ACQUISITIONS

Acquisition of Warnaco

The Company acquired on February 13, 2013 all of the outstanding equity interests in Warnaco. The results of Warnaco’s operations since that date are included in the Company’s consolidated financial statements. Warnaco designs, sources, markets and distributes a broad line of intimate apparel, sportswear and swim products worldwide. Warnaco’s products are sold under the Calvin Klein, Speedo, Warner’s and Olga brand names and were also previously sold under the Chaps brand name. Ralph Lauren Corporation reacquired the Chaps license effective contemporaneously with the Company’s acquisition of Warnaco.

The Warnaco acquisition provided the Company with direct global control of the Calvin Klein brand image and commercial decisions for the two largest Calvin Klein apparel categories—jeans and underwear. In addition, the Company believes the acquisition takes advantage of its and Warnaco’s complementary geographic platforms. Warnaco’s operations in Asia and Latin America should enhance the Company’s opportunities in those high-growth regions, and the Company will have the ability to leverage its expertise and infrastructure in North America and Europe to enhance the growth and profitability of the Calvin Klein jeans and underwear businesses in those regions.

Fair Value of the Acquisition Consideration

The acquisition date fair value of the acquisition consideration paid at closing totaled $3,137,056, which consisted of the following:



Cash	$	2,179,980
Common stock (7,674 shares, par value $1.00 per share)	926,452
Warnaco employee replacement stock awards	39,752
Elimination of pre-acquisition liability to Warnaco	(9,128		)
Total fair value of the acquisition consideration	$	3,137,056

The fair value of the 7,674 common shares issued was equal to the aggregate value of the shares at the closing market price of the Company’s common stock on February 12, 2013, the day prior to the closing. The value of the replacement stock awards was determined by multiplying the estimated fair value of the Warnaco awards outstanding at the time of the acquisition, reduced by an estimated value of awards to be forfeited, by the proportionate amount of the vesting period that had lapsed as of the acquisition date. Also included in the acquisition consideration was the elimination of a $9,128 pre-acquisition liability to Warnaco.

The Company funded the cash portion and related costs of the Warnaco acquisition, repaid all outstanding borrowings under its previously outstanding senior secured credit facilities and repaid all of Warnaco’s previously outstanding long-term debt with the net proceeds of (i) the issuance of $700,000 of 4 1/2% senior notes due 2022; and (ii) the borrowing of $3,075,000 of term loans under new senior secured credit facilities.

Please see Note 7, “Goodwill and Other Intangible Assets,” Note 9, “Debt,” Note 13, “Stock-Based Compensation,” and Note 15, “Stockholders’ Equity,” for a further discussion of these aspects of the acquisition.

The Company incurred certain pre-tax costs directly associated with the acquisition, including short-lived non-cash valuation adjustments and amortization, totaling approximately $192,000, of which approximately $43,000 was recorded in fiscal 2012 and approximately $149,000 was recorded during the thirty-nine weeks ended November 3, 2013. Please see Note 16, “Activity Exit Costs,” for a discussion of restructuring costs incurred during the thirty-nine weeks ended November 3, 2013 associated with the acquisition.

The operations acquired with Warnaco had total revenue of $1,567,596 and a net loss, after non-cash valuation adjustments and amortization and integration costs, of $(32,689) for the period from the date of acquisition through November 3, 2013. These amounts are included in the Company’s results of operations for the thirty-nine week period then ended.

Pro Forma Impact of the Transaction

The following table presents the Company’s pro forma consolidated results of operations for the thirteen and thirty-nine weeks ended November 3, 2013 and October 28, 2012, as if the acquisition and the related financing transactions had occurred on January 30, 2012 (the first day of its fiscal year ended February 3, 2013) instead of on February 13, 2013. The pro forma results were calculated applying the Company’s accounting policies and reflect (i) the impact on revenue, cost of goods sold and selling, general and administrative expenses resulting from the elimination of intercompany transactions; (ii) the impact on depreciation and amortization expense based on fair value adjustments to Warnaco’s property, plant and equipment and intangible assets recorded in connection with the acquisition; (iii) the impact on interest expense resulting from changes to the Company’s capital structure in connection with the acquisition; (iv) the impact on cost of goods sold resulting from acquisition date adjustments to the fair value of inventory; (v) the elimination of transaction costs related to the acquisition that were included in the Company’s results of operations for the thirteen and thirty-nine weeks ended November 3, 2013 and October 28, 2012; and (vi) the tax effects of the above adjustments. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Warnaco. Accordingly, such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on January 30, 2012, nor are they indicative of the future operating results of the combined company.



	Pro Forma				Pro Forma
	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	11/3/13		10/28/12		11/3/13		10/28/12
Total revenue	$	2,259,125	$	2,142,800	$	6,197,162	$	5,886,639
Net income attributable to PVH Corp.	300,119		181,370		450,067		261,787

Allocation of the Acquisition Consideration

The following table summarizes the estimated fair values of the assets acquired and liabilities and redeemable non-controlling interest assumed at the date of acquisition:



Cash and cash equivalents	$	364,651
Trade receivables	291,644
Other receivables	42,894
Inventories	446,591
Prepaid expenses	39,210
Other current assets	56,649
Property, plant and equipment	127,059
Goodwill	1,481,375
Tradenames	604,600
Perpetual license rights	207,600
Other intangibles	823,300
Other assets	161,393
Total assets acquired	4,646,966
Accounts payable	179,931
Accrued expenses	262,570
Short-term borrowings	26,927
Current portion of long-term debt	2,000
Long-term debt	195,000
Other liabilities	837,882
Total liabilities assumed	1,504,310
Redeemable non-controlling interest	5,600
Total fair value of acquisition consideration	$	3,137,056

The Company is still in the process of valuing the assets acquired and liabilities and redeemable non-controlling interest assumed; thus, the allocation of the acquisition consideration is subject to change.

In connection with the acquisition, the Company recorded goodwill of $1,481,375, which was assigned to the Company’s Calvin Klein North America, Calvin Klein International and Heritage Brands Wholesale segments in the amounts of $451,427, $900,006 and $129,942, respectively. None of the goodwill is expected to be deductible for tax purposes. The Company also recorded other intangible assets of $1,635,500, which included reacquired license rights of $576,400, order backlog of $97,100 and customer relationships of $149,800, which are all amortizable, as well as tradenames of $604,600 and perpetual license rights of $207,600, which have indefinite lives.

Acquisition of Netherlands Franchisee

On August 1, 2012, the Company acquired from a former Tommy Hilfiger franchisee in the Netherlands 100% of the share capital of ten affiliated companies, which operate 13 Tommy Hilfiger stores in the Netherlands. The Company paid $13,104 as consideration for this transaction, which was accounted for as a business combination.