Note 3

Acquisitions and Divestitures

American Sporting Goods Corporation

On February 17, 2011, the Company entered into a Stock Purchase Agreement with American Sporting Goods Corporation (“ASG”) and ASG’s stockholders, pursuant to which a subsidiary of the Company acquired all of the outstanding capital stock of ASG from the ASG stockholders on that date. The aggregate purchase price for ASG was $156.6 million in cash, including debt assumed by the Company of $11.6 million. The cost to acquire ASG was allocated to the assets acquired and liabilities assumed according to estimated fair values. The allocation resulted in acquired goodwill of $61.2 million and intangible assets related to trade names, licensing agreements and customer relationships of $46.7 million. The goodwill and intangible assets were allocated to the Wholesale Operations segment.

The Company incurred no integration costs in the third quarter of 2012 and $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) during the thirty-nine weeks ended October 27, 2012 and incurred acquisition and integration costs of $1.1 million ($0.8 million on an after-tax basis, or $0.02 per diluted share) in the third quarter of 2011 and $3.5 million ($2.9 million on an after-tax basis, or $0.08 per diluted share) during the thirty-nine weeks ended October 29, 2011. The integration costs incurred in the thirty-nine weeks ended October 27, 2012 are included in the Wholesale Operations segment. The acquisition and integration costs incurred in the thirty-nine weeks ended October 29, 2011 were included in the Other segment. All costs were recorded as a component of restructuring and other special charges, net. In addition, the Wholesale Operations segment recognized an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $3.9 million ($2.3 million on an after-tax basis, or $0.05 per diluted share) during the thirty-nine weeks ended October 29, 2011, which excludes the effect of The Basketball Marketing Company, Inc. (“TBMC”).

The results of ASG have been included in the Company’s financial statements since February 17, 2011 and are consolidated within the Wholesale Operations segment. The following table illustrates the unaudited pro forma effect on the thirteen and thirty-nine weeks ended October 29, 2011 results as if the acquisition had been completed as of the beginning of 2010:




	Thirteen Weeks Ended			Thirty-nine Weeks Ended
	October 29,			October 29,
($ thousands, except per share amounts)			2011			2011
Net sales		$	713,788		$	1,961,880
Net earnings attributable to Brown Shoe Company, Inc.			33,644			36,430
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders			0.80			0.84
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders			0.79			0.83

The pro forma net sales for the third quarter and thirty-nine weeks ended October 29, 2011 exclude the discontinued operations of TBMC, which was sold during the third quarter of 2011. The primary adjustments to the pro forma disclosures above include: i) the elimination of the non-cash cost of goods sold impact related to the inventory fair value adjustment of $4.2 million ($2.7 million in the first quarter of 2011 and $1.5 million in the second quarter of 2011); and ii) the elimination of $1.6 million of expenses related to the acquisition incurred during the first quarter of 2011.

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods.

The Basketball Marketing Company, Inc.

On October 25, 2011, the Company sold TBMC for $55.4 million, which resulted in a pre-tax gain of $21.6 million for the third quarter of 2011. TBMC was acquired in the Company’s February 17, 2011 acquisition of ASG. Accordingly, the Company reduced goodwill by $21.6 million, intangible assets by $8.0 million and other net assets by $4.2 million and the results of TBMC are reflected in the condensed consolidated statement of earnings as discontinued operations.