Acquisitions and Intangible Assets

6 Months Ended

Jul. 30, 2011

Acquisitions and Intangible Assets [Abstract]

Note 2
Acquisitions and Intangible Assets

Schuh Acquisition

On June 23, 2011, the Company, through its newly-formed, wholly-owned subsidiary Genesco (UK) Limited (“Genesco UK”), completed the acquisition of all the outstanding shares of Schuh Group Ltd. (“Schuh”) for a total purchase price of approximately £100 million, less £29.5 million outstanding under existing Schuh credit facilities, which remain in place, less a £1.9 million working capital adjustment plus £6.2 million net cash acquired with £5.0 million withheld until satisfaction of certain closing conditions. The Company financed the acquisition with borrowings under its existing credit facility and the balance from cash on hand. The purchase agreement also provides for deferred purchase price payments totaling £25 million, payable £15 million and £10 million on the third and fourth anniversaries of the closing, respectively, subject to the payees’ not having terminated their employment with Schuh under certain specified circumstances. This amount will be recorded as compensation expense and not reported as a component of the cost of the acquisition. During the three months and six months ended July 30, 2011, compensation expense related to the Schuh acquisition deferred purchase price obligation was $1.4 million. This expense is included in the operating loss for the Schuh Group segment.

Headquartered in Scotland, Schuh is a specialty retailer of casual and athletic footwear sold through 59 retail stores in the United Kingdom and the Republic of Ireland and 16 concessions in Republic apparel stores as of July 30, 2011. The Company believes the acquisition will enhance its strategic development and prospects for growth and provide the Company with an established retail presence in the United Kingdom and improved insight into global fashion trends. The results of Schuh’s operations from the date of acquisition through July 30, 2011 of net sales of $34.0 million and an operating loss of $(0.1) million have been included in the Company’s Condensed Consolidated Financial Statements for the period ended July 30, 2011. During the three months and six months ended July 30, 2011, the Company expensed $6.4 million and $7.2 million, respectively, in costs related to the acquisition. These costs were recorded as selling and administrative expenses on the Condensed Consolidated Statements of Operations.

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

At June 23, 2011


Cash	$	24,835
Accounts Receivable		4,923
Inventories		32,179
Other current assets		8,403
Property and equipment		31,143
Unamortizable intangible assets (indefinite-lived trademarks)		27,223
Amortizable intangibles		5,626
Goodwill		101,731
Accounts payable		(16,196	)
Other current liabilities		(27,033	)
Long-term debt (includes current portion)		(62,562	)
Other non-current liabilities		(14,268	)

Net Assets Acquired	$	116,004

The trademarks acquired include the concept names and are deemed to have an indefinite life. Finite-lived intangibles include a $1.7 million customer list, a $3.1 million asset to reflect the adjustment of acquired leases to market and a vendor contract of $0.8 million. The weighted average amortization period for the asset to adjust acquired leases to market is 3.9 years. The weighted average amortization period for customer lists is 4.6 years.

The recorded amounts above are provisional and subject to change. Specifically, the following items are subject to change:

Amounts for intangibles pending finalization of valuation efforts for acquired intangible assets.

Amounts for income tax assets, receivables and liabilities pending receipt of Schuh’s pre-acquisition tax information, which may change certain estimates and assumptions used.

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

The following pro forma information presents the results of operations of the Company as if the Schuh acquisition had taken place at the beginning of Fiscal 2011 or January 31, 2010. Pro forma adjustments have been made to reflect additional interest expense from the $89.0 million in debt associated with the acquisition, interest expense on the acquired debt, amortization of intangible assets and the related income tax effects. Pro forma earnings for the six months ended July 30, 2011 have been adjusted to exclude $7.2 million of costs related to the acquisition.


	Six Months Ended -		Six Months Ended -
	Pro forma		Pro forma
In thousands, except per share data	July 30, 2011		July 31, 2010

Net sales	$	1,044,373	$	859,206

Earnings from continuing operations		16,284		2,204

Earnings per share:
Basic	$	0.70	$	0.09
Diluted	$	0.69	$	0.09

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

Intangible Assets

Other intangibles by major classes were as follows:


	Leases						Customer Lists						Other*						Total
	Jul. 30,			Jan. 29,			Jul. 30,			Jan 29,			Jul. 30,			Jan. 29,			Jul. 30,			Jan. 29,
(In Thousands)	2011			2011			2011			2011			2011			2011			2011			2011

Gross other intangibles	$	12,995		$	9,837		$	13,924		$	12,206		$	1,918		$	1,100		$	28,837		$	23,143
Accumulated amortization		(8,823	)		(8,482	)		(2,308	)		(1,480	)		(726	)		(603	)		(11,857	)		(10,565	)

Net Other Intangibles	$	4,172		$	1,355		$	11,616		$	10,726		$	1,192		$	497		$	16,980		$	12,578


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

The amortization of intangibles was $1.0 million and $0.5 million for the second quarter of Fiscal 2012 and 2011, respectively. The amortization of intangibles was $1.9 million and $0.7 million for the first six months of Fiscal 2012 and 2011, respectively. The amortization of intangibles will be $4.5 million, $4.1 million, $3.1 million, $2.2 million and $1.6 million for Fiscal 2012, 2013, 2014, 2015 and 2016, respectively.