UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended August 3, 2019 | |
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
Genesco Park, | |||
(Zip Code) | |||
(Address of principal executive offices) | |||
Registrant's telephone number, including area code: (615) 367-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; a smaller reporting company; or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | |||
Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of August 30, 2019, 14,998,860 shares of the registrant's common stock were outstanding.
INDEX | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Balance Sheets |
(In thousands, except share amounts) |
Assets | August 3, 2019 | February 2, 2019 | August 4, 2018 | ||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||
Accounts receivable, net of allowances of $2,462 at Aug. 3, 2019, | |||||||||||
$2,894 at Feb. 2, 2019 and $4,340 at Aug. 4, 2018 | |||||||||||
Inventories | |||||||||||
Prepaids and other current assets | |||||||||||
Current assets - discontinued operations | |||||||||||
Total current assets | |||||||||||
Property and equipment: | |||||||||||
Land | |||||||||||
Buildings and building equipment | |||||||||||
Computer hardware, software and equipment | |||||||||||
Furniture and fixtures | |||||||||||
Construction in progress | |||||||||||
Improvements to leased property | |||||||||||
Property and equipment, at cost | |||||||||||
Accumulated depreciation | ( | ) | ( | ) | ( | ) | |||||
Property and equipment, net | |||||||||||
Operating lease right of use asset | — | — | |||||||||
Goodwill | |||||||||||
Trademarks, net of accumulated amortization of zero at Aug. 3, 2019, | |||||||||||
Feb. 2, 2019 and Aug. 4, 2018 | |||||||||||
Other intangibles, net of accumulated amortization of $1,675 at | |||||||||||
Aug. 3, 2019, $4,680 at Feb. 2, 2019 and $4,514 at Aug. 4, 2018 | |||||||||||
Deferred income taxes | |||||||||||
Other noncurrent assets | |||||||||||
Non-current assets - discontinued operations | |||||||||||
Total Assets | $ | $ | $ | ||||||||
4
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Balance Sheets |
(In thousands, except share amounts) |
Liabilities and Equity | August 3, 2019 | February 2, 2019 | August 4, 2018 | ||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | $ | $ | ||||||||
Accrued employee compensation | |||||||||||
Accrued other taxes | |||||||||||
Accrued income taxes | |||||||||||
Current portion – long-term debt | |||||||||||
Current portion - operating lease liability | — | — | |||||||||
Other accrued liabilities | |||||||||||
Provision for discontinued operations | |||||||||||
Current liabilities - discontinued operations | |||||||||||
Total current liabilities | |||||||||||
Long-term debt | |||||||||||
Long-term operating lease liability | — | — | |||||||||
Other long-term liabilities | |||||||||||
Provision for discontinued operations | |||||||||||
Non-current liabilities - discontinued operations | |||||||||||
Total liabilities | |||||||||||
Commitments and contingent liabilities | |||||||||||
Equity: | |||||||||||
Non-redeemable preferred stock | |||||||||||
Common equity: | |||||||||||
Common stock, $1 par value: | |||||||||||
Authorized: 80,000,000 shares | |||||||||||
Issued/Outstanding: | |||||||||||
Aug. 3, 2019 – 16,345,074/15,856,610 | |||||||||||
February 2, 2019 – 19,591,048/19,102,584 | |||||||||||
Aug. 4, 2018 – 20,683,842/20,195,378 | |||||||||||
Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | |||||
Treasury shares, at cost (488,464 shares) | ( | ) | ( | ) | ( | ) | |||||
Total Genesco equity | |||||||||||
Noncontrolling interest – non-redeemable | |||||||||||
Total equity | |||||||||||
Total Liabilities and Equity | $ | $ | $ | ||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Statements of Operations |
(In thousands, except per share amounts) |
Three Months Ended | Six Months Ended | |||||||||||||
August 3, 2019 | August 4, 2018 | August 3, 2019 | August 4, 2018 | |||||||||||
Net sales | $ | $ | $ | $ | ||||||||||
Cost of sales | ||||||||||||||
Selling and administrative expenses | ||||||||||||||
Asset impairments and other, net | ( | ) | ||||||||||||
Operating income | ||||||||||||||
Other components net periodic benefit cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Interest expense, net: | ||||||||||||||
Interest expense | ||||||||||||||
Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Total interest expense, net | ||||||||||||||
Earnings from continuing operations before income taxes | ||||||||||||||
Income tax expense | ||||||||||||||
Earnings (loss) from continuing operations | ( | ) | ||||||||||||
(Loss) earnings from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ||||||||
Net Earnings (Loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||
Basic earnings (loss) per common share: | ||||||||||||||
Continuing operations | $ | $ | $ | $ | ||||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||
Net earnings (loss) | $ | $ | $ | $ | ( | ) | ||||||||
Diluted earnings (loss) per common share: | ||||||||||||||
Continuing operations | $ | $ | $ | $ | ||||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||
Net earnings (loss) | $ | $ | $ | $ | ( | ) | ||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Statements of Comprehensive Income |
(In thousands) |
Three Months Ended | Six Months Ended | |||||||||||||
August 3, 2019 | August 4, 2018 | August 3, 2019 | August 4, 2018 | |||||||||||
Net earnings (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||
Pension liability adjustments, net of tax of $0.0 million for the three and six months ended Aug. 3, 2019 and $0.1 million for both the three and six months ended Aug. 4, 2018 | ||||||||||||||
Postretirement liability adjustments, net of tax of $0.0 million and $0.1 million for the three and six months ended Aug. 3, 2019, respectively, and $0.0 million for both the three and six months ended Aug. 4, 2018 | ( | ) | ( | ) | ||||||||||
Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Statements of Cash Flows |
(In thousands) |
Three Months Ended | Six Months Ended | |||||||||||||
August 3, 2019 | August 4, 2018 | August 3, 2019 | August 4, 2018 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
Net earnings (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||
Adjustments to reconcile net earnings (loss) to net cash provided by | ||||||||||||||
(used in) operating activities: | ||||||||||||||
Depreciation and amortization | ||||||||||||||
Amortization of deferred note expense and debt discount | ||||||||||||||
Deferred income taxes | ( | ) | ||||||||||||
Provision (recoveries) on accounts receivable | ( | ) | ( | ) | ||||||||||
Gain on sale of business | ||||||||||||||
Impairment of long-lived assets | ||||||||||||||
Restricted stock expense | ||||||||||||||
Provision for discontinued operations | ||||||||||||||
Other | ||||||||||||||
Effect on cash from changes in working capital and other | ||||||||||||||
assets and liabilities, net of acquisitions: | ||||||||||||||
Accounts receivable | ||||||||||||||
Inventories | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Prepaids and other current assets | ( | ) | ( | ) | ( | ) | ||||||||
Accounts payable | ||||||||||||||
Other accrued liabilities | ( | ) | ||||||||||||
Other assets and liabilities | ( | ) | ||||||||||||
Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
Capital expenditures | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Other investing activities | ||||||||||||||
Proceeds from sale of business and asset sales | ( | ) | ||||||||||||
Net cash provided by (used in) investing activities | ( | ) | ( | ) | ( | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
Payments of long-term debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Borrowings under revolving credit facility | ||||||||||||||
Payments on revolving credit facility | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Share repurchases related to share repurchase program | ( | ) | ( | ) | ||||||||||
Restricted shares withheld for taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Change in overdraft balances | ( | ) | ( | ) | ||||||||||
Additions to deferred note cost | ( | ) | ( | ) | ||||||||||
Other | ( | ) | ( | ) | ||||||||||
Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Effect of foreign exchange rate fluctuations on cash | ( | ) | ( | ) | ( | ) | ( | ) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | ( | ) | ( | ) | ||||||||||
Cash and cash equivalents at beginning of period(1) | ||||||||||||||
Cash and cash equivalents at end of period(1) | $ | $ | $ | $ | ||||||||||
Supplemental Cash Flow Information: | ||||||||||||||
Net cash paid for: | ||||||||||||||
Interest | $ | $ | $ | $ | ||||||||||
Income taxes | ||||||||||||||
(1) The cash flows related to discontinued operations have not been segregated and are included in the Condensed Consolidated Cash Flows for the three and six months ended August 4, 2018.
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
Genesco Inc. |
and Subsidiaries |
Condensed Consolidated Statements of Equity |
(In thousands) |
Non-Redeemable Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Shares | Non Controlling Interest Non-Redeemable | Total Equity | ||||||||||||||||||||||||
Balance February 3, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
Cumulative adjustment from ASC 606, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||
Net loss | — | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||
Employee and non-employee restricted stock | — | — | — | — | — | — | |||||||||||||||||||||||||
Restricted stock issuance | — | ( | ) | — | — | — | — | ||||||||||||||||||||||||
Other | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||||||||
Noncontrolling interest – earnings | — | — | — | — | — | — | |||||||||||||||||||||||||
Balance May 5, 2018 | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net loss | — | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||
Employee and non-employee restricted stock | — | — | — | — | — | — | |||||||||||||||||||||||||
Restricted stock issuance | — | ( | ) | — | — | — | — | ||||||||||||||||||||||||
Restricted shares withheld for taxes | — | ( | ) | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Other | ( | ) | — | — | — | — | |||||||||||||||||||||||||
Noncontrolling interest – earnings | — | — | — | — | — | — | |||||||||||||||||||||||||
Balance August 4, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
Non-Redeemable Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Shares | Non Controlling Interest Non-Redeemable | Total Equity | ||||||||||||||||||||||||
Balance February 2, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
Cumulative adjustment from ASC 842, net of tax | — | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Net earnings | — | — | — | — | — | ||||||||||||||||||||||||||
Other comprehensive earnings | — | — | — | — | — | — | |||||||||||||||||||||||||
Employee and non-employee restricted stock | — | — | — | — | — | — | |||||||||||||||||||||||||
Shares repurchased | — | ( | ) | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Other | ( | ) | ( | ) | — | — | — | — | |||||||||||||||||||||||
Balance May 4, 2019 | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net earnings | — | — | — | — | — | — | |||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||
Employee and non-employee restricted stock | — | — | — | — | — | — | |||||||||||||||||||||||||
Shares repurchased | — | ( | ) | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||
Restricted stock issuance | — | ( | ) | — | — | — | — | ||||||||||||||||||||||||
Restricted shares withheld for taxes | — | ( | ) | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Other | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||||||||
Balance August 3, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
9
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements and Notes 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 February 1, 2020 ("Fiscal 2020") and of the fiscal year ended February 2, 2019 ("Fiscal 2019"). The results of operations for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted. The Condensed Consolidated Balance Sheet as of February 2, 2019 has been derived from the audited financial statements at that date. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto for Fiscal 2019, which are contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") on April 3, 2019.
Nature of Operations
Genesco Inc. and its subsidiaries (collectively, the "Company") business includes the sourcing and design, marketing and distribution of footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys, Journeys Kidz, Little Burgundy and Johnston & Murphy banners and under the Schuh banner in the United Kingdom and the Republic of Ireland; through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, schuh.co.uk, littleburgundyshoes.com, johnstonmurphy.com, johnstonmurphy.ca and trask.com, and at wholesale, primarily under the Company's Johnston & Murphy brand, the Trask brand, the licensed Dockers brand and other brands that the Company licenses for footwear. At August 3, 2019, the Company operated 1,494 retail stores in the U.S., Puerto Rico, Canada, the United Kingdom and the Republic of Ireland.
On February 2, 2019, the Company completed the sale of its Lids Sports Group business. As a result, the Company reported the operating results of this business in loss from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three and six months ended August 4, 2018. In addition, the related assets and liabilities as of August 4, 2018 have been reported as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets. The cash flows related to discontinued operations have not been segregated, and are included in the Condensed Consolidated Statements of Cash Flows for the three and six months ended August 4, 2018. Unless otherwise noted, discussion within these notes to the condensed consolidated financial statements relates to continuing operations. See Note 3 for additional information related to discontinued operations.
During the three and six months ended August 3, 2019 and August 4, 2018, the Company operated four reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz and Little Burgundy retail footwear chains, e-commerce and catalog operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce operations, catalog, Trask e-commerce operations and wholesale distribution of products under the Johnston & Murphy® and H.S. Trask® brands; and (iv) Licensed Brands, comprised of
10
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Principles of Consolidation
All subsidiaries are consolidated in the Condensed Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated.
Revenue Recognition
In accordance with ASC 606, revenue shall be recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for corresponding goods. The majority of the Company's sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product at the point of sale. Revenue from retail sales is recognized at the point of sale, is net of estimated returns, and excludes sales and value added taxes. Revenue from catalog and internet sales is recognized at estimated time of delivery to the customer, is net of estimated returns, and excludes sales and value added taxes. Wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Actual amounts of markdowns have not differed materially from estimates. Shipping and handling costs charged to
customers are included in net sales. The Company elected the practical expedient within ASC 606 related to taxes that are assessed by a governmental authority, which allows for the exclusion of sales and value added tax from transaction price.
A provision for estimated returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Estimated returns are based on historical returns and claims. Actual returns and claims in any future period may differ from historical experience. Revenue from gift cards is deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized on the Condensed Consolidated Statements of Operations within net sales in proportion to the pattern of rights exercised by the customer in future periods. The Company performs an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity.
The Condensed Consolidated Balance Sheets include an accrued liability for gift cards of $3.8 million, $5.1 million and $3.8 million at August 3, 2019, February 2, 2019 and August 4, 2018, respectively. Gift card breakage recognized as revenue was $0.1 million and $0.2 million for the second quarters of Fiscal 2020 and Fiscal 2019, respectively, and $0.3 million for each of the first six months of Fiscal 2020 and Fiscal 2019. During the six months ended August 3, 2019, the Company recognized $2.4 million of gift card redemptions and gift card breakage revenue that were included in the gift card liability as of February 2, 2019.
11
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Cash and Cash Equivalents
The Company had total available cash and cash equivalents of $58.0 million, $167.4 million and $49.8 million as of August 3, 2019, February 2, 2019 and August 4, 2018, respectively, of which approximately $10.8 million, $20.8 million and $11.3 million was held by the Company's foreign subsidiaries as of August 3, 2019, February 2, 2019 and August 4, 2018, respectively. The Company's strategic plan does not require the repatriation of foreign cash in order to fund its operations in the
U.S., and it is the Company's current intention to indefinitely reinvest its foreign cash and cash equivalents outside of the U.S. If the Company were to repatriate foreign cash to the U.S., it would be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation.
There were $17.5 million and $127.2 million in cash equivalents at August 3, 2019 and February 2, 2019, respectively, and no cash equivalents included in cash and cash equivalents at August 4, 2018. The Company's cash equivalents at August 3, 2019 and February 2, 2019 were invested in institutional money market funds which invest exclusively in highly rated, short-term securities that are issued, guaranteed or collateralized by the U.S. government or by U.S. government agencies and instrumentalities.
At August 3, 2019, substantially all of the Company’s domestic cash was invested in institutional money market funds. The majority of payments due from banks for domestic customer credit card transactions process within 24 - 48 hours and are accordingly classified as cash and cash equivalents in the Condensed Consolidated Balance Sheets.
At August 3, 2019, February 2, 2019 and August 4, 2018, outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $9.4 million, $29.6 million and $17.8 million, respectively. These amounts are included in accounts payable in the Condensed Consolidated Balance Sheets.
Concentration of Credit Risk and Allowances on Accounts Receivable
The Company’s footwear wholesale businesses sell primarily to department stores and independent retailers across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry as well as by customer-specific factors. In the footwear wholesale businesses, one customer accounted for 24 %, one customer accounted for 11 %, two customers each accounted for 7 % and no other customer accounted for more than 6 % of the Company’s total trade receivables balance as of August 3, 2019.
Asset Retirement Obligations
The Condensed Consolidated Balance Sheets include asset retirement obligations related to leases of $10.2 million, $10.9 million and $10.7 million as of August 3, 2019, February 2, 2019 and August 4, 2018, respectively.
12
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments at August 3, 2019 and February 2, 2019 are as follows:
Fair Values | |||||||||||||||
In Thousands | August 3, 2019 | February 2, 2019 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
U.S. Credit Facility Borrowings | $ | $ | $ | $ | |||||||||||
UK Term Loans | |||||||||||||||
UK Revolver Borrowings | |||||||||||||||
Debt fair values were estimated using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified in Level 2 as defined in Note 5.
Carrying amounts reported on the Condensed Consolidated Balance Sheets for cash, cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturity of these instruments.
Selling and Administrative Expenses
on the Condensed Consolidated Statements of Operations in the amount of $1.3 million for each of the second quarters of Fiscal 2020 and Fiscal 2019, and $2.7 million and $2.8 million for the first six months of Fiscal 2020 and Fiscal 2019, respectively.
Buying, Merchandising and Occupancy Costs
Advertising Costs
Advertising costs are predominantly expensed as incurred. Advertising costs were $16.5 million and $15.3 million for the second quarters of Fiscal 2020 and Fiscal 2019, respectively, and $30.2 million and $29.8 million for the first six months of Fiscal 2020 and Fiscal 2019, respectively.
13
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Cooperative Advertising
Cooperative advertising costs recognized in selling and administrative expenses on the Condensed Consolidated Statements of Operations were $0.5 million and $0.2 million for the second quarters of Fiscal 2020 and Fiscal 2019, respectively, and $1.2 million and $1.0 million for the first six months of Fiscal 2020 and Fiscal 2019, respectively. During the first six months of Fiscal 2020 and Fiscal 2019, the Company’s cooperative advertising reimbursements paid did not exceed the fair value of the benefits received under those agreements.
Vendor Allowances
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $2.3 million and $1.7 million for the second quarters of Fiscal 2020 and Fiscal 2019, respectively, and $4.2 million and $3.4 million for the first six months of Fiscal 2020 and Fiscal 2019, respectively. During the first six months of Fiscal 2020 and Fiscal 2019, the Company’s cooperative advertising reimbursements received were not in excess of the costs incurred.
Foreign Currency Translation
Other Comprehensive Income
14
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
The following table summarizes the components of accumulated other comprehensive loss ("AOCI") for the six months ended August 3, 2019:
In Thousands | Foreign Currency Translation | Unrecognized Pension Postretirement Benefit Costs | Total Accumulated Other Comprehensive Income (Loss) | |||
Balance February 2, 2019 | $( | $( | $( | |||
Other comprehensive income (loss) before reclassifications: | ||||||
Foreign currency translation adjustment | ( | ) | ( | ) | ||
Loss on intra-entity foreign currency transactions | ||||||
(long-term investment nature) | ( | ) | ( | ) | ||
Amounts reclassified from AOCI: | ||||||
Amortization of net actuarial loss and prior service cost (1) | ( | ) | ( | ) | ||
Income tax expense | ( | ) | ( | ) | ||
Current period other comprehensive loss, net of tax | ( | ) | ( | ) | ( | ) |
Balance August 3, 2019 | $( | $( | $( | |||
(1) Amount is included in other components of net periodic benefit cost on the Condensed Consolidated Statements of Operations.
Income Taxes
The Company recorded an effective income tax rate of 70.7 % and 2,600.0 % in the second quarters of Fiscal 2020 and Fiscal 2019, respectively, and 39.7 % and 32.0 % in the first six months of Fiscal 2020 and Fiscal 2019, respectively. The tax rate for the second quarter and first six months of Fiscal 2020 and 2019 reflects the inability to recognize a tax benefit for certain foreign losses. The tax rate for the second quarter and six months of Fiscal 2020 also includes an uncertain tax position of $0.2 million. The tax rates were also impacted by $(0.1 ) million of tax benefit for the second quarter and first six months of Fiscal 2020 and $0.5 million of tax expense for the second quarter and first six months of Fiscal 2019 due to the impact of ASU 2016-09 related to the vesting of restricted stock.
New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
The Company adopted ASU 2016-02, " Leases (Topic 842)", ("ASC 842"), as of February 3, 2019, using the optional transition method provided by ASU 2018-11, "Leases (Topic 842): Targeted Improvements". The optional transition approach provides a method for recording existing leases at adoption by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, as opposed to the modified or full retrospective transition methods that require restating prior comparative periods. Additionally, the Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company
15
Genesco Inc.
and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
also elected the practical expedient to not separate lease and non-lease components for its store and equipment leases.
Adoption of the new standard resulted in the recording of additional net operating lease right of use assets and operating lease liabilities of $795.6 million and $855.3 million, respectively, as of February 3, 2019. The operating lease right of use asset is inclusive of the impairments recorded upon adoption for store operating lease right of use assets, which totaled $4.8 million and resulted in a decrease to retained earnings of $4.2 million, net of tax. Right of use assets are recorded based upon the present value of remaining operating lease liabilities adjusted for deferred rent, including tenant allowances from landlords. The standard did not materially impact net earnings or liquidity. The standard did not have an impact on covenant compliance under the Company’s current debt agreements. Financial results for reporting periods beginning after February 3, 2019 are presented in accordance with ASC 842, while prior periods will continue to be reported in accordance with the Company’s historical accounting for leases under ASC Topic 840: "Leases (Topic 840)" and therefore have not been adjusted to conform to Topic 842. For additional information regarding leases, see Note 6.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Los