Acquisitions and Intangible Assets

Schuh Acquisition

On June 23, 2011, the Company, through its newly-formed, wholly-owned subsidiary Genesco (UK) Limited (“Genesco UK”), completed the acquisition of all the outstanding shares of Schuh Group Ltd. (“Schuh”) for a total purchase price of approximately £100.0 million, less £29.5 million outstanding under existing Schuh credit facilities, which remain in place, less a £1.9 million working capital adjustment and plus £6.2 million net cash acquired, with £5.0 million withheld and payable in June 2013. The Company financed the acquisition with borrowings under its existing credit facility and the balance from cash on hand. The purchase agreement also provides for deferred purchase price payments totaling £25 million, payable £15 million and £10 million on the third and fourth anniversaries of the closing, respectively, subject to the payees’ not having terminated their employment with Schuh under certain specified circumstances. This amount will be recorded as compensation expense and not reported as a component of the cost of the acquisition.

Headquartered in Scotland, Schuh is a specialty retailer of casual and athletic footwear sold through 69 retail stores in the United Kingdom and the Republic of Ireland and 14 concessions in Republic apparel stores as of July 28, 2012. The Company completed the acquisition in order to enhance its strategic development and prospects for growth and provide the Company with an established retail presence in the United Kingdom and improved insight into global fashion trends. The results of Schuh’s operations for the three months ended July 28, 2012 include net sales of $81.2 million and an operating loss of $(0.5) million, and for the six months ended July 28, 2012 include net sales of $151.5 million and an operating loss of $(3.5) million, and have been included in the Company’s Condensed Consolidated Financial Statements for the three months and six months ended July 28, 2012. During the three months and six months ended July 28, 2012, compensation expense related to the Schuh acquisition deferred purchase price obligation was $2.9 million and $5.9 million, respectively. This expense is included in the operating loss for the Schuh Group segment.

Note 2

Acquisitions and Intangible Assets, Continued

The acquisition has been accounted for using the purchase method in accordance with the amended Business Combinations Topic of the Codification. Accordingly, the total purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at acquisition as follows (amounts in thousands):



At June 23, 2011
Cash	$	24,836
Accounts Receivable	4,673
Inventories	32,179
Other current assets	7,565
Property and equipment	30,314
Other non-current assets	6,977
Deferred taxes	4,197
Trademarks	27,224
Other intangibles	4,995
Goodwill	102,907
Accounts payable	(16,196		)
Other current liabilities	(24,718		)
Long-term debt (includes current portion)	(62,562		)
Other non-current liabilities	(26,637		)
Net Assets Acquired	$	115,754

The trademarks acquired include the concept names and are deemed to have an indefinite life. Other intangibles include a $1.7 million customer list, a $2.5 million asset to reflect the adjustment of acquired leases to market and a vendor contract of $0.8 million. The weighted average amortization period for the asset to adjust acquired leases to market is 2.7 years. The weighted average amortization period for customer lists is 4.6 years.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition of Schuh includes the expected purchasing synergies and other benefits that result from combining the Schuh business with the Company, improved insight into global fashion trends, any intangible assets that do not qualify for separate recognition and an acquired assembled workforce. The goodwill related to the Schuh acquisition is not deductible for tax purposes.

Note 2

Acquisitions and Intangible Assets, Continued

The following pro forma information presents the results of operations of the Company as if the Schuh acquisition had taken place at the beginning of Fiscal 2011 or January 31, 2010. Pro forma adjustments have been made to reflect additional interest expense from the $89.0 million in debt associated with the acquisition, interest expense on the acquired debt, amortization of intangible assets and the related income tax effects.



	Six Months Ended - Pro forma
In thousands, except per share data	July 30, 2011
Net sales	$	1,044,373
Earnings from continuing operations	16,284
Earnings per share:
Basic	$	0.70
Diluted	$	0.69

The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have occurred had the Schuh acquisition occurred at the beginning of Fiscal 2011.

Intangible Assets

Other intangibles by major classes were as follows:



	Leases						Customer Lists						Other*						Total
(In Thousands)	Jul. 28, 2012			Jan. 28, 2012			Jul. 28, 2012			Jan. 28, 2012			Jul. 28, 2012			Jan. 28, 2012			Jul. 28, 2012			Jan. 28, 2012
Gross other intangibles	$	12,366		$	12,390		$	14,105		$	14,062		$	2,112		$	2,001		$	28,583		$	28,453
Accumulated amortization	(10,131		)	(9,477		)	(4,285		)	(3,292		)	(990		)	(876		)	(15,406		)	(13,645		)
Net Other Intangibles	$	2,235		$	2,913		$	9,820		$	10,770		$	1,122		$	1,125		$	13,177		$	14,808

*Includes non-compete agreements, vendor contract and backlog.

The amortization of intangibles, including trademarks, was $0.9 million and $0.8 million for the second quarter of Fiscal 2013 and 2012, respectively, and $1.7 million and $1.5 million for the first six months of Fiscal 2013 and 2012, respectively. The amortization of intangibles, including trademarks, will be $4.6 million, $4.2 million, $3.1 million, $2.1 million and $1.6 million for Fiscal 2013, 2014, 2015, 2016 and 2017, respectively.