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 October 30, 2010
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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
(State or other jurisdiction of
incorporation or organization)
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62-0211340
(I.R.S. Employer
Identification No.) |
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Genesco Park, 1415 Murfreesboro Road
Nashville, Tennessee
(Address of principal executive offices)
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37217-2895
(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 o 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:)
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if smaller reporting company) |
Smaller reporting company o |
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 November 26, 2010, 23,623,506 shares of the registrants common stock were
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Genesco Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands)
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October 30, |
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January 30, |
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October 31, |
|
Assets |
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,574 |
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|
$ |
82,148 |
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$ |
23,620 |
|
Accounts receivable, net of allowances of
$3,701 at October 30, 2010, $3,232 at January 30, 2010
and $2,996 at October 31, 2009 |
|
|
47,923 |
|
|
|
27,217 |
|
|
|
33,425 |
|
Inventories |
|
|
450,902 |
|
|
|
290,974 |
|
|
|
359,684 |
|
Deferred income taxes |
|
|
15,094 |
|
|
|
17,314 |
|
|
|
15,848 |
|
Prepaids and other current assets |
|
|
37,061 |
|
|
|
32,419 |
|
|
|
41,007 |
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|
Total current assets |
|
|
575,554 |
|
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|
450,072 |
|
|
|
473,584 |
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Property and equipment: |
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|
|
|
|
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|
|
|
|
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Land |
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4,863 |
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|
4,863 |
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|
|
4,863 |
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Buildings and building equipment |
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17,992 |
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|
17,992 |
|
|
|
17,957 |
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Computer hardware, software and equipment |
|
|
91,496 |
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|
|
86,239 |
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|
|
82,811 |
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Furniture and fixtures |
|
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102,852 |
|
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|
101,923 |
|
|
|
100,356 |
|
Construction in progress |
|
|
6,446 |
|
|
|
3,196 |
|
|
|
6,600 |
|
Improvements to leased property |
|
|
278,855 |
|
|
|
277,624 |
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|
|
274,754 |
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|
Property and equipment, at cost |
|
|
502,504 |
|
|
|
491,837 |
|
|
|
487,341 |
|
Accumulated depreciation |
|
|
(302,009 |
) |
|
|
(275,544 |
) |
|
|
(266,077 |
) |
|
Property and equipment, net |
|
|
200,495 |
|
|
|
216,293 |
|
|
|
221,264 |
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|
Deferred income taxes |
|
|
17,110 |
|
|
|
13,545 |
|
|
|
7,603 |
|
Goodwill |
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|
150,311 |
|
|
|
118,995 |
|
|
|
112,759 |
|
Trademarks, net of accumulated amortization of
$879 at October 30, 2010, $418 at January 30, 2010 and
$342 at October 31, 2009 |
|
|
52,753 |
|
|
|
52,799 |
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|
51,460 |
|
Other intangibles, net of accumulated amortization of
$9,984 at October 30, 2010, $8,795 at January 30, 2010 and
$8,557 at October 31, 2009 |
|
|
13,179 |
|
|
|
3,670 |
|
|
|
3,378 |
|
Other noncurrent assets |
|
|
8,568 |
|
|
|
8,278 |
|
|
|
8,231 |
|
|
Total Assets |
|
$ |
1,017,970 |
|
|
$ |
863,652 |
|
|
$ |
878,279 |
|
|
3
Genesco Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share amounts)
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|
|
|
|
|
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October 30, |
|
|
January 30, |
|
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October 31, |
|
Liabilities and Shareholders Equity |
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
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|
Accounts payable |
|
$ |
199,299 |
|
|
$ |
92,699 |
|
|
$ |
152,273 |
|
Accrued employee compensation |
|
|
28,921 |
|
|
|
15,043 |
|
|
|
13,613 |
|
Accrued other taxes |
|
|
13,865 |
|
|
|
11,570 |
|
|
|
10,590 |
|
Other accrued liabilities |
|
|
40,788 |
|
|
|
40,979 |
|
|
|
29,019 |
|
Provision for discontinued operations |
|
|
11,642 |
|
|
|
9,366 |
|
|
|
9,472 |
|
|
Total current liabilities |
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|
294,515 |
|
|
|
169,657 |
|
|
|
214,967 |
|
|
Long-term debt |
|
|
30,400 |
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|
-0- |
|
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|
29,042 |
|
Pension liability |
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|
18,030 |
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|
20,402 |
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|
|
22,281 |
|
Deferred rent and other long-term liabilities |
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|
85,657 |
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|
|
85,232 |
|
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|
83,883 |
|
Provision for discontinued operations |
|
|
4,594 |
|
|
|
6,048 |
|
|
|
6,115 |
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Total liabilities |
|
|
433,196 |
|
|
|
281,339 |
|
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|
356,288 |
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|
Commitments and contingent liabilities |
|
|
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|
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|
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Shareholders Equity |
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|
|
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Non-redeemable preferred stock |
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5,193 |
|
|
|
5,220 |
|
|
|
5,235 |
|
Common shareholders equity: |
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|
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Common stock, $1 par value: |
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Authorized: 80,000,000 shares
Issued/Outstanding: |
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|
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October 30, 2010 24,083,115/23,594,651 |
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January 30, 2010 24,562,693/24,074,229 |
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|
|
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October 31, 2009 23,158,918/22,670,454 |
|
|
24,083 |
|
|
|
24,563 |
|
|
|
23,159 |
|
Additional paid-in capital |
|
|
127,193 |
|
|
|
146,981 |
|
|
|
115,088 |
|
Retained earnings |
|
|
474,412 |
|
|
|
452,210 |
|
|
|
426,406 |
|
Accumulated other comprehensive loss |
|
|
(28,250 |
) |
|
|
(28,804 |
) |
|
|
(30,040 |
) |
Treasury shares, at cost |
|
|
(17,857 |
) |
|
|
(17,857 |
) |
|
|
(17,857 |
) |
|
Total shareholders equity |
|
|
584,774 |
|
|
|
582,313 |
|
|
|
521,991 |
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|
Total Liabilities and Shareholders Equity |
|
$ |
1,017,970 |
|
|
$ |
863,652 |
|
|
$ |
878,279 |
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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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Nine Months Ended |
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|
October 30, |
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October 31, |
|
|
October 30, |
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October 31, |
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|
2010 |
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|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Net sales |
|
$ |
464,838 |
|
|
$ |
390,302 |
|
|
$ |
1,229,345 |
|
|
$ |
1,095,326 |
|
Cost of sales |
|
|
228,097 |
|
|
|
190,136 |
|
|
|
600,489 |
|
|
|
535,993 |
|
Selling and administrative expenses |
|
|
207,942 |
|
|
|
179,271 |
|
|
|
584,484 |
|
|
|
531,071 |
|
Restructuring and other, net |
|
|
2,120 |
|
|
|
2,571 |
|
|
|
6,564 |
|
|
|
10,864 |
|
|
Earnings from operations |
|
|
26,679 |
|
|
|
18,324 |
|
|
|
37,808 |
|
|
|
17,398 |
|
|
Loss on early retirement of debt |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5,119 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
306 |
|
|
|
922 |
|
|
|
773 |
|
|
|
4,046 |
|
Interest income |
|
|
-0- |
|
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(13 |
) |
|
Total interest expense, net |
|
|
306 |
|
|
|
921 |
|
|
|
768 |
|
|
|
4,033 |
|
|
Earnings from continuing operations
before income taxes |
|
|
26,373 |
|
|
|
17,403 |
|
|
|
37,040 |
|
|
|
8,246 |
|
Income tax expense |
|
|
9,406 |
|
|
|
5,880 |
|
|
|
13,906 |
|
|
|
4,989 |
|
|
Earnings from continuing operations |
|
|
16,967 |
|
|
|
11,523 |
|
|
|
23,134 |
|
|
|
3,257 |
|
Provision for discontinued operations, net |
|
|
(50 |
) |
|
|
(80 |
) |
|
|
(784 |
) |
|
|
(298 |
) |
|
Net Earnings |
|
$ |
16,917 |
|
|
$ |
11,443 |
|
|
$ |
22,350 |
|
|
$ |
2,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
.73 |
|
|
$ |
.52 |
|
|
$ |
.98 |
|
|
$ |
.15 |
|
Discontinued operations |
|
$ |
.00 |
|
|
$ |
.00 |
|
|
$ |
(.03 |
) |
|
$ |
(.02 |
) |
|
Net earnings |
|
$ |
.73 |
|
|
$ |
.52 |
|
|
$ |
.95 |
|
|
$ |
.13 |
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
.72 |
|
|
$ |
.50 |
|
|
$ |
.97 |
|
|
$ |
.15 |
|
Discontinued operations |
|
$ |
.00 |
|
|
$ |
.00 |
|
|
$ |
(.04 |
) |
|
$ |
(.02 |
) |
|
Net earnings |
|
$ |
.72 |
|
|
$ |
.50 |
|
|
$ |
.93 |
|
|
$ |
.13 |
|
|
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 |
|
|
Nine Months Ended |
|
|
|
October 30, |
|
|
October 30, |
|
|
October 30, |
|
|
October 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,917 |
|
|
$ |
11,443 |
|
|
$ |
22,350 |
|
|
$ |
2,959 |
|
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
11,265 |
|
|
|
11,464 |
|
|
|
34,078 |
|
|
|
35,315 |
|
Amortization of deferred note expense and debt discount |
|
|
105 |
|
|
|
433 |
|
|
|
313 |
|
|
|
1,877 |
|
Loss on early retirement of debt |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5,119 |
|
Deferred income taxes |
|
|
(2,595 |
) |
|
|
2,228 |
|
|
|
(3,142 |
) |
|
|
3,774 |
|
Provision for losses on accounts receivable |
|
|
256 |
|
|
|
126 |
|
|
|
561 |
|
|
|
186 |
|
Impairment of long-lived assets |
|
|
2,120 |
|
|
|
2,594 |
|
|
|
6,410 |
|
|
|
10,433 |
|
Share-based compensation and restricted stock |
|
|
2,336 |
|
|
|
1,995 |
|
|
|
6,051 |
|
|
|
5,255 |
|
Provision for discontinued operations |
|
|
82 |
|
|
|
134 |
|
|
|
1,295 |
|
|
|
493 |
|
Other |
|
|
786 |
|
|
|
508 |
|
|
|
2,416 |
|
|
|
1,591 |
|
Effect on cash of changes in working capital and other assets
and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(12,066 |
) |
|
|
(3,663 |
) |
|
|
(14,783 |
) |
|
|
(8,230 |
) |
Inventories |
|
|
(52,344 |
) |
|
|
(25,744 |
) |
|
|
(136,717 |
) |
|
|
(52,583 |
) |
Prepaids and other current assets |
|
|
6,307 |
|
|
|
3,216 |
|
|
|
(3,507 |
) |
|
|
(5,439 |
) |
Accounts payable |
|
|
21,811 |
|
|
|
20,951 |
|
|
|
94,492 |
|
|
|
68,090 |
|
Other accrued liabilities |
|
|
16,424 |
|
|
|
1,740 |
|
|
|
17,296 |
|
|
|
(5,973 |
) |
Other assets and liabilities |
|
|
3,249 |
|
|
|
(176 |
) |
|
|
(2,887 |
) |
|
|
(2,077 |
) |
|
Net cash provided by operating activities |
|
|
14,653 |
|
|
|
27,249 |
|
|
|
24,226 |
|
|
|
60,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(6,956 |
) |
|
|
(6,893 |
) |
|
|
(18,816 |
) |
|
|
(27,953 |
) |
Acquisitions, net of cash acquired |
|
|
(56,719 |
) |
|
|
(2,868 |
) |
|
|
(71,973 |
) |
|
|
(2,873 |
) |
Proceeds from assets sales |
|
|
4 |
|
|
|
-0- |
|
|
|
6 |
|
|
|
13 |
|
|
Net cash used in investing activities |
|
|
(63,671 |
) |
|
|
(9,761 |
) |
|
|
(90,783 |
) |
|
|
(30,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of capital leases |
|
|
(30 |
) |
|
|
(52 |
) |
|
|
(90 |
) |
|
|
(148 |
) |
Payments of long-term debt |
|
|
(900 |
) |
|
|
(1,070 |
) |
|
|
(1,918 |
) |
|
|
(1,070 |
) |
Shares repurchased |
|
|
(14,026 |
) |
|
|
-0- |
|
|
|
(25,717 |
) |
|
|
-0- |
|
Change in overdraft balances |
|
|
8,885 |
|
|
|
9,863 |
|
|
|
5,607 |
|
|
|
9,472 |
|
Borrowings under revolving credit facility |
|
|
55,000 |
|
|
|
18,100 |
|
|
|
55,000 |
|
|
|
134,200 |
|
Payments on revolving credit facility |
|
|
(24,600 |
) |
|
|
(42,400 |
) |
|
|
(24,600 |
) |
|
|
(166,500 |
) |
Dividends paid on non-redeemable preferred stock |
|
|
(50 |
) |
|
|
(49 |
) |
|
|
(148 |
) |
|
|
(148 |
) |
Exercise of stock options |
|
|
276 |
|
|
|
283 |
|
|
|
849 |
|
|
|
455 |
|
Other |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(290 |
) |
|
Net cash provided by (used in) financing activities |
|
|
24,555 |
|
|
|
(15,325 |
) |
|
|
8,983 |
|
|
|
(24,029 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(24,463 |
) |
|
|
2,163 |
|
|
|
(57,574 |
) |
|
|
5,948 |
|
Cash and cash equivalents at beginning of period |
|
|
49,037 |
|
|
|
21,457 |
|
|
|
82,148 |
|
|
|
17,672 |
|
|
Cash and cash equivalents at end of period |
|
$ |
24,574 |
|
|
$ |
23,620 |
|
|
$ |
24,574 |
|
|
$ |
23,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
147 |
|
|
$ |
203 |
|
|
$ |
396 |
|
|
$ |
1,389 |
|
Income taxes |
|
|
1,174 |
|
|
|
1,503 |
|
|
|
14,341 |
|
|
|
6,139 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial
Statements.
6
Genesco Inc.
and Subsidiaries
Condensed Consolidated Statements of Shareholders Equity
In Thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Non-Redeemable |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Share- |
|
|
|
Preferred |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Comprehensive |
|
|
holders |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Income |
|
|
Equity |
|
|
Balance January 31, 2009 |
|
$ |
5,203 |
|
|
$ |
19,732 |
|
|
$ |
49,780 |
|
|
$ |
423,595 |
|
|
$ |
(30,698 |
) |
|
$ |
(17,857 |
) |
|
|
|
|
|
$ |
449,755 |
|
|
Net earnings |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
28,813 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
28,813 |
|
|
|
28,813 |
|
Dividends paid on non-redeemable
preferred stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(198 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(198 |
) |
Exercise of stock options |
|
|
-0- |
|
|
|
28 |
|
|
|
372 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
400 |
|
Issue shares Employee Stock Purchase Plan |
|
|
-0- |
|
|
|
4 |
|
|
|
95 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
99 |
|
Employee and non-employee restricted stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
6,528 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
6,528 |
|
Share-based compensation |
|
|
-0- |
|
|
|
-0- |
|
|
|
441 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
441 |
|
Restricted stock issuance |
|
|
-0- |
|
|
|
405 |
|
|
|
(405 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Restricted shares withheld for taxes |
|
|
-0- |
|
|
|
(65 |
) |
|
|
(1,156 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(1,221 |
) |
Tax expense of stock options and
restricted stock exercised |
|
|
-0- |
|
|
|
-0- |
|
|
|
(658 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(658 |
) |
Shares repurchased |
|
|
-0- |
|
|
|
(85 |
) |
|
|
(1,942 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,027 |
) |
Conversion of 4 1/8% debentures |
|
|
-0- |
|
|
|
4,553 |
|
|
|
93,933 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
98,486 |
|
Loss on foreign currency forward contracts
(net of tax benefit of $0.1 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(157 |
) |
|
|
-0- |
|
|
|
(157 |
) |
|
|
(157 |
) |
Pension liability adjustment
(net of tax of $0.6 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,151 |
|
|
|
-0- |
|
|
|
1,151 |
|
|
|
1,151 |
|
Postretirement liability adjustment
(net of tax of $0.0 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
14 |
|
|
|
-0- |
|
|
|
14 |
|
|
|
14 |
|
Foreign currency translation adjustment |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
886 |
|
|
|
-0- |
|
|
|
886 |
|
|
|
886 |
|
Other |
|
|
17 |
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,707 |
|
|
|
|
|
|
Balance January 30, 2010 |
|
|
5,220 |
|
|
|
24,563 |
|
|
|
146,981 |
|
|
|
452,210 |
|
|
|
(28,804 |
) |
|
|
(17,857 |
) |
|
|
|
|
|
|
582,313 |
|
|
Net earnings |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
22,350 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
22,350 |
|
|
|
22,350 |
|
Dividends paid on non-redeemable
preferred stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(148 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(148 |
) |
Exercise of stock options |
|
|
-0- |
|
|
|
39 |
|
|
|
690 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
729 |
|
Issue shares-Employee Stock Purchase Plan |
|
|
-0- |
|
|
|
4 |
|
|
|
116 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
120 |
|
Employee and non-employee restricted stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
5,843 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5,843 |
|
Share-based compensation |
|
|
-0- |
|
|
|
-0- |
|
|
|
208 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
208 |
|
Restricted stock issuance |
|
|
-0- |
|
|
|
423 |
|
|
|
(423 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Restricted shares withheld for taxes |
|
|
-0- |
|
|
|
(82 |
) |
|
|
(2,289 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,371 |
) |
Shares repurchased |
|
|
-0- |
|
|
|
(864 |
) |
|
|
(23,961 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(24,825 |
) |
Gain on foreign currency forward contracts
(net of tax of $0.1 million) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
193 |
|
|
|
-0- |
|
|
|
193 |
|
|
|
193 |
|
Foreign currency translation adjustment |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
361 |
|
|
|
-0- |
|
|
|
361 |
|
|
|
361 |
|
Other |
|
|
(27 |
) |
|
|
-0- |
|
|
|
28 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,904 |
|
|
|
|
|
|
Balance October 30, 2010 |
|
$ |
5,193 |
|
|
$ |
24,083 |
|
|
$ |
127,193 |
|
|
$ |
474,412 |
|
|
$ |
(28,250 |
) |
|
$ |
(17,857 |
) |
|
|
|
|
|
$ |
584,774 |
|
|
|
|
|
* |
|
Comprehensive income was $17.1 million and $11.4 million for the third quarter ended
October 30, 2010 and October 31, 2009, respectively. Comprehensive income was $3.6 million
for the nine months ended October 31, 2009. |
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
29, 2011 (Fiscal 2011) and of the fiscal year ended January 30, 2010 (Fiscal 2010). 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; through e-commerce websites including journeys.com, journeyskidz.com,
shibyjourneys.com, undergroundstation.com, 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 accessories stores in the U.S. and Canada under the Lids, Hat
Shack, Hat Zone, HeadQuarters, Cap Connection, and Hat World 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;
an e-commerce business conducted primarily through the lids.com website; and an athletic
team dealer business operating as Lids Team Sports. Including both the footwear businesses
and the Lids Sports business, at October 30, 2010, the Company operated 2,311 retail stores
in the U.S., Puerto Rico and Canada.
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. For the three months and nine months ended October 31, 2009, bank fees
totaling approximately $1.0 million and $2.8 million were reclassified from interest expense
to selling and administrative expenses, respectively on the Condensed Consolidated
Statements of Operations to conform to the current year presentation.
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.
8
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Significant areas requiring management estimates or judgments include the following key
financial areas:
|
|
Inventory Valuation |
|
|
|
The Company values its inventories at the lower of cost or market. |
|
|
|
In its footwear wholesale operations and its Lids Sports wholesale operations, except for
Anaconda Sports, cost is determined using the first-in, first-out (FIFO) method. Market
is determined using a system of analysis which evaluates inventory at the stock number level
based on factors such as inventory turn, average selling price, inventory level, and selling
prices reflected in future orders. The Company provides reserves when the inventory has not
been marked down to market based on current selling prices or when the inventory is not
turning and is not expected to turn at levels satisfactory to the Company. |
|
|
|
In its retail operations, other than the Lids Sports segment, the Company employs the retail
inventory method, applying average cost-to-retail ratios to the retail value of inventories.
Under the retail inventory method, valuing inventory at the lower of cost or market is
achieved as markdowns are taken or accrued as a reduction of the retail value of
inventories. |
|
|
|
Inherent in the retail inventory method are subjective judgments and estimates, including
merchandise mark-on, markups, markdowns, and shrinkage. These judgments and estimates,
coupled with the fact that the retail inventory method is an averaging process, could
produce a range of cost figures. To reduce the risk of inaccuracy and to ensure consistent
presentation, the Company employs the retail inventory method in multiple subclasses of
inventory with similar gross margins, and analyzes markdown requirements at the stock number
level based on factors such as inventory turn, average selling price, and inventory age. In
addition, the Company accrues markdowns as necessary. These additional markdown accruals
reflect all of the above factors as well as current agreements to return products to vendors
and vendor agreements to provide markdown support. In addition to markdown provisions, the
Company maintains provisions for shrinkage and damaged goods based on historical rates. |
|
|
|
The Lids Sports retail segment and its newly acquired Anaconda Sports wholesale division
employ the moving average cost method for valuing inventories and applies freight using an
allocation method. The Company provides a valuation allowance for slow-moving inventory
based on negative margins and estimated shrink based on historical experience and specific
analysis, where appropriate. |
|
|
|
Inherent in the analysis of both wholesale and retail inventory valuation are subjective
judgments about current market conditions, fashion trends, and overall economic conditions.
Failure to make appropriate conclusions regarding these factors may result in an
overstatement or understatement of inventory value. |
9
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
Impairment of Long-Lived Assets |
|
|
The Company periodically assesses the realizability of its long-lived assets and evaluates
such assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Asset impairment is determined to exist
if estimated future cash flows, undiscounted and without interest charges, are less than the
carrying amount. Inherent in the analysis of impairment are subjective judgments about
future cash flows. Failure to make appropriate conclusions regarding these judgments may
result in an overstatement or understatement of the value of long-lived assets. See 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. |
|
|
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. |
10
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
Environmental and Other Contingencies |
|
|
The Company is subject to certain loss contingencies related to environmental proceedings
and other legal matters, including those disclosed in Note 8. The Company has made pretax
accruals for certain of these contingencies, including approximately $0.3 million in each of
the third quarters of Fiscal 2011 and Fiscal 2010 and $1.9 million and $0.8 million for the
first nine months of Fiscal 2011 and Fiscal 2010, respectively. 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. |
|
|
Retail sales are recorded at the point of sale and are net of estimated returns and exclude
sales taxes. Catalog and internet sales are recorded at time of delivery to the customer
and are net of estimated returns 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. |
11
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
|
|
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 Financial Accounting Standards Board (FASB) Accounting Standards Codification
(Codification). This methodology was adopted by the Company as of February 4, 2007, and
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 1,000 hours of service in calendar year 2004, except employees
in the Lids Sports Segment, 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. For the third quarters of Fiscal 2011 and 2010,
share-based compensation expense was $0.1 million and $0.2 million, respectively. For the
third quarters of Fiscal 2011 and 2010, restricted stock expense was $2.2 million and $1.9
million, respectively. For the first nine months of Fiscal 2011 and 2010, share-based
compensation expense was $0.2 million and $0.4 million, respectively. For the first nine
months of Fiscal 2011 and 2010, restricted stock expense was $5.8 million and $4.9 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 or issue employee restricted stock for the three
months ended October 30, 2010 or October 31, 2009. The Company did not grant any stock
options for the nine months ended October 30, 2010 or October 31, 2009. During the nine
months ended October 30, 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.
During the nine months ended October 31, 2009, the Company issued 383,745 shares of employee
restricted stock at a grant date fair value of $19.25 per share of which 359,096 shares vest
over a four-year term and the remaining 24,649 shares vest over a three-year term. For the
nine months ended October 30, 2010, the Company issued 17,838 shares of director restricted
stock at a weighted average price of $30.27. For the nine months ended October 31, 2009,
the Company issued 21,204 shares of director restricted stock at a weighted average price of
$25.46. There was no director restricted stock issued for the three months ended October
30, 2010 or October 31, 2009. There was no director retainer stock issued for the three
months and nine months ended October 30, 2010 or October 31, 2009. |
Cash and Cash Equivalents
Included in cash and cash equivalents at October 30, 2010, January 30, 2010 and October 31,
2009 are cash equivalents of $0.1 million, $62.7 million and $6.0 million, respectively.
Cash equivalents are highly-liquid financial instruments having an original maturity of three
months or less. Uninsured cash balances were $13.9 million as of October 30, 2010. 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 October 30, 2010, January 30, 2010 and October 31, 2009 outstanding checks drawn on
zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by
approximately $37.5 million, $31.9 million and $38.3 million, respectively. These amounts are
included in accounts payable.
14
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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. One customer
accounted for 12% and another customer accounted for 10% of the Companys footwear trade
receivables balance, while no other customer accounted for more than 9% of the Companys
footwear trade receivables balance as of October 30, 2010. The Companys Lids Team Sports
wholesale business sells primarily to coaches and players on college, high school and club
teams and their fan bases. Including both footwear wholesale and Lids Team Sports
receivables, one customer accounted for 7% of the Companys total trade receivables balance
as of October 30, 2010.
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 and properties under capital leases are amortized on the straight-line
method over the shorter of their useful lives or their related lease terms and the charge to
earnings is included in selling and administrative expenses in the 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 initial lease term. Tenant allowances of
$19.4 million, $22.1 million and $23.1 million at October 30, 2010, January 30, 2010 and
October 31, 2009, respectively, and deferred rent of $32.7 million, $31.1 million and $30.8
million at October 30, 2010, January 30, 2010 and October 31, 2009, 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 Hat World Corporation
in April 2004, Hat Shack, Inc. in January 2007 and Sports Avenue in October 2010. The
Condensed Consolidated Balance Sheets include goodwill for the Lids Sports Group of $149.4
million and $0.9 million for Licensed Brands at October 30, 2010, $119.0 million for the Lids
Sports Group at January 30, 2010 and $112.8 million for the Lids Sports Group at October 31,
2009. 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 in-place
leases, trademarks acquired in connection with the acquisition of Impact Sports in November
2008, Great Plains Sports in September 2009, Sports Fan-Attic in November 2009, Brand
Innovators in May 2010, Keuka Footwear in August 2010, Anaconda Sports in August 2010 and
Sports Avenue in October 2010, customer lists and non-compete agreements. 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 October 30,
2010 and January 30, 2010 are:
Fair
Values
|
|
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|
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October 30, |
|
|
January 30, |
|
In thousands |
|
2010 |
|
|
2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
Revolver Borrowings |
|
$ |
30,400 |
|
|
$ |
29,876 |
|
|
$ |
-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.
The fair value of the Companys long-term debt was based on a valuation using the Discounted
Cash Flow method.
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 $1.8 million and $1.1 million for the third
quarter of Fiscal 2011 and 2010, respectively, and $4.2 million and $3.6 million for the
first nine months of Fiscal 2011 and 2010, 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 less than $0.1 million for each of the third quarters of Fiscal 2011 and 2010,
and $0.2 million and $0.4 million for the first nine months of Fiscal 2011 and 2010,
respectively. The Condensed Consolidated Balance Sheets include an accrued liability for
gift cards of $6.4 million, $7.9 million and $5.8 million at October 30, 2010, January 30,
2010 and October 31, 2009, 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 $9.4
million and $8.6 million for the third quarter of Fiscal 2011 and 2010, respectively, and
$24.6 million and $25.0 million for the first nine months of Fiscal 2011 and 2010,
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 $1.9 million, $1.3 million and $1.5
million at October 30, 2010, January 30, 2010 and October 31, 2009, respectively.
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.
19
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $0.9
million and $0.7 million for the third quarter of Fiscal 2011 and 2010, respectively, and
$2.7 million and $2.4 million for the first nine months of Fiscal 2011 and 2010,
respectively. During the first nine months of Fiscal 2011 and 2010, 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.
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.
20
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling
and administrative expenses were $0.7 million and $1.2 million for the third quarter of
Fiscal 2011 and 2010, respectively, and $2.1 million and $3.3 million for the first nine
months of Fiscal 2011 and 2010, respectively. During the third quarter of Fiscal 2011 and
2010, 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 7).
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 October 30, 2010 consisted of $28.9 million of cumulative pension liability
adjustments, net of tax, offset by a foreign currency translation adjustment of $0.6 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 9).
21
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 amounts of such contracts outstanding at October 30, 2010 and January 30, 2010
were $1.4 million and $0.6 million, respectively. Forward exchange contracts have an average
remaining term of approximately three months. The gain based on spot rates under these
contracts at October 30, 2010 was $0.1 million. For the nine months ended October 30, 2010,
the Company recorded an unrealized gain on foreign currency forward contracts of $0.3 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.
Note 2
Acquisitions and Intangible Assets
Acquisitions
In the third quarter of Fiscal 2011, the Company completed acquisitions for a total purchase
price of $56.7 million. The acquisitions consisted primarily of the assets of Anaconda
Sports, Inc., a New York team dealer business, as part of the Lids Sports Group, the stock of
Keuka Footwear, Inc., an occupational footwear company for service based industries, to be
operated within the Licensed Brands segment and the assets of Sports Avenue, a 48 store
retail chain with 12 e-commerce sites, selling officially licensed NFL, NCAA, MLB, NBA, NHL
and NASCAR headwear, apparel and accessories, to be operated within the Lids Sports Group.
22
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 2
Acquisitions and Intangible Assets, Continued
Other intangibles by major classes were as follows:
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Non-Compete |
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Leases |
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Customer Lists |
|
|
Agreements/Backlog |
|
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Total |
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|
|
Oct. 30, |
|
|
Jan. 30, |
|
|
Oct. 30, |
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|
Jan. 30, |
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Oct. 30, |
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Jan. 30, |
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Oct. 30, |
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Jan. 30, |
|
(In Thousands) |
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2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
Gross other intangibles |
|
$ |
9,857 |
|
|
$ |
9,267 |
|
|
$ |
12,206 |
|
|
$ |
2,790 |
|
|
$ |
1,100 |
|
|
$ |
408 |
|
|
$ |
23,163 |
|
|
$ |
12,465 |
|
Accumulated amortization |
|
|
(8,349 |
) |
|
|
(8,074 |
) |
|
|
(1,091 |
) |
|
|
(461 |
) |
|
|
(544 |
) |
|
|
(260 |
) |
|
|
(9,984 |
) |
|
|
(8,795 |
) |
|
Net Other Intangibles |
|
$ |
1,508 |
|
|
$ |
1,193 |
|
|
$ |
11,115 |
|
|
$ |
2,329 |
|
|
$ |
556 |
|
|
$ |
148 |
|
|
$ |
13,179 |
|
|
$ |
3,670 |
|
|
The amortization of intangibles was $0.5 million and $0.2 million for the third quarter
of Fiscal 2011 and 2010, respectively, and $1.2 million and $0.6 million for the first nine
months of Fiscal 2011 and 2010, respectively. The amortization of intangibles will be $2.2
million, $2.8 million, $2.5 million, $2.4 million and $2.1 million for Fiscal 2011, 2012,
2013, 2014 and 2015, respectively.
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 $2.1 million in the third quarter of
Fiscal 2011 for asset impairments. The Company recorded a pretax charge to earnings of $6.6
million in the first nine months of Fiscal 2011, including $6.4 million in asset impairments
and $0.2 million for other legal matters.
The Company recorded a pretax charge to earnings of $2.6 million in the third quarter of
Fiscal 2010 for asset impairments. The Company recorded a pretax charge to earnings of $10.9
million in the first nine months of Fiscal 2010, including $10.5 million in asset
impairments, $0.3 million for other legal matters and $0.1 million for lease terminations.
23
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 3
Restructuring and Other Charges and Discontinued Operations, Continued
Discontinued Operations
For the nine months ended October 30, 2010 and October 31, 2009, the Company recorded an
additional charge to earnings of $1.3 million ($0.8 million net of tax) and $0.5 million
($0.3 million net of tax), respectively, reflected in provision for discontinued operations,
net on the Condensed Consolidated Statements of Operations primarily for anticipated costs of
environmental remedial alternatives related to facilities formerly operated by the Company.
Accrued Provision for Discontinued Operations
|
|
|
|
|
|
|
Facility |
|
|
|
Shutdown |
|
In thousands |
|
Costs |
|
|
Balance January 31, 2009 |
|
$ |
15,568 |
|
Additional provision Fiscal 2010 |
|
|
452 |
|
Charges and adjustments, net |
|
|
(606 |
) |
|
Balance January 30, 2010 |
|
|
15,414 |
|
Additional provision Fiscal 2011 |
|
|
1,295 |
|
Charges and adjustments, net |
|
|
(473 |
) |
|
Balance October 30, 2010* |
|
|
16,236 |
|
Current provision for discontinued operations |
|
|
11,642 |
|
|
Total Noncurrent Provision for Discontinued Operations |
|
$ |
4,594 |
|
|
|
|
|
* |
|
Includes a $16.7 million environmental provision, including $12.1 million in current
provision for discontinued operations. |
Note 4
Inventories
|
|
|
|
|
|
|
|
|
|
|
October 30, |
|
|
January 30, |
|
In thousands |
|
2010 |
|
|
2010 |
|
|
Raw materials |
|
$ |
12,763 |
|
|
$ |
5,415 |
|
Wholesale finished goods |
|
|
40,201 |
|
|
|
22,383 |
|
Retail merchandise |
|
|
397,938 |
|
|
|
263,176 |
|
|
Total Inventories |
|
$ |
450,902 |
|
|
$ |
290,974 |
|
|
Note 5
Fair Value
The Company adopted the Fair Value Measurements and Disclosures Topic of the Codification as
of February 3, 2008, with the exception of the application of the topic to non-recurring,
nonfinancial assets and liabilities. The adoption did not have a material impact on the
Companys results of operations or financial position. This Topic defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value measurements. In February
2008, the FASB issued an amendment to the Fair Value Topic, to delay the effective date for
all nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (that is, at least
annually). The Company adopted the amendment as of February 1, 2009.
24
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 5
Fair Value, Continued
The Fair Value Measurements and Disclosures 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.
The following table presents the Companys assets and liabilities measured at fair value on a
nonrecurring basis as of October 30, 2010 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 May 1, 2010 |
|
$ |
1,789 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,789 |
|
|
$ |
2,351 |
|
Measured as of July 31, 2010 |
|
$ |
999 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
999 |
|
|
$ |
1,934 |
|
Measured as of October 30, 2010 |
|
$ |
1,689 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,689 |
|
|
$ |
2,120 |
|
In accordance with the Property, Plant and Equipment Topic of the Codification, the Company
recorded $2.1 million and $6.4 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 nine months ended October 30, 2010. 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 October 30, 2010. 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.
25
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6
Defined Benefit Pension Plans and Other Benefit Plans
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
October 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Service cost |
|
$ |
62 |
|
|
$ |
62 |
|
|
$ |
37 |
|
|
$ |
37 |
|
Interest cost |
|
|
1,471 |
|
|
|
1,642 |
|
|
|
41 |
|
|
|
44 |
|
Expected return on plan assets |
|
|
(2,021 |
) |
|
|
(2,087 |
) |
|
|
-0- |
|
|
|
-0- |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
1 |
|
|
|
1 |
|
|
|
-0- |
|
|
|
-0- |
|
Losses |
|
|
1,035 |
|
|
|
384 |
|
|
|
14 |
|
|
|
17 |
|
|
Net amortization |
|
|
1,036 |
|
|
|
385 |
|
|
|
14 |
|
|
|
17 |
|
|
Net Periodic Benefit Cost |
|
$ |
548 |
|
|
$ |
2 |
|
|
$ |
92 |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
October 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Service cost |
|
$ |
187 |
|
|
$ |
188 |
|
|
$ |
113 |
|
|
$ |
111 |
|
Interest cost |
|
|
4,426 |
|
|
|
4,920 |
|
|
|
121 |
|
|
|
132 |
|
Expected return on plan assets |
|
|
(6,067 |
) |
|
|
(6,266 |
) |
|
|
-0- |
|
|
|
-0- |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
3 |
|
|
|
3 |
|
|
|
-0- |
|
|
|
-0- |
|
Losses |
|
|
3,200 |
|
|
|
1,366 |
|
|
|
41 |
|
|
|
51 |
|
|
Net amortization |
|
|
3,203 |
|
|
|
1,369 |
|
|
|
41 |
|
|
|
51 |
|
|
Net Periodic Benefit Cost |
|
$ |
1,749 |
|
|
$ |
211 |
|
|
$ |
275 |
|
|
$ |
294 |
|
|
While there was no cash requirement for the Plan in 2010, the Company made a $4.0 million
contribution to the Plan in February 2010 and a $0.2 million contribution to the Plan in
August 2010.
26
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 7
Earnings Per Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
October 30, 2010 |
|
|
October 31, 2009 |
|
(In thousands, except |
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
per share amounts) |
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
16,967 |
|
|
|
|
|
|
|
|
|
|
$ |
11,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common shareholders |
|
|
16,918 |
|
|
|
23,069 |
|
|
$ |
.73 |
|
|
|
11,474 |
|
|
|
21,952 |
|
|
$ |
.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities from
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
252 |
|
|
|
|
|
Convertible preferred stock(1) |
|
|
34 |
|
|
|
54 |
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
4 1/8% Convertible Subordinated Debentures(2) |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
386 |
|
|
|
1,486 |
|
|
|
|
|
Employees preferred stock(3) |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders plus assumed
conversions |
|
$ |
16,952 |
|
|
|
23,562 |
|
|
$ |
.72 |
|
|
$ |
11,860 |
|
|
|
23,741 |
|
|
$ |
.50 |
|
|
|
|
|
(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 Series 4 preferred stock for the three months ended October 30, 2010 and for Series 1,
3 and 4 preferred stocks for the three months ended October 31, 2009. Therefore,
conversion of these convertible preferred shares was not reflected in diluted earnings per
share, because it would have been antidilutive. The amount of the dividend on the
convertible preferred stock per common share obtainable on conversion of the convertible
preferred stock was less than basic earnings per share for Series 1 and 3 preferred shares
for the three months ended October 30, 2010. Therefore, conversion of Series 1 and 3
preferred shares was included in diluted earnings per share for the three months ended
October 30, 2010. 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 October 30, 2010. |
|
(2) |
|
There were no outstanding debentures for the three months ended October 30, 2010. The
amount of the interest on the convertible subordinated debentures for the three months
ended October 31, 2009 per common share obtainable on conversion was lower than basic
earnings per share, therefore the convertible debentures are reflected in diluted earnings
per share for the three months ended October 31, 2009. |
|
(3) |
|
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 October 30, 2010 and
October 31, 2009. |
27
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 7
Earnings Per Share from Continuing Operations, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
For the Nine Months Ended |
|
|
|
October 30, 2010 |
|
|
October 31, 2009 |
|
(In thousands, except |
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
per share amounts) |
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
23,134 |
|
|
|
|
|
|
|
|
|
|
$ |
3,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common shareholders |
|
|
22,986 |
|
|
|
23,337 |
|
|
$ |
.98 |
|
|
|
3,109 |
|
|
|
20,868 |
|
|
$ |
.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities from
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
|
|
Convertible preferred stock(1) |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
4 1/8% Convertible Subordinated Debentures(2) |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
Employees preferred stock(3) |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders plus assumed
conversions |
|
$ |
22,986 |
|
|
|
23,770 |
|
|
$ |
.97 |
|
|
$ |
3,109 |
|
|
|
21,086 |
|
|
$ |
.15 |
|
|
|
|
|
(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 October 30, 2010. |
|
(2) |
|
There were no outstanding debentures for the nine months ended October 30, 2010. The
amount of the interest on the convertible subordinated debentures for the nine months
ended October 31, 2009 per common share obtainable on conversion is higher than basic
earnings per share, therefore the convertible debentures are not reflected in diluted
earnings per share for the nine months ended October 31, 2009 because it would have been
antidilutive. |
|
(3) |
|
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 nine months ended October 30, 2010 and
October 31, 2009. |
During the first quarter this year, the board increased the total repurchase authorization
under its common stock repurchase plan to $35.0 million. The board restored the total
repurchase authorization in the third quarter this year to $35.0 million. The Company
repurchased 864,000 shares at a cost of $24.8 million during the first nine months ended
October 30, 2010 of which $1.1 million was not paid in the third quarter but included in other
accrued liabilities in the Condensed Consolidated Balance Sheets. All of the $24.8 million in
repurchases for the nine months this year, except $0.6 million, was repurchased under the
original $35.0 million authorization. The Company did not repurchase any shares during the
first nine months ended October 31, 2009. In total, the Company has repurchased 13.1 million
shares at a cost of $221.1 million from all authorizations as of October 30, 2010.
28
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
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 present 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.
29
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
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.
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.
30
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
Legal Proceedings, Continued
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.
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 cost of implementing the Work Plan at approximately $4.6 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 $16.7 million as of
October 30, 2010, $15.9 million as of January 30, 2010 and $16.1 million as of October 31, 2009.
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 $0.3 million in each of the third quarters
of Fiscal 2011 and 2010 and $1.9 million and $0.8 million reflected in the first nine months of
Fiscal 2011 and 2010, respectively. These charges are included in provision for discontinued
operations, net in the Condensed Consolidated Statements of Operations.
Patent Action
The Company was named as a defendant in Paul Ware and Financial Systems Innovation, L.L.C. v.
Abercrombie & Fitch Stores, Inc., et al., filed on June 19, 2007, in the United States District
Court for the Northern District of Georgia, against more than 100 retailers. The suit alleged that
the defendants had infringed U.S. Patent No. 4,707,592 by using a feature of their retail point of
sale registers to generate transaction numbers for credit card purchases. On November 19, 2010,
the plaintiffs and the Company entered into a stipulation of Joint Dismissal with Prejudice of all
Claims and Counterclaims between them.
31
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 8
Legal Proceedings, Continued
Other Matters
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 our business and results of operations.
32
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note
9
Business Segment Information
The Company operates five reportable business segments (not including corporate): Journeys Group,
comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and
e-commerce operations; Underground Station Group, comprised of the Underground Station retail
footwear chain and e-commerce operations; Lids Sports Group, comprised of the Lids, Hat Shack, Hat
Zone, Head Quarters, Cap Connection and Hat World retail headwear stores, the Sports Fan-Attic
retail licensed sports headwear, apparel and accessory stores acquired in November 2009 and the
Sports Avenue retail licensed sports headwear, apparel and accessory stores acquired in October
2010, both of which are now referred to as Lids Locker Room, the Lids Team Sports business,
including the newly acquired Brand Innovators and Anaconda Sports team dealer businesses, and
certain e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail
operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands,
comprised primarily of Dockers® Footwear sourced and marketed under a license from Levi
Strauss & Company.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies.
The 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 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.
Corporate assets include cash, deferred income taxes, deferred note expense, prepaid rent expense
and corporate fixed assets. The Company charges allocated retail costs of distribution to each
segment and unallocated retail costs of distribution to the corporate segment. The Company does
not allocate certain costs to each segment in order to make decisions and assess performance.
These costs include corporate overhead, stock compensation, interest expense, interest income,
restructuring charges and other, including litigation and the loss on early retirement of debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Underground | |
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
October 30, 2010 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
215,976 |
|
|
$ |
21,729 |
|
|
$ |
152,880 |
|
|
$ |
45,399 |
|
|
$ |
28,712 |
|
|
$ |
368 |
|
|
$ |
465,064 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
(177 |
) |
|
|
-0- |
|
|
|
(49 |
) |
|
|
-0- |
|
|
|
(226 |
) |
|
Net sales to external customers |
|
$ |
215,976 |
|
|
$ |
21,729 |
|
|
$ |
152,703 |
|
|
$ |
45,399 |
|
|
$ |
28,663 |
|
|
$ |
368 |
|
|
$ |
464,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
22,316 |
|
|
$ |
(1,268 |
) |
|
$ |
12,709 |
|
|
$ |
1,816 |
|
|
$ |
3,573 |
|
|
$ |
(10,347 |
) |
|
$ |
28,799 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,120 |
) |
|
|
(2,120 |
) |
|
Earnings (loss) from operations |
|
|
22,316 |
|
|
|
(1,268 |
) |
|
|
12,709 |
|
|
|
1,816 |
|
|
|
3,573 |
|
|
|
(12,467 |
) |
|
|
26,679 |
|
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(306 |
) |
|
|
(306 |
) |
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
22,316 |
|
|
$ |
(1,268 |
) |
|
$ |
12,709 |
|
|
$ |
1,816 |
|
|
$ |
3,573 |
|
|
$ |
(12,773 |
) |
|
$ |
26,373 |
|
|
Total assets** |
|
$ |
301,677 |
|
|
$ |
32,352 |
|
|
$ |
461,152 |
|
|
$ |
76,543 |
|
|
$ |
36,550 |
|
|
$ |
109,696 |
|
|
$ |
1,017,970 |
|
Depreciation |
|
|
5,154 |
|
|
|
531 |
|
|
|
4,011 |
|
|
|
935 |
|
|
|
74 |
|
|
|
560 |
|
|
|
11,265 |
|
Capital expenditures |
|
|
2,306 |
|
|
|
97 |
|
|
|
3,692 |
|
|
|
353 |
|
|
|
-0- |
|
|
|
508 |
|
|
|
6,956 |
|
|
|
|
* |
|
Restructuring and other includes a $2.1 million charge for asset impairments, of which $1.6
million is in the Journeys Group, $0.4 million in the Johnston & Murphy Group and $0.1 million in
the Lids Sports Group. |
|
** |
|
Total assets for the Lids Sports Group and Licensed Brands include $149.4 million of goodwill and
$0.9 million of goodwill, respectively. |
33
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Business Segment Information, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
Underground |
|
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
October 31, 2009 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
198,407 |
|
|
$ |
21,946 |
|
|
$ |
105,783 |
|
|
$ |
40,361 |
|
|
$ |
23,746 |
|
|
$ |
148 |
|
|
$ |
390,391 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
(44 |
) |
|
|
-0- |
|
|
|
(45 |
) |
|
|
-0- |
|
|
|
(89 |
) |
|
Net sales to external customers |
|
$ |
198,407 |
|
|
$ |
21,946 |
|
|
$ |
105,739 |
|
|
$ |
40,361 |
|
|
$ |
23,701 |
|
|
$ |
148 |
|
|
$ |
390,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
17,902 |
|
|
$ |
(1,862 |
) |
|
$ |
7,010 |
|
|
$ |
1,660 |
|
|
$ |
3,921 |
|
|
$ |
(7,736 |
) |
|
$ |
20,895 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,571 |
) |
|
|
(2,571 |
) |
|
Earnings (loss) from operations |
|
|
17,902 |
|
|
|
(1,862 |
) |
|
|
7,010 |
|
|
|
1,660 |
|
|
|
3,921 |
|
|
|
(10,307 |
) |
|
|
18,324 |
|
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(922 |
) |
|
|
(922 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1 |
|
|
|
1 |
|
|
Earnings (loss) before income taxes
from continuing operations |
|
$ |
17,902 |
|
|
$ |
(1,862 |
) |
|
$ |
7,010 |
|
|
$ |
1,660 |
|
|
$ |
3,921 |
|
|
$ |
(11,228 |
) |
|
$ |
17,403 |
|
|
|
Total assets** |
|
$ |
288,385 |
|
|
$ |
37,306 |
|
|
$ |
343,454 |
|
|
$ |
76,146 |
|
|
$ |
26,346 |
|
|
$ |
106,642 |
|
|
$ |
878,279 |
|
Depreciation |
|
|
5,783 |
|
|
|
669 |
|
|
|
3,442 |
|
|
|
977 |
|
|
|
41 |
|
|
|
552 |
|
|
|
11,464 |
|
Capital expenditures |
|
|
2,363 |
|
|
|
52 |
|
|
|
3,661 |
|
|
|
357 |
|
|
|
9 |
|
|
|
451 |
|
|
|
6,893 |
|
|
|
|
* |
|
Restructuring and other includes a $2.6 million charge for asset impairments, of which $1.7
million is in the Journeys Group, $0.8 million in the Lids Sports Group and $0.1 million in the
Johnston & Murphy Group. |
|
** |
|
Total assets for the Lids Sports Group include $112.8 million goodwill. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
Underground | |
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
October 30, 2010 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales
|
|
$ |
550,834 |
|
|
$ |
64,946 |
|
|
$ |
405,450 |
|
|
$ |
129,002 |
|
|
$ |
78,461 |
|
|
$ |
972 |
|
|
$ |
1,229,665 |
|
Intercompany sales
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(177 |
) |
|
|
(1 |
) |
|
|
(142 |
) |
|
|
-0- |
|
|
|
(320 |
) |
|
Net sales to external customers
|
|
$ |
550,834 |
|
|
$ |
64,946 |
|
|
$ |
405,273 |
|
|
$ |
129,001 |
|
|
$ |
78,319 |
|
|
$ |
972 |
|
|
$ |
1,229,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
$ |
26,872 |
|
|
$ |
(3,973 |
) |
|
$ |
34,452 |
|
|
$ |
4,194 |
|
|
$ |
10,464 |
|
|
$ |
(27,637 |
) |
|
$ |
44,372 |
|
Restructuring and other*
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(6,564 |
) |
|
|
(6,564 |
) |
|
Earnings (loss) from operations
|
|
|
26,872 |
|
|
|
(3,973 |
) |
|
|
34,452 |
|
|
|
4,194 |
|
|
|
10,464 |
|
|
|
(34,201 |
) |
|
|
37,808 |
|
Interest expense
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(773 |
) |
|
|
(773 |
) |
Interest income
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
5 |
|
|
|
5 |
|
|
Earnings (loss) from continuing
operations before income taxes
|
|
$ |
26,872 |
|
|
$ |
(3,973 |
) |
|
$ |
34,452 |
|
|
$ |
4,194 |
|
|
$ |
10,464 |
|
|
$ |
(34,969 |
) |
|
$ |
37,040 |
|
|
Total assets**
|
|
$ |
301,677 |
|
|
$ |
32,352 |
|
|
$ |
461,152 |
|
|
$ |
76,543 |
|
|
$ |
36,550 |
|
|
$ |
109,696 |
|
|
$ |
1,017,970 |
|
Depreciation
|
|
|
15,851 |
|
|
|
1,677 |
|
|
|
11,959 |
|
|
|
2,833 |
|
|
|
156 |
|
|
|
1,602 |
|
|
|
34,078 |
|
Capital expenditures
|
|
|
5,153 |
|
|
|
280 |
|
|
|
10,980 |
|
|
|
1,415 |
|
|
|
20 |
|
|
|
968 |
|
|
|
18,816 |
|
|
|
|
* |
|
Restructuring and other includes a $6.4 million charge for asset impairments, of which $4.2
million is in the Journeys Group, $0.9 million in the Lids Sports Group, $0.7 million in the
Johnston & Murphy Group and $0.6 million in the Underground Station Group. |
|
** |
|
Total assets for the Lids Sports Group and Licensed Brands include $149.4 million of goodwill and
$0.9 million of goodwill, respectively. |
34
Genesco Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 9
Business Segment Information, Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
Underground | |
|
|
|
|
|
Johnston |
|
|
|
|
|
|
|
|
|
|
October 31, 2009 |
|
Journeys |
|
|
Station |
|
|
Lids Sports |
|
|
& Murphy |
|
|
Licensed |
|
|
Corporate |
|
|
|
|
In thousands |
|
Group |
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Brands |
|
|
& Other |
|
|
Consolidated |
|
|
Sales |
|
$ |
523,846 |
|
|
$ |
67,235 |
|
|
$ |
313,467 |
|
|
$ |
118,747 |
|
|
$ |
71,714 |
|
|
$ |
473 |
|
|
$ |
1,095,482 |
|
Intercompany sales |
|
|
-0- |
|
|
|
-0- |
|
|
|
(94 |
) |
|
|
(2 |
) |
|
|
(60 |
) |
|
|
-0- |
|
|
|
(156 |
) |
|
Net sales to external customers |
|
$ |
523,846 |
|
|
$ |
67,235 |
|
|
$ |
313,373 |
|
|
$ |
118,745 |
|
|
$ |
71,654 |
|
|
$ |
473 |
|
|
$ |
1,095,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) |
|
$ |
20,256 |
|
|
$ |
(6,101 |
) |
|
$ |
24,060 |
|
|
$ |
1,358 |
|
|
$ |
9,525 |
|
|
$ |
(20,836 |
) |
|
$ |
28,262 |
|
Restructuring and other* |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(10,864 |
) |
|
|
(10,864 |
) |
|
Earnings (loss) from operations |
|
|
20,256 |
|
|
|
(6,101 |
) |
|
|
24,060 |
|
|
|
1,358 |
|
|
|
9,525 |
|
|
|
(31,700 |
) |
|
|
17,398 |
|
Loss on early retirement of debt |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(5,119 |
) |
|
|
(5,119 |
) |
Interest expense |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,046 |
) |
|
|
(4,046 |
) |
Interest income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
13 |
|
|
|
13 |
|
|
Earnings (loss) before income taxes
from continuing operations |
|
$ |
20,256 |
|
|
$ |
(6,101 |
) |
|
$ |
24,060 |
|
|
$ |
1,358 |
|
|
$ |
9,525 |
|
|
$ |
(40,852 |
) |
|
$ |
8,246 |
|
|
|
Total assets |
|
$ |
288,385 |
|
|
$ |
37,306 |
|
|
$ |
343,454 |
|
|
$ |
76,146 |
|
|
$ |
26,346 |
|
|
$ |
106,642 |
|
|
$ |
878,279 |
|
Depreciation |
|
|
18,253 |
|
|
|
2,070 |
|
|
|
10,343 |
|
|
|
2,926 |
|
|
|
131 |
|
|
|
1,592 |
|
|
|
35,315 |
|
Capital expenditures |
|
|
13,584 |
|
|
|
130 |
|
|
|
10,148 |
|
|
|
3,013 |
|
|
|
39 |
|
|
|
1,039 |
|
|
|
27,953 |
|
|
|
|
* |
|
Restructuring and other includes a $10.5 million charge for asset impairments, of which $7.8
million is in the Journeys Group, $1.4 million in the Lids Sports Group, $0.8 million in the
Underground Station Group and $0.5 million in the Johnston & Murphy Group. |
|
** |
|
Total assets for the Lids Sports Group include $112.8 million of goodwill. |
Note 10
Subsequent Event
The Company recently determined that it had suffered a criminal intrusion into the portion
of its computer network that processes payment card transactions for its United States Journeys,
Journeys Kidz, Shi by Journeys and Johnston & Murphy stores and some of its Underground Station stores (the
Intrusion). The Company took immediate steps to secure
the affected part of its network and believes that the
Intrusion has been contained. The extent of the Intrusion is not known at this time. The Company
is conducting an investigation with the assistance of outside experts to seek to determine the
extent of any possible compromise of customer information.
35
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 2011.
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:
|
|
|
Timing and amount of non-cash asset impairments. |
|
|
|
|
Continuing weakness in the consumer economy particularly as it may affect the crucially
important Holiday selling season. |
|
|
|
|
The costs and effects of the Network Intrusion described under Recent
Developments-Network Intrusion including any claims or litigation resulting therefrom. |
|
|
|
|
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, including resumption of recent
manufacturing and shipping delays affecting Chinese product in particular. |
|
|
|
|
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 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 acceptable 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. |
|
|
|
|
The outcome of litigation, investigations and environmental matters involving the
Company, including but not limited to the matters discussed in Note 8 to the Condensed
Consolidated Financial Statements. |
36
In addition to the risks referenced above, additional risks are highlighted in the Companys Annual
Report on Form 10-K for the year ended January 30, 2010. Forward-looking statements reflect the
expectations of the Company at the time they are made, and investors should rely on them only as
expressions of opinion about what may happen in the future and only at the time they are made. The
Company undertakes no obligation to update any forward-looking statement. Although the Company
believes it has an appropriate business strategy and the resources necessary for its operations,
predictions about future revenue and margin trends are inherently uncertain and the Company may
alter its business strategies to address changing conditions.
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® stores,
in the U.S., Puerto Rico and Canada, and 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 licensed brands are distributed to more than 1,050 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 headwear and accessories
stores under the Lids® name and other names in the U.S., Puerto Rico and Canada, 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, an
e-commerce business and an athletic team dealer business operating as Lids Team Sports. Including
both the footwear businesses and the Lids Sports business, at October 30, 2010, the Company
operated 2,311 retail stores in the U.S., Puerto Rico and Canada.
The Company operates five reportable business segments (not including corporate): Journeys Group,
comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and
e-commerce operations; Underground Station Group, comprised of the Underground Station retail
footwear chain and e-commerce operations; Lids Sports Group, comprised of the Lids, Hat Shack, Hat
Zone, Head Quarters, Cap Connection and Hat World retail headwear stores, the Sports Fan-Attic and
Sports Avenue retail licensed sports headwear, apparel and accessory stores, now referred to as
Lids Locker Room, acquired in November 2009 and October 2010, respectively, the Lids Team Sports
business, including the newly acquired Brand Innovators and Anaconda Sports team dealer businesses,
and certain e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail
operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands,
comprised primarily of Dockers® Footwear, sourced and marketed under a license from Levi
Strauss & Company.
The Journeys retail footwear stores sell footwear and accessories primarily for 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, and in 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 and in the urban market. The Underground Station Group stores
average approximately 1,800 square feet. Underground Station also sells footwear and accessories
37
through an e-commerce operation. The Company plans to shorten the average lease life of the
Underground Station stores, close certain underperforming stores as the opportunity presents
itself, and attempt to secure rent relief on other locations while it assesses the future prospects
for the chain.
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 800 square feet and are primarily in malls,
airports, street level stores and factory outlet centers throughout the United States, and in
Puerto Rico and Canada. In October 2010, the Company acquired Sports Avenue, as part of the Lids
Sports Group. In November 2009, the Company acquired Sports Fan-Attic, as part of the Lids Sports
Group. The Sports Fan-Attic and Sports Avenue stores, now referred to as Lids Locker Room, sell
licensed sports headwear, apparel and accessories to sports fans of all ages. Sports Fan-Attic and
Sports Avenue, or Lids Locker Room, locations average approximately 2,675 square feet and are in
malls throughout the United States. The Lids Sports Group also sells headwear and accessories
through e-commerce operations. In November 2008, the Company acquired Impact Sports, a team dealer
business, as part of the Lids Sports Group. In September 2009, the Company acquired Great Plains
Sports, also a team dealer business, as part of the Lids Sports Group. In May 2010, the Company
acquired Brand Innovators, a West coast team dealer business, as part of Lids Sports Group. In
August 2010, the Company acquired Anaconda Sports, a New York team dealer business, as part of Lids
Sports Group. Together, these team dealer businesses make up Lids Team Sports.
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 1,475 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, luggage and
accessories in factory stores, averaging approximately 2,325 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. Our future
results are subject to various risks, uncertainties and other challenges, including those discussed
under the caption Forward Looking Statements, above and those discussed in Item 1A, Risk Factors
in the Companys Annual Report on Form 10-K for the year ended January 30, 2010. 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 the economic downturn.
The
38
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.
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 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 (particularly customers of
Journeys Group, Underground Station Group and Lids stores) 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 recession and the current 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 in the industry 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 19.1% during the third quarter of Fiscal 2011 compared to Fiscal
2010. The increase reflected a 44% increase in Lids Sports Group sales, a 9% increase in Journeys
Group sales, a 12% increase in Johnston & Murphy Group sales and a 21% increase in Licensed Brands,
offset by a 1% decrease in Underground Station Group sales. Gross margin decreased as a percentage
of net sales during the third quarter of Fiscal 2011, primarily due to margin decreases as a
percentage of net sales in all of the Companys business units except Journeys Group, which was
flat. Selling and administrative expenses decreased as a percentage of net sales during the
quarter, due to decreases in selling and administrative expenses as a percentage of net sales in
all of the Companys business units except Licensed Brands. Earnings from operations increased as
a percentage of net sales during the third quarter of Fiscal 2011, due to increased earnings from
operations as a percentage of net sales in the Journeys Group and Lids Sports Group and a smaller
loss in the Underground Station Group offset by decreased earnings from operations as a percentage
of net sales in the Johnston & Murphy Group and Licensed Brands.
39
Significant Developments
Network Intrusion
The Company recently determined that it had suffered a criminal intrusion into the portion
of its computer network that processes payment card transactions for its United States Journeys,
Journeys Kidz, Shi by Journeys and Johnston & Murphy stores and some of its Underground Station stores. The
Company took immediate steps to secure the affected part of its
network and believes that the Intrusion has been
contained. The extent of the Intrusion is not known at this time. The Company is conducting an
investigation with the assistance of outside experts to seek to
determine the extent of any possible
compromise of customer information.
Acquisitions
In the third quarter of Fiscal 2011, the Company completed acquisitions for a total purchase price
of $56.7 million. The acquisitions consisted primarily of the assets of Anaconda Sports, Inc., a
New York team dealer business, as part of the Lids Sports Group, the stock of Keuka Footwear, Inc.,
an occupational footwear company for service based industries, to be operated within the Licensed
Brands segment and the assets of Sports Avenue, a 48 store retail chain with 12 e-commerce sites,
selling officially licensed NFL, NCAA, MLB, NBA, NHL and NASCAR headwear, apparel and accessories,
to be operated within the Lids Sports Group.
Common Stock Repurchases
During the first quarter this year, the board increased the total repurchase authorization under
its common stock repurchase plan to $35.0 million. In October 2010, the board restored the total
repurchase authorization to $35.0 million. The Company repurchased 864,000 shares at a cost of
$24.8 million during the first nine months of Fiscal 2011 of which $1.1 million was not paid in
the third quarter but included in other accrued liabilities in the Condensed Consolidated Balance
Sheets. All of the $24.8 million in repurchases for the nine months this year, except $0.6
million, was repurchased under the original $35.0 million authorization. The Company did not
repurchase any shares during the nine months ended October 31, 2009.
Conversion of 4 1/8% Debentures
On April 29, 2009, the Company entered into separate exchange agreements whereby it acquired and
retired $56.4 million in aggregate principal amount ($51.3 million fair value) of its Debentures
due June 15, 2023 in exchange for the issuance of 3,066,713 shares of its common stock, which
included 2,811,575 shares that were reserved for conversion of the Debentures and 255,138
additional inducement shares, and a cash payment of approximately $0.9 million. The inducement was
not deductible for tax purposes. As a result of the exchange agreements, the Company recognized a
loss on the early retirement of debt of $5.1 million in the first nine months of Fiscal 2010,
reflected on the Condensed Consolidated Statements of Operations.
Restructuring and Other Charges
The Company recorded a pretax charge to earnings of $2.1 million in the third quarter of Fiscal
2011 for asset impairments. The Company recorded a pretax charge to earnings of $6.6 million in
the first nine months of Fiscal 2011, including $6.4 million in asset impairments and $0.2 million
for other legal matters.
40
The Company recorded a pretax charge to earnings of $2.6 million in the third quarter of Fiscal
2010 for asset impairments. The Company recorded a pretax charge to earnings of $10.9 million in
the first nine months of Fiscal 2010, including $10.5 million in asset impairments, $0.3 million
for other legal matters and $0.1 million for lease terminations.
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. E-commerce and catalog sales are excluded
from comparable store sales calculations.
Results of Operations Third Quarter Fiscal 2011 Compared to Fiscal 2010
The Companys net sales in the third quarter ended October 30, 2010 increased 19.1% to $464.8
million from $390.3 million in the third quarter ended October 31, 2009. Gross margin increased
18.3% to $236.7 million in the third quarter this year from $200.2 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 third quarter this year increased 16.0% from the third quarter last year but
decreased as a percentage of net sales from 45.9% to 44.7%. The Company records buying and
merchandising and occupancy costs in selling and administrative expense. Because the Company does
not include these costs in cost of sales, the 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 third quarter
ended October 30, 2010 were $26.4 million compared to $17.4 million for the third quarter ended
October 31, 2009. Pretax earnings for the third quarter ended October 30, 2010 included
restructuring and other charges of $2.1 million for retail store asset impairments. Pretax
earnings for the third quarter ended October 31, 2009 included restructuring and other charges of
$2.6 million, primarily for retail store asset impairments.
Net earnings for the third quarter ended October 30, 2010 were $16.9 million ($0.72 diluted
earnings per share) compared to $11.4 million ($0.50 diluted earnings per share) for the third
quarter ended October 31, 2009. The Company recorded an effective income tax rate of 35.7% in the
third quarter this year compared to 33.8% in the same period last year. The variance in the
effective tax rate for the third quarter this year compared to the third quarter last year is
primarily attributable to less favorable adjustments as required by the Income Tax Topic of the
FASB Codification and IRS audit adjustments.
Journeys Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
215,976 |
|
|
$ |
198,407 |
|
|
|
8.9 |
% |
Earnings from operations |
|
$ |
22,316 |
|
|
$ |
17,902 |
|
|
|
24.7 |
% |
Operating margin |
|
|
10.3 |
% |
|
|
9.0 |
% |
|
|
|
|
41
Net sales from Journeys Group increased 8.9% to $216.0 million for the third quarter ended October
30, 2010 compared to $198.4 million for the same period last year. The increase reflects primarily
a 9% increase in comparable store sales. The comparable store sales increase reflected an 11%
increase in footwear unit comparable sales offset by a 2% decrease in average price per pair of
shoes, reflecting lower average selling prices in athletic shoes. Unit sales increased 11% during
the same period. Journeys Group operated 1,021 stores at the end of the third quarter of Fiscal
2011, including 150 Journeys Kidz stores, 56 Shi by Journeys stores and three Journeys stores in
Canada, compared to 1,022 stores at the end of the third quarter last year, including 148 Journeys
Kidz stores and 55 Shi by Journeys stores.
Journeys Group earnings from operations for the third quarter ended October 30, 2010 increased
24.7% to $22.3 million compared to $17.9 million for the third quarter ended October 31, 2009. The
increase in earnings was due to increased net sales and decreased expenses as a percentage of net
sales, due primarily to the leveraging of occupancy cost and depreciation.
Underground Station Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
21,729 |
|
|
$ |
21,946 |
|
|
|
(1.0 |
)% |
Loss from operations |
|
$ |
(1,268 |
) |
|
$ |
(1,862 |
) |
|
|
31.9 |
% |
Operating margin |
|
|
(5.8 |
)% |
|
|
(8.5 |
)% |
|
|
|
|
Net sales from the Underground Station Group decreased 1.0% to $21.7 million for the third quarter
ended October 30, 2010 from $21.9 million for the same period last year. The decrease reflects a
9% 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) offset by a 3% increase in comparable store sales. Comparable footwear
unit sales increased 11% while the average price per pair of shoes decreased 6%, reflecting changes
in product mix. Unit sales increased 6% during the same period. Underground Station Group
operated 157 stores at the end of the third quarter of Fiscal 2011, including 149 Underground
Station stores, compared to 174 stores at the end of the third quarter last year, including 164
Underground Station stores.
Underground Station Group loss from operations for the third quarter ended October 30, 2010
improved to $(1.3) million from $(1.9) million in the third quarter ended October 31, 2009. The
improvement was due to decreased expenses as a percentage of net sales, primarily reflecting
leverage in store related expenses from positive comparable store sales and improvements in
earnings due to closing underperforming stores.
42
Lids Sports Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
152,703 |
|
|
$ |
105,739 |
|
|
|
44.4 |
% |
Earnings from operations |
|
$ |
12,709 |
|
|
$ |
7,010 |
|
|
|
81.3 |
% |
Operating margin |
|
|
8.3 |
% |
|
|
6.6 |
% |
|
|
|
|
Net sales from Lids Sports Group increased 44.4% to $152.7 million for the third quarter ended
October 30, 2010 compared to $105.7 million for the same period last year, reflecting a 13%
increase in comparable store sales, a $20.0 million increase in sales from the Lids Team Sports
business, primarily due to acquisitions, and $10.3 million in sales from Lids Locker Room,
including the Sports Avenue stores acquired during the quarter. The comparable store sales
increase reflected an 11% increase in comparable store units sold, primarily from strength in Major
League Baseball products especially fashion-oriented Major League Baseball products, Branded
products and NFL products, and a 1% increase in average price per hat. Lids Sports Group operated
974 stores at the end of the third quarter of Fiscal 2011, including 65 stores in Canada and 89
Lids Locker Room stores, compared to 885 stores at the end of the third quarter last year,
including 55 stores in Canada.
Lids Sports Group earnings from operations for the third quarter ended October 30, 2010 increased
81.3% to $12.7 million compared to $7.0 million for the third quarter ended October 31, 2009. The
increase was due primarily to increased headwear sales and decreased expenses as a percentage of
net sales, primarily reflecting leverage in store related expenses from positive comparable store
sales.
Johnston & Murphy Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
45,399 |
|
|
$ |
40,361 |
|
|
|
12.5 |
% |
Earnings from operations |
|
$ |
1,816 |
|
|
$ |
1,660 |
|
|
|
9.4 |
% |
Operating margin |
|
|
4.0 |
% |
|
|
4.1 |
% |
|
|
|
|
Johnston & Murphy Group net sales increased 12.5% to $45.4 million for the third quarter ended
October 30, 2010 compared to $40.4 million for the same period last year, reflecting a 7% increase
in comparable store sales and a 24% increase in Johnston & Murphy wholesale sales. In the Johnston
& Murphy retail business, comparable footwear unit sales increased 13% while average price per pair
of shoes decreased 6% reflecting higher markdowns. Unit sales for the Johnston & Murphy wholesale
business increased 18% in the third quarter of Fiscal 2011 and the average price per pair of shoes
increased 5% for the same period due to lower closeout sales. Retail operations accounted for
69.5% of Johnston & Murphy Group segment sales in the third quarter this year, down from 72.3% in
the third quarter last year. The store count for Johnston & Murphy retail operations at the end of
the third quarter of Fiscal 2011 included 159 Johnston & Murphy shops and factory stores compared
to 162 Johnston & Murphy shops and factory stores at the end of the third quarter of Fiscal 2010.
43
Johnston & Murphy Group earnings from operations for the third quarter ended October 30, 2010
increased 9.4% to $1.8 million compared to $1.7 million for the same period last year, primarily
due to increased net sales and decreased expenses as a percentage of net sales, reflecting leverage
from positive comparable store sales.
Licensed Brands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
28,663 |
|
|
$ |
23,701 |
|
|
|
20.9 |
% |
Earnings from operations |
|
$ |
3,573 |
|
|
$ |
3,921 |
|
|
|
(8.9 |
)% |
Operating margin |
|
|
12.5 |
% |
|
|
16.5 |
% |
|
|
|
|
Licensed Brands net sales increased 20.9% to $28.7 million for the third quarter ended October 30,
2010, from $23.7 million for the third quarter ended October 31, 2009. The sales increase reflects
a 4% increase in sales of Dockers footwear, $3.1 million of increased sales from the Chaps line of
footwear that the Company is sourcing with limited distribution and $1.0 million of sales
associated with the acquisition of Keuka Footwear in the third quarter this year. Unit sales for
Dockers footwear increased 2% for the third quarter this year and the average price per pair of
Dockers shoes increased 1% compared to the same period last year.
Licensed Brands earnings from operations for the third quarter ended October 30, 2010 decreased
8.9% to $3.6 million compared to $3.9 million for the same period last year. The decrease is due
primarily to decreased gross margin as a percentage of net sales reflecting product delivery issues
and changes in product mix and increased expenses as a percentage of net sales reflecting increased
bonus accruals year over year and purchase price accounting adjustments.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the third quarter ended October 30, 2010 was $12.5 million compared
to $10.3 million for the third quarter ended October 31, 2009. Corporate expense in the third
quarter this year included $2.1 million in restructuring and other charges, primarily for retail
store asset impairments. Last years expense in the third quarter included $2.6 million in
restructuring and other charges, primarily for retail store asset impairments. Offsetting the
year-over-year reduction in the charges listed above, corporate and other expense increased
primarily due to increased bonus accruals as a result of improving performance in the third quarter
this year.
Interest expense decreased 66.8% from $0.9 million in the third quarter ended October 31, 2009 to
$0.3 million for the third quarter ended October 30, 2010, due to the conversion of all the
Companys 4 1/8% Debentures during Fiscal 2010. Average revolver borrowings outstanding were $7.1
million during the third quarter ended October 30, 2010 compared to an average of $5.3 million in
revolver borrowings outstanding during the third quarter ended October 31, 2009.
Results of Operations Nine Months Fiscal 2011 Compared to Fiscal 2010
The Companys net sales in the nine months ended October 30, 2010 increased 12.2% to $1.229 billion
from $1.095 billion in the nine months ended October 31, 2009. Gross margin increased 12.4% to
$628.9 million in the nine months this year from $559.3 million in the same period last year and
increased as a percentage of net sales from 51.1% to 51.2%. Selling and administrative expenses in
the first nine months this year increased 10.1% from the first nine months last year but
44
decreased
as a percentage of net sales from 48.5% to 47.5%. 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 nine months
ended October 30, 2010 were $37.0 million compared to $8.2 million for the nine months ended
October 31, 2009. Pretax earnings for the nine months ended October 30, 2010 included
restructuring and other charges of $6.6 million, primarily for retail store asset impairments and
other legal matters. Pretax earnings for the nine months ended October 31, 2009 included a loss on
the early retirement of debt of $5.1 million and restructuring and other charges of $10.9 million
primarily for retail store asset impairments, other legal matters and lease terminations.
Net earnings for the nine months ended October 30, 2010 were $22.4 million ($0.93 diluted earnings
per share) compared to $3.0 million ($0.13 diluted earnings per share) for the nine months ended
October 31, 2009. Net earnings for the nine months ended October 30, 2010 included a $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. Net earnings for
the nine months ended October 31, 2009 included a $0.3 million ($0.02 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 37.5% in the first nine months this year compared to 60.5% in the same period last
year. The variance in the effective tax rate for the first nine months this year compared to the
first nine months last year is primarily attributable to the non-deductibility of certain items
incurred in connection with the inducement of the conversion of the 4 1/8% Debentures for common
stock in the first nine months last year.
Journeys Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
550,834 |
|
|
$ |
523,846 |
|
|
|
5.2 |
% |
Earnings from operations |
|
$ |
26,872 |
|
|
$ |
20,256 |
|
|
|
32.7 |
% |
Operating margin |
|
|
4.9 |
% |
|
|
3.9 |
% |
|
|
|
|
Net sales from Journeys Group increased 5.2% to $550.8 million for the nine months ended October
30, 2010 compared to $523.8 million for the same period last year. The increase reflects primarily
a 5% increase in comparable store sales and a 1% increase in average Journeys stores operated
(i.e., the sum of the number of stores open on the first day of the fiscal year and the last day of
each fiscal month during the nine months divided by ten). The comparable store sales increase
reflected a 6% increase in footwear unit comparable sales offset by a 2% decrease in average price
per pair of shoes, reflecting changes in product mix. Unit sales increased 7% during the same
period.
Journeys Group earnings from operations for the nine months ended October 30, 2010 increased 32.7%
to $26.9 million compared to $20.3 million for the nine months ended October 31, 2009. The
increase was due to increased net sales and to decreased expenses as a percentage of net sales,
45
reflecting store-related expense leverage from positive comparable store sales and lower
depreciation expense.
Underground Station Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
64,946 |
|
|
$ |
67,235 |
|
|
|
(3.4 |
)% |
Loss from operations |
|
$ |
(3,973 |
) |
|
$ |
(6,101 |
) |
|
|
34.9 |
% |
Operating margin |
|
|
(6.1 |
)% |
|
|
(9.1 |
)% |
|
|
|
|
Net sales from the Underground Station Group decreased 3.4% to $64.9 million for the nine months
ended October 30, 2010 from $67.2 million for the same period last year. The decrease reflects a
7% decrease in average Underground Station stores operated while comparable store sales were flat.
Comparable footwear unit sales increased 7% while the average price per pair of shoes decreased 4%,
reflecting changes in product mix.
Underground Station Group loss from operations for the nine months ended October 30, 2010 improved
to $(4.0) million from $(6.1) million for the nine months ended October 31, 2009. The improvement
was primarily due to increased gross margin as a percentage of net sales, reflecting decreased
markdowns and increased initial mark-on from changes in product mix, and to decreased expenses as a
percentage of net sales due to decreased occupancy costs and depreciation.
Lids Sports Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
405,273 |
|
|
$ |
313,373 |
|
|
|
29.3 |
% |
Earnings from operations |
|
$ |
34,452 |
|
|
$ |
24,060 |
|
|
|
43.2 |
% |
Operating margin |
|
|
8.5 |
% |
|
|
7.7 |
% |
|
|
|
|
Net sales from Lids Sports Group increased 29.3% to $405.3 million for the nine months ended
October 30, 2010 compared to $313.4 million for the same period last year, reflecting a 10%
increase in comparable store sales, a $30.1 million increase in sales from the Lids Team Sports
business, primarily due to acquisitions, and $20.7 million in sales from Lids Locker Room,
including the Sports Avenue stores acquired during the quarter. The comparable store sales increase
reflected an 8% increase in comparable store units sold, primarily from strength in Major League
Baseball products especially fashion-oriented Major League Baseball products, NCAA products, NHL
products and NBA products, and a 2% increase in average price per hat.
Lids Sports Group earnings from operations for the nine months ended October 30, 2010 increased
43.2% to $34.5 million compared to $24.1 million for the nine months ended October 31, 2009. 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.
46
Johnston & Murphy Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
129,001 |
|
|
$ |
118,745 |
|
|
|
8.6 |
% |
Earnings from operations |
|
$ |
4,194 |
|
|
$ |
1,358 |
|
|
|
208.8 |
% |
Operating margin |
|
|
3.3 |
% |
|
|
1.1 |
% |
|
|
|
|
Johnston & Murphy Group net sales increased 8.6% to $129.0 million for the nine months ended
October 30, 2010 from $118.7 million for the nine months ended October 31, 2009, reflecting
primarily a 6% increase in comparable store sales and a 17% increase in Johnston & Murphy wholesale
sales, offset by a 1% decrease in average stores operated for Johnston & Murphy retail operations.
The comparable store sales increase in the first nine months ended October 30, 2010 reflects a 10%
increase in footwear unit comparable sales offset by a 5% decrease in average price per pair of
shoes for Johnston & Murphy retail operations, primarily due to changes in product mix. Unit sales
for the Johnston & Murphy wholesale business increased 13% in the first nine months of Fiscal 2011
and the average price per pair of shoes increased 4% for the same period due to lower closeout
sales. Retail operations accounted for 71.3% of Johnston & Murphy Group segment sales in the first
nine months this year, down from 73.4% in the first nine months last year.
Johnston & Murphy Group earnings from operations for the nine months ended October 30, 2010
increased to $4.2 million compared to $1.4 million for the same period last year, primarily due to
increased net sales, increased gross margin as a percentage of net sales, and decreased expenses as
a percentage of net sales. Gross margin reflected decreased markdowns and lower closeout sales.
Expenses reflected positive leverage from the increase in comparable store sales and increased
wholesale sales.
Licensed Brands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
October 30, |
|
|
October 31, |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(dollars in thousands) |
|
|
|
|
|
Net sales |
|
$ |
78,319 |
|
|
$ |
71,654 |
|
|
|
9.3 |
% |
Earnings from operations |
|
$ |
10,464 |
|
|
$ |
9,525 |
|
|
|
9.9 |
% |
Operating margin |
|
|
13.4 |
% |
|
|
13.3 |
% |
|
|
|
|
Licensed Brands net sales increased 9.3% to $78.3 million for the nine months ended October 30,
2010, from $71.7 million for the nine months ended October 31, 2009. The sales increase reflects
$5.5 million of increased sales from the Chaps line of footwear that the Company is sourcing with
limited distribution and $1.0 million of sales associated with the acquisition of Keuka Footwear in
the third quarter of this year, while sales of Dockers footwear were flat. Unit sales for Dockers
footwear increased 1% for the first nine months this year while the average price per pair of
Dockers shoes was flat compared to the same period last year.
Licensed Brands earnings from operations for the nine months ended October 30, 2010 increased 9.9%
to $10.5 million compared to $9.5 million for the same period last year, primarily due to increased
net sales and increased gross margin as a percentage of net sales, reflecting fewer sales of
closeouts at lower margins.
47
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the nine months ended October 30, 2010 was $34.2 million compared
to $36.8 million for the nine months ended October 31, 2009. Corporate expense for the nine months
this year included $6.6 million in restructuring and other charges, primarily for retail store
asset impairments and other legal matters, a $0.5 million charge due to flood loss and $0.8 million
in acquisition-related professional fees. Corporate expense for the nine months ended October 31,
2009 included a $5.1 million loss on the early retirement of debt and $10.9 million in
restructuring and other charges, primarily for retail store asset impairments, other legal matters
and lease terminations. Offsetting the year-over-year reduction in the charges listed above,
corporate and other expense increased primarily due to increased bonus accruals as a result of
increased earnings in the first nine months this year compared to the first nine months last year.
Interest expense decreased 80.9% from $4.0 million in the nine months ended October 31, 2009 to
$0.8 million for the nine months ended October 30, 2010, due to the conversion of all the Companys
4 1/8% Debentures during Fiscal 2010 and a decrease in average revolver borrowings outstanding from
$17.4 million during the nine months ended October 31, 2009 to $2.4 million during the nine months
ended October 30, 2010. Interest income decreased $8,000 from the nine months ended October 31,
2009.
Liquidity and Capital Resources
The following table sets forth certain financial data at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, |
|
|
January 30, |
|
|
October 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in millions) |
|
Cash and cash equivalents |
|
$ |
24.6 |
|
|
$ |
82.1 |
|
|
$ |
23.6 |
|
Working capital |
|
$ |
281.0 |
|
|
$ |
280.4 |
|
|
$ |
258.6 |
|
Long-term debt |
|
$ |
30.4 |
|
|
$ |
-0- |
|
|
$ |
29.0 |
|
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 provided by operating activities was $24.2 million in the first nine months of Fiscal 2011
compared to $60.8 million in the first nine months of Fiscal 2010. The $36.6 million decrease in
cash flow from operating activities from last year reflects a decrease in cash flow from changes in
inventory and accounts receivable of $84.1 million and $6.6 million, respectively, offset by
increases in cash flow from improved earnings and changes in accounts payable and other accrued
liabilities of $26.4 million and $23.3 million, respectively. The $84.1 million decrease in cash
flow from inventory reflected last years efforts to reduce wholesale inventories and this years
increased purchases in all business units to support sales. The $6.6 million decrease in cash flow
from accounts receivable reflects increased wholesale sales including the additional sales in Lids
Team Sports related to recent acquisitions. The $26.4 million increase in cash flow from accounts
payable reflected an increase in inventory and changes in buying patterns and payment terms
negotiated with individual vendors. The $23.3 million increase in cash flow from other accrued
liabilities was due primarily to increased bonus accruals for the nine months this year compared to
the nine months last year.
48
The $136.7 million increase in inventories at October 30, 2010 from January 30, 2010 levels
reflected seasonal increases in retail inventory to support holiday sales.
Accounts receivable at October 30, 2010 increased $14.8 million compared to January 30, 2010, due
primarily to increased wholesale sales reflecting growth and seasonal increases in Lids Team Sports
and in the footwear wholesale businesses.
Revolving credit borrowings averaged $2.4 million during the nine months ended October 30, 2010 and
averaged $17.4 million during the nine months ended October 31, 2009. The Company primarily funded
its seasonal working capital requirements and its capital expenditures in the first nine months
this year through cash flow generated by operating activities and cash on hand.
Capital Expenditures
Total capital expenditures in Fiscal 2011 are expected to be approximately $32.7 million. These
include retail capital expenditures of approximately $26.9 million to open approximately seven
Journeys stores, three Journeys Kidz stores, three Johnston & Murphy shops and factory stores and
54 Lid Sports Group stores including 14 stores in Canada and 11 Lids Locker Room stores and to
complete approximately 78 major store renovations. Due to continuing economic uncertainty, the
Company intends to continue to be selective with respect to new store locations and has opened
stores at a slower pace in 2011 than before the recession. The planned amount of capital
expenditures in Fiscal 2011 for wholesale operations and other purposes is approximately $5.8
million, including approximately $1.9 million for new systems to improve customer service and
support the Companys growth.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be sufficient to support
seasonal working capital requirements, capital expenditures and planned acquisitions, although the
Company has borrowed under its Credit Facility from time to time to support seasonal working
capital requirements during Fiscal 2011. The approximately $11.6 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 and borrowings under the Credit Facility during Fiscal 2011.
There were $10.6 million of letters of credit outstanding and $30.4 million of revolver borrowings
outstanding under the Credit Facility at October 30, 2010. Net availability under the facility was
$159.0 million. The Company is not required to comply with any financial covenants under the
facility unless Adjusted Excess Availability (as defined in the Amended and Restated Credit
Agreement) is less than 10% of the total commitments under the credit facility (currently $20.0
million). If and during such time as Adjusted Excess Availability is less than such amount, the
credit facility requires the Company to meet a minimum fixed charge coverage ratio (EBITDA less
capital expenditures less cash taxes divided by cash interest expense and scheduled payments of
principal indebtedness) of 1.0 to 1.0. Adjusted Excess Availability was $159.0 million at October
30, 2010. Because Adjusted Excess Availability exceeded $20.0 million, the Company was not
required to comply with this financial covenant at October 30, 2010.
The Credit Facility prohibits the payment of dividends and other restricted payments (including
stock repurchases) unless after such dividend or restricted payment (i) availability is between
$30.0
49
million and $50.0 million, the fixed charge coverage is greater than 1.0 to 1.0 or (ii)
availability
under the credit facility exceeds $50.0 million. The Companys management does not expect
availability under the Credit Facility to fall below $50.0 million during Fiscal 2011.
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.
Common Stock Repurchases
In February 2010, the board increased the total repurchase authorization under its common stock
repurchase plan to $35.0 million. In October 2010, the board restored the total repurchase
authorization to $35.0 million. The Company repurchased 864,000 shares at a cost of $24.8 million
during the first nine months of Fiscal 2011 of which $1.1 million was not paid in the third quarter
but included in other accrued liabilities in the Condensed Consolidated Balance Sheets. All of the
$24.8 million in repurchases for the nine months this year, except $0.6 million, was repurchased
under the original $35.0 million authorization. The Company did not repurchase any shares during
the nine months ended October 31, 2009.
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 8 to the Companys Condensed Consolidated
Financial Statements. The Company has made pretax accruals for certain of these contingencies,
including approximately $0.3 million in each of the third quarters of Fiscal 2011 and Fiscal 2010
and $1.9 million and $0.8 million for the first nine months of Fiscal 2011 and Fiscal 2010,
respectively. 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.
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 $30.4 million of outstanding revolver borrowings
under its Credit Facility at a weighted average interest rate of 3.25% as of October 30, 2010. A
100 basis point adverse change in interest rates would increase interest expense by $0.1 million on
the $30.4 million revolving credit debt.
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 does not have
significant exposure to changing interest rates on invested cash at October 30, 2010. As a result,
50
the Company considers the interest rate market risk implicit in these investments at October 30,
2010 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 October 30, 2010, the Company had $1.4
million of forward foreign exchange contracts for Euro. 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. The unrealized gain on contracts outstanding at October
30, 2010 was $0.1 million based on current spot rates. As of October 30, 2010, a 10% adverse
change in foreign currency exchange rates from market rates would decrease the fair value of the
contracts by approximately $0.1 million.
Accounts Receivable The Companys accounts receivable balance at October 30, 2010 is primarily
concentrated in two of its footwear wholesale businesses, which sell primarily to department stores
and independent retailers across the United States. One customer accounted for 12% and another
customer accounted for 10% of the Companys footwear trade accounts receivable balance, while no
other customer accounted for more than 9% of the Companys footwear trade receivables balance as of
October 30, 2010. The Companys Lids Team Sports wholesale business sells primarily to coaches and
players on college, high school and club teams and their fan bases. Including both footwear
wholesale and Lids Team Sports receivables, one customer accounted for 7% of the Companys total
trade receivables balance as of October 30, 2010. 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 October 30, 2010, the
Company believes that the effect, if any, of reasonably possible near-term changes in interest
rates on the Companys consolidated financial position, results of operations or cash flows for
Fiscal 2011 would not be material.
New Accounting Principles
Descriptions of any recently issued accounting principles and accounting principles adopted by
the Company during the nine months ended October 30, 2010 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.
51
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 October 30, 2010, 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 third fiscal quarter that have materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting.
52
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company incorporates by reference the information regarding legal proceedings in
Note 8 of the Companys Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
Other than the additional risk factor included below, there have been no changes 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 30, 2010.
The
Company faces risks with respect to
data security and losses
related to the unauthorized access to confidential data could harm our business and
results of operations.
The
Company suffered a criminal intrusion into the portion
of its computer network that processes payment card transactions for its United States Journeys, Journeys Kidz, Shi by
Journeys and Johnston & Murphy stores and some of its Underground Station stores. As a result,
the Company has incurred and expects to continue to incur costs to investigate the
intrusion. As a result of the intrusion, we may face litigation and other claims which
may have a material adverse effect on our results of operations. In addition, it is
possible that harm to the Companys reputation from the intrusion could negatively
affect our sales and results of operations. While we have taken steps to secure the
affected part of our network, there can be no assurance that we will
not experience such
intrusions in the future.
53
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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(d) Maximum |
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Number (or |
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(c) Total |
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Approximate |
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Number of |
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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 |
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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August 2010 |
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8-1-10 to 8-28-10(1) |
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3,354 |
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$ |
27.29 |
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-0- |
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$ |
-0- |
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September 2010 |
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8-29-10 to 9-25-10(2) |
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205,240 |
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$ |
27.63 |
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205,240 |
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$ |
18,170 |
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October 2010 |
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9-26-10 to 10-30-10(1) |
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12,521 |
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$ |
32.56 |
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-0- |
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$ |
-0- |
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9-26-10 to 10-30-10(2) |
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250,127 |
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$ |
31.96 |
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250,127 |
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$ |
34,352 |
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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. |
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(2) |
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During the first quarter of Fiscal 2011, the board increased the total repurchase
authorization under its common stock repurchase plan to $35.0 million. During the
third quarter of Fiscal 2011, the board restored the total repurchase authorization
to $35.0 million. As of October 30, 2010, the Company had repurchased 864,000
shares at a cost of $24.8 million for the nine month period. |
Item 4. Removed and Reserved
Item 6. Exhibits
Exhibits
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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. |
54
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,
Chief Financial Officer and Treasurer |
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Date: December 9, 2010
55