e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended July 30, 2011
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o |
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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)
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Tennessee Corporation
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62-0211340 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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Genesco Park, 1415 Murfreesboro Road |
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Nashville, Tennessee
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37217-2895 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (615) 367-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the past
90 days. Yes þ No o
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer; an
accelerated filer; a non-accelerated filer; or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act (check one:)
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if smaller reporting company.) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.) Yes o No þ
As of September 2, 2011, 24,180,553 shares of the registrants common stock were
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Genesco Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share amounts)
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July 30, |
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January 29, |
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July 31 |
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Assets |
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2011 |
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2011 |
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2010 |
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Current Assets |
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Cash and cash equivalents |
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$ |
35,582 |
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$ |
55,934 |
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$ |
49,037 |
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Accounts receivable, net of allowances of $4,876 at July 30, 2011,
$3,301 at January 29, 2011 and $3,501 at July 31, 2010 |
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43,305 |
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44,512 |
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31,005 |
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Inventories |
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474,951 |
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359,736 |
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377,380 |
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Deferred income taxes |
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20,357 |
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19,130 |
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17,824 |
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Prepaids and other current assets |
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60,689 |
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33,743 |
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42,314 |
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Total current assets |
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634,884 |
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513,055 |
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517,560 |
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Property and equipment: |
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Land |
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6,172 |
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4,863 |
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4,863 |
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Buildings and building equipment |
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20,787 |
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17,992 |
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17,992 |
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Computer hardware, software and equipment |
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107,010 |
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92,929 |
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89,779 |
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Furniture and fixtures |
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120,786 |
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105,056 |
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102,251 |
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Construction in progress |
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9,175 |
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9,109 |
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3,264 |
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Improvements to leased property |
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292,944 |
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279,295 |
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275,888 |
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Property and equipment, at cost |
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556,874 |
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509,244 |
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494,037 |
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Accumulated depreciation |
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(327,557 |
) |
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(310,553 |
) |
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(293,270 |
) |
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Property and equipment, net |
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229,317 |
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198,691 |
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200,767 |
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Deferred income taxes |
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17,560 |
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19,036 |
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14,255 |
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Goodwill |
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259,174 |
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153,301 |
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126,563 |
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Trademarks, net of accumulated amortization of
$1,712 at July 30, 2011, $1,151 at January 29, 2011 and
$620 at July 31, 2010 |
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79,891 |
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52,486 |
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52,716 |
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Other intangibles, net of accumulated amortization of
$11,857 at July 30, 2011, $10,565 at January 29, 2011 and
$9,439 at July 31, 2010 |
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16,980 |
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12,578 |
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9,518 |
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Other noncurrent assets |
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23,075 |
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11,935 |
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8,155 |
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Total Assets |
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$ |
1,260,881 |
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$ |
961,082 |
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$ |
929,534 |
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3
Genesco Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share amounts)
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July 30, |
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January 29, |
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July 31, |
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Liabilities and Equity |
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2011 |
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2011 |
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2010 |
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Current Liabilities |
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Accounts payable |
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$ |
197,653 |
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$ |
117,001 |
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$ |
165,466 |
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Accrued employee compensation |
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41,804 |
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38,188 |
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20,108 |
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Accrued other taxes |
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18,361 |
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17,289 |
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12,842 |
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Current portion long-term debt |
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5,113 |
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-0- |
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-0- |
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Accrued income taxes |
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2,870 |
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13,259 |
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-0- |
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Other accrued liabilities |
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49,353 |
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38,177 |
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33,750 |
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Provision for discontinued operations |
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9,308 |
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10,449 |
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11,935 |
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Total current liabilities |
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324,462 |
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234,363 |
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244,101 |
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Long-term debt |
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159,406 |
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-0- |
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-0- |
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Pension liability |
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13,143 |
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11,906 |
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17,651 |
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Deferred rent and other long-term liabilities |
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106,391 |
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83,406 |
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84,214 |
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Provision for discontinued operations |
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4,363 |
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4,586 |
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4,254 |
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Total liabilities |
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607,765 |
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334,261 |
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350,220 |
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Commitments and contingent liabilities |
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Equity |
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Non-redeemable preferred stock |
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5,160 |
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5,183 |
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5,197 |
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Common equity: |
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Common stock, $1 par value: |
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Authorized: 80,000,000 shares
Issued/Outstanding: |
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July 30, 2011 24,651,206/24,162,742
January 29, 2011 24,162,634/23,674,170
July 31, 2010 24,541,982/24,053,518 |
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24,651 |
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24,163 |
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24,542 |
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Additional paid-in capital |
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141,440 |
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131,910 |
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138,280 |
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Retained earnings |
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519,527 |
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505,224 |
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457,545 |
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Accumulated other comprehensive loss |
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(22,272 |
) |
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(24,305 |
) |
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(28,393 |
) |
Treasury shares, at cost |
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(17,857 |
) |
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(17,857 |
) |
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(17,857 |
) |
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Total Genesco equity |
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650,649 |
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624,318 |
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579,314 |
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Noncontrolling interest non-redeemable |
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2,467 |
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2,503 |
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-0- |
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Total equity |
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653,116 |
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626,821 |
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579,314 |
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Total Liabilities and Equity |
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$ |
1,260,881 |
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$ |
961,082 |
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$ |
929,534 |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
Genesco Inc.
and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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July 30, |
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July 31, |
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July 30, |
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July 31, |
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2011 |
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2010 |
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2011 |
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2010 |
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Net sales |
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$ |
470,591 |
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$ |
363,654 |
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$ |
952,093 |
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$ |
764,507 |
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Cost of sales |
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233,307 |
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179,610 |
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467,267 |
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372,392 |
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Selling and administrative expenses |
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235,286 |
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185,465 |
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456,059 |
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376,542 |
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Restructuring and other, net |
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347 |
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2,001 |
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1,591 |
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4,444 |
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Earnings (loss) from operations |
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1,651 |
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(3,422 |
) |
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27,176 |
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11,129 |
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Interest expense, net |
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Interest expense |
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1,097 |
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231 |
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1,613 |
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|
467 |
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Interest income |
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(16 |
) |
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(4 |
) |
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(18 |
) |
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(5 |
) |
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Total interest expense, net |
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1,081 |
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|
227 |
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1,595 |
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|
462 |
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|
Earnings (loss) from continuing operations
before income taxes |
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570 |
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(3,649 |
) |
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|
25,581 |
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|
10,667 |
|
Income tax expense (benefit) |
|
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220 |
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(1,253 |
) |
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10,256 |
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|
4,500 |
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Earnings (loss) from continuing operations |
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|
350 |
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|
(2,396 |
) |
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|
15,325 |
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|
6,167 |
|
Provision for discontinued operations, net |
|
|
(742 |
) |
|
|
(787 |
) |
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(924 |
) |
|
|
(734 |
) |
|
Net (Loss) Earnings |
|
$ |
(392 |
) |
|
$ |
(3,183 |
) |
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$ |
14,401 |
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$ |
5,433 |
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Basic earnings (loss) per common share: |
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Continuing operations |
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$ |
.01 |
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$ |
(.10 |
) |
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$ |
.66 |
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$ |
.26 |
|
Discontinued operations |
|
$ |
(.03 |
) |
|
$ |
(.04 |
) |
|
$ |
(.04 |
) |
|
$ |
(.03 |
) |
|
Net (loss) earnings |
|
$ |
(.02 |
) |
|
$ |
(.14 |
) |
|
$ |
.62 |
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$ |
.23 |
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|
Diluted earnings (loss) per common share: |
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|
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|
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|
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Continuing operations |
|
$ |
.01 |
|
|
$ |
(.10 |
) |
|
$ |
.65 |
|
|
$ |
.25 |
|
Discontinued operations |
|
$ |
(.03 |
) |
|
$ |
(.04 |
) |
|
$ |
(.04 |
) |
|
$ |
(.03 |
) |
|
Net (loss) earnings |
|
$ |
(.02 |
) |
|
$ |
(.14 |
) |
|
$ |
.61 |
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$ |
.22 |
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|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Genesco Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
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Three Months Ended |
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Six Months Ended |
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July 30, |
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July 31, |
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July 30, |
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July 31, |
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2011 |
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2010 |
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2011 |
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2010 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net (loss) earnings |
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$ |
(392 |
) |
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$ |
(3,183 |
) |
|
$ |
14,401 |
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$ |
5,433 |
|
Tax benefit of stock options exercised |
|
|
(3,558 |
) |
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-0- |
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|
|
(3,558 |
) |
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-0- |
|
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities: |
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Depreciation and amortization |
|
|
13,002 |
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|
|
11,625 |
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|
|
25,204 |
|
|
|
23,518 |
|
Amortization of deferred note expense and debt discount |
|
|
165 |
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|
|
104 |
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|
|
311 |
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|
|
208 |
|
Deferred income taxes |
|
|
1,531 |
|
|
|
163 |
|
|
|
318 |
|
|
|
(547 |
) |
Provision for losses on accounts receivable |
|
|
435 |
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|
7 |
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|
676 |
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|
|
305 |
|
Impairment of long-lived assets |
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|
313 |
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|
1,934 |
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|
|
1,060 |
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|
|
4,290 |
|
Restricted stock and share-based compensation |
|
|
1,641 |
|
|
|
2,004 |
|
|
|
3,237 |
|
|
|
3,715 |
|
Provision for discontinued operations |
|
|
1,224 |
|
|
|
1,301 |
|
|
|
1,524 |
|
|
|
1,213 |
|
Other |
|
|
240 |
|
|
|
626 |
|
|
|
589 |
|
|
|
972 |
|
Effect on cash from changes in working capital and other assets
and liabilities: |
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|
|
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|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5,085 |
|
|
|
(136 |
) |
|
|
5,498 |
|
|
|
(2,717 |
) |
Inventories |
|
|
(69,738 |
) |
|
|
(79,832 |
) |
|
|
(81,804 |
) |
|
|
(84,373 |
) |
Prepaids and other current assets |
|
|
(17,884 |
) |
|
|
(8,481 |
) |
|
|
(18,473 |
) |
|
|
(9,814 |
) |
Accounts payable |
|
|
53,567 |
|
|
|
53,361 |
|
|
|
67,279 |
|
|
|
72,681 |
|
Other accrued liabilities |
|
|
(6,018 |
) |
|
|
(3,425 |
) |
|
|
(25,746 |
) |
|
|
872 |
|
Other assets and liabilities |
|
|
(9,791 |
) |
|
|
(2,397 |
) |
|
|
(8,696 |
) |
|
|
(6,183 |
) |
|
Net cash (used in) provided by operating activities |
|
|
(30,178 |
) |
|
|
(26,329 |
) |
|
|
(18,180 |
) |
|
|
9,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(13,616 |
) |
|
|
(5,320 |
) |
|
|
(23,213 |
) |
|
|
(11,860 |
) |
Acquisitions, net of cash acquired |
|
|
(87,402 |
) |
|
|
(11,809 |
) |
|
|
(87,402 |
) |
|
|
(15,254 |
) |
Proceeds from assets sales |
|
|
23 |
|
|
|
-0- |
|
|
|
23 |
|
|
|
2 |
|
|
Net cash used in investing activities |
|
|
(100,995 |
) |
|
|
(17,129 |
) |
|
|
(110,592 |
) |
|
|
(27,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of capital leases |
|
|
-0- |
|
|
|
(19 |
) |
|
|
(21 |
) |
|
|
(60 |
) |
Payments of long-term debt |
|
|
(16,074 |
) |
|
|
(1,018 |
) |
|
|
(16,074 |
) |
|
|
(1,018 |
) |
Tax benefit of stock options exercised |
|
|
3,558 |
|
|
|
-0- |
|
|
|
3,558 |
|
|
|
-0- |
|
Shares repurchased |
|
|
-0- |
|
|
|
(9,616 |
) |
|
|
-0- |
|
|
|
(11,691 |
) |
Change in overdraft balances |
|
|
455 |
|
|
|
(2,422 |
) |
|
|
(2,823 |
) |
|
|
(3,278 |
) |
Borrowings under revolving credit facility |
|
|
151,000 |
|
|
|
-0- |
|
|
|
151,000 |
|
|
|
-0- |
|
Payments on revolving credit facility |
|
|
(33,519 |
) |
|
|
-0- |
|
|
|
(33,519 |
) |
|
|
-0- |
|
Dividends paid on non-redeemable preferred stock |
|
|
(49 |
) |
|
|
(49 |
) |
|
|
(98 |
) |
|
|
(98 |
) |
Exercise of stock options |
|
|
5,470 |
|
|
|
220 |
|
|
|
7,309 |
|
|
|
573 |
|
Deferred financing costs |
|
|
(846 |
) |
|
|
-0- |
|
|
|
(912 |
) |
|
|
-0- |
|
|
Net cash provided by (used in) financing activities |
|
|
109,995 |
|
|
|
(12,904 |
) |
|
|
108,420 |
|
|
|
(15,572 |
) |
|
Net decrease in cash and cash equivalents |
|
|
(21,178 |
) |
|
|
(56,362 |
) |
|
|
(20,352 |
) |
|
|
(33,111 |
) |
Cash and cash equivalents at beginning of period |
|
|
56,760 |
|
|
|
105,399 |
|
|
|
55,934 |
|
|
|
82,148 |
|
|
Cash and cash equivalents at end of period |
|
$ |
35,582 |
|
|
$ |
49,037 |
|
|
$ |
35,582 |
|
|
$ |
49,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,539 |
|
|
$ |
122 |
|
|
$ |
1,824 |
|
|
$ |
249 |
|
Income taxes |
|
|
26,439 |
|
|
|
12,707 |
|
|
|
38,573 |
|
|
|
13,167 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
Genesco Inc.
and Subsidiaries
Condensed Consolidated Statements of Equity
In Thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accum |
|
|
|
|
|
|
ling |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Non-Redeemable |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Compre- |
|
|
|
|
|
|
Non- |
|
|
Compre- |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
hensive |
|
|
Treasury |
|
|
Redeem- |
|
|
hensive |
|
|
Total |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
able |
|
|
Income |
|
|
Equity |
|
|
Balance January 30, 2010 |
|
$ |
5,220 |
|
|
$ |
24,563 |
|
|
$ |
146,981 |
|
|
$ |
452,210 |
|
|
$ |
(28,804 |
) |
|
$ |
(17,857 |
) |
|
$ |
-0- |
|
|
|
|
|
|
$ |
582,313 |
|
|
Net earnings |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
53,211 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
53,211 |
|
|
|
53,211 |
|
Dividends paid on non-redeemable preferred stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(197 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(197 |
) |
Exercise of stock options |
|
|
-0- |
|
|
|
118 |
|
|
|
2,105 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
2,223 |
|
Issue shares Employee Stock Purchase Plan |
|
|
-0- |
|
|
|
4 |
|
|
|
116 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
120 |
|
Employee and non-employee restricted stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
7,796 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
7,796 |
|
Share-based compensation |
|
|
-0- |
|
|
|
-0- |
|
|
|
210 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
210 |
|
Restricted stock issuance |
|
|
-0- |
|
|
|
423 |
|
|
|
(423 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Restricted shares withheld for taxes |
|
|
-0- |
|
|
|
(82 |
) |
|
|
(2,293 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,375 |
) |
Tax benefit of stock options and
restricted stock exercised |
|
|
-0- |
|
|
|
-0- |
|
|
|
1,342 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,342 |
|
Shares repurchased |
|
|
-0- |
|
|
|
(864 |
) |
|
|
(23,961 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(24,825 |
) |
Gain on foreign currency forward contracts
(net of tax of $0.1 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
166 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
166 |
|
|
|
166 |
|
Pension liability adjustment
(net of tax of $2.7 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
3,921 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
3,921 |
|
|
|
3,921 |
|
Postretirement liability adjustment
(net of tax benefit of $0.1 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(131 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
(131 |
) |
|
|
(131 |
) |
Foreign currency translation adjustment |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
543 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
543 |
|
|
|
543 |
|
Other |
|
|
(37 |
) |
|
|
1 |
|
|
|
37 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
Noncontrolling interest non-redeemable |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
2,503 |
|
|
|
-0- |
|
|
|
2,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,710 |
|
|
|
|
|
|
Balance January 29, 2011 |
|
|
5,183 |
|
|
|
24,163 |
|
|
|
131,910 |
|
|
|
505,224 |
|
|
|
(24,305 |
) |
|
|
(17,857 |
) |
|
|
2,503 |
|
|
|
|
|
|
|
626,821 |
|
|
Net earnings |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
14,401 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
14,401 |
|
|
|
14,401 |
|
Dividends paid on non-redeemable preferred stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(98 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(98 |
) |
Exercise of stock options |
|
|
-0- |
|
|
|
283 |
|
|
|
7,026 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
7,309 |
|
Employee and non-employee restricted stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
3,236 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
3,236 |
|
Share-based compensation |
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
Restricted stock issuance |
|
|
-0- |
|
|
|
304 |
|
|
|
(304 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Restricted shares withheld for taxes |
|
|
-0- |
|
|
|
(90 |
) |
|
|
(3,861 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(3,951 |
) |
Tax benefit of stock options and restricted
stock exercised |
|
|
-0- |
|
|
|
-0- |
|
|
|
3,399 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
3,399 |
|
Gain on foreign currency forward contracts
(net of tax of $0.0 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
63 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
63 |
|
|
|
63 |
|
Foreign currency translation adjustment |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,970 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,970 |
|
|
|
1,970 |
|
Other |
|
|
(23 |
) |
|
|
(9 |
) |
|
|
33 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
Noncontrolling interest earnings (loss) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(36 |
) |
|
|
-0- |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,434 |
|
|
|
|
|
|
Balance July 30, 2011 |
|
$ |
5,160 |
|
|
$ |
24,651 |
|
|
$ |
141,440 |
|
|
$ |
519,527 |
|
|
$ |
(22,272 |
) |
|
$ |
(17,857 |
) |
|
$ |
2,467 |
|
|
|
|
|
|
$ |
653,116 |
|
|
|
|
|
* |
|
Comprehensive income (loss) was $1.0 million and $(3.2) million for the second quarter
ended July 30, 2011 and July 31, 2010, respectively. Comprehensive income was $5.8 million
for the six months ended July 31, 2010. |
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Interim Statements
The condensed consolidated financial statements contained in this report are unaudited but
reflect all adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods of the fiscal year ending January
28, 2012 (Fiscal 2012) and of the fiscal year ended January 29, 2011 (Fiscal 2011). The
results of operations for any interim period are not necessarily indicative of results for
the full year. The interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Companys Annual Report on Form 10-K.
Nature of Operations
The Companys business includes the design and sourcing, marketing and distribution of
footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily
under the Journeys, Journeys Kidz, Shi by Journeys, Johnston & Murphy, and Underground
Station banners and under the newly acquired Schuh banner in the United Kingdom and the
Republic of Ireland; through e-commerce websites including journeys.com, journeyskidz.com,
shibyjourneys.com, undergroundstation.com, schuh.co.uk and johnstonmurphy.com, and at
wholesale, primarily under the Companys Johnston & Murphy brand and the Dockers brand, which
the Company licenses for mens footwear. The Companys business also includes Lids Sports,
which operates headwear and accessory stores in the U.S. and Canada primarily under the Lids,
Hat World and Hat Shack banners; the Lids Locker Room business, 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 primarily under the Lids Locker
Room, Sports Fan-Attic and Sports Avenue banners; certain e-commerce operations and an
athletic team dealer business operating as Lids Team Sports. Including both the footwear
businesses and the Lids Sports business, at July 30, 2011, the Company operated 2,380 retail
stores in the U.S., Puerto Rico, Canada, United Kingdom and the Republic of Ireland.
Principles of Consolidation
All subsidiaries are consolidated in the condensed consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
Financial Statement Reclassifications
Certain reclassifications have been made to conform prior years data to the current year
presentation. In the three months and six months ended July 31, 2010 Condensed Consolidated
Statements of Cash Flows, amortization of intangibles totaling approximately $0.5 million and
$0.7 million, respectively, were reclassified from other to depreciation and amortization
under adjustments to reconcile net (loss) earnings to net cash provided by operating
activities. Certain expenses previously allocated to the corporate segment have been
reallocated to operating segments beginning in Fiscal 2012. Segment operating income (loss)
for the three months and six months ended July 31, 2010 has been restated by operating
segment totaling $1.5 million and $3.0 million, respectively, with an offsetting increase to
corporate and other operating income to conform to the current year presentation (See Note
10).
8
Genesco Inc.
and Subsidiaries
Notes to Condensed 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 market. |
|
|
In its footwear wholesale operations, its Schuh Group segment and its Lids Sports Group
wholesale operations, except for the Anaconda Sports operation, cost is determined using the
first-in, first-out (FIFO) method. Market value is determined using a system of analysis
which evaluates inventory at the stock number level based on factors such as inventory turn,
average selling price, inventory level, and selling prices reflected in future orders. The
Company provides reserves when the inventory has not been marked down to market value based
on current selling prices or when the inventory is not turning and is not expected to turn
at levels satisfactory to the Company. |
|
|
The Lids Sports retail segment and its Anaconda Sports wholesale division employ the moving
average cost method for valuing inventories and apply freight using an allocation method.
The Company provides a valuation allowance for slow-moving inventory based on negative
margins and estimated shrink based on historical experience and specific analysis, where
appropriate. |
|
|
In its retail operations, other than the Schuh and Lids Sports 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. |
9
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
Inherent in the retail inventory method are subjective judgments and estimates, including
merchandise mark-on, markups, markdowns, and shrinkage. These judgments and estimates,
coupled with the fact that the retail inventory method is an averaging process, could
produce a range of cost figures. To reduce the risk of inaccuracy and to ensure consistent
presentation, the Company employs the retail inventory method in multiple subclasses of
inventory with similar gross margins, and analyzes markdown requirements at the stock number
level based on factors such as inventory turn, average selling price, and inventory age. In
addition, the Company accrues markdowns as necessary. These additional markdown accruals
reflect all of the above factors as well as current agreements to return products to vendors
and vendor agreements to provide markdown support. In addition to markdown provisions, the
Company maintains provisions for shrinkage and damaged goods based on historical rates. |
|
|
Inherent in the analysis of both wholesale and retail inventory valuation are subjective
judgments about current market conditions, fashion trends, and overall economic conditions.
Failure to make appropriate conclusions regarding these factors may result in an
overstatement or understatement of inventory value. |
|
|
Impairment of Long-Lived Assets |
|
|
The Company periodically reviews the carrying value of its long-lived assets and evaluates
such assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Asset impairment is determined to exist
if estimated future cash flows, undiscounted and without interest charges, are less than the
carrying amount. Inherent in the analysis of impairment are subjective judgments about
future cash flows. Failure to make appropriate conclusions regarding these judgments may
result in an overstatement or understatement of the value of long-lived assets. See also
Notes 3 and 5. |
|
|
The goodwill impairment test involves a two-step process. The first step is a comparison of
the fair value and carrying value of the reporting unit with which the goodwill is
associated. The Company estimates fair value using the best information available, and
computes the fair value by an equal weighting of the results arrived by a market approach
and an income approach utilizing discounted cash flow projections. The income approach uses
a projection of a business units estimated operating results and cash flows that is
discounted using a weighted-average cost of capital that reflects current market conditions.
The projection uses managements 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. |
10
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
If the carrying value of the reporting unit is higher than its fair value, there is an
indication that impairment may exist and the second step must be performed to measure the
amount of impairment loss. The amount of impairment is determined by comparing the implied
fair value of reporting unit goodwill to the carrying value of the goodwill in the same
manner as if the reporting unit was being acquired in a business combination. Specifically,
the Company would allocate the fair value to all of the assets and liabilities of the
reporting unit, including any unrecognized intangible assets, in a hypothetical analysis
that would calculate the implied fair value of goodwill. If the implied fair value of
goodwill is less than the recorded goodwill, the Company would record an impairment charge
for the difference. |
|
|
A key assumption in the Companys fair value estimate is the weighted average cost of
capital utilized for discounting its cash flow projections in its income approach. The
Company believes the rate it used in its annual test, which is completed in the fourth
quarter each year, was consistent with the risks inherent in its business and with industry
discount rates. |
|
|
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 9. The Company has made pretax
accruals for certain of these contingencies, including approximately $1.2 million in each of
the second quarters of Fiscal 2012 and 2011, and $1.6 million for the each of the first six
months of Fiscal 2012 and 2011. These charges are included in provision for discontinued
operations, net in the Condensed Consolidated Statements of Operations (see Note 3). The
Company monitors these matters on an ongoing basis and, on a quarterly basis, management
reviews the Companys reserves and accruals in relation to each of them, adjusting
provisions as management deems necessary in view of changes in available information.
Changes in estimates of liability are reported in the periods when they occur.
Consequently, management believes that its reserve in relation to each proceeding is a best
estimate of probable loss connected to the proceeding, or in cases in which no best estimate
is possible, the minimum amount in the range of estimated losses, based upon its analysis of
the facts and circumstances as of the close of the most recent fiscal quarter. However,
because of uncertainties and risks inherent in litigation generally and in environmental
proceedings in particular, there can be no assurance that future developments will not
require additional reserves to be set aside, that some or all reserves will be adequate or
that the amounts of any such additional reserves or any such inadequacy will not have a
material adverse effect upon the Companys financial condition or results of operations. |
11
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
Retail sales are recorded at the point of sale and are net of estimated returns and exclude
sales taxes. Catalog and internet sales are recorded at estimated time of delivery to the
customer and are net of estimated returns and exclude sales 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. |
|
|
As part of the process of preparing Condensed 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 Condensed 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 Condensed Consolidated Statements of Operations. |
|
|
Income tax reserves 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 Companys 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 1,000 hours of service in calendar year 2004, except
employees in the Lids Sports 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. |
12
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
As required by the Compensation Retirement Benefits Topic of the Codification, the
Company is required to recognize the overfunded or underfunded status of postretirement
benefit plans as an asset or liability in their Condensed 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 accounts for the defined benefit pension plans using the Compensation-Retirement
Benefits Topic of the Codification. As permitted under this topic, pension expense is
recognized on an accrual basis over employees approximate service periods. The calculation
of pension expense and the corresponding liability requires the use of a number of critical
assumptions, including the expected long-term rate of return on plan assets and the assumed
discount rate, as well as the recognition of actuarial gains and losses. Changes in these
assumptions can result in different expense and liability amounts, and future actual
experience can differ from these assumptions. |
|
|
The Company has share-based compensation plans 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. There was no share-based compensation for the
second quarter and first six months of Fiscal 2012. For the second quarter of Fiscal 2011,
share-based compensation expense was less than $0.1 million. The Company has not issued any
new share-based compensation awards since the first quarter of Fiscal 2008. For the second
quarters of Fiscal 2012 and 2011, restricted stock expense was $1.6 million and $2.0
million, respectively. For the first six months of Fiscal 2012 and 2011, share-based
compensation expense was less than $1,000 and $0.1 million, respectively. For the first six
months of Fiscal 2012 and 2011, restricted stock expense was $3.2 million and $3.6 million,
respectively. The benefits of tax deductions in excess of recognized compensation expense
are reported as a financing cash flow. |
|
|
The Company estimates the fair value of each option award on the date of grant using a
Black-Scholes option pricing model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation
expense, including expected stock price volatility. The Company bases expected volatility
on historical stock prices for a period that is commensurate with the expected term
estimate. The Company bases the risk free rate on an interest rate for a bond with a
maturity commensurate with the expected term estimate. The Company estimates the expected
term of stock options using historical exercise and employee termination experience. The
Company does not currently pay a dividend on common stock. The fair value of employee
restricted stock is determined based on the closing price of the Companys stock on the date
of the grant. |
13
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture
rate at the time of valuation (which is based on historical experience for similar options)
is a critical assumption, as it reduces expense ratably over the vesting period.
Share-based compensation expense is recorded based on a 2% expected forfeiture rate and is
adjusted annually for actual forfeitures. The Company reviews the expected forfeiture rate
annually to determine if that percent is still reasonable based on historical experience.
The Company believes its estimates are reasonable in the context of actual (historical)
experience. |
|
|
The Company did not grant any stock options for the three months and six months ended July
30, 2011 or July 31, 2010. During the three months and six months ended July 30, 2011, the
Company issued 289,407 shares of employee restricted stock at a grant date fair value of
$45.14 per share which vest over a four-year term. For the three months and six months
ended July 30, 2011, the Company issued 14,643 shares of director restricted stock at a
weighted average price of $43.01 which vest on the first anniversary of the grant date. During the three months and six
months ended July 31, 2010, the Company issued 404,995 shares of employee restricted stock
at a grant date fair value of $28.41 per share which vest over a four-year term. For the
three months and six months ended July 31, 2010, the Company issued 17,838 shares of
director restricted stock at a weighted average price of $30.27. |
Cash and Cash Equivalents
Included in cash and cash equivalents at July 30, 2011, January 29, 2011 and July 31, 2010
are marketable securities of $0.1 million, $29.8 million and $9.6 million, respectively.
Marketable securities are highly-liquid financial instruments having an original maturity of
three months or less. At July 30, 2011, substantially all of the Companys cash was invested
in deposit accounts at FDIC-insured banks. All of the Companys deposit account balances are
currently FDIC insured and will remain so through December 31, 2012 as a result of the
Dodd-Frank Wall Street Reform and Consumer Protection Act. The majority of payments due from
banks for customer credit card transactions process within 24 48 hours and are accordingly
classified as cash and cash equivalents.
At July 30, 2011, January 29, 2011 and July 31, 2010 outstanding checks drawn on zero-balance
accounts at certain domestic banks exceeded book cash balances at those banks by
approximately $33.3 million, $36.1 million and $28.6 million, respectively. These amounts are
included in accounts payable.
Concentration of Credit Risk and Allowances on Accounts Receivable
The Companys 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. The Companys Lids
Team Sports wholesale business sells primarily to college and high school athletic teams and
their fan bases. Including both footwear wholesale and Lids Team Sports receivables, one
customer accounted for 6% of the Companys total trade receivables balance, while no other
customer accounted for more than 5% of the Companys total trade receivables balance as of
July 30, 2011.
14
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
The Company establishes an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other information, as well as
customer specific factors. The Company also establishes allowances for sales returns,
customer deductions and co-op advertising based on specific circumstances, historical trends
and projected probable outcomes.
Property and Equipment
Property and equipment are recorded at cost and depreciated or amortized over the estimated
useful life of related assets. Depreciation and amortization expense are computed principally
by the straight-line method over the following estimated useful lives:
|
|
|
Buildings and building equipment
|
|
20-45 years |
Computer hardware, software and equipment
|
|
3-10 years |
Furniture and fixtures
|
|
10 years |
Leases
Leasehold improvements 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 Condensed 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 lesser of the life of the corresponding
improvement or lease term. Tenant allowances of $17.4 million, $18.4 million and $20.2
million at July 30, 2011, January 29, 2011 and July 31, 2010, respectively, and deferred rent
of $34.0 million, $33.0 million and $31.8 million at July 30, 2011, January 29, 2011 and July
31, 2010, respectively, are included in deferred rent and other long-term liabilities on the
Condensed Consolidated Balance Sheets.
15
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Goodwill and Other Intangibles
Under the provisions of the Intangibles Goodwill and Other Topic of the Codification,
goodwill and intangible assets with indefinite lives are not amortized, but are tested at
least annually, during the fourth quarter, for impairment. The Company will update the tests
between annual tests if events or circumstances occur that would more likely than not reduce
the fair value of the business unit with which the goodwill is associated below its carrying
amount. It is also required that intangible assets with finite lives be amortized over their
respective lives to their estimated residual values, and reviewed for impairment in
accordance with the Property, Plant and Equipment Topic of the Codification.
Intangible assets of the Company with indefinite lives are primarily goodwill and
identifiable trademarks acquired in connection with the acquisition of Schuh Group Ltd. in
June 2011 and Hat World Corporation in April 2004. The Condensed Consolidated Balance Sheets
include goodwill for the Lids Sports Group of $155.4 million, $103.0 million for the Schuh
Group and $0.8 million for Licensed Brands at July 30, 2011, Lids Sports Group of $152.5
million and $0.8 million for Licensed Brands at January 29, 2011 and $126.6 million for the
Lids Sports Group at July 31, 2010. The Company tests for impairment of intangible assets
with an indefinite life, at a minimum on an annual basis, relying on a number of factors
including operating results, business plans, projected future cash flows and observable
market data. The impairment test for identifiable assets not subject to amortization
consists of a comparison of the fair value of the intangible asset with its carrying amount.
The Company has not had an impairment charge for intangible assets.
Identifiable intangible assets of the Company with finite lives are primarily trademarks
acquired in connection with the acquisition of Hat Shack, Inc. in January 2007, Impact Sports
in November 2008, Great Plains Sports in September 2009, Sports Fan-Attic in November 2009,
Brand Innovators in May 2010, Anaconda Sports in August 2010, Keuka Footwear in August 2010
and Sports Avenue in October 2010, 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.
16
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Fair Value of Financial Instruments
The carrying amounts and fair values of the Companys financial instruments at July 30, 2011
and January 29, 2011 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, |
|
|
|
|
|
|
January 29, |
|
In thousands |
|
|
|
|
|
2011 |
|
|
|
|
|
|
2011 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
Revolver Borrowings |
|
$ |
117,481 |
|
|
$ |
117,481 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
UK Term Loans |
|
|
47,038 |
|
|
|
47,038 |
|
|
|
-0- |
|
|
|
-0- |
|
Carrying amounts reported on the Condensed 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 Companys retail operations, the cost of sales includes actual product cost, the cost
of transportation to the Companys warehouses from suppliers and the cost of transportation
from the Companys warehouses to the stores. Additionally, the cost of its distribution
facilities allocated to its retail operations is included in cost of sales.
For the Companys wholesale operations, the cost of sales includes the actual product cost
and the cost of transportation to the Companys warehouses from suppliers.
Selling and Administrative Expenses
Selling and administrative expenses include all operating costs of the Company excluding (i)
those related to the transportation of products from the supplier to the warehouse, (ii) for
its retail operations, those related to the transportation of products from the warehouse to
the store and (iii) costs of its distribution facilities which are allocated to its retail
operations. Wholesale and unallocated retail costs of distribution are included in selling
and administrative expenses in the amounts of $1.9 million and $1.2 million for the second
quarters of Fiscal 2012 and 2011, respectively, and $4.3 million and $2.4 million for the
first six months of Fiscal 2012 and 2011, respectively.
17
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Gift Cards
The Company has a gift card program that began in calendar 1999 for its Lids Sports
operations and calendar 2000 for its footwear operations. The gift cards issued to date do
not expire. As such, the Company recognizes income when: (i) the gift card is redeemed by
the customer; or (ii) the likelihood of the gift card being redeemed by the customer for the
purchase of goods in the future is remote and there are no related escheat laws (referred to
as breakage). The gift card breakage rate is based upon historical redemption patterns and
income is recognized for unredeemed gift cards in proportion to those historical redemption
patterns.
Gift card breakage is recognized in revenues each period. Gift card breakage recognized as
revenue was $0.1 million for each of the second quarters of Fiscal 2012 and 2011 and $0.2
million for each of the first six months of Fiscal 2012 and 2011. The Condensed Consolidated
Balance Sheets include an accrued liability for gift cards of $7.3 million, $9.0 million and
$6.6 million at July 30, 2011, January 29, 2011 and July 31, 2010, 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 Companys
gross margin may not be comparable to other retailers that include these costs in the
calculation of gross margin.
Shipping and Handling Costs
Shipping and handling costs related to inventory purchased from suppliers are included in the
cost of inventory and are charged to cost of sales in the period that the inventory is sold.
All other shipping and handling costs are charged to cost of sales in the period incurred
except for wholesale and unallocated retail costs of distribution, which are included in
selling and administrative expenses.
Preopening Costs
Costs associated with the opening of new stores are expensed as incurred, and are included in
selling and administrative expenses on the accompanying Condensed Consolidated Statements of
Operations.
18
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Store Closings and Exit Costs
From time to time, the Company makes strategic decisions to close stores or exit locations or
activities. If stores or operating activities to be closed or exited constitute components,
as defined by the Property, Plant and Equipment Topic of the Codification, and will not
result in a migration of customers and cash flows, these closures will be considered
discontinued operations when the related assets meet the criteria to be classified as held
for sale, or at the cease-use date, whichever occurs first. The results of operations of
discontinued operations are presented retroactively, net of tax, as a separate component on
the Condensed Consolidated Statements of Operations, if material individually or
cumulatively. To date, no store closings meeting the discontinued operations criteria have
been material individually or cumulatively.
Assets related to planned store closures or other exit activities are reflected as assets
held for sale and recorded at the lower of carrying value or fair value less costs to sell
when the required criteria, as defined by the Property, Plant and Equipment Topic of the
Codification, are satisfied. Depreciation ceases on the date that the held for sale criteria
are met.
Assets related to planned store closures or other exit activities that do not meet the
criteria to be classified as held for sale are evaluated for impairment in accordance with
the Companys 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 $8.4
million and $7.0 million for the second quarter of Fiscal 2012 and 2011, respectively, and
$18.1 million and $15.2 million for the first six months of Fiscal 2012 and 2011,
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 revenues realized from such
advertising, not to exceed six months. The Condensed Consolidated Balance Sheets include
prepaid assets for direct response advertising costs of $1.4 million, $1.1 million and $2.1
million at July 30, 2011, January 29, 2011 and July 31, 2010, respectively.
19
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Consideration to Resellers
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 retailers 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 all of the Companys 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 Companys cooperative advertising agreements require that wholesale
customers present documentation or other evidence of specific advertisements or display
materials used for the Companys 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 Companys cooperative advertising
agreements require that the amount of reimbursement requested for such advertising or
materials be supported by invoices or other evidence of the actual costs incurred by the
retailer. The Company accounts for these cooperative advertising costs as selling and
administrative expenses, in accordance with the Revenue Recognition Topic for Customer
Payments and Incentives of the Codification.
Cooperative advertising costs recognized in selling and administrative expenses were $0.8
million and $1.0 million for the second quarter of Fiscal 2012 and 2011, respectively, and
$1.7 million and $1.8 million for the first six months of Fiscal 2012 and 2011, respectively.
During the first six months of Fiscal 2012 and 2011, the Companys 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.
20
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 vendors 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 $0.9 million and $0.6 million for the second quarter of
Fiscal 2012 and 2011, respectively, and $1.8 million and $1.4 million for the first six
months of Fiscal 2012 and 2011, respectively. During the second quarter of Fiscal 2012 and
2011, the Companys cooperative advertising reimbursements received were not in excess of the
costs incurred.
Environmental Costs
Environmental expenditures relating to current operations are expensed or capitalized as
appropriate. Expenditures relating to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated and are evaluated independently of any future claims for
recovery. Generally, the timing of these accruals coincides with completion of a feasibility
study or the Companys commitment to a formal plan of action. Costs of future expenditures
for environmental remediation obligations are not discounted to their present value.
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 8).
21
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Other Comprehensive Income
The Comprehensive Income Topic of the Codification requires, among other things, the
Companys pension liability adjustment, postretirement liability adjustment, unrealized gains
or losses on foreign currency forward contracts and foreign currency translation adjustments
to be included in other comprehensive income net of tax. Accumulated other comprehensive
loss at July 30, 2011 consisted of $25.0 million of cumulative pension liability adjustments,
net of tax, and $0.1 million of cumulative postretirement liability adjustments, net of tax,
offset by a foreign currency translation adjustment of $2.8 million.
Business Segments
The Segment Reporting Topic of the Codification requires that companies disclose operating
segments based on the way management disaggregates the Companys operations for making
internal operating decisions (see Note 10).
Derivative Instruments and Hedging Activities
The Derivatives and Hedging Topic of the Codification requires an entity to recognize all
derivatives as either assets or liabilities in the Condensed Consolidated Balance Sheet and
to measure those instruments at fair value. Under certain conditions, a derivative may be
specifically designated as a fair value hedge or a cash flow hedge. The accounting for
changes in the fair value of a derivative are recorded each period in current earnings or in
other comprehensive income depending on the intended use of the derivative and the resulting
designation. The Company has entered into a small amount of foreign currency forward
exchange contracts in order to reduce exposure to foreign currency exchange rate fluctuations
in connection with inventory purchase commitments for its Johnston & Murphy Group.
Derivative instruments used as hedges must be effective at reducing the risk associated with
the exposure being hedged. The settlement terms of the forward contracts correspond with the
expected payment terms for the merchandise inventories. As a result, there is no hedge
ineffectiveness to be reflected in earnings.
The notional amount of such contracts outstanding at July 30, 2011, January 29, 2011 and July
31, 2010 were $-0-, $-0- and $0.9 million, respectively. For the six months ended July 30,
2011, the Company recorded an unrealized gain on foreign currency forward contracts of $0.1
million in accumulated other comprehensive loss, before taxes. The Company monitors the
credit quality of the major national and regional financial institutions with which it enters
into such contracts.
The Company estimates that the majority of net hedging gains related to forward exchange
contracts will be reclassified from accumulated other comprehensive loss into earnings
through lower cost of sales over the succeeding year.
22
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
New Accounting Principles
On July 30, 2011, the Company adopted the clarification and additional disclosure provisions
of Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2010-29, an
update to the FASB Codification Business Combination Topic. This update, which is applicable
to public entities, clarifies that required pro forma financial information should be
presented with an assumption that any current period acquisition occurred as of the beginning
of the comparable prior annual reporting period only. Additionally, this update expands the
supplemental pro forma disclosures to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma sales and earnings. The adoption of this
update did not have a significant impact on the Companys results of operations or financial
position.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, an update to the FASB
Codification Comprehensive Income Topic, which amends the existing accounting standards
related to the presentation of comprehensive income in a companys financial statements. This
update requires that all non-owner changes in shareholders equity be presented in either a
single continuous statement of comprehensive income or in two separate but consecutive
statements. In the two statement approach, the first statement would present total net
earnings and its components followed consecutively by a second statement that should present
total other comprehensive income, the components of other comprehensive income and the total
of comprehensive income. Under either presentation alternative, reclassification adjustments
and the effect of those adjustments on net earnings and other comprehensive income must be
presented in the respective statement or statements, as applicable. This update becomes
effective in periods beginning after December 15, 2011 and is required to be adopted
retrospectively. Early adoption is permitted. The Company is currently evaluating which of
the two presentation alternatives it will adopt, but it is not expected to have a significant
impact on the Companys results of operations or financial position.
23
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 2
Acquisitions and Intangible Assets
Schuh Acquisition
On June 23, 2011, the Company, through its newly-formed, wholly-owned subsidiary Genesco (UK)
Limited (Genesco UK), completed the acquisition of all the outstanding shares of Schuh
Group Ltd. (Schuh) for a total purchase price of approximately £100 million, less £29.5
million outstanding under existing Schuh credit facilities, which remain in place, less a
£1.9 million working capital adjustment plus £6.2 million net cash acquired with £5.0 million
withheld until satisfaction of certain closing conditions. The Company financed the
acquisition with borrowings under its existing credit facility and the balance from cash on
hand. The purchase agreement also provides for deferred purchase price payments totaling £25
million, payable £15 million and £10 million on the third and fourth anniversaries of the
closing, respectively, subject to the payees not having terminated their employment with
Schuh under certain specified circumstances. This amount will be recorded as compensation
expense and not reported as a component of the cost of the acquisition. During the three
months and six months ended July 30, 2011, compensation expense related to the Schuh
acquisition deferred purchase price obligation was $1.4 million. This expense is included in
the operating loss for the Schuh Group segment.
Headquartered in Scotland, Schuh is a specialty retailer of casual and athletic footwear sold
through 59 retail stores in the United Kingdom and the Republic of Ireland and 16 concessions
in Republic apparel stores as of July 30, 2011. The Company believes the acquisition will
enhance its strategic development and prospects for growth and provide the Company with an
established retail presence in the United Kingdom and improved insight into global fashion
trends. The results of Schuhs operations from the date of acquisition through July 30, 2011
of net sales of $34.0 million and an operating loss of $(0.1) million have been included in
the Companys Condensed Consolidated Financial Statements for the period ended July 30, 2011.
During the three months and six months ended July 30, 2011, the Company expensed $6.4
million and $7.2 million, respectively, in costs related to the acquisition. These costs
were recorded as selling and administrative expenses on the Condensed Consolidated Statements
of Operations.
24
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 2
Acquisitions and Intangible Assets, Continued
The acquisition has been accounted for using the purchase method in accordance with the
amended Business Combinations Topic of the Codification. Accordingly, the total purchase
price has been allocated to the assets acquired and liabilities assumed based on their
estimated fair values at acquisition as follows (amounts in thousands):
At June 23, 2011
|
|
|
|
|
Cash |
|
$ |
24,835 |
|
Accounts Receivable |
|
|
4,923 |
|
Inventories |
|
|
32,179 |
|
Other current assets |
|
|
8,403 |
|
Property and equipment |
|
|
31,143 |
|
Unamortizable intangible assets (indefinite-lived trademarks) |
|
|
27,223 |
|
Amortizable intangibles |
|
|
5,626 |
|
Goodwill |
|
|
101,731 |
|
Accounts payable |
|
|
(16,196 |
) |
Other current liabilities |
|
|
(27,033 |
) |
Long-term debt (includes current portion) |
|
|
(62,562 |
) |
Other non-current liabilities |
|
|
(14,268 |
) |
|
|
|
|
Net Assets Acquired |
|
$ |
116,004 |
|
|
|
|
|
The trademarks acquired include the concept names and are deemed to have an indefinite life.
Finite-lived intangibles include a $1.7 million customer list, a $3.1 million asset to
reflect the adjustment of acquired leases to market and a vendor contract of $0.8 million.
The weighted average amortization period for the asset to adjust acquired leases to market is
3.9 years. The weighted average amortization period for customer lists is 4.6 years.
The recorded amounts above are provisional and subject to change. Specifically, the
following items are subject to change:
|
- |
|
Amounts for intangibles pending finalization of valuation efforts for acquired
intangible assets. |
|
- |
|
Amounts for income tax assets, receivables and liabilities pending receipt of Schuhs
pre-acquisition tax information, which may change certain estimates and assumptions
used. |
Goodwill is calculated as the excess of the consideration transferred over the net assets
recognized and represents the future economic benefits arising from other assets acquired
that could not be individually identified and separately recognized. Specifically, the
goodwill recorded as part of the acquisition of Schuh includes the expected purchasing
synergies and other benefits that result from combining the Schuh business with the Company,
improved insight into global fashion trends, any intangible assets that do not qualify for
separate recognition and an acquired assembled workforce. The goodwill related to the Schuh
acquisition is not deductible for tax purposes.
25
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 2
Acquisitions and Intangible Assets, Continued
The following pro forma information presents the results of operations of the Company as if
the Schuh acquisition had taken place at the beginning of Fiscal 2011 or January 31, 2010.
Pro forma adjustments have been made to reflect additional interest expense from the $89.0
million in debt associated with the acquisition, interest expense on the acquired debt,
amortization of intangible assets and the related income tax effects. Pro forma earnings for
the six months ended July 30, 2011 have been adjusted to exclude $7.2 million of costs
related to the acquisition.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended - |
|
|
Six Months Ended - |
|
|
|
Pro forma |
|
|
Pro forma |
|
In thousands, except per share data |
|
July 30, 2011 |
|
|
July 31, 2010 |
|
|
Net sales |
|
$ |
1,044,373 |
|
|
$ |
859,206 |
|
|
Earnings from continuing operations |
|
|
16,284 |
|
|
|
2,204 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.70 |
|
|
$ |
0.09 |
|
Diluted |
|
$ |
0.69 |
|
|
$ |
0.09 |
|
The pro forma results have been prepared for comparative purposes only and do not purport to
be indicative of the results of operations that would have occurred had the Schuh acquisition
occurred at the beginning of Fiscal 2011.
Intangible Assets
Other intangibles by major classes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases |
|
|
Customer Lists |
|
|
Other* |
|
|
Total |
|
|
|
Jul. 30, |
|
|
Jan. 29, |
|
|
Jul. 30, |
|
|
Jan 29, |
|
|
Jul. 30, |
|
|
Jan. 29, |
|
|
Jul. 30, |
|
|
Jan. 29, |
|
(In Thousands) |
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
Gross other intangibles |
|
$ |
12,995 |
|
|
$ |
9,837 |
|
|
$ |
13,924 |
|
|
$ |
12,206 |
|
|
$ |
1,918 |
|
|
$ |
1,100 |
|
|
$ |
28,837 |
|
|
$ |
23,143 |
|
Accumulated amortization |
|
|
(8,823 |
) |
|
|
(8,482 |
) |
|
|
(2,308 |
) |
|
|
(1,480 |
) |
|
|
(726 |
) |
|
|
(603 |
) |
|
|
(11,857 |
) |
|
|
(10,565 |
) |
|
Net Other Intangibles |
|
$ |
4,172 |
|
|
$ |
1,355 |
|
|
$ |
11,616 |
|
|
$ |
10,726 |
|
|
$ |
1,192 |
|
|
$ |
497 |
|
|
$ |
16,980 |
|
|
$ |
12,578 |
|
|
|
|
|
* |
|
Includes non-compete agreements, vendor contract and backlog. |
The amortization of intangibles was $1.0 million and $0.5 million for the second quarter of
Fiscal 2012 and 2011, respectively. The amortization of intangibles was $1.9 million and
$0.7 million for the first six months of Fiscal 2012 and 2011, respectively. The
amortization of intangibles will be $4.5 million, $4.1 million, $3.1 million, $2.2 million
and $1.6 million for Fiscal 2012, 2013, 2014, 2015 and 2016, respectively.
26
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 3
Restructuring and Other Charges and Discontinued Operations
Restructuring and Other Charges
In accordance with Company policy, assets are determined to be impaired when the revised
estimated future cash flows are insufficient to recover the carrying costs. Impairment
charges represent the excess of the carrying value over the fair value of those assets.
Asset impairment charges are reflected as a reduction of the net carrying value of property
and equipment, and in restructuring and other, net in the accompanying Condensed Consolidated
Statements of Operations.
The Company recorded a pretax charge to earnings of $0.4 million in the second quarter of
Fiscal 2012, primarily for retail store asset impairments. The Company recorded a pretax
charge to earnings of $1.6 million in the first six months of Fiscal 2012, including $1.1
million for retail store impairments, $0.4 million for network intrusion expenses and $0.1
million for other legal matters.
The Company recorded a pretax charge to earnings of $2.0 million in the second quarter of
Fiscal 2011, including $1.9 million in retail store asset impairments and $0.1 million for
other legal matters. The Company recorded a pretax charge to earnings of $4.4 million in the
first six months of Fiscal 2011, including $4.3 million in retail store asset impairments and
$0.1 million for other legal matters.
Discontinued Operations
Accrued
Provision for Discontinued Operations
|
|
|
|
|
|
|
Facility |
|
|
|
Shutdown |
|
In thousands |
|
Costs |
|
|
Balance January 30, 2010 |
|
$ |
15,414 |
|
Additional provision Fiscal 2011 |
|
|
2,203 |
|
Charges and adjustments, net |
|
|
(2,582 |
) |
|
Balance January 29, 2011 |
|
|
15,035 |
|
Additional provision Fiscal 2012 |
|
|
1,524 |
|
Charges and adjustments, net |
|
|
(2,888 |
) |
|
Balance July 30, 2011* |
|
|
13,671 |
|
Current provision for discontinued operations |
|
|
9,308 |
|
|
Total Noncurrent Provision for Discontinued Operations |
|
$ |
4,363 |
|
|
|
|
|
* |
|
Includes a $14.2 million environmental provision, including $9.8 million in current
provision for discontinued operations. |
27
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 4
Inventories
|
|
|
|
|
|
|
|
|
|
|
July 30, |
|
|
January 29, |
|
In thousands |
|
2011 |
|
|
2011 |
|
|
Raw materials |
|
$ |
21,358 |
|
|
$ |
11,952 |
|
Goods in process |
|
|
1,269 |
|
|
|
338 |
|
Wholesale finished goods |
|
|
48,329 |
|
|
|
47,866 |
|
Retail merchandise |
|
|
403,995 |
|
|
|
299,580 |
|
|
Total Inventories |
|
$ |
474,951 |
|
|
$ |
359,736 |
|
|
Note 5
Fair Value
The Fair Value Measurements and Disclosures Topic of the Codification defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value measurements. This Topic
defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement
date. It also establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
A financial asset or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
28
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 5
Fair Value, Continued
The following table presents the Companys assets and liabilities measured at fair value on a
nonrecurring basis for the six month period ended July 30, 2011 aggregated by the level in
the fair value hierarchy within which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Held and Used |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Losses |
|
Measured as of April 30, 2011 |
|
$ |
548 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
548 |
|
|
$ |
747 |
|
Measured as of July 30, 2011 |
|
$ |
189 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
189 |
|
|
$ |
313 |
|
In accordance with the Property, Plant and Equipment Topic of the Codification, the Company
recorded $0.3 million and $1.1 million of impairment charges as a result of the fair value
measurement of its long-lived assets held and used on a nonrecurring basis during the three
months and six months ended July 30, 2011. These charges are reflected in restructuring and
other, net on the Condensed Consolidated Statements of Operations.
The Company used a discounted cash flow model to estimate the fair value of these long-lived
assets at July 30, 2011. Discount rate and growth rate assumptions are derived from current
economic conditions, expectations of management and projected trends of current operating
results. As a result, the Company has determined that the majority of the inputs used to
value its long-lived assets held and used are unobservable inputs that fall within Level 3 of
the fair value hierarchy.
Note 6
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
July 30, |
|
|
January 29, |
|
In thousands |
|
2011 |
|
|
2011 |
|
|
Revolver borrowings |
|
$ |
117,481 |
|
|
$ |
-0- |
|
UK term loans |
|
|
47,038 |
|
|
|
-0- |
|
|
Total long-term debt |
|
|
164,519 |
|
|
|
-0- |
|
Current portion |
|
|
5,113 |
|
|
|
-0- |
|
|
Total Noncurrent Portion of Long-Term Debt |
|
$ |
159,406 |
|
|
$ |
-0- |
|
|
Long-term debt maturing during each of the next five years ending July is $5.1 million, $5.7
million, $5.7 million, $6.0 million and $142.0 million.
29
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
Credit Agreement:
On June 23, 2011, the Company entered into a First Amendment (the Amendment) to the Second
Amended and Restated Credit Agreement (the Credit Facility) dated January 21, 2011 by and
among the Company, certain subsidiaries of the Company party thereto, as other borrowers, the
lenders party thereto and Bank of America, N.A., as administrative agent and collateral
agent. The Amendment raised the aggregate principal amount on the credit facility to $405.0
million from $300.0 million. The Credit Facility was amended to permit the Schuh acquisition
(see Note 2). The Credit Facility expires January 21, 2016.
Deferred financing costs incurred of $2.9 million related to the Credit Facility were
capitalized and are being amortized over five years. Deferred financing costs incurred of
$0.7 million related to the Amendment were also capitalized and are being amortized over five
years. These costs are included in other non-current assets on the Consolidated Balance
Sheets.
The Company had $117.5 million revolver borrowings outstanding under the Credit Facility at
July 30, 2011 and $47.0 million in term loans outstanding under the U.K. Credit Facility
(described below). The Company had outstanding letters of credit of $10.2 million under the
Credit Facility at July 30, 2011. These letters of credit support product purchases and
lease and insurance indemnifications.
The material terms of the Credit Facility, as amended, are as follows:
Availability
The amended Credit Facility is a revolving credit facility in the aggregate principal amount
of $405.0 million, with a $40.0 million swingline loan sublimit, a $70.0 million sublimit for
the issuance of standby letters of credit, a Canadian sub-facility of up to $8.0 million and
a Tranche A-1 sublimit of up to $30.0 million. The facility has a five-year term. Any
swingline loans and any letters of credit and borrowings under the Canadian facility will
reduce the availability under the Credit Facility on a dollar-for-dollar basis. In addition,
the Company has an option to increase the availability under the Credit Facility by up to
$75.0 million subject to, among other things, the receipt of commitments for the increased
amount. The aggregate amount of the loans made and letters of credit issued under the Credit
Facility shall at no time exceed the lesser of the facility amount ($405.0 million or, if
increased at the Companys option, subject to the receipt of commitments for the increased
amount, up to $480.0 million including the A-1 Tranche) or the Borrowing Base, which
generally is based on 90% of eligible inventory plus 85% of eligible wholesale receivables
(50% of eligible wholesale receivables of the Lids Team Sports business) plus 90% of eligible
credit card and debit card receivables less applicable reserves. The A-1 Tranche provides
for an additional 10% availability of eligible inventory (declining to a 7.5% advance rate
after one year and then to a 5% advance rate after two years) plus an additional 5%
availability of eligible wholesale receivables (other than wholesale receivables of the Lids
Team Sports business) (declining to a 2.5% advance rate after one year and then 0.0% after
two years) plus an additional 5% of eligible credit card and debit card receivables less
applicable reserves.
30
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
Collateral
The loans and other obligations under the Credit Facility are secured by a perfected first
priority lien and security interest in all tangible and intangible assets and excludes real
estate and leaseholds of the Company and certain subsidiaries of the Company. In addition,
with the amendment to the Credit Facility, the Company pledged 65% of its interest in Genesco
(UK) Limited.
Interest and Fees
The Companys borrowings under the Credit Facility and the A-1 Tranche bear interest at
varying rates that, at the Companys option, can be based on:
Domestic Facility
(a) LIBOR plus the applicable margin (as defined and based on average Excess Availability
during the prior quarter or (b) the applicable margin plus the higher of (i) the Bank of
America prime rate, (ii) the federal funds rate plus 0.50% or (iii) LIBOR for an interest
period of thirty days plus 1.0%
Canadian Sub-Facility
(a) For loans made in Canadian dollars, the bankers acceptances (BA) rate plus the
applicable margin or (b) the Canadian Prime Rate (defined as the highest of the (i) Bank of
America Canadian Prime Rate, (ii) 0.50% plus the Bank of America (Canadian) overnight rate,
and (iii) 1.0% plus the BA rate for a 30 day interest period) plus the applicable margin for
loans made in U.S. dollars, LIBOR plus the applicable margin or the U.S. Index Rate (defined
as the highest of the (i) Bank of America (Canada branch) U.S. dollar base rate, (ii) the
Federal Funds rate plus 0.50%, and (iii) LIBOR for an interest period of thirty days plus
1.0%) plus the applicable margin.
The initial applicable margin for base rate loans and U.S. Index rate loans is 1.50% (3.00%
for Tranche A-1 loans), and the initial applicable margin for LIBOR loans and BA equivalent
loans is 2.50% (4.00% for Tranche A-1 loans). Thereafter, the applicable margin will be
subject to adjustment based on Excess Availability for the prior quarter. The term Excess
Availability means, as of any given date, the excess (if any) of the Loan Cap (being the
lesser of the total commitments and the Borrowing Base) over the outstanding credit
extensions under the Credit Facility.
Interest on the Companys borrowings is payable monthly in arrears for base rate loans and
U.S. Index rate loans and at the end of each interest rate period (but not less often than
quarterly) for LIBOR loans and BA equivalent loans.
31
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
The Company is also required to pay a commitment fee on the actual daily unused portions of
the Credit Facility at a rate of (i) 0.50% per annum if less than 50% of the Credit Facility
has been utilized on average during the immediately preceding fiscal quarter or (ii) 0.375%
per annum if 50% or more of the Credit Facility has been utilized during such fiscal quarter.
Certain Covenants
The Company is not required to comply with any financial covenants unless Excess Availability
is less than the greater of $27.5 million or 12.5% of the Loan Cap. If and during such time
as Excess Availability is less than the greater of $27.5 million or 12.5% 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.
In addition, the Credit Facility contains certain covenants that, among other things,
restrict additional indebtedness, liens and encumbrances, loans and investments,
acquisitions, dividends and other restricted payments, transactions with affiliates, asset
dispositions, mergers and consolidations, prepayments or material amendments of other
indebtedness and other matters customarily restricted in such agreements. The Amendment
permits the Company to incur up to $250.0 million of senior debt provided that certain terms
and conditions are met.
Cash
Dominion
The Credit Facility also contains cash dominion provisions that apply in the event that the
Companys Excess Availability is less than the greater of $35.0 million or 15% of the Loan
Cap or there is an event of default under the Credit Facility.
Events of Default
The Credit Facility contains customary events of default, including, without limitation,
payment defaults, breaches of representations and warranties, covenant defaults,
cross-defaults to certain other material indebtedness in excess of specified amounts and to
agreements which would have a material adverse effect if breached, certain events of
bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts and
change in control.
Certain of the lenders under the Credit Facility or their affiliates have provided, and may
in the future provide, certain commercial banking, financial advisory, and investment banking
services in the ordinary course of business for the Company, its subsidiaries and certain of
its affiliates, for which they receive customary fees and commissions.
32
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
U.K. Credit Facility
In connection with the Schuh acquisition, Schuh entered into an amended and restated Senior
Term Facilities Agreement and Working Capital Facility Letter (collectively, the UK Credit
Facility) which provides for terms loans of up to £29.5 million (a £15.5 million A term loan
and £14.0 million B term loan) and a working capital facility of £5.0 million. The A term
loan bears interest at LIBOR plus 2.50% per annum. The B term loan bears interest at LIBOR
plus 3.75% per annum. The working capital facility bears interest at the Base Rate (as
defined) plus 2.25% per annum.
The UK Credit Facility contains certain covenants at the Schuh level including a minimum
interest coverage covenant initially set at 4.25x and increasing to 4.50x in January 2012 and
thereafter, a maximum leverage covenant initially set at 2.75x declining over time at various
rates to 2.25x beginning in July 2012 and a minimum cash flow coverage of 1.10x. The Company
was in compliance with all the convenants at July 30, 2011.
The UK Credit Facility is secured by a pledge of all the assets of Schuh and its
subsidiaries.
33
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 7
Defined Benefit Pension Plans and Other Benefit Plans
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
In thousands |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Service cost |
|
$ |
63 |
|
|
$ |
62 |
|
|
$ |
42 |
|
|
$ |
38 |
|
Interest cost |
|
|
1,400 |
|
|
|
1,471 |
|
|
|
43 |
|
|
|
40 |
|
Expected return on plan assets |
|
|
(1,952 |
) |
|
|
(2,021 |
) |
|
|
-0- |
|
|
|
-0- |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
1 |
|
|
|
1 |
|
|
|
-0- |
|
|
|
-0- |
|
Losses |
|
|
1,162 |
|
|
|
1,035 |
|
|
|
20 |
|
|
|
13 |
|
|
Net amortization |
|
|
1,163 |
|
|
|
1,036 |
|
|
|
20 |
|
|
|
13 |
|
|
Net Periodic Benefit Cost |
|
$ |
674 |
|
|
$ |
548 |
|
|
$ |
105 |
|
|
$ |
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
In thousands |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Service cost |
|
$ |
126 |
|
|
$ |
125 |
|
|
$ |
84 |
|
|
$ |
76 |
|
Interest cost |
|
|
2,798 |
|
|
|
2,955 |
|
|
|
86 |
|
|
|
80 |
|
Expected return on plan assets |
|
|
(3,904 |
) |
|
|
(4,046 |
) |
|
|
-0- |
|
|
|
-0- |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
2 |
|
|
|
2 |
|
|
|
-0- |
|
|
|
-0- |
|
Losses |
|
|
2,403 |
|
|
|
2,165 |
|
|
|
40 |
|
|
|
27 |
|
|
Net amortization |
|
|
2,405 |
|
|
|
2,167 |
|
|
|
40 |
|
|
|
27 |
|
|
Net Periodic Benefit Cost |
|
$ |
1,425 |
|
|
$ |
1,201 |
|
|
$ |
210 |
|
|
$ |
183 |
|
|
While there was no cash requirement for the Plan in 2011, the Company made a $0.3 million
contribution to the Plan in February 2011.
34
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
July 30, 2011 |
|
|
July 31, 2010 |
|
(In thousands, except |
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
per share amounts) |
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
Earnings (loss) from continuing operations |
|
$ |
350 |
|
|
|
|
|
|
|
|
|
|
$ |
(2,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to
common shareholders |
|
|
301 |
|
|
|
23,126 |
|
|
$ |
.01 |
|
|
|
(2,445 |
) |
|
|
23,480 |
|
|
$ |
(.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities from
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
-0- |
|
|
|
|
|
Convertible preferred stock(1) |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
Employees preferred stock(2) |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common
shareholders plus assumed
conversions |
|
$ |
301 |
|
|
|
23,635 |
|
|
$ |
.01 |
|
|
$ |
(2,445 |
) |
|
|
23,480 |
|
|
$ |
(.10 |
) |
|
|
|
|
(1) |
|
The amount of the dividend on the convertible preferred stock per common share obtainable
on conversion of the convertible preferred stock was higher than basic earnings per share
for all periods presented. Therefore, conversion of the convertible preferred stock was
not reflected in diluted earnings per share because it would have been antidilutive. The
shares convertible to common stock for Series 1, 3 and 4 preferred stock would have been
27,913, 25,606 and 5,423, respectively, as of July 30, 2011. |
|
(2) |
|
The Companys Employees Subordinated Convertible Preferred Stock is convertible one for
one to the Companys common stock. Because there are no dividends paid on this stock,
these shares are assumed to be converted for the three months ended July 30, 2011. Due to
the loss from continuing operations for the three months ended July 31, 2010, these shares
are not assumed to be converted. |
35
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
Earnings
Per Share, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
For the Six Months Ended |
|
|
|
July 30, 2011 |
|
|
July 31, 2010 |
|
(In thousands, except |
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
per share amounts) |
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
Earnings from continuing operations |
|
$ |
15,325 |
|
|
|
|
|
|
|
|
|
|
$ |
6,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends |
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common shareholders |
|
|
15,227 |
|
|
|
23,033 |
|
|
$ |
.66 |
|
|
|
6,069 |
|
|
|
23,471 |
|
|
$ |
.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities from
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
381 |
|
|
|
|
|
Convertible preferred stock(1) |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
Employees preferred stock(2) |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders plus assumed
conversions |
|
$ |
15,227 |
|
|
|
23,588 |
|
|
$ |
.65 |
|
|
$ |
6,069 |
|
|
|
23,902 |
|
|
$ |
.25 |
|
|
|
|
|
(1) |
|
The amount of the dividend on the convertible preferred stock per common share obtainable
on conversion of the convertible preferred stock was higher than basic earnings per share
for all periods presented. Therefore, conversion of the convertible preferred stock was
not reflected in diluted earnings per share, because it would have been antidilutive. The
shares convertible to common stock for Series 1, 3 and 4 preferred stock would have been
27,913, 25,606 and 5,423, respectively, as of July 30, 2011. |
|
(2) |
|
The Companys Employees Subordinated Convertible Preferred Stock is convertible one for
one to the Companys common stock. Because there are no dividends paid on this stock,
these shares are assumed to be converted for the six months ended July 30, 2011 and July
31, 2010. |
The Company did not repurchase any shares during the six months ended July 30, 2011. The
Company repurchased 408,400 shares during the six months ended July 31, 2010.
36
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Legal Proceedings
Environmental Matters
New York State Environmental Matters
In August 1997, the New York State Department of Environmental Conservation (NYSDEC) and the
Company entered into a consent order whereby the Company assumed responsibility for conducting a
remedial investigation and feasibility study (RIFS) and implementing an interim remedial measure
(IRM) with regard to the site of a knitting mill operated by a former subsidiary of the Company
from 1965 to 1969. The Company undertook the IRM and RIFS voluntarily, without admitting liability
or accepting responsibility for any future remediation of the site. The Company has completed the
IRM and the RIFS. In the course of preparing the RIFS, the Company identified remedial
alternatives with estimated undiscounted costs ranging from $-0- to $24.0 million, excluding
amounts previously expended or provided for by the Company. The United States Environmental
Protection Agency (EPA), which has assumed primary regulatory responsibility for the site from
NYSDEC, issued a Record of Decision in September 2007. The Record of Decision requires a remedy of
a combination of groundwater extraction and treatment and in-site chemical oxidation at an
estimated worth of approximately $10.7 million.
In July 2009, the Company agreed to a Consent Order with the EPA requiring the Company to perform
certain remediation actions, operations, maintenance and monitoring at the site. In September
2009, a Consent Judgment embodying the Consent Order was filed in the U.S. District Court for the
Eastern District of New York.
37
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Legal
Proceedings, Continued
The Village of Garden City, New York, has asserted that the Company is liable for the costs
associated with enhanced treatment required by the impact of the groundwater plume from the site on
two public water supply wells, including historical costs ranging from approximately $1.8 million
to in excess of $2.5 million, and future operation and maintenance costs which the Village
estimates at $126,400 annually while the enhanced treatment continues. On December 14, 2007, the
Village filed a complaint against the Company and the owner of the property under the Resource
Conservation and Recovery Act (RCRA), the Safe Drinking Water Act, and the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) as well as a number of state law
theories in the U.S. District Court for the Eastern District of New York, seeking an injunction
requiring the defendants to remediate contamination from the site and to establish their liability
for future costs that may be incurred in connection with it, which the complaint alleges could
exceed $41 million over a 70-year period. The Company has not verified the estimates of either
historic or future costs asserted by the Village, but believes that an estimate of future costs
based on a 70-year remediation period is unreasonable given the expected remedial period reflected
in the EPAs Record of Decision. On May 23, 2008, the Company filed a motion to dismiss the
Villages complaint on grounds including applicable statutes of limitation and preemption of
certain claims by the NYSDECs and the EPAs diligent prosecution of remediation. On January 27,
2009, the Court granted the motion to dismiss all counts of the plaintiffs complaint except for
the CERCLA claim and a state law claim for indemnity for costs incurred after November 27, 2000.
On September 23, 2009, on a motion for reconsideration by the Village, the Court reinstated the
claims for injunctive relief under RCRA and for equitable relief under certain of the state law
theories. The Company intends to continue to defend the action.
In December 2005, the EPA notified the Company that it considers the Company a potentially
responsible party (PRP) with respect to contamination at two Superfund sites in upstate New York.
The sites were used as landfills for process wastes generated by a glue manufacturer, which
acquired tannery wastes from several tanners, allegedly including the Companys Whitehall tannery,
for use as raw materials in the gluemaking process. The Company has no records indicating that it
ever provided raw materials to the gluemaking operation and has not been able to establish whether
the EPAs substantive allegations are accurate. The Company, together with other tannery PRPs, has
entered into cost sharing agreements and Consent Decrees with the EPA with respect to both sites.
Based upon the current estimates of the cost of remediation, the Companys share is expected to be
less than $250,000 in total for the two sites. While there is no assurance that the Companys
share of the actual cost of remediation will not exceed the estimate, the Company does not
presently expect that its aggregate exposure with respect to these two landfill sites will have a
material adverse effect on its financial condition or results of operations.
Whitehall Environmental Matters
The Company has performed sampling and analysis of soil, sediments, surface water, groundwater and
waste management areas at the Companys former Volunteer Leather Company facility in Whitehall, Michigan.
38
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Legal
Proceedings, Continued
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 Company
estimates the remaining cost of implementing the Work Plan at approximately $1.5 million. There
can be no assurance that remediation costs will not exceed the estimate.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, the Company had accrued $14.2 million as of
July 30, 2011, $15.5 million as of January 29, 2011 and $16.7 million as of July 31, 2010. All
such provisions reflect the Companys estimates of the most likely cost (undiscounted, including
both current and noncurrent portions) of resolving the contingencies, based on facts and
circumstances as of the time they were made. There is no assurance that relevant facts and
circumstances will not change, necessitating future changes to the provisions. Such contingent
liabilities are included in the liability arising from provision for discontinued operations on the
accompanying Condensed Consolidated Balance Sheets. The Company has made pretax accruals for
certain of these contingencies, including approximately $1.2 million reflected in each of the
second quarters of Fiscal 2012 and 2011, and $1.6 million for each of the first six months of
Fiscal 2012 and 2011. These charges are included in provision for discontinued operations, net in
the Condensed Consolidated Statements of Operations.
California Actions
On March 3, 2011, there was filed in the U.S. District Court for the Eastern District of California
a putative class action styled Fraser v. Genesco Inc. On March 4, 2011, there was filed in the
Superior Court of California for the County of San Francisco a putative class action styled Pabst
v. Genesco Inc. et al. The Pabst action was removed to the U.S. District Court for the Northern
District of California on April 1, 2011. Both complaints allege that the Companys retail stores
in California violated the California Song-Beverly Credit Card Act of 1971 and other California law
through customer information collection practices, and both seek civil penalties, damages,
restitution, injunctive and declaratory relief, attorneys fees, and other relief. The Company
disputes the material allegations and has filed motions to dismiss and strike both complaints, and
to consolidate the actions in the Northern District of California.
On June 22, 2011, the Company removed to the U.S. District Court for the Eastern District of
California Overton v. Hat World, Inc., a putative class action against its subsidiary, Hat World,
Inc., alleging various violations of the California Labor Code, including failure to comply with
certain itemized wage statement requirements, failure to reimburse expenses, forced patronization,
and failure to provide adequate seats to employees. The plaintiff seeks injunctive relief,
reimbursement of allegedly unpaid business expenses, statutory penalties, restitution, interest,
and attorney fees. The Company intends to defend the action.
39
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Legal
Proceedings, Continued
Other Matters
On December 10, 2010, the Company announced that it had suffered a criminal intrusion into the
portion of its computer network that processes payments for transactions in certain of its retail
stores. Visa, Inc. imposed penalty assessments totaling $10,000 on the Companys credit and debit
card processors based upon alleged violations of certain Visa International Operating Regulations,
and has indicated that it may assert additional claims in connection with the intrusion. The
Company disputes the basis of such claims. There can be no assurance that additional claims
related to the intrusion will not be asserted in the future, or that such claims will not be
material.
In addition to the matters specifically described in this footnote, 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 Companys liability with respect to any of these other matters
is likely to have a material effect on its financial position or results of operations, legal
proceedings are subject to inherent uncertainties and unfavorable rulings could have a material
adverse impact on the Companys business and results of operations.
Note 10
Business Segment Information
The Company operates six reportable business segments (not including corporate): (i) Journeys
Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog
and e-commerce operations; (ii) Underground Station Group, comprised of the Underground Station
retail footwear chain and e-commerce operations; (iii) Schuh Group, acquired in June 2011,
comprised of the Schuh retail footwear chain and e-commerce operations; (iv) Lids Sports Group,
comprised primarily of the Lids, Hat World and Hat Shack retail headwear stores, the Lids Locker
Room and Lids Clubhouse fan shops (operated under various trade names), the Lids Team Sports
business and certain e-commerce operations; (v) Johnston & Murphy Group, comprised of Johnston &
Murphy retail operations, catalog and e-commerce operations and wholesale distribution; and (vi)
Licensed Brands, comprised primarily of Dockers® Footwear, sourced and marketed under a
license from Levi Strauss & Company.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies.
The Companys reportable segments are based on the way management organizes the segments in order
to make operating decisions and assess performance along types of products sold. Journeys Group,
Underground Station Group, Schuh Group and Lids Sports Group sell primarily branded products from
other companies while Johnston & Murphy Group and Licensed Brands sell primarily the Companys
owned and licensed brands.
40
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 10
Business
Segment Information, Continued
Corporate assets include cash, prepaid rent expense, prepaid income taxes, deferred income taxes,
deferred note expense and corporate fixed assets. The Company charges allocated retail costs of
distribution to each segment. The Company does not allocate certain costs to each segment in order
to make decisions and assess performance. These costs include corporate overhead, interest
expense, interest income, restructuring charges and other, including major litigation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
Underground |
|
|
|
|
|
|
Lids |
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
July 30, 2011 |
|
Journeys |
|
|
Station |
|
|
Schuh |
|
|
Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
177,267 |
|
|
$ |
17,426 |
|
|
$ |
33,973 |
|
|
$ |
177,556 |
|
|
$ |
45,571 |
|
|
$ |
18,627 |
|
|
$ |
313 |
|
|
$ |
470,733 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(33 |
) |
|
|
-0- |
|
|
|
(109 |
) |
|
|
-0- |
|
|
|
(142 |
) |
|
Net sales to external customers |
|
$ |
177,267 |
|
|
$ |
17,426 |
|
|
$ |
33,973 |
|
|
$ |
177,523 |
|
|
$ |
45,571 |
|
|
$ |
18,518 |
|
|
$ |
313 |
|
|
$ |
470,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
(974 |
) |
|
$ |
(2,901 |
) |
|
$ |
(77 |
) |
|
$ |
18,106 |
|
|
$ |
2,155 |
|
|
$ |
994 |
|
|
$ |
(15,305 |
) |
|
$ |
1,998 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(347 |
) |
|
|
(347 |
) |
|
Earnings (loss) from operations |
|
|
(974 |
) |
|
|
(2,901 |
) |
|
|
(77 |
) |
|
|
18,106 |
|
|
|
2,155 |
|
|
|
994 |
|
|
|
(15,652 |
) |
|
|
1,651 |
|
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1,097 |
) |
|
|
(1,097 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
16 |
|
|
|
16 |
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
(974 |
) |
|
$ |
(2,901 |
) |
|
$ |
(77 |
) |
|
$ |
18,106 |
|
|
$ |
2,155 |
|
|
$ |
994 |
|
|
$ |
(16,733 |
) |
|
$ |
570 |
|
|
Total assets** |
|
$ |
279,540 |
|
|
$ |
28,256 |
|
|
$ |
208,725 |
|
|
$ |
478,455 |
|
|
$ |
77,038 |
|
|
$ |
31,963 |
|
|
$ |
156,904 |
|
|
$ |
1,260,881 |
|
Depreciation and amortization |
|
|
4,703 |
|
|
|
454 |
|
|
|
936 |
|
|
|
5,409 |
|
|
|
877 |
|
|
|
67 |
|
|
|
556 |
|
|
|
13,002 |
|
Capital expenditures |
|
|
3,125 |
|
|
|
77 |
|
|
|
982 |
|
|
|
7,115 |
|
|
|
758 |
|
|
|
271 |
|
|
|
1,288 |
|
|
|
13,616 |
|
|
|
|
* |
|
Restructuring and other includes a $0.4 million charge for asset impairments, of which $0.2
million is in the Lids Sports Group, $0.1 million in the Journeys Group and $0.1 million in the
Underground Station Group. |
|
** |
|
Total assets for the Lids Sports Group, Schuh Group and Licensed Brands include $155.4 million,
$103.0 million and $0.8 million of goodwill, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Underground |
|
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
152,967 |
|
|
$ |
17,144 |
|
|
$ |
132,582 |
|
|
$ |
39,066 |
|
|
$ |
21,560 |
|
|
$ |
382 |
|
|
$ |
363,701 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1 |
) |
|
|
(46 |
) |
|
|
-0- |
|
|
|
(47 |
) |
|
Net sales to external customers |
|
$ |
152,967 |
|
|
$ |
17,144 |
|
|
$ |
132,582 |
|
|
$ |
39,065 |
|
|
$ |
21,514 |
|
|
$ |
382 |
|
|
$ |
363,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
(5,138 |
) |
|
$ |
(3,576 |
) |
|
$ |
11,522 |
|
|
$ |
(135 |
) |
|
$ |
2,140 |
|
|
$ |
(6,234 |
) |
|
$ |
(1,421 |
) |
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,001 |
) |
|
|
(2,001 |
) |
|
Earnings (loss) from operations |
|
|
(5,138 |
) |
|
|
(3,576 |
) |
|
|
11,522 |
|
|
|
(135 |
) |
|
|
2,140 |
|
|
|
(8,235 |
) |
|
|
(3,422 |
) |
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(231 |
) |
|
|
(231 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
4 |
|
|
|
4 |
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
(5,138 |
) |
|
$ |
(3,576 |
) |
|
$ |
11,522 |
|
|
$ |
(135 |
) |
|
$ |
2,140 |
|
|
$ |
(8,462 |
) |
|
$ |
(3,649 |
) |
|
Total assets** |
|
$ |
290,364 |
|
|
$ |
28,074 |
|
|
$ |
379,924 |
|
|
$ |
65,809 |
|
|
$ |
28,185 |
|
|
$ |
137,178 |
|
|
$ |
929,534 |
|
Depreciation and amortization |
|
|
5,201 |
|
|
|
557 |
|
|
|
4,422 |
|
|
|
941 |
|
|
|
40 |
|
|
|
464 |
|
|
|
11,625 |
|
Capital expenditures |
|
|
1,173 |
|
|
|
179 |
|
|
|
2,947 |
|
|
|
687 |
|
|
|
8 |
|
|
|
326 |
|
|
|
5,320 |
|
|
|
|
* |
|
Restructuring and other includes a $1.9 million charge for asset impairments, of which $1.1
million is in the Journeys Group, $0.5 million in the Lids Sports Group and $0.3 million in the
Underground Station Group. |
|
** |
|
Total assets for the Lids Sports Group include $126.6 million of goodwill. |
41
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 10
Business
Segment Information, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Underground |
|
|
|
|
|
|
Lids |
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
July 30, 2011 |
|
Journeys |
|
|
Station |
|
|
Schuh |
|
|
Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
385,981 |
|
|
$ |
43,229 |
|
|
$ |
33,973 |
|
|
$ |
347,258 |
|
|
$ |
93,622 |
|
|
$ |
47,643 |
|
|
$ |
621 |
|
|
$ |
952,327 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(59 |
) |
|
|
-0- |
|
|
|
(175 |
) |
|
|
-0- |
|
|
|
(234 |
) |
|
Net sales to external customers |
|
$ |
385,981 |
|
|
$ |
43,229 |
|
|
$ |
33,973 |
|
|
$ |
347,199 |
|
|
$ |
93,622 |
|
|
$ |
47,468 |
|
|
$ |
621 |
|
|
$ |
952,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
15,337 |
|
|
$ |
(1,754 |
) |
|
$ |
(77 |
) |
|
$ |
32,110 |
|
|
$ |
5,050 |
|
|
$ |
4,298 |
|
|
$ |
(26,197 |
) |
|
$ |
28,767 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1,591 |
) |
|
|
(1,591 |
) |
|
Earnings (loss) from operations |
|
|
15,337 |
|
|
|
(1,754 |
) |
|
|
(77 |
) |
|
|
32,110 |
|
|
|
5,050 |
|
|
|
4,298 |
|
|
|
(27,788 |
) |
|
|
27,176 |
|
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1,613 |
) |
|
|
(1,613 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
18 |
|
|
|
18 |
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
15,337 |
|
|
$ |
(1,754 |
) |
|
$ |
(77 |
) |
|
$ |
32,110 |
|
|
$ |
5,050 |
|
|
$ |
4,298 |
|
|
$ |
(29,383 |
) |
|
$ |
25,581 |
|
|
Total assets** |
|
$ |
279,540 |
|
|
$ |
28,256 |
|
|
$ |
208,725 |
|
|
$ |
478,455 |
|
|
$ |
77,038 |
|
|
$ |
31,963 |
|
|
$ |
156,904 |
|
|
$ |
1,260,881 |
|
Depreciation and amortization |
|
|
9,491 |
|
|
|
948 |
|
|
|
936 |
|
|
|
10,857 |
|
|
|
1,774 |
|
|
|
133 |
|
|
|
1,065 |
|
|
|
25,204 |
|
Capital expenditures |
|
|
5,190 |
|
|
|
85 |
|
|
|
982 |
|
|
|
13,529 |
|
|
|
1,165 |
|
|
|
475 |
|
|
|
1,787 |
|
|
|
23,213 |
|
|
|
|
* |
|
Restructuring and other includes a $1.1 million charge for asset impairments, of which $0.5
million is in the Journeys Group, $0.3 million in the Lids Sports Group, $0.2 million in the
Johnston & Murphy Group and $0.1 million in the Underground Station Group. |
|
** |
|
Total assets for the Lids Sports Group, Schuh Group and Licensed Brands include $155.4 million,
$103.0 million and $0.8 million of goodwill, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
Underground |
|
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
334,858 |
|
|
$ |
43,217 |
|
|
$ |
252,570 |
|
|
$ |
83,603 |
|
|
$ |
49,749 |
|
|
$ |
604 |
|
|
$ |
764,601 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1 |
) |
|
|
(93 |
) |
|
|
-0- |
|
|
|
(94 |
) |
|
Net sales to external customers |
|
$ |
334,858 |
|
|
$ |
43,217 |
|
|
$ |
252,570 |
|
|
$ |
83,602 |
|
|
$ |
49,656 |
|
|
$ |
604 |
|
|
$ |
764,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
3,287 |
|
|
$ |
(2,927 |
) |
|
$ |
20,936 |
|
|
$ |
1,924 |
|
|
$ |
6,672 |
|
|
$ |
(14,319 |
) |
|
$ |
15,573 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,444 |
) |
|
|
(4,444 |
) |
|
Earnings (loss) from operations |
|
|
3,287 |
|
|
|
(2,927 |
) |
|
|
20,936 |
|
|
|
1,924 |
|
|
|
6,672 |
|
|
|
(18,763 |
) |
|
|
11,129 |
|
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(467 |
) |
|
|
(467 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5 |
|
|
|
5 |
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
3,287 |
|
|
$ |
(2,927 |
) |
|
$ |
20,936 |
|
|
$ |
1,924 |
|
|
$ |
6,672 |
|
|
$ |
(19,225 |
) |
|
$ |
10,667 |
|
|
Total assets** |
|
$ |
290,364 |
|
|
$ |
28,074 |
|
|
$ |
379,924 |
|
|
$ |
65,809 |
|
|
$ |
28,185 |
|
|
$ |
137,178 |
|
|
$ |
929,534 |
|
Depreciation and amortization |
|
|
10,697 |
|
|
|
1,146 |
|
|
|
8,653 |
|
|
|
1,898 |
|
|
|
82 |
|
|
|
1,042 |
|
|
|
23,518 |
|
Capital expenditures |
|
|
2,847 |
|
|
|
183 |
|
|
|
7,288 |
|
|
|
1,062 |
|
|
|
20 |
|
|
|
460 |
|
|
|
11,860 |
|
|
|
|
* |
|
Restructuring and other includes a $4.3 million charge for asset impairments, of which $2.6
million is in the Journeys Group, $0.8 million in the Lids Sports Group, $0.6 million in the
Underground Station Group and $0.3 million in the Johnston & Murphy Group. |
|
** |
|
Total assets for the Lids Sports Group include $126.6 million of goodwill. |
42
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward Looking Statements
This discussion and the notes to the Condensed Consolidated Financial Statements include certain
forward-looking statements, including those regarding the performance outlook for the Company and
its individual businesses and all other statements not addressing solely historical facts or
present conditions. Actual results could differ materially from those reflected by the
forward-looking statements in this discussion, in the notes to the Condensed Consolidated Financial
Statements, and in other disclosures, including those regarding the Companys performance outlook
for Fiscal 2012 and beyond.
A number of factors may adversely affect the outlook reflected in forward looking statements and
the Companys future results, liquidity, capital resources or prospects. These factors (some of
which are beyond the Companys control) include:
|
|
|
The costs of responding to and liability in connection with the network intrusion
described under Significant Developments-Network Intrusion including any claims or
litigation resulting therefrom. |
|
|
|
|
Adjustments to estimates reflected in forward-looking statements, including the amount
of required accruals related to the bonus potentially payable to members of Schuh
management in four years on the achievement of certain performance objectives, and the
timing and amount of non-cash asset impairments. |
|
|
|
|
Weakness in the consumer economy in the Companys markets. |
|
|
|
|
Competition in the Companys markets. |
|
|
|
|
Inability of customers to obtain credit. |
|
|
|
|
Fashion trends that affect the sales or product margins of the Companys retail product
offerings. |
|
|
|
|
Changes in buying patterns by significant wholesale customers. |
|
|
|
|
Bankruptcies or deterioration in the financial condition of significant wholesale
customers, limiting their ability to buy or pay for merchandise offered by the Company. |
|
|
|
|
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 Companys 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. |
|
|
|
|
The Companys ability to build, open, staff and support additional retail stores and to
renew leases in existing stores and maintain reductions in occupancy costs achieved in
recent lease negotiations, and to conduct required remodeling or refurbishment on schedule
and at expected expense levels. |
|
|
|
|
Deterioration in the performance of individual businesses or of the Companys 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 Companys shares. |
|
|
|
|
Variations from expected pension-related charges caused by conditions in the financial
markets. |
43
|
|
|
The outcome of litigation, investigations and environmental matters involving the
Company, including but not limited to the matters discussed in Note 9 to the Condensed
Consolidated Financial Statements. |
Overview
Description of Business
The Companys business includes the design and sourcing, marketing and distribution of footwear and
accessories through retail stores, including Journeys®, Journeys Kidz®, Shi
by Journeys®, Johnston & Murphy®, and Underground Station® in the
U.S., Puerto Rico and Canada and through the newly acquired Schuh® stores in the United
Kingdom and the Republic of Ireland, and through e-commerce websites, and at wholesale, primarily
under the Companys Johnston & Murphy brand and the Dockers® brand and other brands that
the Company licenses for mens footwear. The Companys wholesale footwear brands are distributed
to more than 975 retail accounts in the United States, including a number of leading department,
discount, and specialty stores. The Companys 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 business, consisting of sports-oriented fan shops
featuring a broad array of licensed merchandise such as apparel, hats and accessories, sports decor
and novelty products, (iii) the Lids Clubhouse business, consisting of single team fan shops, (iv)
e-commerce business and (v) an athletic team dealer business operating as Lids Team Sports.
Including both the footwear businesses and the Lids Sports business, at July 30, 2011, the Company
operated 2,380 retail stores in the U.S., Puerto Rico, Canada, the United Kingdom and the Republic
of Ireland.
The Company operates six reportable business segments (not including corporate): (i) Journeys
Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog
and e-commerce operations; (ii) Underground Station Group, comprised of the Underground Station
retail footwear chain and e-commerce operations; (iii) Schuh Group, acquired in June 2011,
comprised of the Schuh retail footwear chain and e-commerce operations; (iv) Lids Sports Group,
comprised as described in the preceding paragraph; (v) Johnston & Murphy Group, comprised of
Johnston & Murphy retail operations, catalog and e-commerce operations and wholesale distribution;
and (vi) Licensed Brands, comprised primarily of Dockers® Footwear, sourced and marketed
under a license from Levi Strauss & Company.
The Journeys retail footwear stores sell footwear and accessories primarily for 13 to 22 year old
men and women. The stores average approximately 1,950 square feet. The Journeys Kidz retail
footwear stores sell footwear primarily for younger children, ages five to 12. These stores
average approximately 1,425 square feet. Shi by Journeys retail footwear stores sell footwear and
accessories to fashion-conscious women in their early 20s to mid 30s. These stores average
approximately 2,150 square feet. The Journeys Group stores are primarily in malls and factory
outlet centers throughout the United States, Puerto Rico and Canada. Journeys also sells footwear
and accessories through a direct-to-consumer catalog and e-commerce operations.
The Underground Station retail footwear stores sell footwear and accessories primarily for men and
women in the 20 to 35 age group in the urban market. The Underground Station Group stores average
approximately 1,800 square feet. Underground Station also sells footwear and accessories through
an e-commerce operation. The Company plans to continue to close
underperforming Underground Station stores as the opportunity presents itself, and to attempt to
secure rent relief on other locations while it assesses the future prospects for the chain.
44
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 24 year old men and women. The stores
average approximately 3,875 square feet. The Schuh Group stores are primarily street level stores
and mall stores located in the United Kingdom and the Republic of Ireland. The Schuh Group also
operates 16 concessions in Republic apparel stores in the United Kingdom and sells footwear through
e-commerce operations.
The Lids Sports Group includes stores and kiosks, primarily under the Lids banner, that sell
licensed and branded headwear to men and women primarily in the early-teens to mid-20s age group.
The Lids store locations average approximately 825 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 Locker Room and Lids Clubhouse stores, operating under a number of trade
names, sell licensed sports headwear, apparel and accessories to sports fans of all ages and
average approximately 2,850 square feet and are in malls and other locations throughout the United
States. The Lids Sports Group also sells headwear and accessories through e-commerce operations.
In addition, the Lids Sports Group operates Lids Team Sports, an athletic team dealer business.
Johnston & Murphy retail shops sell a broad range of mens footwear, luggage and accessories.
Johnston & Murphy introduced a line of womens footwear and accessories in select Johnston & Murphy
retail shops in the fall of 2008. Johnston & Murphy shops average approximately 1,500 square feet
and are located primarily in better malls nationwide and in airports. Johnston & Murphy shoes are
also distributed through the Companys wholesale operations to better department and independent
specialty stores. In addition, the Company sells Johnston & Murphy footwear and accessories in
factory stores, averaging approximately 2,350 square feet, located in factory outlet malls, and
through a direct-to-consumer catalog and e-commerce operation.
The Company entered into an exclusive license with Levi Strauss & Co. to market mens 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 in certain
other Latin American countries. The Dockers license agreement was renewed May 15, 2009. The
Dockers license agreement, as amended, expires on December 31, 2012. The Company uses the Dockers
name to market casual and dress casual footwear to men aged 30 to 55 through many of the same
national retail chains that carry Dockers slacks and sportswear and in department and specialty
stores across the country.
Strategy
The Companys long-term strategy for many years has been to seek organic growth by: 1) increasing
the Companys store base, 2) increasing retail square footage, 3) improving comparable store sales,
4) increasing operating margin and 5) enhancing the value of its brands. The pace of the Companys
organic growth may be limited by saturation of its markets and by economic conditions. Beginning
in Fiscal 2010, the Company slowed the pace of new store openings and focused on inventory
management and cash flow in response to economic conditions. The Company has also focused on
opportunities provided by the economic climate to negotiate occupancy cost reductions, especially
where lease provisions triggered by sales shortfalls or declining occupancy of malls would permit
the Company to terminate leases.
45
To supplement its organic growth potential, the Company has made acquisitions 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.
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 external economy can affect demand, resulting in
changes in sales and, as prices are adjusted to drive sales and manage inventories, in gross
margins. Because fashion trends influencing many of the Companys 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. Moreover, economic factors, such as the recent recession and the
current relatively high level of unemployment, may reduce the consumers disposable income or his
or her willingness to purchase discretionary items, and thus may reduce demand for the Companys
merchandise, regardless of the Companys 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 reductions
in consumer demand.
Summary of Results of Operations
The Companys net sales increased 29.4% during the second quarter of Fiscal 2012 compared to the
same quarter of Fiscal 2011. The increase reflected (i) a 34% increase in Lids Sports Group sales,
including $20.2 million of sales from businesses acquired over the past twelve months, (ii) the
acquisition of the Schuh Group in the second quarter this year, which contributed $34.0 million in
sales during the approximately six-week period following the acquisition, (iii) a 16% increase in
Journeys Group sales, (iv) a 17% increase in Johnston & Murphy Group sales and a 2% increase in
Underground Station Group sales, offset by (v) a 14% decrease in Licensed Brands sales. Gross
margin decreased slightly as a percentage of net sales during the second quarter of Fiscal 2012,
due to margin decreases in all the Companys business segments except Johnston & Murphy Group.
Selling and administrative expenses decreased as a percentage of net sales during the second
quarter of Fiscal 2012, primarily due to expense decreases as a percentage of net sales in all of
the Companys business segments except Licensed Brands. Earnings from operations increased as a
percentage of net sales during the second quarter of Fiscal 2012, primarily due to increased
earnings from Lids Sports Group and Johnston & Murphy Group and smaller losses from Journeys Group
and Underground Station Group, offset by decreased earnings from Licensed Brands.
46
Significant Developments
Schuh Acquisition
On June 23, 2011, the Company, through its newly-formed, wholly-owned subsidiary Genesco (UK)
Limited (Genesco UK), completed the acquisition of all the outstanding shares of Schuh Group Ltd.
(Schuh) for a total purchase price of approximately £100 million, less £29.5 million outstanding
under existing Schuh credit facilities, which remain in place, less a £1.9 million working capital
adjustment plus £6.2 million net cash acquired with £5.0 million withheld until satisfaction of
certain closing conditions. The Company financed the acquisition with borrowings under its
existing credit facility and the balance from cash on hand. The purchase agreement also provides
for deferred purchase price payments totaling £25 million, payable £15 million and £10 million on
the third and fourth anniversaries of the closing, respectively, subject to the payees not having
terminated their employment with Schuh under certain specified circumstances. This amount will be
recorded as compensation expense and not reported as a component of the cost of the acquisition.
During the three months and six months ended July 30, 2011, compensation expense related to the
Schuh acquisition deferred purchase price obligation was $1.4 million. This expense is included in
the operating loss for the Schuh Group segment.
Headquartered in Scotland, Schuh is a specialty retailer of casual and athletic footwear sold
through 59 retail stores in the United Kingdom and the Republic of Ireland and 16 concessions in
Republic apparel stores as of July 30, 2011. The Company believes the acquisition will enhance its
strategic development and prospects for growth and provide the Company with an established retail
presence in the United Kingdom and improved insight into global fashion trends. The results of
Schuhs operations from the date of acquisition through July 30, 2011 of net sales of $34.0 million
and an operating loss of $(0.1) million have been included in the Companys Condensed Consolidated
Financial Statements for the period ended July 30, 2011. During the three months and six months
ended July 30, 2011, the Company expensed $6.4 million and $7.2 million, respectively, in costs
related to the acquisition. These costs were recorded as selling and administrative expenses on
the Condensed Consolidated Statements of Operations.
Network Intrusion
On December 10, 2010, the Company announced that it had suffered a criminal intrusion into the
portion of its computer network that processes payments for transactions in certain of its retail
stores. Visa, Inc. imposed penalty assessments totaling $10,000 on the Companys credit and debit
card processors based upon alleged violations of certain Visa International Operating Regulations,
and has indicated that it may assert additional claims in connection with the intrusion. The
Company disputes the basis of such claims. There can be no assurance that additional claims
related to the intrusion will not be asserted in the future, or that such claims will not be
material.
Restructuring and Other Charges
The Company recorded a pretax charge to earnings of $0.4 million in the second quarter of Fiscal
2012, primarily for retail store asset impairments. The Company recorded a pretax charge to
earnings of $1.6 million in the first six months of Fiscal 2012, including $1.1 million for retail
store impairments, $0.4 million for network intrusion expenses and $0.1 million for other legal
matters.
The Company recorded a pretax charge to earnings of $2.0 million in the second quarter of Fiscal
2011, including $1.9 million in retail store asset impairments and $0.1 million for other legal
matters. The Company recorded a pretax charge to earnings of $4.4 million in the first six months
of Fiscal 2011, including $4.3 million in retail store asset impairments and $0.1 million for other
legal matters.
47
Comparable Store Sales
Comparable store sales begin in the fifty-third week of a stores operation. Temporarily closed
stores are excluded from the comparable store sales calculation for every full week of the store
closing. Expanded stores are excluded from the comparable store sales calculation until the
fifty-third week of operation in the expanded format. Unless otherwise specified, e-commerce and
catalog sales are excluded from comparable store sales calculations.
Results of Operations Second Quarter Fiscal 2012 Compared to Fiscal 2011
The Companys net sales in the second quarter ended July 30, 2011 increased 29.4% to $470.6 million
from $363.7 million in the second quarter ended July 31, 2010. Gross margin increased 28.9% to
$237.3 million in the second quarter this year from $184.0 million in the same period last year but
decreased as a percentage of net sales from 50.6% to 50.4%. Selling and administrative expenses in
the second quarter this year increased 26.9% from the second quarter last year, but decreased as a
percentage of net sales from 51.0% to 50.0%. 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 Companys gross margin may not be comparable to other retailers that
include these costs in the calculation of gross margin. Explanations of the changes in results of
operations are provided by business segment in discussions following these introductory paragraphs.
Earnings (loss) from continuing operations before income taxes (pretax earnings (loss)) for the
second quarter ended July 30, 2011 were $0.6 million compared to a pretax loss of $(3.6) million
for the second quarter ended July 31, 2010. Pretax earnings for the second quarter ended July 30,
2011 included restructuring and other charges of $0.4 million primarily for retail store asset
impairments. Pretax earnings for the second quarter ended July 30, 2011 also included $6.4 million
in costs related to the Schuh acquisition and $1.4 million in expenses related to the deferred
purchase price obligation related to the Schuh acquisition. Because the deferred purchase price
for Schuh is contingent on the payees continuing employment with Schuh (subject to certain
exceptions), U.S. Generally Accepted Accounting Principles require that it be expensed as
compensation across the period until payment is due. The pretax loss for the second quarter ended
July 31, 2010 included restructuring and other charges of $2.0 million, primarily for retail store
asset impairments and other legal matters.
The net loss for the second quarter ended July 30, 2011 was $(0.4) million ($0.02 diluted loss per
share) compared to a net loss of $(3.2) million ($0.14 diluted loss per share) for the second
quarter ended July 31, 2010. The net loss for the second quarter ended July 30, 2011 included $0.7
million ($0.03 diluted loss per share) charge to earnings (net of tax) primarily for anticipated
costs of environmental remediation related to facilities formerly operated by the Company. The net
loss for the second quarter ended July 31, 2010 included $0.8 million ($0.04 diluted loss per
share) charge to earnings (net of tax) primarily for anticipated costs of environmental remediation
related to facilities formerly operated by the Company. The Company recorded an effective income
tax rate of 38.6% in the second quarter this year compared to 34.3% in the same period last year.
Last years rate was lower due to the mix of earnings.
48
Journeys Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
177,267 |
|
|
$ |
152,967 |
|
|
|
15.9 |
% |
Loss from operations |
|
$ |
(974 |
) |
|
$ |
(5,138 |
) |
|
|
81.0 |
% |
Operating margin |
|
|
(0.5 |
)% |
|
|
(3.4 |
)% |
|
|
|
|
Net sales from Journeys Group increased 15.9% to $177.3 million for the second quarter ended July
30, 2011 compared to $153.0 million for the same period last year. The increase reflects primarily
a 15% increase in comparable store sales. The comparable store sales increase reflected a 16%
increase in footwear unit comparable sales while the average price per pair of shoes was flat,
reflecting increased markdowns and changes in product mix. Unit sales increased 16% during the
same period. Journeys Group operated 1,013 stores at the end of the second quarter of Fiscal 2012,
including 152 Journeys Kidz stores, 54 Shi by Journeys stores and six Journeys stores in Canada,
compared to 1,026 stores at the end of the second quarter last year, including 151 Journeys Kidz
stores, 56 Shi by Journeys stores and three Journeys stores in Canada.
Journeys Group loss from operations for the second quarter ended July 30, 2011 improved $4.2
million to a $(1.0) million loss compared to a loss of $(5.1) million for the second quarter ended
July 31, 2010. The increase was due to increased net sales and to decreased expenses as a
percentage of net sales, reflecting leveraging of occupancy costs and depreciation.
Underground Station Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
17,426 |
|
|
$ |
17,144 |
|
|
|
1.6 |
% |
Loss from operations |
|
$ |
(2,901 |
) |
|
$ |
(3,576 |
) |
|
|
18.9 |
% |
Operating margin |
|
|
(16.6 |
)% |
|
|
(20.9 |
)% |
|
|
|
|
Net sales from the Underground Station Group increased 1.6% to $17.4 million for the second quarter
ended July 30, 2011 from $17.1 million for the same period last year. The increase reflects a 10%
increase in comparable store sales offset by an 11% decrease in average Underground Station stores
operated (i.e., the sum of the number of stores open on the first day of the fiscal quarter and the
last day of each fiscal month during the quarter divided by four). Comparable footwear unit sales
increased 11% while the average price per pair of shoes decreased 2% reflecting increased markdowns
and changes in product mix. Unit sales increased 2% during the same period. Underground Station
Group operated 141 stores at the end of the second quarter of Fiscal 2012 compared to 162 stores at
the end of the second quarter last year.
Underground Station Group loss from operations for the second quarter ended July 30, 2011 improved
18.9% to a loss of $(2.9) million compared to a loss of $(3.6) million in the second quarter ended
July 31, 2010. The improvement was primarily due to decreased expenses as a percentage of net
sales, reflecting leveraging of occupancy costs, depreciation and compensation from strong
comparable store sales and closing unprofitable stores.
49
Schuh Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
33,973 |
|
|
$ |
|
|
|
NM |
|
Loss from operations |
|
$ |
(77 |
) |
|
$ |
|
|
|
NM |
|
Operating margin |
|
|
(0.2 |
)% |
|
|
|
|
|
|
|
|
Net sales from the Schuh Group were $34.0 million for the initial reporting period during the
second quarter ended July 30, 2011, beginning on June 20, 2011. Schuh Group operated 59 stores and
16 concessions at the end of the second quarter of Fiscal 2012.
Schuh Group loss from operations was $(0.1) million for the second quarter ended July 30, 2011.
The loss included $1.4 million in compensation expense related to a deferred purchase price
obligation in connection with the acquisition. See Note 2 to the Condensed Consolidated Financial
Statements for additional information related to the Schuh acquisition.
Lids Sports Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
177,523 |
|
|
$ |
132,582 |
|
|
|
33.9 |
% |
Earnings from operations |
|
$ |
18,106 |
|
|
$ |
11,522 |
|
|
|
57.1 |
% |
Operating margin |
|
|
10.2 |
% |
|
|
8.7 |
% |
|
|
|
|
Net sales from Lids Sports Group increased 33.9% to $177.5 million for the second quarter ended
July 30, 2011 compared to $132.6 million for the same period last year, reflecting primarily a 12%
increase in comparable store sales and $20.2 million of sales from businesses acquired in the
last twelve months. The comparable store sales increase reflected a 9% increase in comparable store
units sold, primarily from strength in NBA products, NHL products, NCAA products and Major League
Baseball products especially fashion-oriented Major League Baseball products and a 4% increase in
average price per hat. Lids Sports Group operated 994 stores at the end of the second quarter of
Fiscal 2012, including 80 stores in Canada and 110 Lids Locker Room and Clubhouse stores, including
one in Canada, compared to 916 stores at the end of the second quarter last year, including 62
stores in Canada and 37 Lids Locker Room stores.
Lids Sports Group earnings from operations for the second quarter ended July 30, 2011 increased
57.1% to $18.1 million compared to $11.5 million for the second quarter ended July 31, 2010. The
increase was due to increased headwear sales and decreased expenses as a percentage of net sales,
primarily reflecting leverage from positive comparable store sales as well as a change in sales mix
in the Lids Sports Group. Wholesale sales accounted for 14% of the Groups sales in the second
quarter this year compared to 10% for the same period last year. Wholesale sales normally involve
lower expenses compared to retail sales.
50
Johnston & Murphy Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
45,571 |
|
|
$ |
39,065 |
|
|
|
16.7 |
% |
Earnings (loss) from operations |
|
$ |
2,155 |
|
|
$ |
(135 |
) |
|
NM |
|
Operating margin |
|
|
4.7 |
% |
|
|
(0.3 |
)% |
|
|
|
|
Johnston & Murphy Group net sales increased 16.7% to $45.6 million for the second quarter ended
July 30, 2011 from $39.1 million for the second quarter ended July 31, 2010, reflecting primarily a
17% increase in comparable store sales and an 11% increase in Johnston & Murphy wholesale sales
offset by a 2% decrease in average stores operated for Johnston & Murphy retail operations. Unit
sales for the Johnston & Murphy wholesale business increased 11% in the second quarter of Fiscal
2012 and the average price per pair of shoes was flat for the same period. Retail operations
accounted for 74.4% of Johnston & Murphy Group segment sales in the second quarter this year, up
from 73.2% in the second quarter last year. The comparable store sales increase in the second
quarter ended July 30, 2011 reflects a 9% increase in footwear unit comparable sales while the
average price per pair of shoes for Johnston & Murphy retail operations was flat. The store count
for Johnston & Murphy retail operations at the end of the second quarter of Fiscal 2012 included
157 Johnston & Murphy shops and factory stores compared to 160 Johnston & Murphy shops and factory
stores at the end of the second quarter of Fiscal 2011.
Johnston & Murphy Group earnings from operations for the second quarter ended July 30, 2011
improved $2.3 million to $2.2 million compared to a loss of $(0.1) million for the same period last
year, primarily due to increased net sales, increased gross margin as a percentage of net sales due
to lower margin reductions in the Johnston & Murphy wholesale operations and increased mix of
retail sales and to decreased expenses as a percentage of net sales. Expenses reflected positive
leverage from the increase in comparable store sales and increased wholesale sales.
Licensed Brands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
18,518 |
|
|
$ |
21,514 |
|
|
|
(13.9 |
)% |
Earnings from operations |
|
$ |
994 |
|
|
$ |
2,140 |
|
|
|
(53.6 |
)% |
Operating margin |
|
|
5.4 |
% |
|
|
9.9 |
% |
|
|
|
|
Licensed Brands net sales decreased 13.9% to $18.5 million for the second quarter ended July 30,
2011, from $21.5 million for the second quarter ended July 31, 2010. The sales decrease primarily
reflects decreased sales from Dockers Footwear due to retailers increasing emphasis on their
private label brands. Unit sales for Dockers Footwear decreased 16% for the second quarter this
year and the average price per pair of Dockers shoes decreased 3% compared to the same period last
year.
Licensed Brands earnings from operations for the second quarter ended July 30, 2011 decreased
53.6% to $1.0 million compared to $2.1 million for the same period last year. The decrease in
51
earnings from operations reflects a decrease in net sales, decreased gross margins as a percentage
of net sales due to increased closeout sales and to increased expenses as a percentage of net sales
reflecting increased freight costs.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the second quarter ended July 30, 2011 was $15.7 million compared
to $8.2 million for the second quarter ended July 31, 2010. Corporate expense in the second
quarter this year included $0.4 million in restructuring and other charges, primarily for retail
store asset impairments and $6.4 million in acquisition related expenses. Last years expense in
the second quarter included $2.0 million in restructuring and other charges, primarily for retail
store asset impairments and other legal matters. Excluding the charges listed above, corporate and
other expense increased primarily due to increased bonus accruals as a result of increased earnings
in the second quarter this year compared to the second quarter last year.
Interest expense increased from $0.2 million in the second quarter ended July 31, 2010 to $1.1
million for the second quarter ended July 30, 2011, due primarily to increased revolver borrowings
in the second quarter this year in connection with the Schuh acquisition compared to no revolver
borrowings in the second quarter last year.
Results of Operations Six Months Fiscal 2012 Compared to Fiscal 2011
The Companys net sales in the six months ended July 30, 2011 increased 24.5% to $952.1 million
from $764.5 million in the six months ended July 31, 2010. Gross margin increased 23.6% to $484.8
million in the six months this year from $392.1 million in the same period last year but decreased
as a percentage of net sales from 51.3% to 50.9%. Selling and administrative expenses in the first
six months this year increased 21.1% from the first six months last year, but decreased as a
percentage of net sales from 49.3% to 47.9%. 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 Companys gross margin may not be comparable to other retailers that
include these costs in the calculation of gross margin. Explanations of the changes in results of
operations are provided by business segment in discussions following these introductory paragraphs.
Earnings from continuing operations before income taxes (pretax earnings) for the six months
ended July 30, 2011 were $25.6 million compared to $10.7 million for the six months ended July 31,
2010. Pretax earnings for the six months ended July 30, 2011 included restructuring and other
charges of $1.6 million primarily for retail store asset impairments, network intrusion expenses
and other legal matters. Pretax earnings for the six months ended July 30, 2011 also included $7.2
million in costs related to the Schuh acquisition and $1.4 million in expenses related to the
deferred purchase price obligation related to the Schuh acquisition. Because the deferred purchase
price for Schuh is contingent on the payees continuing employment with Schuh (subject to certain
exceptions), U.S. Generally Accepted Accounting Principles require that it be expensed as
compensation across the period until payment is due. Pretax earnings for the six months ended July
31, 2010 included restructuring and other charges of $4.4 million, primarily for retail store asset
impairments and other legal matters.
Net earnings for the six months ended July 30, 2011 were $14.4 million ($0.61 diluted earnings per
share) compared to $5.4 million ($0.22 diluted earnings per share) for the six months ended July
31, 2010. The net earnings for the six months ended July 30, 2011 included $0.9 million ($0.04
diluted loss per share) charge to earnings (net of tax) primarily for anticipated costs of
52
environmental remediation related to facilities formerly operated by the Company. The net earnings
for the six months ended July 31, 2010 included $0.7 million ($0.03 diluted loss per share) charge
to earnings (net of tax) primarily for anticipated costs of environmental remediation related to
facilities formerly operated by the Company. The Company recorded an effective income tax rate of
40.1% in the first six months this year compared to 42.2% in the same period last year.
Journeys Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
385,981 |
|
|
$ |
334,858 |
|
|
|
15.3 |
% |
Earnings from operations |
|
$ |
15,337 |
|
|
$ |
3,287 |
|
|
|
366.6 |
% |
Operating margin |
|
|
4.0 |
% |
|
|
1.0 |
% |
|
|
|
|
Net sales from Journeys Group increased 15.3% to $386.0 million for the six months ended July 30,
2011 compared to $334.9 million for the same period last year. The increase reflects primarily a
15% increase in comparable store sales. The comparable store sales increase reflected a 15%
increase in footwear unit comparable sales while the average price per pair of shoes was flat.
Unit sales increased 15% during the same period.
Journeys Group earnings from operations for the six months ended July 30, 2011 increased $12.0
million to $15.3 million compared to $3.3 million for the six months ended July 31, 2010. The
increase was due to increased net sales and to decreased expenses as a percentage of net sales,
reflecting leveraging of occupancy costs and depreciation.
Underground Station Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
43,229 |
|
|
$ |
43,217 |
|
|
|
0.0 |
% |
Loss from operations |
|
$ |
(1,754 |
) |
|
$ |
(2,927 |
) |
|
|
40.1 |
% |
Operating margin |
|
|
(4.1 |
)% |
|
|
(6.8 |
)% |
|
|
|
|
Net sales from the Underground Station Group were flat at $43.2 million for the six months ended
July 30, 2011 compared to the same period last year. Comparable store sales increased 8% for the
first six month period of Fiscal 2012, but were offset by an 11% decrease in average Underground
Station stores operated for the same period. Comparable footwear unit sales increased 8% while the
average price per pair of shoes decreased 1% for the same period. Unit sales decreased 1% during
the same period.
Underground Station Group loss from operations for the six months ended July 30, 2011 improved
40.1% to a loss of $(1.8) million compared to a loss of $(2.9) million in the six months ended July
31, 2010. The improvement was primarily due to decreased expenses as a percentage of net sales due
to decreased occupancy costs, depreciation and compensation expenses resulting from strong
comparable store sales and closing unprofitable stores.
53
Schuh Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
33,973 |
|
|
$ |
|
|
|
NM |
|
Loss from operations |
|
$ |
(77 |
) |
|
$ |
|
|
|
NM |
|
Operating margin |
|
|
(0.2 |
)% |
|
|
|
|
|
|
|
|
Net sales from the Schuh Group were $34.0 million for the initial reporting period during the six
months ended July 30, 2011, beginning on June 20, 2011.
Schuh Group loss from operations was $(0.1) million for the six months ended July 30, 2011. The
loss included $1.4 million in compensation expense related to a deferred purchase price obligation
in connection with the acquisition, as discussed above. See Note 2 to the Condensed Consolidated
Financial Statements for additional information related to the Schuh acquisition.
Lids Sports Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
347,199 |
|
|
$ |
252,570 |
|
|
|
37.5 |
% |
Earnings from operations |
|
$ |
32,110 |
|
|
$ |
20,936 |
|
|
|
53.4 |
% |
Operating margin |
|
|
9.2 |
% |
|
|
8.3 |
% |
|
|
|
|
Net sales from Lids Sports Group increased 37.5% to $347.2 million for the six months ended July
30, 2011 compared to $252.6 million for the same period last year, reflecting primarily a 14%
increase in comparable store sales and $41.3 million of sales from businesses acquired in the last
twelve months. The comparable store sales increase reflected a 12% increase in comparable store
units sold, primarily from strength in Major League Baseball products especially fashion-oriented
Major League Baseball products, NBA products, NCAA products and NHL products and a 3% increase in
average price per hat.
Lids Sports Group earnings from operations for the six months ended July 30, 2011 increased 53.4%
to $32.1 million compared to $20.9 million for the second quarter ended July 31, 2010. The
increase was due to increased headwear sales and decreased expenses as a percentage of net sales,
primarily reflecting leverage from positive comparable store sales as well as a change in sales mix
in the Lids Sports Group. Wholesale sales accounted for 14% of the Groups sales in the six months
this year compared to 8% for the same period last year. Wholesale sales normally involve lower
expenses compared to retail sales.
54
Johnston & Murphy Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
93,622 |
|
|
$ |
83,602 |
|
|
|
12.0 |
% |
Earnings from operations |
|
$ |
5,050 |
|
|
$ |
1,924 |
|
|
|
162.5 |
% |
Operating margin |
|
|
5.4 |
% |
|
|
2.3 |
% |
|
|
|
|
Johnston & Murphy Group net sales increased 12.0% to $93.6 million for the six months ended July
30, 2011 from $83.6 million for the six months ended July 31, 2010, reflecting primarily a 13%
increase in comparable store sales and a 8% increase in Johnston & Murphy wholesale sales offset by
a 2% decrease in average stores operated for Johnston & Murphy retail operations. Unit sales for
the Johnston & Murphy wholesale business increased 8% in the first six months of Fiscal 2012 while
the average price per pair of shoes was flat for the same period. Retail operations accounted for
73.2% of Johnston & Murphy Group segment sales in the first six months this year, up from 72.3% in
the first six months last year. The comparable store sales increase in the first six months ended
July 30, 2011 reflects a 7% increase in footwear unit comparable sales while average price per pair
of shoes remained flat for Johnston & Murphy retail operations.
Johnston & Murphy Group earnings from operations for the six months ended July 30, 2011 increased
$3.1 million to $5.0 million compared to $1.9 million for the same period last year, primarily due
to increased net sales, increased gross margin as a percentage of net sales and to decreased
expenses as a percentage of net sales. Expenses reflected positive leverage from the increase in
comparable store sales and increased wholesale sales.
Licensed Brands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
July 30, |
|
|
July 31, |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
47,468 |
|
|
$ |
49,656 |
|
|
|
(4.4 |
)% |
Earnings from operations |
|
$ |
4,298 |
|
|
$ |
6,672 |
|
|
|
(35.6 |
)% |
Operating margin |
|
|
9.1 |
% |
|
|
13.4 |
% |
|
|
|
|
Licensed Brands net sales decreased 4.4% to $47.5 million for the six months ended July 30, 2011,
from $49.7 million for the six months ended July 31, 2010. The sales decrease reflects a decrease
in sales of Dockers Footwear due to retailers increasing emphasis on their private label brands
offset by a $4.2 million increase in sales from the Chaps line of footwear and Keuka Footwear
business, which was acquired in the third quarter of Fiscal 2011. Unit sales for Dockers Footwear
decreased 10% for the first six months this year and the average price per pair of Dockers shoes
decreased 5% compared to the same period last year.
Licensed Brands earnings from operations for the six months ended July 30, 2011 decreased 35.6% to
$4.3 million compared to $6.7 million for the same period last year due to decreased net sales,
decreased gross margin as a percentage of net sales and to increased expenses as a percentage of
net sales, reflecting increased advertising expense and freight costs.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the six months ended July 30, 2011 was $27.8 million compared to
$18.8 million for the six months ended July 31, 2010. Corporate expense in the six months this
year included $1.6 million in restructuring and other charges, primarily for retail store asset
impairments, network intrusion costs and other legal matters and $7.2 million in acquisition
related expenses. Last years expense for the six months ended July 31, 2010 included $4.4 million
in
55
restructuring and other charges, primarily for retail store asset impairments and other legal
matters. Excluding the charges listed above, corporate and other expense increased primarily due
to increased bonus accruals as a result of increased earnings in the first six months this year
compared to the first six months last year.
Interest expense increased from $0.5 million in the six months ended July 31, 2010 to $1.6 million
for the six months ended July 30, 2011, due to average revolver borrowings of $21.2 million in the
first six months this year, primarily in connection with the Schuh acquisition, compared to no
revolver borrowings in the first six months last year.
Liquidity and Capital Resources
The following table sets forth certain financial data at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, |
|
|
January 29, |
|
|
July 31, |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
|
(dollars in millions) |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35.6 |
|
|
$ |
55.9 |
|
|
$ |
49.0 |
|
Working capital |
|
$ |
310.4 |
|
|
$ |
278.7 |
|
|
$ |
273.5 |
|
Long-term debt |
|
$ |
159.4 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
Working Capital
The Companys business is somewhat seasonal, with the Companys investment in inventory and
accounts receivable normally reaching peaks in the spring and fall of each year. Historically,
cash flows from operations have been generated principally in the fourth quarter of each fiscal
year.
Cash used in operating activities was $18.2 million in the first six months of Fiscal 2012 compared
to cash provided by operating activities of $9.6 million in the first six months of Fiscal 2011.
The $27.8 million decrease in cash flow from operating activities from last year reflects decreases
in cash flow from changes in other accrued liabilities, prepaids and other current assets and
accounts payable of $26.6 million, $8.7 million and $5.4 million, respectively, offset by increased
earnings. The $26.6 million decrease in cash flow from other accrued liabilities was due to
increased bonus payments and income tax payments in the first six months this year compared to the
first six months last year. The $8.7 million decrease in cash flow from prepaids and other current
assets reflects prepaid income taxes in the first six months this year compared to the first six
months last year. The $5.4 million decrease in cash flow from accounts payable was due to changes
in buying patterns and payment terms negotiated with individual vendors.
The $81.8 million increase in inventories at July 30, 2011 from January 29, 2011 levels reflected
increased purchases in the Journeys Group, Underground Station Group, Lids Sports Group and
Johnston & Murphy Group reflecting seasonal increases in retail inventory to support Back-to-School
sales, offset by decreased inventory in the Licensed Brand business.
Accounts receivable at July 30, 2011 decreased $5.5 million compared to January 29, 2011 due
primarily to decreased sales in the Licensed Brands business as a result of decreased sales in
Dockers Footwear with retailers increasing emphasis on their private label brands.
Sources of Liquidity
The Company has three principal sources of liquidity: cash from operations, cash and cash
equivalents on hand and the Credit Facility and UK Credit Facility discussed below. The
56
Company
believes that cash and cash equivalents on hand, cash from operations and availability under its
Credit Facility and UK Credit Facility will be sufficient to cover its working capital and capital
expenditures for the foreseeable future.
On June 23, 2011, the Company entered into a First Amendment (the Amendment) to the Second
Amended and Restated Credit Agreement (the Credit Facility) dated January 21, 2011, in the
aggregate principal amount of $405.0 million, with a $40.0 million swingline loan sublimit, a $70.0
million sublimit for the issuance of standby letters of credit, a Canadian sub-facility of up to
$8.0 million and a Tranche A-1 sublimit of up to $30.0 million, and has a five-year term, expiring
in January 2016. Any swingline loans and any letters of credit and borrowings under the Canadian
facility will reduce the availability under the Credit Facility on a dollar-for-dollar basis. In
addition, the Company has an option to increase the availability under the Credit Facility by up to
$75.0 million subject to, among other things, the receipt of commitments for the increased amount.
The aggregate amount of the loans made and letters of credit issued under the Credit Facility shall
at no time exceed the lesser of the facility amount ($405.0 million or, if increased at the
Companys option, subject to the receipt of commitments for the increased amount, up to $480.0
million including the A-1 Tranche.) or the Borrowing Base, which generally is based on 90% of
eligible inventory plus 85% of eligible wholesale receivables (50% of eligible wholesale
receivables of the Lids Team Sports business) plus 90% of eligible credit card and debit card
receivables less applicable reserves. The A-1 Tranche provides for an additional 10% availability
of eligible inventory (declining to a 7.5% advance rate after one year and then to a 5% advance
rate after two years) plus an additional 5% availability of eligible wholesale receivables (other
than wholesale receivables of the Lids Team Sports business) (declining to a 2.5% advance rate
after one year and then 0.0% after two years) plus an additional 5% of eligible credit card and
debit card receivables less applicable reserves.
In connection with the Schuh acquisition, Schuh entered into an amended and restated Senior Term
Facilities Agreement and Working Capital Facility Letter (collectively, the UK Credit Facility)
which provides for terms loans of up to £29.5 million (a £15.5 million A term loan and £14.0
million B term loan) and a working capital facility of £5.0 million. The A term loan bears interest
at LIBOR plus 2.50% per annum. The B term loan bears interest at LIBOR plus 3.75% per annum. The
working capital facility bears interest at the Base Rate (as defined) plus 2.25% per annum.
The UK Credit Facility contains certain covenants at the Schuh level including a minimum interest
coverage covenant initially set at 4.25x and increasing to 4.50x in January 2012 and thereafter, a
maximum leverage covenant initially set at 2.75x declining over time at various rates to 2.25x
beginning in July 2012 and a minimum cash flow coverage of 1.10x. The Company was in compliance
with all the convenants at July 30, 2011.
The UK Credit Facility is secured by a pledge of all the assets of Schuh and its subsidiaries.
Revolving credit borrowings averaged $21.2 million during the six months ended July 30, 2011 and
there were no revolving credit borrowings during the six months ended July 31, 2010, as cash on
hand and cash generated from operations funded seasonal working capital requirements and capital
expenditures for the first six months of each year with revolver borrowings used during the first
six months of Fiscal 2012 for the purchase of Schuh Group Ltd.
There were $10.2 million of letters of credit outstanding, $117.5 million of revolver borrowings
outstanding under the Credit Facility and $47.0 million in U.K. term loans outstanding at July 30,
57
2011. The Company is not required to comply with any financial covenants under the Credit
Facility unless Excess Availability (as defined in the First Amendment to the Second Amended and
Restated Credit Agreement) is less than the greater of $27.5 million or 12.5% of the Loan Cap. If
and during such time as Excess Availability is less than the greater of $27.5 million or 12.5% of
the Loan Cap, the Credit Facility requires the Company to meet a minimum fixed charge coverage
ratio (EBITDA less capital expenditures less cash taxes divided by cash interest expense and
scheduled payments of principal indebtedness) of (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 including Tranche A-1 was $204.2
million at July 30, 2011. Because Excess Availability exceeded $27.5 million or 12.5% of the Loan
Cap, the Company was not required to comply with this financial covenant at July 30, 2011.
The Companys Credit Facility prohibits the payment of dividends and other restricted payments
unless as of the date of the making of any Restricted Payment or consummation of any Acquisition,
(a) no Default or Event of Default exists or would arise after giving effect to such Restricted
Payment or Acquisition, and (b) either (i) the Borrowers have pro forma projected Excess
Availability for the following six month period equal to or greater than 50% of the Loan Cap, after
giving pro forma effect to such Restricted Payment or Acquisition, or (ii) (A) the Borrowers have
pro forma projected Excess Availability for the following six month period of less than 50% of the
Loan Cap but equal to or greater than 20% of the Loan Cap, after giving pro forma effect to the
Restricted Payment or Acquisition, and (B) the Fixed Charge Coverage Ratio, on a pro-forma basis
for the twelve months preceding such Restricted Payment or Acquisition, will be equal to or greater
than 1.0:1.0 and (c) after giving effect to such Restricted Payment or Acquisition, the Borrowers
are Solvent. The Companys management does not expect availability under the Credit Facility to
fall below the requirements listed above during Fiscal 2012. The Companys UK Credit Facility
prohibits the payment of any dividends by Schuh or its subsidiaries to the Company.
The aggregate of annual dividend requirements on the Companys Subordinated Serial Preferred Stock,
$2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative
Preferred Stock is $197,000.
The Companys contractual obligations at July 30, 2011 increased from January 29, 2011. Long-Term
debt increased $164.5 million due to the Schuh acquisition. Purchase obligations increased $50.5
million due to seasonal increases in purchases of retail inventory. Operating leases increased
$136.1 million primarily due to the Schuh stores acquired in the second quarter ended July 30,
2011. Other long-term liabilities increased $23.6 million which includes interest on the U.K. term
loans.
58
Capital Expenditures
Total capital expenditures in Fiscal 2012 are expected to be approximately $63.0 million. These
include retail capital expenditures of approximately $53.6 million to open approximately 20
Journeys stores including seven in Canada, seven Journeys Kidz stores, six Schuh stores, eight
Johnston & Murphy shops and factory stores and 43 Lid Sports Group stores including 12 stores in
Canada and 17 Lids Locker Room and Clubhouse stores, with one Lids Locker Room store in Canada, and
to complete approximately 82 major store renovations. The Company will continue to open stores at
a slower pace in 2012. The planned amount of capital expenditures in Fiscal 2012 for wholesale
operations and other purposes is approximately $9.4 million, including approximately $3.8 million
for new systems to improve customer service and support the Companys growth.
Future Capital Needs
The Company expects that cash on hand, cash provided by operations and borrowings under its Credit
Facility and UK Credit Facility will be sufficient to support seasonal working capital and capital
expenditure requirements during Fiscal 2012. The approximately $9.3 million of costs associated
with discontinued operations that are expected to be paid during the next twelve months are
expected to be funded from cash on hand, cash generated from operations and borrowings under the
Credit Facility during Fiscal 2012.
Common Stock Repurchases
The Company did not repurchase any shares during the six months ended July 30, 2011. The Company
repurchased 408,400 shares at a cost of $11.2 million during the six months ended July 31, 2010.
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 9 to the Companys Condensed Consolidated
Financial Statements. The Company has made pretax accruals for certain of these contingencies,
including approximately $1.2 million in each of the second quarters of Fiscal 2012 and Fiscal 2011,
and $1.6 million for each of the first six months of Fiscal 2012 and Fiscal 2011. These charges
are included in the provision for discontinued operations, net in the Condensed Consolidated
Statements of Operations. The Company monitors these matters on an ongoing basis and, on a
quarterly basis, management reviews the Companys reserves and accruals in relation to each of
them, adjusting provisions as management deems necessary in view of changes in available
information. Changes in estimates of liability are reported in the periods when they occur.
Consequently, management believes that its reserve in relation to each proceeding is a reasonable
estimate of the probable loss connected to the proceeding, or in cases in which no reasonable
estimate is possible, the minimum amount in the range of estimated losses, based upon its analysis
of the facts and circumstances as of the close of the most recent fiscal quarter. However, because
of uncertainties and risks inherent in litigation generally and in environmental proceedings in
particular, there can be no assurance that future developments will not require additional reserves
to be set aside, that some or all reserves may not be adequate or that the amounts of any such
additional reserves or any such inadequacy will not have a material adverse effect upon the
Companys financial condition or results of operations.
59
Financial Market Risk
The following discusses the Companys exposure to financial market risk related to changes in
interest rates.
Outstanding Debt of the Company The Company has $117.5 million of outstanding revolver
borrowings under its Credit Facility at a weighted average interest rate of 2.96% as of July 30,
2011. A 100 basis point adverse change in interest rates would increase interest expense by $0.3
million on the $117.5 million revolving credit debt for the quarter. The Company has $47.0 million
of outstanding U.K. term loans at a weighted average interest rate of 3.94% as of July 30, 2011. A
100 basis point adverse change in interest rates would increase interest expense by $0.1 million on
the $47.0 million term loans for the quarter.
Cash and Cash Equivalents The Companys 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 July 30, 2011. As a result,
the Company considers the interest rate market risk implicit in these investments at July 30, 2011
to be low.
Foreign Currency Exchange Rate Risk Most purchases by the Company from foreign sources are
denominated in U.S. dollars. To the extent that import transactions are denominated in other
currencies, it is the Companys practice to hedge its risks through the purchase of forward foreign
exchange contracts when the purchases are material. At July 30, 2011, the Company did not have any
forward foreign exchange contracts for Euro outstanding. The Companys policy is not to speculate
in derivative instruments for profit on the exchange rate price fluctuation and it does not hold
any derivative instruments for trading purposes. Derivative instruments used as hedges must be
effective at reducing the risk associated with the exposure being hedged and must be designated as
a hedge at the inception of the contract.
Accounts Receivable The Companys accounts receivable balance at July 30, 2011 is concentrated
in two of its footwear wholesale businesses, which sell primarily to department stores and
independent retailers across the United States and its Lids Team Sports wholesale business, which
sells primarily to colleges and high school athletic teams and their fan bases. Including both
footwear wholesale and Lids Team Sports receivables, one customer accounted for 6% of the Companys
total trade accounts receivable balance and no other customer accounted for more than 5% of the
Companys total trade receivables balance as of July 30, 2011. The Company monitors the credit
quality of its customers and establishes an allowance for doubtful accounts based upon factors
surrounding credit risk of specific customers, historical trends and other information, as well as
customer specific factors; however, credit risk is affected by conditions or occurrences within the
economy and the retail industry, as well as company-specific information.
Summary Based on the Companys overall market interest rate exposure at July 30, 2011, the
Company believes that the effect, if any, of reasonably possible near-term changes in interest
rates or foreign exchange rates on the Companys consolidated financial position, results of
operations or cash flows for Fiscal 2012 would not be material.
60
New Accounting Principles
Descriptions of the recently issued accounting principles, if any, and the accounting principles
adopted by the Company during the six months ended July 30, 2011 are included in Note 1 to the
Condensed Consolidated Financial statements.
Item 3. 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 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Item 4. 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 Companys financial reports and to other members of senior management and the Board of
Directors.
Based on their evaluation as of July 30, 2011, the principal executive officer and principal
financial officer of the Company have concluded that the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
were effective to ensure that the information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within time periods specified in SEC rules and forms and (ii)
accumulated and communicated to the Companys management, including the Companys principal
executive officer and principal financial officer, to allow timely decisions regarding required
disclosure.
Changes in internal control over financial reporting.
There were no changes in the Companys internal control over financial reporting that occurred
during the Companys second fiscal quarter that have materially affected or are reasonably likely
to materially affect the Companys internal control over financial reporting. The Companys
management has concluded that it will exclude Schuhs systems and processes from the scope of the
Companys assessment of internal control over financial reporting as of January 28, 2012 in
reliance on the guidance set forth in Question 3 of a Frequently Asked Questions interpretive
release issued by the staff of the Securities and Exchange Commissions Office of the Chief
Accountant and the Division of Corporation Finance in September 2004 (revised on October 6, 2004).
The Company is in the process of integrating the Schuh business into its overall internal control
over financial reporting process.
61
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company incorporates by reference the information regarding legal proceedings in
Note 9 of the Companys Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
The only material change to the risk factors previously disclosed in Item 1A. Risk
Factors in the Companys Annual Report on Form 10-K for the year ended January 29,
2011, is as follows:
We are subject to regulatory proceedings and litigation that could have an adverse
effect on our financial condition and results of operations.
We are party to certain lawsuits, governmental investigations, and regulatory
proceedings, including the suits and proceedings arising out of alleged environmental
contamination relating to historical operations of the Company and various suits
involving current operations as disclosed in Note 9 to the Condensed Consolidated
Financial Statements. We are also subject to possible, as yet unasserted claims arising
out of the unlawful intrusion into a portion of our computer network which we announced
in December 2010. If these or similar matters are resolved against us, our results of
operations or our financial condition could be adversely affected. The costs of
defending such lawsuits and responding to such investigations and regulatory proceedings
may be substantial and their potential to distract management from day-to-day business
is significant. Moreover, with retail operations in 50 states, Puerto Rico, the U.S.
Virgin Islands, Canada, the United Kingdom and the Republic of Ireland, we are subject
to federal, state, provincial, territorial and local regulations which impose costs and
risks on our business. Changes in regulations could make compliance more difficult and
costly, and inadvertent violations could result in liability for damages or penalties.
62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Repurchases (shown in 000s except share and per share amounts):
ISSUER PURCHASES OF EQUITY SECURITIES
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(c) Total
Number of |
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(d) Maximum Number (or Approximate Dollar Value) of
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Shares |
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shares that |
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Purchased as |
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May Yet Be |
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(a) Total of |
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Part of Publicly |
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Purchased |
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Number of |
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(b) Average |
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Announced |
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Under the Plans |
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Shares |
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Price Paid |
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Plans or |
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or Programs |
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Period |
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Purchased |
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per Share |
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Programs |
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(in thousands) |
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May 2011 |
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|
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5-1-11 to 5-28-11 |
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-0- |
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$ |
-0- |
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-0- |
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$ |
-0- |
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June 2011 |
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5-29-11 to 6-25-11(1) |
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27,585 |
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$ |
45.14 |
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-0- |
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$ |
-0- |
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5-29-11 to 6-25-11(1) |
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24,172 |
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$ |
51.01 |
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-0- |
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$ |
-0- |
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July 2011 |
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6-26-11 to 7-30-11 |
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-0- |
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$ |
-0- |
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-0- |
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$ |
-0- |
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(1) |
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These shares represent shares withheld from vested restricted stock to satisfy the
minimum withholding requirement for federal and state taxes. |
Item 4. Removed and Reserved
Item 6. Exhibits
Exhibits
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(10)a.
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The Schuh Group Limited 2015 Management Bonus Scheme. |
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(31.1)
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Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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(31.2)
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Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
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(32.1)
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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. |
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(32.2)
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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. |
63
SIGNATURE
Pursuant to the requirements 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.
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Genesco Inc.
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By: |
/s/ James S. Gulmi
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James S. Gulmi |
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Senior Vice President Finance and
Chief Financial Officer |
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Date: September 8, 2011
64