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Business Acquisitions
 6 Months Ended
Jun. 15, 2013
Business Combinations [Abstract]  
Business Acquisitions
13. BUSINESS ACQUISITIONS

On October 9, 2012, the Company acquired all of the outstanding equity interests of PLG as well as certain other assets. Consideration paid to acquire PLG was approximately $1,249.5 million in cash. PLG markets casual and athletic footwear, apparel and related accessories for adults and children under well-known brand names including Sperry Top-Sider®, Saucony®, Stride Rite®, andKeds®. The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations. The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for PLG are included in the Company’s consolidated results of operations beginning October 9, 2012.

The Company funded the transaction using a combination of approximately $88.8 million of cash on hand and new borrowings. The Company’s debt financing included net proceeds from the term loan debt associated with the Company’s New Credit Agreement and net proceeds from the Company’s Notes.

During the first quarter of fiscal 2013, the Company reorganized its brand portfolio into three reportable operating segments. PLG’s operating results are included in the Performance Group and the Lifestyle Group operating segments.

For the 12 weeks ended June 15, 2013, the Company incurred $7.9 million of acquisition-related transaction and integration costs. These costs include compensation expenses ($5.4 million), other purchased services ($2.0 million) and professional and legal fees ($0.5 million). For the 12 weeks ended June 16, 2012, the Company incurred $4.9 million of acquisition-related transaction and integration costs. These costs included professional and legal fees ($4.7 million) and other purchased services ($0.2 million).

 

For the 24 weeks ended June 15, 2013, the Company incurred $23.1 million of acquisition-related transaction and integration costs. These costs include compensation expenses ($15.7 million), other purchased services ($3.7 million), amortization related to short-lived intangible assets ($2.4 million) and professional and legal fees ($1.3 million). For the 24 weeks ended June 16, 2012, the Company incurred $4.9 million of acquisition-related transaction and integration costs. These costs included professional and legal fees ($4.7 million) and other purchased services ($0.2 million).

During the measurement period, the Company made certain post-closing adjustments related to the valuation of a receivable due from the seller and other assets and accruals which resulted in a net reduction to goodwill of $0.7 million. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed in connection with the PLG acquisition:

 

(In millions)

    Initial valuation  at
December 29, 2012		      Measurement
period
adjustments		     Adjusted
preliminary
valuation at June 15,
2013		  

Cash

    $ 23.6       $ —        $ 23.6   

Accounts receivable

      146.9         4.3        151.2   

Inventories

      203.5         —          203.5   

Deferred income taxes

      13.6         —          13.6   

Other current assets

      13.2         —          13.2   

Property, plant and equipment

      77.1         —          77.1   

Goodwill

      419.6         (0.7 )      418.9   

Intangible assets

      820.6         —          820.6   

Other

      11.2         (2.1 )      9.1   
  

 

 

     

 

 

    

 

 

  

Total assets acquired

      1,729.3         1.5        1,730.8   
  

 

 

     

 

 

    

 

 

  

Accounts payable

      97.4         —          97.4   

Other accrued liabilities

      40.0         1.5        41.5   

Deferred income taxes

      294.7         —          294.7   

Accrued pension liabilities

      37.7         —          37.7   

Other liabilities

      10.0         —          10.0   
  

 

 

     

 

 

    

 

 

  

Total liabilities assumed

      479.8         1.5        481.3   
  

 

 

     

 

 

    

 

 

  

Net assets acquired

    $ 1,249.5       $ —        $ 1,249.5   
  

 

 

     

 

 

    

 

 

  

The allocations of the purchase price above are still considered preliminary and are based upon valuation information available and estimates and assumptions made at December 29, 2012 and June 15, 2013. The Company is still verifying data and finalizing information related to the valuation and recording of identifiable intangible assets, deferred income taxes, uncertain tax provisions and accrued pension liabilities and the resulting effects on the amount of recorded goodwill. The Company expects to finalize these matters within the measurement period, which is currently expected to remain open through the third quarter of fiscal 2013.

The excess of the purchase price over the fair value of net assets acquired of $418.9 million was preliminarily recorded as goodwill in the consolidated condensed balance sheets and has been assigned to the Performance Group and Lifestyle Group reportable operating segments as follows:

 

(In millions)

    Goodwill from the acquisition of PLG  

Performance Group

    $ 76.5   

Lifestyle Group

      342.4   
  

 

 

  

Total

    $ 418.9   
  

 

 

  

The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of PLG. Substantially all of the goodwill is not amortizable for income tax purposes.

 

Intangible assets acquired in the acquisition were preliminarily valued as follows:

 

(In millions)

    Intangible asset      Useful life  

Trade names and trademarks

    $ 661.8         Indefinite   

Customer lists

      110.5         3-20 years   

Licensing agreements

      28.1         4-5 years   

Developed product technology

      14.5         3-5 years   

Backlog

      5.1         6 months   

Net favorable leases

      0.6         10 years   
  

 

 

     

Total intangible assets acquired

    $ 820.6      
  

 

 

     

The Company preliminarily assigned fair values to the identifiable intangible assets through a combination of the relief from royalty and the excess earnings methods.

At the time of the acquisition, a step-up in the value of inventory of $4.0 million was recorded in the allocation of the purchase price based on valuation estimates, all of which was charged to cost of sales in the fourth quarter of fiscal 2012 as the inventory was deemed sold. In addition, fixed assets were written up by approximately $18.8 million to their estimated fair market value based on a valuation method that included both cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets.