journeys Group stores, including three in Canada, ten
Journeys Kidz stores and three Little Burgundy stores, ten Schuh stores, five Johnston & Murphy shops and factory stores,
and ten Lids Sports Group stores, including nine Lids stores, with two stores in Canada, and one Locker Room store, to
complete approximately 193 major store renovations and includes approximately $16 million in computer hardware and
software for initiatives to drive traffic, enhance omni-channel and strengthen our brands. The planned amount of capital
expenditures in Fiscal 2019 for wholesale operations and other purposes is approximately $5 million, including
approximately $1 million for new systems.
Future Capital Needs
The Company has initiated a plan to reshape its cost structure to improve profitability and has identified potential annual
savings in the range of $35 million to $40 million. As a result, 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 2019. The approximately $1.9 million of costs associated with
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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 $39.9 million and $48.3 million as of February 3, 2018 and
January 28, 2017, respectively, of which approximately $21.2 million and $22.9 million was held by the Company's foreign
subsidiaries as of February 3, 2018 and January 28, 2017, 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 275,300 shares at a cost of $16.2 million during Fiscal 2018. The Company has $24.0 million
remaining under its current $100.0 million share repurchase authorization. The Company repurchased 2,155,869 shares at a
cost of $133.3 million during Fiscal 2017. The Company repurchased 2,383,384 shares at a cost of $144.9 million during
Fiscal 2016.
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 2018, $0.6 million reflected in Fiscal 2017 and $0.8 million reflected in Fiscal 2016. 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 $11.5 million of outstanding U.K. term loans at a weighted average
interest rate of 3.02% as of February 3, 2018. A 100 basis point increase in interest rates would increase annual interest
expense by $0.1 million on the $11.5 million term loans. The Company has $7.6 million of outstanding U.K. revolver
borrowings at a weighted average interest rate of 2.20% as of February 3, 2018. A 100 basis point increase in interest rates
would increase annual interest expense by $0.1 million on the $7.6 million revolver borrowings. The Company has $69.4
million of outstanding U.S. revolver borrowings at a weighted average interest rate of 3.43% as of February 3, 2018. A 100
basis point increase in interest rates would increase annual interest expense by $0.7 million on the $69.4 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 February 3, 2018. As a result, the Company considers the interest rate market risk implicit in these
investments at February 3, 2018 to be low.
Summary – Based on the Company’s overall market interest rate exposure at February 3, 2018, 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 2018 would not be material.
Accounts Receivable – The Company’s accounts receivable balance at February 3, 2018 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 16%, 9% and 8% of the Company’s total
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trade receivables balance, while no other customer accounted for more than 7% of the Company’s total trade receivables
balance as of February 3, 2018. 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 2018 were negatively impacted by $5.1 million and positively impacted by $0.3 million, respectively,
due to the change in foreign exchange rates.
New Accounting Principles
New Accounting Pronouncements Recently Adopted
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASC 220"), which allows a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the
Act. This guidance is effective for all entities for fiscal years, and interim periods within those years, beginning after
December 15, 2018, with early adoption permitted. The amendments in ASC 220 should be applied either in the period of
adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in
the Act is recognized. The Company adopted ASC 220 in the fourth quarter of Fiscal 2018 and reclassed $2.2 million to
retained earnings for the impact of stranded tax effects resulting from the Act.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment” ("ASU 2017-04"). 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. The Company adopted ASU 2017-04 in the first quarter of Fiscal 2018, and the
Company measured goodwill impairment in the third quarter of Fiscal 2018 under the provisions of ASU 2017-04.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting” ("ASC 718"). 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 inclusion of excess tax benefits and
deficiencies as a component of the Company's income tax expense will increase volatility within its provision for income
taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards is dependent on the
Company's stock price at the date the awards are exercised or settled which is primarily in the second quarter of each fiscal
year. The Company adopted ASC 718 in the first quarter of Fiscal 2018. The Company recorded an excess tax deficiency of
$2.2 million as an increase in income tax expense related to share-based compensation for vested awards in Fiscal 2018.
Earnings per share decreased $0.11 per share for Fiscal 2018 due to the impact of ASC 718. The Company reclassified $3.4
million and $4.4 million from operating activities to financing activities on the Consolidated Statements of Cash Flows for
Fiscal 2017 and 2016, respectively, representing the value of the shares withheld for taxes on the vesting of restricted stock.
If the Company had adopted the standard in Fiscal 2017, reported earnings per share would have decreased $0.03 per share
for Fiscal 2017.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17").
ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as
noncurrent on the balance sheet. The Company adopted ASU 2015-17 in the first quarter of Fiscal 2018 under the
retrospective approach and, as such, the Company reclassified $21.2 million of deferred taxes from current to noncurrent on
its Consolidated Balance Sheets as of January 28, 2017.
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In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" ("ASC
330"). ASC 330 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. The Company adopted ASC 330 in the
first quarter of Fiscal 2018 and it did not have a material impact on its Consolidated Financial Statements and related
disclosures.
New Accounting Pronouncements Not Yet Adopted
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI")
provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat
any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. The
Company has not yet made an accounting policy election in regards to the GILTI provisions under the Act. The Company
will make its GILTI accounting policy election during the one-year measurement period as allowed by the SEC. No amounts
have been recorded in the Company's Fiscal 2018 financial statements for the impact of GILTI provisions.
In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)" ("ASC 715"). The
standard requires the sponsors of benefit plans to present service cost in the same line item or items as other current employee
compensation costs, and present the remaining components of net benefit cost in one or more separate line items outside of
income from operations, while also limiting the components of net benefit cost eligible to be capitalized to service cost. The
standard will require the Company to present the non-service pension costs as a component of expense below operating
income. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material
impact on its Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, "Leases" (ASU 2016-02"). The standard's core principle is to increase
transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and
disclosing key information. The standard is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, which would be the beginning of our Fiscal 2020 or February 2019. Early adoption is
permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its Consolidated
Financial Statements and related disclosures and is expecting a material impact because the Company is party to a significant
number of lease contracts.
In May 2014, the FASB issued ASC 606. ASC 606 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 standard 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. ASC 606 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 standard 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.
Based on an evaluation of the standard as a whole, the Company has identified certain changes that are expected to be made
to its accounting policies, including: the timing of recognition of direct response advertising expenses, whereby certain
expenses that are currently amortized over their expected period of future benefit will be expensed as incurred; and the timing
of recognition of gift card breakage, in that it will be recognized in revenue based on and in proportion to historical
redemption patterns, rather than the current practice of recognizing gift card breakage when the likelihood of redemption is
considered remote. The Company is continuing to assess all the impacts of the new standard and the design of internal control
over financial reporting; however, based upon the materiality of the transactions that are impacted by the standard, adoption
is not expected to have a material impact on its Consolidated Financial Statements and related disclosures. The Company
will adopt this guidance in the first quarter of Fiscal 2019 using the modified retrospective approach.
Inflation
The Company does not believe inflation has had a material impact on sales or operating results during periods covered in this
discussion.
47
Table of Contents
ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information regarding market risk appearing under the heading “Financial Market
Risk” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, February 3, 2018 and January 28, 2017
Consolidated Statements of Operations, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Equity, each of the three fiscal years ended 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Page
49
50
51
53
54
55
56
57
48
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on Internal Control over Financial Reporting
We have audited Genesco Inc. and Subsidiaries' internal control over financial reporting as of February 3, 2018, 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). In our opinion, Genesco Inc. and Subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of February 3, 2018, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Genesco Inc. and Subsidiaries as of February 3, 2018 and January 28, 2017, and
the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the three fiscal
years in the period ended February 3, 2018, and the related notes and financial statement schedule listed in the Index at Item 15,
and our report dated April 4, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
/s/ Ernst & Young LLP
Nashville, Tennessee
April 4, 2018
49
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genesco Inc. and Subsidiaries (the Company) as of February
3, 2018 and January 28, 2017, and the related consolidated statements of operations, comprehensive income, cash flows and
equity for each of the three fiscal years in the period ended February 3, 2018, and the related notes and financial statement
schedule listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 3,
2018 and January 28, 2017, and the results of its operations and its cash flows for each of the three fiscal years in the period
ended February 3, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of February 3, 2018, 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 April 4, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company's financial statements and schedule based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2001.
Nashville, Tennessee
April 4, 2018
50
Table of Contents
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 $4,593 at February 3,
2018 and $3,073 at January 28, 2017
Inventories
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 $5,593 at
February 3, 2018 and $5,574 at January 28, 2017
Other intangibles, net of accumulated amortization of $17,439 at
February 3, 2018 and $16,200 at January 28, 2017
Other noncurrent assets
Total Assets
As of Fiscal Year End
February 3,
2018
January 28,
2017
$
39,937 $
48,301
43,292
542,625
67,234
693,088
8,065
79,587
213,335
179,008
33,625
440,719
954,339
(571,710 )
382,629
25,077
100,308
43,525
563,677
61,470
716,973
7,773
52,673
179,948
167,881
33,660
410,116
852,051
(521,440 )
330,611
13,372
271,222
87,898
84,327
1,794
24,559
1,315,353 $
2,392
22,102
1,440,999
$
51
Table of Contents
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:
February 3, 2018 – 20,392,253/19,903,789
January 28, 2017 – 20,354,272/19,865,808
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
February 3,
2018
January 28,
2017
$
140,962 $
20,616
16,114
1,488
1,766
72,220
1,902
255,068
86,619
—
141,255
1,707
484,649
170,751
31,128
23,101
7,568
9,175
64,333
3,330
309,386
73,730
6,265
127,384
1,713
518,478
1,052
1,060
20,392
250,877
603,902
(29,192 )
(17,857 )
829,174
1,530
830,704
1,315,353 $
20,354
237,677
731,111
(51,292 )
(17,857 )
921,053
1,468
922,521
1,440,999
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
52
Table of Contents
Genesco Inc.
and Subsidiaries
Consolidated Statements of Operations
In Thousands, except per share amounts
Net sales
Cost of sales
Selling and administrative expenses
Goodwill impairment
Asset impairments and other, net
Earnings (loss) from operations
Gain on sale of SureGrip Footwear
Gain on sale of Lids Team Sports
Interest expense, net:
Interest expense
Interest income
Total interest expense, net
Earnings (loss) from continuing operations before income taxes
Income tax expense
Earnings (loss) from continuing operations
Provision for discontinued operations, net
Net Earnings (Loss)
Basic earnings (loss) per common share:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted earnings (loss) per common share:
Continuing operations
Discontinued operations
Net earnings (loss)
Fiscal Year
2017
2018
2016
$ 2,907,016 $ 2,868,341 $ 3,022,234
1,578,768
1,284,322
—
7,893
151,251
—
(4,685 )
1,450,815
1,276,368
—
(802 )
141,960
(12,297 )
(2,404 )
1,490,894
1,321,319
182,211
8,841
(96,249 )
—
—
5,420
(8 )
5,412
(101,661 )
9,769
(111,430 )
(409 )
$
(111,839 ) $
5,294
(47 )
5,247
151,414
53,555
97,859
(428 )
97,431 $
4,414
(11 )
4,403
151,533
56,152
95,381
(812 )
94,569
$
$
$
$
(5.80 ) $
(0.02 )
(5.82 ) $
(5.80 ) $
(0.02 )
(5.82 ) $
4.87 $
(0.02 )
4.85 $
4.85 $
(0.02 )
4.83 $
4.17
(0.04 )
4.13
4.15
(0.04 )
4.11
The accompanying Notes are an integral part of these Consolidated Financial Statements.
53
Table of Contents
Genesco Inc.
and Subsidiaries
Consolidated Statements of Comprehensive Income
In Thousands, except as noted
Fiscal Year
Net earnings (loss)
Other comprehensive income (loss):
Pension liability adjustment net of tax of $1.9 million,
$2.4 million and $6.3 million for 2018, 2017 and
2016, respectively
Postretirement liability adjustment net of tax of $0.1
million for 2018 and $0.4 million each for 2017 and 2016
Stranded tax effect from tax reform
Foreign currency translation adjustments
Total other comprehensive income (loss)
Comprehensive Income (Loss)
2018
2017
$ (111,839 ) $ 97,431 $ 94,569
2016
5,189
3,618
9,756
(376 )
(2,234 )
19,521
22,100
666
—
(12,459 )
(2,037 )
$ (89,739 ) $ 88,752 $ 92,532
(674 )
—
(11,623 )
(8,679 )
The accompanying Notes are an integral part of these Consolidated Financial Statements.
54
Table of Contents
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)
Adjustments to reconcile net earnings (loss) 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
Impairment of goodwill
Impairment of long-lived assets
Restricted stock expense
Provision for discontinued operations
Gain on sale of business
Loss on pension buyout
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
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 year
Cash and cash equivalents at end of year
Net cash paid for:
Interest
Income taxes
Fiscal Year
2017
2018
2016
$
(111,839 ) $
97,431 $
94,569
78,326
747
(15,584 )
853
182,211
2,670
13,505
552
—
—
1,857
835
31,606
(4,025 )
(7,337 )
(22,339 )
12,553
164,591
(127,853 )
—
252
(127,601 )
(9,289 )
—
515,560
(508,875 )
(17,879 )
(22,498 )
(1,429 )
—
(3,000 )
(47,410 )
2,056
(8,364 )
48,301
39,937 $
75,768
839
5,394
442
—
6,409
13,481
701
(14,701 )
2,456
1,599
1,362
(45,396 )
(2,258 )
24,527
(12,867 )
10,062
165,249
(93,970 )
(22 )
23,053
(70,939 )
(6,591 )
—
340,920
(357,685 )
(143,934 )
(8,349 )
—
1,018
(3,594 )
(178,215 )
(1,082 )
(84,987 )
133,288
48,301 $
79,011
820
(2,125 )
637
—
3,125
13,758
1,333
(4,685 )
—
3,708
(6,669 )
27,827
(8,879 )
2,505
(66,482 )
11,223
149,676
(100,652 )
(35,063 )
59,915
(75,800 )
(24,920 )
27,417
401,276
(311,067 )
(142,056 )
(600 )
(655 )
1,442
(2,950 )
(52,113 )
(1,342 )
20,421
112,867
133,288
5,350 $
37,471
4,263 $
52,384
3,408
58,940
$
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
55
Table of Contents
In Thousands
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
Balance January 28, 2017
Net loss
Other comprehensive income
Employee and non-employee
restricted stock
Restricted stock issuance
Restricted shares withheld for
taxes
Shares repurchased
Stranded tax effect from tax
reform
Other
Noncontrolling interest – gain
Genesco Inc.
and Subsidiaries
Consolidated Statements of Equity
$
Non-
Redeemable
Preferred
Stock
1,274 $
—
—
—
Common
Stock
24,515 $
—
—
35
Additional
Paid-In
Capital
208,888 $
—
—
1,273
Accumulated
Other
Comprehensive
Loss
(40,576 ) $
—
(2,037 )
—
Retained
Earnings
820,563 $
94,569
—
—
Non
Controlling
Interest
Non-
Redeemable
Treasury
Shares
(17,857 ) $
—
—
—
—
—
—
—
—
—
(197 )
—
1,077
—
—
—
—
—
—
—
—
(17 )
—
1,060
—
—
—
—
—
3
131
—
—
239
(66 )
—
(2,383 )
(20 )
—
22,323
—
—
27
—
236
(56 )
—
(2,156 )
(20 )
—
20,354
—
—
—
357
(51 )
(275 )
13,758
(239 )
66
(90 )
—
217
—
224,004
—
—
991
13,481
(236 )
56
(657 )
—
38
—
237,677
—
—
13,505
(357 )
51
—
—
—
(4,408 )
—
(142,502 )
—
—
768,222
97,431
—
—
—
—
(3,435 )
—
(131,107 )
—
—
731,111
(111,839 )
—
—
—
(1,716 )
(15,888 )
—
—
—
—
—
—
—
—
(42,613 )
—
(8,679 )
—
—
—
—
—
—
—
—
(51,292 )
—
22,100
—
—
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
—
—
—
—
(17,857 )
—
—
—
—
—
—
1,970 $
—
—
—
—
—
—
—
—
—
—
(343 )
1,627
—
—
—
—
—
—
—
—
—
(159 )
1,468
—
—
—
—
—
—
Total
Equity
998,777
94,569
(2,037 )
1,308
134
13,758
—
(4,408 )
(90 )
(144,885 )
—
(343 )
956,783
97,431
(8,679 )
1,018
13,481
—
(3,435 )
(657 )
(133,263 )
1
(159 )
922,521
(111,839 )
22,100
13,505
—
(1,716 )
(16,163 )
2,234
—
62
830,704
Balance February 3, 2018
$
—
(8 )
—
1,052 $
—
7
—
20,392 $
—
1
—
250,877 $
2,234
—
—
603,902 $
—
—
—
(29,192 ) $
—
—
—
(17,857 ) $
—
—
62
1,530 $
The accompanying Notes are an integral part of these Consolidated Financial Statements.
56
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
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 and
Johnston & Murphy banners and under the Schuh banner in the United Kingdom, the Republic of Ireland
and Germany; through catalogs and e-commerce websites including the following: journeys.com,
journeyskidz.com,
littleburgundyshoes.com,
johnstonmurphy.com and trask.com, 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., Puerto Rico 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 and
lidsclubhouse.com. Including both the footwear businesses and the Lids Sports Group business, at
February 3, 2018, the Company operated 2,694 retail stores and leased departments in the U.S., Puerto
Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
schuh.co.uk,
During Fiscal 2018, the Company operated five reportable business segments (not including corporate):
(i) Journeys Group, comprised of the Journeys, Journeys Kidz, Shi by Journeys and Little Burgundy
retail footwear chains, e-commerce and catalog operations; (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; (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; G.H. Bass Footwear
operated under a license from G-III Apparel Group, Ltd., which was terminated in January 2018; and
other brands.
Principles of Consolidation
All subsidiaries are consolidated in the Consolidated Financial Statements. All significant intercompany
transactions and accounts have been eliminated.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. As a result, Fiscal 2018 was a 53-
week year with 371 days and Fiscal 2017 and 2016 were 52-week years with 364 days. Fiscal 2018 ended
on February 3, 2018, Fiscal 2017 ended on January 28, 2017 and Fiscal 2016 ended on January 30, 2016.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 net realizable value in its wholesale, Schuh
Group and Lids Sports Group segments.
In its footwear wholesale operations and its Schuh Group segment, cost is determined using the FIFO
method. Net realizable 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 a valuation
allowance when the inventory has not been marked down to net realizable 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 specific analysis, and estimates shrink based on
historical experience, 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
allowances, the Company maintains reserves for shrinkage and damaged goods based on historical
rates.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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.
As required under ASC 350, the Company annually assesses its goodwill and indefinite lived trade
names for impairment and on an interim basis if indicators of impairment are present. The Company’s
annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth
quarter.
In accordance with ASC 350, the Company has the option first to assess qualitative factors to
determine whether events and circumstances indicate that it is more likely than not that goodwill is
impaired. If after such assessment the Company concludes that the asset is not impaired, no further
action is required. However, if the Company concludes otherwise, it is required to determine the fair
value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill
compares the fair value of each reporting unit with the carrying value of the business unit with which
the goodwill is associated. If the fair value of the reporting unit is less than the carrying value of the
reporting unit, an impairment charge would be recorded for the amount, if any, in which the carrying
value exceeds the reporting unit's fair value. 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 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. See also
Note 2.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 2018, $0.6 million in Fiscal 2017 and $0.8 million in Fiscal 2016.
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. Actual results could differ from this assessment if adequate taxable income is not
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 a
portion or all of the deferred tax valuation allowance released. At February 3, 2018, the Company had
a deferred tax valuation allowance of $6.4 million.
Income tax reserves for uncertain tax positions are determined using the methodology required by the
Income Tax Topic of the 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.
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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $39.9 million and $48.3 million as of
February 3, 2018 and January 28, 2017, respectively, of which approximately $21.2 million and $22.9
million was held by the Company's foreign subsidiaries as of February 3, 2018 and January 28, 2017,
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 February 3, 2018 and January 28, 2017. Cash equivalents are highly-liquid financial
instruments having an original maturity of three months or less.
At February 3, 2018, 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.
At February 3, 2018 and January 28, 2017, outstanding checks drawn on zero-balance accounts at
certain domestic banks exceeded book cash balances at those banks by approximately $14.2 million and
$36.7 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
16%, 9% and 8% 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 February 3, 2018.
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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $78.1 million, $74.9 million
and $76.2 million for Fiscal 2018, 2017 and 2016, 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.
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 $11.5 million
and $10.3 million as of February 3, 2018 and January 28, 2017, 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
As required under ASC 350, 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
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $89.9 million for the Schuh Group and $10.4 million for Journeys
Group at February 3, 2018, and $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. The Company tests for impairment of
intangible assets with an indefinite life, relying on a number of factors including operating results,
business plans, projected future cash flows and observable market data. The impairment test for
identifiable assets not subject to amortization consists of a comparison of the fair value of the intangible
asset with its carrying amount.
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 third quarter of Fiscal 2018, the Company
identified qualitative indicators of impairment, including a significant decline in the Company's stock
price and market capitalization for a sustained period since the last consideration of indicators of
impairment in the second quarter of Fiscal 2018, underperformance relative to projected operating
results, particularly in the Lids Sports Group reporting unit, and an increased competitive environment in
the licensed sports business. The Company performed a full valuation of its reporting units as required
under ASC 350 and concluded the goodwill attributed to Lids Sports Group was fully impaired. As a
result, the Company recorded a non-cash impairment charge of $182.2 million in the third quarter of
Fiscal 2018. See Note 2 for additional information.
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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments at February 3, 2018 and
January 28, 2017 are:
In thousands
U.S. Revolver Borrowings
UK Term Loans
UK Revolver Borrowings
$
February 3, 2018
Fair
Value
Carrying
Amount
69,372 $
11,419
7,594
69,421 $
11,602
7,671
January 28, 2017
Fair
Value
Carrying
Amount
49,879 $
19,230
13,796
50,396
19,541
13,956
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.
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, the cost of transportation from the
Company’s warehouses to the stores and the cost of transportation from the Company's warehouses to
the customer. 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 from the warehouse to
the customer and (iii) costs of its distribution facilities which are allocated to its retail operations.
Wholesale costs of distribution are included in selling and administrative expenses in the amounts of
$5.8 million, $6.2 million and $9.6 million for Fiscal 2018, 2017 and 2016, respectively.
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
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 for which financial statements are updated. Gift
card breakage recognized as revenue was $1.6 million, $1.4 million and $1.2 million for Fiscal 2018,
2017 and 2016, respectively. The Consolidated Balance Sheets include an accrued liability for gift cards
of $18.1 million and $17.7 million at February 3, 2018 and January 28, 2017, 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 $467.4 million,
$451.9 million and $432.9 million for Fiscal 2018, 2017 and 2016, 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 costs of
distribution and shipping costs for product shipped from stores, 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, the definition of a
discontinued operation was amended. A discontinued operation may include a component of an entity or
a group of components of an entity that represent a strategic shift that has or will have a major effect on
an entity's operation or financial results. If stores or operating activities to be closed or exited constitute
a component or group of components that represent a strategic shift in the Company's operations, these
closures will be considered discontinued operations. The results of operations of discontinued
operations are presented retroactively, net of tax, as a separate component on the Consolidated
Statements of Operations. In each of the years presented, no store closings have met the discontinued
operations criteria.
Assets related to planned store closures or other exit activities are reflected as assets held for sale and
recorded at the lower of carrying value or fair value less costs to sell when the required criteria, as
defined by the Property, Plant and Equipment Topic of the Codification, are satisfied. Depreciation
ceases on the date that the held for sale criteria are met.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $85.7 million, $76.7
million and $73.7 million for Fiscal 2018, 2017 and 2016, respectively. Direct response advertising
costs for catalogs are capitalized in accordance with the Other Assets and Deferred Costs Topic for
Capitalized Advertising Costs of the Codification. Such costs are amortized over the estimated future
period as revenues are realized from such advertising, not to exceed six months. The Consolidated
Balance Sheets include prepaid assets for direct response advertising costs of $2.3 million at February 3,
2018 and $1.2 million at January 28, 2017.
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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Cooperative advertising costs recognized in selling and administrative expenses were $3.3 million, $3.6
million and $3.4 million for Fiscal 2018, 2017 and 2016, respectively. During Fiscal 2018, 2017 and
2016, 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. 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 $10.9 million, $8.5 million and $6.4 million for Fiscal 2018, 2017 and
2016, respectively. During Fiscal 2018, 2017 and 2016, the Company’s vendor reimbursements of
cooperative advertising 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 $0.0 million, $(1.2) million and $2.7 million for Fiscal
2018, 2017 and 2016, respectively.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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.
The fair value of employee restricted stock is determined based on the closing price of the Company's
stock on the date of grant. Forfeitures for restricted stock are recognized as they occur (see Note 12).
Other Comprehensive Income
ASC 220 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 February 3, 2018 consisted of $6.2 million
of cumulative pension liability adjustment, net of tax, a cumulative post retirement liability adjustment
of $2.2 million, net of tax, and a cumulative foreign currency translation adjustment of $20.8 million.
The following table summarizes the components of accumulated other comprehensive loss for the year
ended February 3, 2018:
(In thousands)
Balance January 28, 2017
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)
Stranded tax effect from tax reform (2)
Income tax expense
Current period other comprehensive income, net of tax
Foreign
Currency
Translation
Unrecognized
Pension/Postretir
ement Benefit
Costs
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
(40,329 ) $
(10,963 ) $
(51,292 )
18,024
1,497
—
—
—
—
19,521
—
—
5,654
973
(2,234 )
1,814
2,579
18,024
1,497
5,654
973
(2,234 )
1,814
22,100
Balance February 3, 2018
$
(20,808 ) $
(8,384 ) $
(29,192 )
(1) Amount is included in net periodic benefit cost, which is recorded in selling and administrative expense on the
Consolidated Statements of Operations.
(2) Amount reclassed to retained earnings.
69
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Business Segments
As required by ASC 280, companies should disclose “operating segments” based on the way
management disaggregates the Company’s operations for making internal operating decisions (see Note
14).
New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In February 2018, the FASB issued ASC 220, which allows a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Act. This
guidance is effective for all entities for fiscal years, and interim periods within those years, beginning
after December 15, 2018, with early adoption permitted. The amendments in ASC 220 should be
applied either in the period of adoption or retrospectively to each period in which the effect of the
change in the U.S. federal corporate income tax rate in the Act is recognized. The Company adopted
ASC 220 in the fourth quarter of Fiscal 2018 and reclassed $2.2 million to retained earnings for the
impact of stranded tax effects resulting from the Act.
In January 2017, the FASB issued ASU 2017-04. 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. The
Company adopted ASU 2017-04 in the first quarter of Fiscal 2018, and the Company measured goodwill
impairment in the third quarter of Fiscal 2018 under the provisions of ASU 2017-04.
In March 2016, the FASB issued ASC 718. 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 inclusion of excess tax benefits and deficiencies as a component of the
Company's income tax expense will increase volatility within its provision for income taxes as the
amount of excess tax benefits or deficiencies from share-based compensation awards is dependent on the
Company's stock price at the date the awards are exercised or settled which is primarily in the second
quarter of each fiscal year. The Company adopted ASC 718 in the first quarter of Fiscal 2018. The
Company recorded an excess tax deficiency of $2.2 million as an increase in income tax expense related
to share-based compensation for vested awards in Fiscal 2018. Earnings per share decreased $0.11 per
share for Fiscal 2018 due to the impact of ASC 718. The Company reclassified $3.4 million and $4.4
million from operating activities to financing activities on the Consolidated Statements of Cash Flows
for Fiscal 2017 and 2016, respectively, representing the value of the shares withheld for taxes on the
70
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
vesting of restricted stock. If the Company had adopted the standard in Fiscal 2017, reported earnings
per share would have decreased $0.03 per share for Fiscal 2017.
In November 2015, the FASB issued ASU 2015-17. ASU 2015-17 requires that all deferred tax assets
and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance
sheet. The Company adopted ASU 2015-17 in the first quarter of Fiscal 2018 under the retrospective
approach and, as such, the Company reclassified $21.2 million of deferred taxes from current to
noncurrent on its Consolidated Balance Sheets as of January 28, 2017.
In July 2015, the FASB issued ASC 330. ASC 330 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. The Company adopted ASC 330 in the first quarter of Fiscal
2018 and it did not have a material impact on its Consolidated Financial Statements and related
disclosures.
New Accounting Pronouncements Not Yet Adopted
In January 2018, the FASB released guidance on the accounting for tax on the GILTI provisions of the
Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible
assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to
GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods
subject to an accounting policy election. The Company has not yet made an accounting policy election in
regards to the GILTI provisions under the Act. The Company will make its GILTI accounting policy
election during the one-year measurement period as allowed by the SEC. No amounts have been
recorded in the Company's Fiscal 2018 financial statements for the impact of GILTI provisions.
In March 2017, the FASB issued ASC 715. The standard requires the sponsors of benefit plans to
present service cost in the same line item or items as other current employee compensation costs, and
present the remaining components of net benefit cost in one or more separate line items outside of
income from operations, while also limiting the components of net benefit cost eligible to be capitalized
to service cost. The standard will require the Company to present the non-service pension costs as a
component of expense below operating income. The standard is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted.
The Company does not expect the adoption of this standard to have a material impact on its
Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02. The standard's core principle is to increase
transparency and comparability among organizations by recognizing lease assets and liabilities on the
balance sheet and disclosing key information. The standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years, which would be the beginning
of our Fiscal 2020 or February 2019. Early adoption is permitted. The Company is currently assessing
the impact the adoption of ASU 2016-02 will have on its Consolidated Financial Statements and related
disclosures and is expecting a material impact because the Company is party to a significant number of
lease contracts.
71
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
In May 2014, the FASB issued ASC 606. ASC 606 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. ASC 606 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. ASC 606 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 standard 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.
Based on an evaluation of the standard as a whole, the Company has identified certain changes that are
expected to be made to its accounting policies, including: the timing of recognition of direct response
advertising expenses, whereby certain expenses that are currently amortized over their expected period
of future benefit will be expensed as incurred; and the timing of recognition of gift card breakage, in that
it will be recognized in revenue based on and in proportion to historical redemption patterns, rather than
the current practice of recognizing gift card breakage when the likelihood of redemption is considered
remote. The Company is continuing to assess all the impacts of the new standard and the design of
internal control over financial reporting; however, based upon the materiality of the transactions that are
impacted by the standard, adoption is not expected to have a material impact on its Consolidated
Financial Statements and related disclosures. The Company will adopt this guidance in the first quarter
of Fiscal 2019 using the modified retrospective approach.
72
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
Goodwill, Acquisitions, Other Intangible Assets and Sale of Businesses
Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
(In Thousands)
Balance, January 28, 2017
Impairment charge
Lids
Sports
Group
$ 181,628
(182,211 )
Schuh
Group
Journeys
Group
$79,769
—
$9,825 $
—
Total
Goodwill
271,222
(182,211 )
Effect of foreign currency exchange rates
583
10,146
568
$
11,297
Balance, February 3, 2018
$
—
$ 89,915
10,393
$
100,308
As required under ASC 350, the Company annually assesses its goodwill and indefinite lived trade
names for impairment and on an interim basis if indicators of impairment are present. The Company’s
annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
During the third quarter of Fiscal 2018, the Company identified qualitative indicators of impairment,
including a significant decline in the Company's stock price and market capitalization for a sustained
period since the last consideration of indicators of impairment in the second quarter of Fiscal 2018,
underperformance relative to projected operating results, particularly in the Lids Sports Group reporting
unit, and an increased competitive environment in the licensed sports business.
In accordance with ASC 350, when indicators of impairment are present on an interim basis, the
Company must assess whether it is “more likely than not” (i.e., a greater than 50% chance) that an
impairment has occurred. In our Fiscal 2017 annual evaluation of goodwill, the Company determined
that the fair value of the Lids Sports Group and Schuh Group reporting units exceeded the carrying
value of the reporting units’ assets by approximately 15% and 28%, respectively. Due to the identified
indicators of impairment during the the third quarter of Fiscal 2018, the Company determined that it was
"more likely than not" that an impairment had occurred and performed a full valuation of its reporting
units as required under ASC 350 and reconciled the aggregate fair values of the individual reporting
units to the Company’s market capitalization.
Based upon the results of these analyses, the Company concluded the goodwill attributed to Lids Sports
Group was fully impaired. As a result, the Company recorded a non-cash impairment charge of $182.2
million in the third quarter of Fiscal 2018.
In addition, as a result of the factors noted above, the Company evaluated the fair value of its trademarks
during the third quarter of Fiscal 2018. The fair value of trademarks was determined based on the
royalty savings approach. This analysis did not result in any trademark impairment.
73
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
Goodwill, Acquisitions, Intangible Assets and Sale of Businesses, Continued
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.
Other Intangible Assets
Other intangibles by major classes were as follows:
In thousands
Gross other intangibles
Accumulated amortization
Net Other Intangibles
Leases
Feb. 3,
2018
Jan. 28,
2017
$ 14,981 $ 14,625 $
(12,938 )
1,687 $
(13,714 )
1,267 $
$
Customer Lists
Feb. 3,
2018
2,130 $
(2,130 )
— $
Jan. 28,
2017
1,958 $
(1,956 )
2 $
Other*
Total
Feb. 3,
2018
2,122 $
(1,595 )
527 $
Jan. 28,
Jan. 28,
Feb. 3,
2017
2017
2018
2,009 $ 19,233 $ 18,592
(16,200 )
(1,306 )
(17,439 )
2,392
1,794 $
703 $
*Includes non-compete agreements, vendor contract and backlog.
The amortization of intangibles, including trademarks, was $0.2 million, $0.9 million and $2.9 million
for Fiscal 2018, 2017 and 2016, respectively. The amortization of intangibles, including trademarks,
will be $0.2 million for Fiscal 2019 and less than $0.1 million for Fiscal 2020, 2021, 2022 and 2023.
Sale of Businesses
On December 25, 2016, the Company completed the sale of all the stock of the Company's subsidiary,
Keuka Footwear, Inc., which operated the SureGrip occupational, slip-resistant footwear business within
the Licensed Brands Group, to Shoes for Crews, LLC. The Company recognized a gain on the sale, in
Fiscal 2017, of $(12.3) million, net of transaction-related expenses before tax.
On January 19, 2016, the Company completed the sale of the assets of the Lids Team Sports business,
which had operated within its Lids Sports Group segment, to BSN Sports, LLC. The Company
recognized a gain on the sale in Fiscal 2016 of $(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 sales of SureGrip Footwear and Lids Team Sports were not strategic shifts that would 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.
74
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
Asset Impairments and Other Charges and Discontinued Operations
Asset Impairments and Other Charges
In accordance with Company policy, assets are determined to be impaired when the impairment
indicators are identified and estimated future cash flows are insufficient to recover the carrying costs.
Impairment charges represent the excess of the carrying value over the estimated fair value of those
assets.
Asset impairment charges are reflected as a reduction of the net carrying value of property and
equipment, and in asset impairment and other, net in the accompanying Consolidated Statements of
Operations.
The Company recorded a pretax charge to earnings of $8.8 million in Fiscal 2018, including $5.2
million in licensing termination expenses, $2.7 million for retail store asset impairments and $0.9
million for hurricane losses.
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.
Discontinued Operations
In Fiscal 2018, Fiscal 2017 and Fiscal 2016, the Company recorded an additional charge to earnings of
$0.6 million ($0.4 million net of tax), $0.7 million ($0.4 million net of tax) and $1.3 million ($0.8
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).
75
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
Asset Impairments and Other Charges and Discontinued Operations, Continued
Accrued Provision for Discontinued Operations
In thousands
Balance 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
Additional provision Fiscal 2018
Charges and adjustments, net
Balance February 3, 2018*
Current provision for discontinued operations
Total Noncurrent Provision for Discontinued Operations
Facility
Shutdown
Costs
14,759
1,333
(473 )
15,619
701
(11,277 )
5,043
552
(1,986 )
3,609
1,902
1,707
$
$
*Includes a $3.0 million environmental provision, including $1.9 million in current provision for
discontinued operations.
Note 4
Inventories
In thousands
Raw materials
Wholesale finished goods
Retail merchandise
Total Inventories
February 3, 2018
— $
52,924
489,701
January 28, 2017
389
61,575
501,713
542,625
$
563,677
$
$
76
Table of Contents
Note 5
Fair Value
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 February 3, 2018 aggregated by the level in the fair value hierarchy within
which those measurements fall (in thousands):
Long-Lived
Assets
Held and Used
Level 1
Level 2
Level 3
Measured as of April 29, 2017
$
Measured as of July 29, 2017
Measured as of October 28, 2017
Measured as of February 3, 2018
Total Asset Impairment Fiscal 2018
14 $
—
251
494
— $
—
—
—
— $
—
—
—
Impairment
Charges
119
58
510
1,983
2,670
14 $
—
251
494
$
In accordance with the Property, Plant and Equipment Topic of the Codification, the Company recorded
$2.7 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 February 3, 2018. These
charges are reflected in asset impairments and other, net on the Consolidated Statements of Operations.
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.
77
Table of Contents
Note 6
Long-Term Debt
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
February 3,
2018
January 28,
2017
$
$
69,372 $
11,479
7,594
(60 )
88,385
1,766
86,619 $
49,879
19,345
13,796
(115 )
82,905
9,175
73,730
Long-term debt maturing during each of the next five fiscal years is $1.8 million, $17.2 million, $0.0
million, $0.0 million and $69.4 million, respectively.
The Company had $69.4 million of revolver borrowings outstanding under the Credit Facility at
February 3, 2018, which includes $14.8 million (£10.5 million) related to Genesco (UK) Limited and
$36.7 million (C$45.4 million) related to GCO Canada, and had $11.5 million (£8.1 million) in term
loans outstanding and $7.6 million (€6.1 million) in revolver loans outstanding under the U.K. Credit
Facilities (described below) at February 3, 2018. The Company had outstanding letters of credit of $11.3
million under the Credit Facility at February 3, 2018. These letters of credit support lease and insurance
indemnifications.
U. S. Credit Facility:
On January 31, 2018, the Company entered into the Fourth Amended and Restated Credit Agreement,
(the “Credit Facility”) by and among the Company, certain subsidiaries of the Company party thereto, as
other borrowers, with the lenders party thereto (the "Lenders") 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 $400.0 million revolving credit facility. The Credit Facility expires
January 31, 2023.
Deferred financing costs incurred of $1.4 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 (i) for the Company and the other borrowers formed in the U.S., a $70.0 million sublimit for
the issuance of letters of credit and a domestic swingline subfacility of up to $45.0 million, (ii) for GCO
Canada Inc., a revolving credit subfacility 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 a swingline subfacility of up to
$5.0 million, and (iii) for Genesco (UK) Limited, a revolving credit subfacility in an aggregate
78
Table of Contents
Note 6
Long-Term Debt, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
amount not to exceed $100.0 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 subfacilities 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 $200.0 million subject to, among other things, the receipt of commitments
for the increased amount. In connection with this increased facility, the Canadian revolving credit
subfacility may be increased by no more than $15.0 million and the UK revolving credit subfacility may
be increased by no more than $100.0 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
$600.0 million) or the "Borrowing Base", which generally is based on 90% of eligible inventory
(increased to 92.5% during fiscal months September through November) plus 85% of eligible wholesale
receivables plus 90% of eligible credit card and debit card receivables of the Company and the other
borrowers formed in the U.S. and GCO Canada Inc. less applicable reserves (the "Loan Cap"). If
requested by the Company and Genesco (UK) Limited and agreed to by the required percentage of
Lenders, the relevant assets of Genesco (UK) Limited will be included in the Borrowing Base, provided
that amounts borrowed by Genesco (UK) Limited based solely on its own borrowing base will be
limited to $100.0 million, subject to the increased facility as described above. At no time can the total
loans outstanding to Genesco (UK) Limited and to GCO Canada Inc. exceed 50% of the Loan Cap. In
the event that the availability for GCO Canada Inc. to borrow loans based solely on its own borrowing
base is completely utilized, GCO Canada Inc. will have the ability, subject to certain terms and
conditions, to obtain additional loans (but not to exceed its total revolving credit subfacility amount) to
the extent of the then unused portion of the domestic 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.
Collateral
The loans and other obligations under the Credit Facility are secured by a perfected first priority lien on,
and security interest in certain assets of the Company and certain subsidiaries of the Company, including
accounts receivable, inventory, payment intangibles, and deposit accounts and specifically excludes
intellectual property, equity interests, equipment, real estate and leaseholds interests. The assets of
Genesco (UK) Limited will not be pledged as collateral unless the UK borrowing base is established 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:
79
Table of Contents
Note 6
Long-Term Debt, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Domestic Facility:
(a) LIBOR (not to be less than zero) plus the applicable margin (based on average Excess Availability
(as defined below) during the prior quarter), or (b) the domestic Base Rate (defined as the highest 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 SubFacility:
For loans made in Canadian dollars, (a) the bankers’ acceptances (“BA”) rate (not to be less than zero)
plus the applicable margin, or (b) the Canadian Prime Rate (not to be less than zero) (defined as the
highest of the (i) Bank of America Canadian Prime Rate, and (ii) the BA rate for a one month interest
period plus 1.0%) plus the applicable margin.
For loans made in U.S. dollars, (a) LIBOR plus the applicable margin, or (b) the U.S. Index Rate (not to
be less than zero) (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:
LIBOR (not to be less than zero) plus the applicable margin.
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.
Canadian swingline loans - Canadian Prime Rate or U.S. Index Rate, plus the applicable margin.
The initial applicable margin for domestic Base Rate loans (including domestic swingline loans), U.S.
Index rate loans (including Canadian swingline loans) and Canadian Prime Rate loans (including
Canadian swingline loans) is 0.50% and the initial applicable margin for LIBOR loans, BA equivalent
loans and UK swingline loans is 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 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 (including Canadian swingline loans),
Canadian Prime Rate loans (including Canadian swingline 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.
80
Table of Contents
Note 6
Long-Term Debt, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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% of the Loan Cap. If and during such time as Excess Availability
is less than the greater of $25.0 million or 10% 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 $263.3 million at February 3,
2018. Because Excess Availability exceeded $25.0 million or 10% of the Loan Cap, the Company was
not required to comply with this financial covenant at February 3, 2018.
The Credit Facility also permits the Company to incur senior debt in an amount up to the greater of
$500.0 million or an amount that would not cause the Company's ratio of consolidated total
indebtedness to consolidated EBITDA to exceed 5.0:1.0 provided that certain terms and conditions are
met.
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 to certain material documents 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 for three
consecutive business days or if certain events of default occur 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.
81
Table of Contents
Note 6
Long-Term Debt, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
U.K. Credit Facility
In April 2017, Schuh Group Limited entered into an Amendment and Restatement Agreement which
amended the Form of Amended and Restated Facilities Agreement and Working Capital Facility Letter
("UK Credit Facilities") dated May 2015. The amendment includes a new Facility A of £1.0 million, a
Facility B of £9.4 million, a Facility C revolving credit agreement of £16.5 million, a working capital
facility of £2.5 million and an additional revolving credit facility, Facility D, of €7.2 million for its
operations in Ireland and Germany. The Facility A loan was paid off in 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. The Facility D
bears interest at EURIBOR plus 2.2% per annum and expires in September 2019.
The UK Credit Facilities contain certain covenants at the Schuh level including a minimum interest
coverage covenant of 4.50x and a maximum leverage covenant of 1.75x. The Company was in
compliance with all the covenants at February 3, 2018. 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 2031. 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 15 years. Generally,
most of the leases require the Company to pay taxes, insurance, maintenance costs and contingent
rentals based on sales. Approximately 2% of the Company’s leases contain renewal options.
Rental expense under operating leases of continuing operations was:
In thousands
Minimum rentals
Contingent rentals
Sublease rentals
Total Rental Expense
2018
2017
2016
$
$
278,197 $
9,443
(1,276 )
286,364 $
264,129 $
9,957
(1,863 )
272,223 $
255,083
11,044
(825 )
265,302
82
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 7
Commitments Under Long-Term Leases, Continued
Minimum rental commitments payable in future years are:
Fiscal Years
2019
2020
2021
2022
2023
Later years
Total Minimum Rental Commitments
In thousands
256,249
229,434
207,630
185,644
161,945
412,601
1,453,503
$
$
For leases that contain predetermined fixed escalations of the minimum rentals, the related rental
expense is recognized on a straight-line basis and the cumulative expense recognized on the straight-line
basis in excess of the cumulative payments is included in deferred rent and other long-term liabilities on
the Consolidated Balance Sheets. The Company occasionally receives reimbursements from landlords to
be used towards construction of the store the Company intends to lease.
Leasehold improvements are recorded at their gross costs including items reimbursed by landlords. The
reimbursements are recorded as deferred rent and amortized as a reduction of rent expense over the
initial lease term. Tenant allowances of $29.0 million and $25.4 million at February 3, 2018 and January
28, 2017, respectively, and deferred rent of $59.3 million and $51.9 million at February 3, 2018 and
January 28, 2017, respectively, are included in deferred rent and other long-term liabilities on the
Consolidated Balance Sheets.
83
Table of Contents
Note 8
Equity
Non-Redeemable Preferred Stock
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Class
Employees’ Subordinated
Convertible Preferred
Stated Value of Issued Shares
Employees’ Preferred Stock
Purchase Accounts
Total Non-Redeemable
Preferred Stock
Number of Shares
Amounts in Thousands
Shares
Authorized
2018
2017
2016
2018
2017
2016
5,000,000
36,671
37,646
38,196
$ 1,100
$ 1,129
$ 1,146
1,100
1,129
1,146
(48 )
(69 )
(69 )
$ 1,052
$ 1,060
$ 1,077
Subordinated Serial Preferred Stock:
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 January 31, 2015
Other stock conversions
Balance January 30, 2016
Other stock conversions
Balance January 28, 2017
Other stock conversions
Balance February 3, 2018
Non-Redeemable
Employees’
Preferred Stock
Employees’
Preferred
Stock
Purchase
Accounts
Total
Non-Redeemable
Preferred Stock
$
$
1,345 $
(199 )
1,146
(17 )
1,129
(29 )
1,100 $
(71 ) $
2
(69 )
—
(69 )
21
(48 ) $
1,274
(197 )
1,077
(17 )
1,060
(8 )
1,052
84
Table of Contents
Note 8
Equity, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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: February 3, 2018 – 20,392,253
shares; January 28, 2017 –20,354,272 shares. There were 488,464 shares held in treasury at February 3,
2018 and January 28, 2017. Each outstanding share is entitled to one vote. At February 3, 2018, common
shares were reserved as follows: 36,671 shares for conversion of preferred stock and 1,831,017 shares
for the Second Amended and Restated 2009 Genesco Inc. Equity Incentive Plan (the "2009 Plan").
For the year ended February 3, 2018, 356,224 shares of common stock were issued as restricted shares
as part of the 2009 Plan; 30,620 shares were issued to directors in exchange for their services; 50,957
shares were withheld for taxes on restricted stock vested in Fiscal 2018; 23,581 shares of restricted stock
were forfeited in Fiscal 2018; and 975 shares were issued in miscellaneous conversions of Employees’
Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired 275,300
shares of common stock at an average weighted market price of $58.71 for a total of $16.2 million.
For the year ended January 28, 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 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 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.
85
Table of Contents
Note 8
Equity, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 unless as of the date of the making of
any such Restricted Payment (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, and (b) either (i) the Borrowers (as defined in the Credit Facility) have pro
forma Excess Availability (as defined in the Credit Facility) for the prior 60 day period equal to or
greater than 20% of the Loan Cap (as defined in the Credit Facility), after giving pro forma effect to such
Restricted Payment, or (ii) (A) the Borrowers have pro forma Excess Availability for the prior 60 day
period of less than 20% of the Loan Cap but equal to or greater than 15% of the Loan Cap, after giving
pro forma effect to the Restricted Payment, 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, will be
equal to or greater than 1.0:1.0, and (c) after giving effect to such Restricted Payment, the Borrowers 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 2019.
86
Table of Contents
Note 8
Equity, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Changes in the Shares of the Company’s Capital Stock
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
Issue restricted stock
Shares repurchased
Other
Issued at February 3, 2018
Less shares repurchased and held in treasury
Outstanding at February 3, 2018
Common
Stock
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
356,224
(275,300 )
(42,943 )
20,392,253
488,464
19,903,789
Employees’
Preferred
Stock
44,836
—
—
—
—
(6,640 )
38,196
—
—
—
(550 )
37,646
—
—
(975 )
36,671
—
36,671
87
Table of Contents
Note 9
Income Taxes
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act
includes a number of changes to existing U.S. tax laws that impact the Company including the reduction
of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31,
2017. The Act also provides for a one-time transition tax on indefinitely reinvested foreign earnings and
the acceleration of depreciation for certain assets placed into service after September 27, 2017, as well
as prospective changes beginning in 2018, including the elimination of certain domestic deductions and
credits and additional limitations on the deductibility of executive compensation.
The Company recognized the income tax effects of the Act in its financial statements for the year ended
February 3, 2018 in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), which provides
SEC staff guidance for the application of ASC Topic 740, "Income Taxes" ("ASC 740"), in the reporting
period in which the Act was signed into law. As such, the Company’s financial results reflect the income
tax effects of the Act for which accounting under ASC 740 is incomplete but a reasonable estimate could
be determined. The Company did not identify items for which the income tax effects of the Act have not
been completed and a reasonable estimate could not be determined as of February 3, 2018.
The changes to existing U.S. tax laws as a result of the Act, which have the most significant impact on
the Company’s provision for income taxes as of February 3, 2018 are as follows:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the
years in which the temporary differences are expected to be recovered or paid. Accordingly, the
Company’s deferred tax assets and liabilities were adjusted to reflect the reduction in the U.S. corporate
income tax rate from 35% to 21%, resulting in a $5.3 million increase in income tax expense for the year
ended February 3, 2018 and a corresponding $5.3 million decrease in net deferred tax assets as of
February 3, 2018.
Transition Tax on Foreign Earnings
The Company recognized a provisional income tax expense of $4.5 million for the year ended February
3, 2018 related to the one-time transition tax on indefinitely reinvested foreign earnings. The
determination of the transition tax requires further analysis regarding the amount and composition of the
Company’s historical foreign earnings, the amount of foreign tax credits available and the ability to
utilize certain foreign tax credits, which is expected to be completed in the fiscal year ending February
2, 2019.
The adjustments to the deferred tax assets and liabilities and the liability for the transition tax on
indefinitely reinvested foreign earnings, including the analysis of the Company's ability to fully utilize
foreign tax credits associated with the transition tax, are provisional amounts estimated based on
information reviewed as of February 3, 2018. As the Company completes the analysis of the Act,
reviews all information, collects and prepares necessary data, and interprets any additional guidance,
adjustments may be made to the provisional amounts recorded as of February 3, 2018 that may
88
Table of Contents
Note 9
Income Taxes, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
materially impact the provision for income taxes. Any subsequent adjustment will be recorded to current
income tax expense in the fiscal year ending February 2, 2019 when the analysis is completed.
The components of earnings (loss) from continuing operations before income taxes is comprised of the
following:
In thousands
United States
Foreign
2018
$
(105,267 ) $
3,606
2017
129,819 $
21,595
2016
136,178
15,355
Total Earnings (Loss) from Continuing Operations before Income
Taxes
$
(101,661 ) $
151,414
$
151,533
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
2018
2017
2016
$
17,835 $
3,635
3,883
25,353
(8,721 )
(3,498 )
(3,365 )
(15,584 )
$
9,769 $
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
Discontinued operations were recorded net of income tax expense (benefit) of approximately $(0.2)
million, $(0.3) million and $(0.5) million in Fiscal 2018, 2017 and 2016, respectively.
As a result of the exercise of stock options and vesting of restricted stock during Fiscal 2017 and 2016,
the Company realized an additional income tax benefit of approximately $0.3 million and $0.2 million,
respectively. These tax benefits are reflected as an adjustment to additional paid-in capital prior to Fiscal
2018. In Fiscal 2018, the Company recognized additional income tax expense of $2.2 million due to the
write-off of deferred tax assets in excess of the benefits of the tax deduction resulting from share-based
compensation for vested awards as a component of the provision for income taxes following the
adoption of ASC 718 in the first quarter of Fiscal 2018.
89
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
Deferred tax assets and liabilities are comprised of the following:
In thousands
Identified intangibles
Prepaids
Convertible bonds
Tax over book depreciation
Gross deferred tax liabilities
Deferred rent
Pensions
Expense accruals
Uniform capitalization costs
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
February 3,
2018
January 28,
2017
$
$
(4,821 ) $
(2,226 )
(372 )
(6,167 )
(13,586 )
14,214
562
6,896
9,549
1,045
1,798
3,682
382
4,709
2,177
45,014
(6,351 )
38,663
25,077 $
(31,079 )
(3,274 )
(1,196 )
(16,241 )
(51,790 )
18,715
3,396
10,413
16,361
2,179
3,728
2,450
491
7,147
4,458
69,338
(4,305 )
65,033
13,243
The deferred tax balances have been classified in the Consolidated Balance Sheets as follows:
Net non-current asset
Net non-current liability
Net Deferred Tax Assets
2018
2017
25,077 $
—
25,077 $
13,372
(129 )
13,243
$
$
90
Table of Contents
Note 9
Income Taxes, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
Impact of statutory rate change
Goodwill impairment
Permanent items
Uncertain federal, state and foreign tax positions
Transition tax
Other
Effective Tax Rate
2018
33.72 %
(0.31 )
3.37
(1.32 )
(5.25 )
(35.69 )
(2.30 )
0.92
(4.39 )
1.64
(9.61 )%
2017
2016
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 %
The provision for income taxes resulted in an effective tax rate for continuing operations of (9.61)% for
Fiscal 2018, compared with an effective tax rate of 35.37% for Fiscal 2017. The tax rate for Fiscal 2018
was higher primarily due to the impact of the non-deductibility of a significant portion of the goodwill
impairment and by $9.8 million of one-time income tax expense related to the passage of the Act.
As of January 30, 2016, the Company had a federal net operating loss carryforward, which was assumed
in one of the prior year acquisitions, of $1.0 million. The loss carryforward related to the sale of
SureGrip Footwear, which was sold on December 25, 2016.
As of February 3, 2018, January 28, 2017 and January 30, 2016, the Company had state net operating
loss carryforwards of $0.9 million, $0.4 million and $0.5 million, respectively, which expire in fiscal
years 2021 through 2038.
As of February 3, 2018, January 28, 2017 and January 30, 2016, the Company had state tax credits of
$0.4 million, $0.4 million and $0.6 million, respectively. These credits expire in fiscal years 2019
through 2024.
As of February 3, 2018, January 28, 2017 and January 30, 2016, the Company had foreign net operating
loss carryforwards of $10.4 million, $7.3 million and $7.4 million, respectively, which have no
expiration.
As of February 3, 2018, the Company has provided a valuation allowance of approximately $6.4 million
on deferred tax assets associated primarily with foreign fixed assets for which management has
determined it is more likely than not that the deferred tax assets will not be realized. The $2.1 million
91
Table of Contents
Note 9
Income Taxes, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
net increase in the valuation allowance during Fiscal 2018 from the $4.3 million provided for as of
January 28, 2017 relates to increases of $1.1 million in foreign net operating losses and increases of $1.0
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.
Because of the transition tax on deemed repatriation required by the Act, the Company has been subject
to tax in Fiscal 2018 on the entire amount of its previously undistributed earnings from foreign
subsidiaries as of December 31, 2017. Beginning in 2018, the Act will generally provide a 100%
deduction for U.S. federal tax purposes of dividends received by the Company from its foreign
subsidiaries. However, the Company is currently evaluating the potential foreign and U.S. state tax
liabilities that would result from future repatriations, if any, and how the Act will affect the Company's
existing accounting position with regard to the indefinite reinvestment of undistributed foreign earnings.
The Company expects to complete this evaluation and determine the impact which the legislation may
have on its indefinite reinvestment assertion within the measurement period provided by SAB 118.
The Act establishes new tax rules designed to tax U.S. companies on GILTI earned by foreign
subsidiaries. Because of the complexity of the new GILTI tax rules, the Company is continuing to
evaluate this provision of the Act and the application of ASC 740. Therefore, the Company has not made
any adjustments related to potential GILTI tax in its Fiscal 2018 financial statements.
The methodology in ASC 740 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
2018, 2017 and 2016.
In thousands
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
2018
2017
2016
5,622 $
(15 )
(166 )
—
(1,740 )
3,701 $
14,639 $
(7,585 )
491
(742 )
(1,181 )
5,622 $
3,997
9,328
1,403
—
(89 )
14,639
$
$
The amount of unrecognized tax benefits as of February 3, 2018, January 28, 2017 and January 30, 2016
which would impact the annual effective rate if recognized were $0.6 million, $2.5 million and $3.9
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.
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Note 9
Income Taxes, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 $0.2 million
benefit and $0.0 million benefit, respectively, during Fiscal 2018, $0.8 million benefit and $0.0 million
benefit, respectively, during Fiscal 2017 and $0.6 million expense and $0.0 million benefit, respectively,
during Fiscal 2016. The Company recognized a liability for accrued interest and penalties of $0.4
million and $0.1 million, respectively, as of February 3, 2018, $0.6 million and $0.1 million,
respectively, as of January 28, 2017, and $1.5 million and $0.1 million, respectively, as of January 30,
2016. 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 ASC 740.
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 January 31, 2015 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 returns 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.
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
93
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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.
Change in Benefit Obligation
In thousands
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Plan settlements
Benefits paid
Actuarial loss
Benefit Obligation at End of Year
Pension Benefits
Other Benefits
2018
86,947 $
550
3,277
—
—
(7,811 )
2,072
85,035 $
2017
100,290 $
550
4,118
—
(13,862 )
(8,308 )
4,159
86,947 $
2018
8,943 $
903
354
159
—
(403 )
628
10,584 $
$
$
2017
6,826
704
286
158
—
(257 )
1,226
8,943
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
Change in Plan Assets
In thousands
Fair value of plan assets at beginning of year
Actual gain 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
2018
80,682 $
12,859
—
—
—
(7,811 )
85,730 $
695 $
2017
90,333 $
12,531
(13,874 )
—
—
(8,308 )
80,682
(6,265 ) $
2018
— $
—
—
244
159
(403 )
—
(10,584 ) $
2017
—
—
—
99
158
(257 )
—
(8,943 )
$
$
$
Amounts recognized in the Consolidated Balance Sheets consist of:
In thousands
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net Amount Recognized
Pension Benefits
Other Benefits
2018
695 $
—
—
695 $
2017
— $
—
(6,265 )
2018
— $
(393 )
(10,191 )
(6,265 ) $
(10,584 ) $
2017
—
(343 )
(8,600 )
(8,943 )
$
$
Amounts recognized in accumulated other comprehensive income consist of:
In thousands
Net loss
Total Recognized in Accumulated Other
Comprehensive Loss
$
$
Pension Benefits
Other Benefits
2018
8,314 $
2017
15,430 $
2018
3,008 $
2017
2,518
8,314
$
15,430
$
3,008
$
2,518
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
February 3,
2018
January 28,
2017
$
85,035 $
85,035
85,730
86,947
86,947
80,682
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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:
Losses
Net amortization
Net Periodic Benefit Cost
$
$
$
Pension Benefits
2017
2016
2018
550 $
3,277
(4,505 )
—
550 $
450 $
4,118
(5,641 )
2,456
4,263
(5,785 )
—
Other Benefits
2017
2016
2018
903 $
354
—
—
704 $
286
—
—
821
245
—
—
834
834 $
156 $
810
810 $
2,293 $
4,948
4,948 $
3,876 $
139
139 $
1,396 $
125
125 $
1,115 $
189
189
1,255
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 $
2018
(6,282 ) $
(834 )
(7,116 ) $
(6,960 ) $
2018
628
(139 )
489
1,885
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 $0.8 million and $0.0 million, respectively. The estimated net loss for the other postretirement
benefit plans that will be amortized from accumulated other comprehensive income into net periodic
benefit cost over the next fiscal year is $0.1 million.
Weighted-average assumptions used to determine benefit obligations
Discount rate
Rate of compensation increase
Pension Benefits
2017
2018
3.70 %
NA
3.95 %
NA
Other Benefits
2018
3.67 %
—
2017
3.98 %
—
For Fiscal 2018 and 2017, 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 2018 increased the accumulated benefit obligation by $1.9
million and increased the projected benefit obligation by $1.9 million. 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.
96
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
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
2017
2018
2016
2018
Other Benefits
2017
2016
3.95 %
4.30 %
3.55 %
3.98 %
4.04 %
3.31 %
6.05 %
NA
6.35 %
NA
6.35 %
NA
—
—
—
—
—
—
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 6.05% 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
2018
2017
8.0 %
5 %
2028
8.0 %
5 %
2027
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
$
$
274 $
1,654 $
222
1,470
The Company’s pension plan weighted average asset allocations as of February 3, 2018 and January
28, 2017, by asset category are as follows:
Asset Category
Cash
Equity securities
Debt securities
Total
Plan Assets
February 3,
2018
January 28,
2017
2 %
64 %
34 %
100 %
— %
65 %
35 %
100 %
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Defined Benefit Pension Plans and Other Postretirement Benefit Plans, Continued
The investment strategy of the trust is to ensure over the long-term an asset pool, that when combined
with Company contributions, will support benefit obligations to participants, retirees and beneficiaries.
Investment management responsibilities of plan assets are delegated to outside investment advisers
and overseen by an Investment Committee comprised of members of the Company’s senior management
that are appointed by the Board of Directors. The Company has an investment policy that provides
direction on the implementation of this strategy.
The investment policy establishes a target allocation for each asset class and investment manager. The
actual asset allocation versus the established target is reviewed at least quarterly and is maintained
within a +/- 5% range of the target asset allocation. Target allocations are 50% domestic equity, 13%
international equity, 35% fixed income and 2% cash investments.
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 February 3, 2018 and January 28, 2017, there were no Company related assets in the plan.
For level 1 securities in the fair value hierarchy, 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. For level 2 securities in the fair value hierarchy, the Company's pension assets are invested
principally in commingled funds. Commingled funds represent investment funds comprising multiple
individual financial instruments. The commingled funds held consist of securities such as equity or
debt. All underlying positions in these commingled funds are either exchange traded or measured using
observable inputs for similar instruments. The fair value of commingled funds is based on net asset
value ("NAV") per fund share (the unit of account), derived from the prices of the underlying securities
in the funds. These commingled funds can be redeemed at the measurement date NAV.
98
Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
February 3, 2018 and January 28, 2017.
February 3, 2018 (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 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
Cash Flows
Level 1
Level 2
Level 3
Total
— $
—
—
1,893
(47 )
1,846 $
11,076 $
44,013
28,795
—
—
83,884 $
— $
—
—
—
—
— $
11,076
44,013
28,795
1,893
(47 )
85,730
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
$
$
$
$
Return of Assets
There was no return of assets from the plan to the Company in Fiscal 2018 and no plan assets are
projected to be returned to the Company in Fiscal 2019.
Contributions
There was no Employee Retirement Income Security Act of 1974, as amended ("ERISA") cash
requirement for the plan in 2017 and none is projected to be required in 2018. It is the Company’s policy
to contribute enough cash to maintain at least an 80% funding level.
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
2019
2020
2021
2022
2023
2024 – 2028
Section 401(k) Savings Plan
Pension
Benefits
($ in millions)
$
Other
Benefits
($ in millions)
0.4
0.4
0.5
0.5
0.5
2.7
7.2 $
6.9
6.7
6.4
6.3
28.3
The Company has a Section 401(k) Savings Plan available to employees who have completed one
full year of service and are age 21 or older.
Since January 1, 2005, the Company has matched 100% of each employee’s contribution of up to 3% of
salary and 50% of the next 2% of salary. In addition, for those employees hired before December 31,
2004, who were eligible for the Company’s cash balance retirement plan before it was frozen, the
Company annually makes an additional contribution of 2 1/2 % of salary to each employee’s account.
In calendar 2005 and future years, participants are immediately vested in their contributions and the
Company’s matching contribution plus actual earnings thereon. The contribution expense to the
Company for the matching program was approximately $6.1 million for Fiscal 2018, $5.5 million for
Fiscal 2017 and $6.0 million for Fiscal 2016.
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Table of Contents
Note 11
Earnings Per Share
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
For the Year Ended
February 3, 2018
For the Year Ended
January 28, 2017
For the Year Ended
January 30, 2016
(In thousands, except
per share amounts)
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
Earnings (loss) from
continuing operations
$
(111,430 )
$
97,859
$
95,381
(111,430 )
19,218
$
(5.80 )
97,859
20,076
$
4.87
95,381
22,880
$
4.17
—
—
58
38
76
44
Basic EPS from continuing
operations
Income (loss) from
continuing operations
available to common
shareholders
Effect of Dilutive Securities
from continuing operations
Dilutive
share-based
awards(1)
Employees’
preferred
stock(2)
Diluted EPS from
continuing operations
Income (loss) from
continuing operations
available to common
shareholders plus assumed
conversions
$
(111,430 )
19,218
$
(5.80 ) $
97,859
20,172
$
4.85
$
95,381
23,000
$
4.15
(1) Due to the loss from continuing operations in Fiscal 2018, restricted share-based awards are excluded from the diluted
earnings per share calculation for Fiscal 2018.
(2) The Company’s Employees’ Subordinated Convertible Preferred Stock is convertible one for one to the Company’s common
stock. Due to the loss from continuing operations in Fiscal 2018, these shares are not assumed to be converted for Fiscal
2018. Because there are no dividends paid on this stock, these shares are assumed to be converted for Fiscal 2017 and 2016.
There were no outstanding options to purchase shares of common stock at the end of Fiscal 2018 and
2017. All outstanding options to purchase shares of common stock at the end of Fiscal 2016 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 275,300 shares at a cost of $16.2 million during Fiscal 2018. The
Company has $24.0 million remaining under its current $100.0 million share repurchase authorization.
The Company repurchased 2,155,869 shares at a cost of $133.3 million during Fiscal 2017. The
Company repurchased 2,383,384 shares at a cost of $144.9 million during Fiscal 2016.
101
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Note 12
Share-Based Compensation Plans
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Company’s stock-based compensation plans, as of February 3, 2018, are described below. The
Company recognizes compensation expense for share-based payments based on the fair value of the
awards as required by ASC 718.
Stock Incentive Plan
Under the 2009 Plan, which was originally effective 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 2009 Plan, 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 the plan primarily vest 25% per year over four years. Restricted
share grants deplete the shares available for future grants at a ratio of 2.0 shares per restricted share
grant.
For Fiscal 2018, 2017 and 2016, the Company did not recognize any stock option related share-based
compensation for its stock incentive plan as all such amounts were fully recognized in earlier periods.
The Company did not capitalize any share-based compensation cost.
The Company did not grant any stock options in Fiscal 2018, 2017 or 2016.
A summary of stock option activity and changes for Fiscal 2018, 2017 and 2016 is presented below:
Outstanding, January 31, 2015
Granted
Exercised
Forfeited
Outstanding, January 30, 2016
Granted
Exercised
Forfeited
Outstanding, January 28, 2017
Granted
Exercised
Forfeited
Outstanding, February 3, 2018
Exercisable, February 3, 2018
Options
Weighted-Average
Exercise Price
62,238 $
—
(35,542 )
—
26,696 $
—
(26,696 )
—
— $
—
—
—
— $
— $
37.38
—
36.81
—
38.13
—
38.13
—
—
—
—
—
—
—
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
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 2018, 2017 and 2016 was $0.0
million, $0.7 million and $0.9 million, respectively.
As of February 3, 2018, the Company does not have any options outstanding under its stock incentive
plan.
As of February 3, 2018, 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 2018, 2017 and 2016 was $0.0 million, $1.0 million and $1.3 million, respectively.
Restricted Stock Incentive Plans
Director Restricted Stock
The 2009 Plan permits grants to non-employee directors on such terms as the Board of Directors may
approve. Restricted stock awards were made to independent directors on the date of the annual meeting
of shareholders in each of Fiscal 2018, 2017 and 2016. 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 2018 grant was valued at $107,500 for the year, per director and Fiscal 2017 and 2016 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 2018, 2017 and 2016, the Company issued 22,185 shares, 13,734 shares and
12,978 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 2018, 2017 and
2016, the Company issued 8,435 shares, 8,758 shares and 6,791 shares, respectively, of Retainer Stock.
For Fiscal 2018, 2017 and 2016, the Company recognized $1.3 million, $1.4 million and $1.4 million,
respectively, of director restricted stock related share-based compensation in selling and administrative
expenses in the accompanying Consolidated Statements of Operations.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
Employee Restricted Stock
Under the 2009 Plan, the Company issued 356,224 shares, 236,364 shares and 219,404 shares of
employee restricted stock in Fiscal 2018, 2017 and 2016, respectively. Shares of employee restricted
stock issued in Fiscal 2018, 2017 and 2016 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 4,947 and 2,523 restricted stock units in Fiscal 2018 and 2017,
respectively, to certain employees at no cost that vest over three years. 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 $12.2 million, $12.1 million and $12.4 million for Fiscal 2018, 2017
and 2016, respectively.
A summary of the status of the Company’s nonvested shares of its employee restricted stock as of
February 3, 2018 is presented below:
Nonvested Restricted Shares
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
Granted
Vested
Withheld for federal taxes
Forfeited
Nonvested at February 3, 2018
Weighted-Average
Grant-Date
Fair Value
Shares
486,994 $
219,404
(141,795 )
(65,783 )
(27,221 )
471,599
236,364
(125,347 )
(55,563 )
(43,051 )
484,002
356,224
(125,190 )
(50,957 )
(23,999 )
640,080 $
66.70
66.43
60.08
60.62
69.31
69.26
65.99
67.23
67.52
70.60
68.27
32.00
68.94
68.87
55.90
48.37
As of February 3, 2018, there was $23.8 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 1.70 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 to employees in Fiscal 2016.
104
Table of Contents
Note 13
Legal Proceedings
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
105
Table of Contents
Note 13
Legal Proceedings, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 which was paid in May 2017. The Company's environmental insurance carrier has reimbursed
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 $3.0 million as of
February 3, 2018, $4.4 million as of January 28, 2017 and $14.5 million as of January 30, 2016. 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 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 2018, $0.6 million in Fiscal 2017
and $0.8 million in Fiscal 2016. 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 ("FLSA") and Ohio wages and hours
106
Table of Contents
Note 13
Legal Proceedings, Continued
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
law 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. On April 21, 2017, a
former employee of the same subsidiary filed a putative class and collective action, Ward v. Hat World,
Inc., in the Superior Court for the State of Washington, alleging violations of the FLSA and certain
Washington wages and hours laws, including, among others, failure to pay overtime to certain loss
prevention investigators, and seeking back pay, damages, attorneys' fees and other relief. A total of
seven loss prevention investigators elected to join the suit at the expiration of the opt-in period. The
Company has removed the case to federal court and the court has approved its transfer to the U.S.
District Court for the Southern District of Indiana. On May 19, 2017, two former employees of the
same subsidiary filed a putative class and collective action, Chen and Salas v. Genesco Inc., et al., in the
U.S. District Court for the Northern District of Illinois alleging violations of the FLSA and certain
Illinois and New York wages and hours laws, including, among others, failure to pay overtime to store
managers, and also seeking back pay, damages, statutory penalties, and declaratory and injunctive relief.
On March 8, 2018, the court granted the Company's motion to transfer venue to the U.S. District Court
for the Southern District of Indiana. On March 9, 2018, a former employee of the same subsidiary filed
a putative class action in the Superior Court of the Commonwealth of Massachusetts claiming violations
of the Massachusetts Overtime Law, M.G.L.C. 151§1A, by failing to pay overtime to employees
classified as store managers, and seeking restitution, an incentive award, treble damages, interest,
attorneys fees and costs. The Company disputes the material allegations in each of these complaints and
intends to defend the matters.
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. On March 5, 2018, the court issued a proposed statement of
decision in the first phase of the case, tentatively finding that the plaintiff is an "aggrieved employee"
with regard to meal period and rest break claims only, and not with respect to any other violations
alleged in the complaint and that she can represent other employees only with respect to meal and rest
break claims. The Company disputes the material allegations in the complaint and intends to continue
defending the matter.
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.
107
Table of Contents
Note 14
Business Segment Information
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
During Fiscal 2018, the Company operated five reportable business segments (not including corporate):
(i) Journeys Group, comprised of the Journeys, Journeys Kidz, Shi by Journeys and Little Burgundy
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; (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., which was terminated in January 2018; 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, bank fees, interest expense, interest income, asset impairment charges and other, including
major litigation and major lease terminations and goodwill impairment charges.
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Table of Contents
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Fiscal 2018
In thousands
Sales
Intercompany sales
Net sales to external customers
Segment operating income (loss)
Goodwill impairment*
Asset impairments and other**
Earnings (loss) from operations
Interest expense
Interest income
Earnings (loss) from continuing
operations before income taxes
Total assets***
Depreciation and amortization
Capital expenditures
Journeys
Schuh
Group
Group
$ 1,329,460 $ 403,698 $ 779,469 $
Lids
Sports
Group
Johnston
& Murphy
Group
304,160 $
$ 1,329,460
—
—
$ 403,698
76,094 $ 20,104 $
—
$ 779,469
$
11,684 $
$
—
—
—
—
—
—
76,094
—
—
20,104
—
—
11,684
—
—
—
$
304,160
20,047 $
—
—
20,047
—
—
Licensed
Brands
Corporate
& Other
89,812 $
89,809
(3 )
$
(163 ) $
—
—
(163 )
—
—
Consolidated
2,907,019
420 $
—
420
$
(32,963 ) $
(3 )
2,907,016
94,803
(182,211 )
(182,211 )
(8,841 )
(224,015 )
(5,420 )
8
(8,841 )
(96,249 )
(5,420 )
8
$
11,684
76,094
$ 20,104
$
$
$ 443,066 $ 239,479 $ 324,186 $
27,576
13,769
29,319
10,968
26,490
79,532
$
20,047
127,178 $
6,418
6,163
(163 ) $
32,331 $
688
421
(229,427 ) $
149,113 $
3,385
1,450
(101,661 )
1,315,353
78,326
127,853
*Goodwill impairment charge of $182.2 million relates to Lids Sports Group.
**Asset Impairments and other includes a $5.2 million charge for a licensing termination expense related to the Licensed Brands Group and a $2.7 million
charge for asset impairments, of which $1.0 million is in the Lids Sports Group, $1.0 million is in the Schuh Group and $0.7 million is in the Journeys
Group, and a $0.9 million charge for hurricane losses.
***Total assets for the Schuh Group and Journeys Group include $89.9 million and $10.4 million of goodwill, respectively. Goodwill for Schuh Group and
Journeys Group increased $10.1 million and $0.6 million, respectively, from January 28, 2017 due to foreign currency translation adjustments. Of the
Company's $382.6 million of long-lived assets, $57.5 million and $22.7 million relate to long-lived assets in the United Kingdom and Canada, respectively.
109
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Fiscal 2017
In thousands
Sales
Intercompany sales
Net sales to external customers
Lids
Sports
Group
Schuh
Group
Journeys
Group
$ 1,251,646 $ 372,872 $ 847,510 $ 289,324 $
—
$ 1,251,646 $ 372,872 $ 847,510 $ 289,324 $
—
—
—
Licensed
Brands
107,210 $
(838 )
106,372 $
Johnston
&
Murphy
Group
Corporate
& Other
Consolidated
2,869,179
(838 )
2,868,341
617 $
—
617 $
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
85,875
$
—
85,875
—
—
—
—
20,530
$
—
20,530
—
—
—
—
41,563
$
—
41,563
—
—
—
—
19,682
$
—
19,682
—
—
—
—
4,566
$
—
4,566
—
—
—
—
(31,058 ) $
802
(30,256 )
12,297
2,404
(5,294 )
47
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
Total assets**
$ 404,773
$ 214,886
$ 519,912
$ 126,559
Depreciation and amortization
Capital expenditures
24,235
50,259
14,003
11,236
26,533
21,123
$
5,987
9,221
40,357
$
995
760
134,512
$
4,015
1,371
1,440,999
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, from January 30, 2016 due to foreign currency
translation adjustments. Goodwill for Schuh Group decreased by $10.5 million from January 30, 2016 due to foreign currency translation adjustments.
Goodwill for Licensed Brands decreased $0.8 million from January 30, 2016 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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
Johnston
&
Murphy
Group
Lids
Journeys
Sports
Group
Group
$ 1,251,637 $ 405,674 $ 976,372 $ 278,681 $ 110,655 $
Licensed
Brands
Schuh
Group
—
—
(829 )
$ 1,251,637 $ 405,674 $ 975,504 $ 278,681 $ 109,826 $
$ 126,248 $ 19,124 $ 17,040 $ 17,761 $
(868 )
—
—
126,248
—
—
—
—
19,124
—
—
—
—
17,040
—
—
—
—
17,761
—
—
—
—
9,236
—
—
—
Corporate
& Other
Consolidated
912 $ 3,023,931
—
(1,697 )
912 $ 3,022,234
159,144
(7,893 )
151,251
4,685
(4,414 )
11
(38,158 )
4,685
(4,414 )
11
(7,893 )
9,236 $ (30,265 ) $
$ 19,124
$ 17,040
151,533
$ 126,248
$ 349,021 $ 241,924 $ 517,284 $ 118,913 $ 50,718 $ 262,197 $ 1,540,057
79,011
100,652
30,196
37,396
22,504
33,251
14,814
19,065
5,677
7,796
4,909
2,370
911
774
$ (37,876 ) $
$ 17,761
9,236
$
*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 the Lids Sports Group decreased $19.2 million from January 31, 2015 due to the sale of Lids Team Sports in
the fourth quarter of Fiscal 2016. Goodwill for Schuh Group decreased by $5.7 million from January 31, 2015 due to foreign currency translation
adjustments. Goodwill for Journeys Group increased $9.4 million from January 31, 2015 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.
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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 (loss)
from continuing
operations before
income taxes
Earnings (loss)
from continuing
operations
Net earnings
(loss)
Diluted earnings
(loss) per
common share:
Continuing
operations
Net earnings
(loss)
2018
2017
2018
2017
$ 643,368 $ 648,793
329,697
318,913
$ 616,506 $ 625,557
314,737
306,507
2018
$ 716,759
353,998
2017
$ 710,822
355,635
2018(a)
$ 930,383
436,704
2017
$ 883,169
417,457
2018(b)
2017
$ 2,907,016 $ 2,868,341
1,416,122 1,417,526
1,617
(1)
16,760
(3)
(3,259 ) (5)
21,199
(7)
(153,856 ) (9)
38,860
(10)
53,837
(11)
74,595
(13)
(101,661 )
151,414
997
(2)
885
10,564
(4)
10,410
(3,875 )
(3,948 ) (6)
14,504
(8)
14,578
(164,806 )
(164,821 )
25,948
56,254
46,843
25,895
(12)
56,045
(14)
46,548
(111,430 )
(111,839 )
97,859
97,431
0.05
0.50
0.05
0.50
(0.20 )
(0.21 )
0.72
0.72
(8.55 )
(8.56 )
1.30
1.30
2.91
2.90
2.40
2.39
(5.80 )
(5.82 )
4.85
4.83
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Includes a net asset impairment and other charge of $0.1 million (see Note 3). (a) 14 week period vs. 13
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3). weeks in prior period
Includes a net asset impairment and other charge of $3.5 million (see Note 3). (b) 53 week period vs. 52
Includes a loss of $0.2 million, net of tax, from discontinued operations (see Note 3). weeks in prior period
Includes a net asset impairment and other charge of $0.1 million (see Note 3).
Includes a loss of $0.1 million, net of tax, from discontinued operations (see Note 3).
Includes a net asset impairment and other 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 $1.4 million (see Note 3) and a goodwill impairment charge of
$182.2 million (see Note 2).
Includes a net asset impairment and other charge of $0.6 million (see Note 3).
Includes a net asset impairment and other charge of $7.2 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 $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).
Note 16
Subsequent Event
The potential sale of Lids Sports Group
The Company announced in February it is initiating a formal process to explore the sale of its Lids
Sports Group business. The Company's board of directors concluded through a strategic review process
that it is in the best interest of the Company and its shareholders to focus on its industry-leading
footwear businesses, which it believes is the optimal platform to deliver enhanced shareholder value
over the long term.
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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 February 3, 2018, 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 February 3, 2018. 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 February 3, 2018, 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. The report by Ernst & Young LLP is included in Item 8.
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.
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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 28, 2018, 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 28, 2018, 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 28, 2018, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of February 3, 2018 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)
(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)
4,907 $
—
4,907 $
—
—
—
1,831,017
—
1,831,017
(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.
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 28, 2018, 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 28, 2018, to be filed with the Securities and
Exchange Commission.
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ITEM 15, EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
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, February 3, 2018 and January 28, 2017
Consolidated Statements of Operations, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2018, 2017 and 2016
Consolidated Statements of Equity, each of the three fiscal years ended 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2018, 2017 and 2016
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 120.
Exhibits
(3)
(4)
(10)
a.
b.
a.
a.
b.
c.
d.
e.
f.
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).
Fourth Amended and Restated Credit Agreement, dated as of January 31, 2018, by and among
Genesco Inc., certain subsidiaries of Genesco Inc. party thereto, as other 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 February 2, 2018 (File No. 1-3083).
Amendment and Restatement Agreement dated April 28, 2017 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) a. to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 29, 2017 (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).
115
Table of Contents
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
x.
y.
z.
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).
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).*
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).
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).
116
Table of Contents
(21)
(23)
(24)
(31.1)
(31.2)
(32.1)
(32.2)
aa. 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 118.
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.
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)p and (10)v through (10)w are Management Contracts or Compensatory Plans
or Arrangements required to be filed as Exhibits to this Form 10-K.
* Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential
treatment has been granted with respect to the omitted portion.
A copy of any of the above described exhibits will be furnished to the shareholders upon written request, addressed to Director,
Corporate Relations, Genesco Inc., Genesco Park, Room 498, P.O. Box 731, Nashville, Tennessee 37202-0731, accompanied
by a check in the amount of $15.00 payable to Genesco Inc.
ITEM 16, FORM 10-K SUMMARY
None.
117
Table of Contents
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(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.,
(6) Registration statement (Form S-8 No. 333-180463) of Genesco Inc., and
(7) Registration statement (Form S-8 No. 333-281670) of Genesco Inc.
of our reports dated April 4, 2018, 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 February 3, 2018.
/s/ Ernst & Young LLP
Nashville, Tennessee
April 4, 2018
118
Table of Contents
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: April 4, 2018
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 8th day of February, 2018.
/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*
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Table of Contents
Genesco Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Schedule 2
Year Ended February 3, 2018
In Thousands
Allowances deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Allowance (1)
Year Ended January 28, 2017
In Thousands
Allowances deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Allowance (1)
Year Ended January 30, 2016
Beginning
Balance
Charged
to Profit
and Loss
Additions
(Reductions)
Ending
Balance
$
$
3,073 $
12,866 $
853 $
3,058 $
667 $
(2,660 ) $
4,593
13,264
Beginning
Balance
Charged
to Profit
and Loss
Reductions
Ending
Balance
$
$
2,960 $
11,632 $
442 $
3,322 $
(329 ) $
(2,088 ) $
3,073
12,866
In Thousands
Allowances deducted from assets in the balance sheet:
Accounts Receivable Allowances
Markdown Allowance (1)
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
(1) Reflects adjustment of merchandise inventories to realizable value. Charged to Profit and Loss column represents increases to
the allowance and the Reductions column represents decreases to the allowance based on quarterly assessments of the allowance,
except for Fiscal 2016, which also reflects $4.7 million write-off of Lids Team Sports markdown allowance due to its sale in January
2016.
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BOARD OF DIRECTORS
Joanna Barsh
Director Emeritus; Independent Consultant
McKinsey & Company
New York, New York
Member of the compensation, nominating and governance, and strategic alternatives 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
Marjorie L. Bowen
Retired Managing Director
Houlihan Lokey
Manhattan Beach, California
Member of the strategic alternatives committee
James W. Bradford
Retired Dean, Owen Graduate School of Management
Vanderbilt University
Nashville, Tennessee
Chairman of the nominating and governance and strategic alternatives committees, 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.
Member of the strategic alternatives committee
Kathleen Mason
Former President and Chief Executive Officer
Tuesday Morning Corporation
Dallas, Texas
Member of the audit committee
Kevin P. McDermott
Former Partner, KPMG LLP
Nashville, Tennessee
Chairman of the audit committee
Joshua E. Schechter
Retired Managing Director
Steel Partners Ltd.
Los Angeles, California
Member of the strategic alternatives committee
David M. Tehle
Retired Executive Vice President and Chief Financial Officer
Dollar General Corporation
Nashville, Tennessee
Member of the audit and strategic alternatives committees
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Table of Contents
CORPORATE OFFICERS
Robert J. Dennis
Chairman, President and Chief Executive Officer
14 years with Genesco
Mimi E. Vaughn
Senior Vice President - Chief Financial Officer
14 years with Genesco
David E. Baxter
Senior Vice President - Lids Sports Group
2 years with Genesco
Jonathan D. Caplan
Senior Vice President - Genesco Branded Group
25 years with Genesco
Parag Desai
Senior Vice President - Strategy and Shared Services
4 years with Genesco
Roger G. Sisson
Senior Vice President - Corporate Secretary and General Counsel
24 years with Genesco
Matthew N. Johnson
Vice President and Treasurer
25 years with Genesco
Paul D. Williams
Vice President and Chief Accounting Officer
41 years with Genesco
Photo Credits: Lifestyle and product photos provided by Genesco’s operating divisions. Permission is required for usage,
reproduction or distribution.
123
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