Business Combinations (Notes)

9 Months Ended

Oct. 02, 2021

BUSINESS ACQUISITIONS

On July 31, 2021, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of Lady of Leisure InvestCo Limited. The acquisition was completed on August 2, 2021 for $417.8 million, which is net of acquired cash of $7.4 million. The Acquired Company owns the Sweaty Betty® brand and activewear business. The acquisition was funded with cash on hand and borrowings under the Company’s revolving credit facility.

Sweaty Betty® is a premium women’s activewear brand that distributes a wide array of innovative on-trend tops, bottoms, swimwear, outerwear, and accessories around the world, mainly through direct-to-consumer channels. The Sweaty Betty® acquisition is part of the Company’s strategic shift over the last several years from a traditional footwear wholesaler to a consumer-obsessed, digital-focused growth company. The acquisition also aligns with the Company’s strategic growth plan to focus on expanding the Company’s digital and international footprint, and building the brand portfolio beyond footwear.

Sweaty Betty® contributed net revenue of $39.1 million, and net earnings of $1.5 million to the Company for the period from the acquisition date to October 2, 2021. The Sweaty Betty® operating results are included in the Other category for segment reporting purposes.

The Company recognized acquisition-related transaction costs of $6.9 million for the three and nine months ended October 2, 2021, in the selling, general and administrative expenses line item in the Condensed Consolidated Statement of Operations. These costs represent investment banking fees, legal and professional fees, transaction fees, and consulting fees associated with the acquisition.

The Company accounted for the acquisition following FASB ASC Topic 805, Business Combinations, and the related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The aggregate purchase price was allocated to the major categories of assets acquired and liabilities assumed based upon their respective fair values at the acquisition date

using primarily Level 2 and Level 3 inputs. The Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. The Sweaty Betty® trademark, which is estimated to have an indefinite life, has been valued at $346.4 million using the multi-period excess earnings method. The multi-period excess earnings method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, operating profit, tax rates and a discount rate.

The purchase price allocation is preliminary and based upon valuation information available to determine the fair value of certain assets and liabilities, including goodwill, and is subject to change, primarily for final adjustments to net working capital as additional information is obtained about the facts and circumstances that existed at the valuation date. The Company expects to finalize the fair values of the assets acquired and liabilities assumed over the one-year measurement period.

The following table summarizes the preliminary purchase price allocation to the assets acquired and liabilities assumed at the acquisition date:


(In millions)	Fair Value
Accounts receivable	$	6.0
Inventories	47.5
Prepaid expenses and other current assets	5.3
Property, plant and equipment	10.0
Lease right-of-use assets	7.0
Goodwill	117.4
Intangibles	355.0
Other assets	0.6
Total assets acquired	548.8
Accounts payable	13.1
Accrued salaries and wages	6.0
Other accrued liabilities	15.0
Lease liabilities	7.0
Deferred income taxes	89.9
Total liabilities assumed	131.0
Net assets acquired	$	417.8

Goodwill is the result of expected synergies and the Company’s ability to grow the Sweaty Betty® brand, as well the acquired assembled workforce. All of the goodwill is presented within the Other category for segment reporting purposes and within the Sweaty Betty® reporting unit and will not be deductible for income tax purposes.

Intangible assets acquired in the acquisition were valued as follows:


(In millions)	Intangible Asset		Useful life
Trade name and trademark	$	346.4	Indefinite
Customer relationship	7.2		18 years
Backlog	1.0		5 months
Customer list	0.4		3 years
Total intangible assets acquired	$	355.0

The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of Sweaty Betty® occurred at the beginning of fiscal 2020. The pro forma information is not necessarily indicative of the results that would have actually been obtained if the acquisition had occurred at the beginning of the periods presented or that may be attained in the future. These pro forma amounts have been calculated after including the historical Sweaty Betty® operating results in the Company’s consolidated results, and, reflecting the following adjustments: fair value adjustments for intangible assets and inventory acquired, timing adjustment to recognize acquisition related costs incurred in fiscal 2021 and in fiscal 2020, and adjustments reflecting historical interest expense. The adjustments have been applied with related tax effects.


	Quarter Ended				Year-to-Date Ended
(In millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net revenue	$	659.7	$	526.5	$	1,916.7	$	1,378.2
Net earnings attributable to Wolverine World Wide, Inc.	7.9		19.8		91.5		19.3