Business Acquisitions

12 Months Ended

Dec. 29, 2012

Business Acquisitions

11. BUSINESS ACQUISITIONS

On October 9, 2012, the Company acquired all of the outstanding equity interests of Collective Brands, Inc’s Performance + Lifestyle Group business (“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^®, and Keds^®. The acquisition expands the Company’s existing portfolio of brands to 16. 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 operating results for PLG are included in the PLG wholesale and PLG retail operating groups. The PLG wholesale group is aggregated into the branded, footwear, apparel and Licensing segment. The PLG retail group is aggregated into the consumer-direct segment.

The Company funded the transaction using a combination of cash on hand of approximately $88,800 and debt financing. The Company’s debt financing included net proceeds from the term loan debt associated with the Company’s New Credit Agreement as well as net proceeds from the Company’s senior notes.

The Company incurred non-recurring transaction and integration costs of $42,215 during fiscal 2012 of which $4,481, $32,537 and $5,197 were included within cost of goods sold, selling, general, and administrative expenses and interest expense, respectively, within the Company’s consolidated statements of operations and comprehensive income. The non-recurring charge to cost of goods sold of $4,481 relates to the fair value adjustment to acquisition-date inventory and severance costs. The non-recurring costs within selling, general, and administrative expenses include professional and legal fees ($14,925), taxes paid on behalf of the seller ($9,701), severance ($2,678), onetime software license fees ($2,413) and other onetime costs of $2,820, respectively. The $5,197 of non-recurring interest expense relates to a non-recurring financing commitment fee and refinancing fees associated with the Company’s acquisition of PLG.

The preliminary allocation of the purchase price through December 29, 2012 was:

Cash	$	23,609
Accounts receivable		146,937
Inventories		203,443
Deferred income taxes		13,621
Other current assets		13,235
Property, plant and equipment		77,074
Goodwill		419,611
Intangible assets		820,555
Other		11,210
Total assets acquired		1,729,295
Accounts payable		97,400
Other accrued liabilities		39,976
Deferred income taxes		294,681
Accrued pension liabilities		37,742
Other liabilities		10,007
Total liabilities assumed		479,806
Net assets acquired	$	1,249,489

The allocation of the purchase price above is considered preliminary and was based upon valuation information available and estimates and assumptions made at December 29, 2012. The Company is still in the process of 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 second quarter of fiscal 2013.

The excess of the purchase price over the fair value of net assets acquired, amounting to $419,611, was preliminarily recorded as goodwill in the condensed consolidated balance sheet and was assigned to the PLG wholesale and PLG retail operating segments, which were also determined to be reporting units. This resulted in the following addition to goodwill within the Company’s reportable segments:

	Goodwill from the acquisition of PLG
Branded wholesale, footwear, apparel and licensing	$	373,632
Consumer-direct	$	45,979
Total	$	419,611

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:

	Intangible Asset		Useful life
Trade names and trademarks	$	661,765		Indefinite
Customer lists		110,470		3-20 years
Licensing agreements		28,120		4-5 years
Developed product technology		14,547		3-5 years
Backlog		5,100		6 months
Net favorable leases		553		10 years
Total intangible assets acquired	$	820,555

Management 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 $3,983 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 sold. In addition, fixed assets were written up by approximately $18,800 to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets.

The results of operations for PLG have been included in the consolidated statements of operations since the date of acquisition. The amount of fiscal 2012 revenue and net loss, which includes interest expense associated with the New Credit Agreement and senior notes, amortization of acquired intangibles and incremental operating costs, attributable to PLG included in the consolidated statements of operations consists of the following:

	2012
Revenue	$	219,400
Net loss	$	(2,400	)

The following supplemental pro forma financial information presents net sales and net earnings for the Company as if the PLG business acquisition had occurred at the beginning of fiscal 2011. This 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.

	2012		2011
Revenue	$	2,548,200	$	2,428,300
Net earnings attributable to Wolverine World Wide, Inc.	$	128,600	$	80,390

For 2011, the primary adjustments include: i) the addition of a non-recurring charge to cost of goods sold related to the fair value adjustment to acquisition-date inventory and severance of $4,481, ii) the addition of $32,061 of amortization and depreciation for acquired intangibles and property and equipment, iii) the addition of $32,537 of non-recurring acquisition related expenses and iv) the addition of $63,245 of interest expense. For 2012, the primary adjustments include: i) the elimination of the non-recurring charge to cost of goods sold related to the fair value adjustment to acquisition-date inventory and severance of $4,481, ii) the elimination of $32,537 of non-recurring acquisition related expenses, iii) the addition of $24,662 of amortization and depreciation for acquired intangibles and property and equipment, and iv) the addition of $34,990 of interest expense.

Subsequent to the end of fiscal 2012, the Company incurred approximately $5.2 million of severance costs related to the integration of PLG.