ACQUISITIONS AND DIVESTITURES

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, underwear, jeanswear 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 on February 14, 2013 as a result of Company’s acquisition of Warnaco.

The Warnaco acquisition provided the Company with complete direct global control of the Calvin Klein brand image and commercial decisions for the two largest Calvin Klein apparel categories — jeanswear 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 has 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 Calvin Klein Underwear businesses in those regions.

Fair Value of the Acquisition Consideration

The acquisition date fair value of the acquisition consideration paid at closing totaled $3,137.1 million, which consisted of the following:



(In millions, except per share data)
Cash	$	2,180.0
Common stock (7.7 shares, par value $1.00 per share)	926.5
Warnaco employee replacement stock awards	39.8
Elimination of pre-acquisition liability to Warnaco	(9.2		)
Total fair value of the acquisition consideration	$	3,137.1

The fair value of the 7.7 million 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 $9.2 million 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 $700.0 million of 4 1/2% senior notes due 2022; and (ii) the borrowing of $3,075.0 million of term loans under new senior secured credit facilities.

Please see 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 in 2012 and 2013 directly associated with the acquisition, including short-lived non cash valuation adjustments and amortization, totaling approximately $170.0 million, of which approximately $125.0 million was recorded during the thirty-nine weeks ended November 3, 2013. Please see Note 16, “Exit Activity Costs,” for a discussion of restructuring costs incurred during the thirty-nine weeks ended November 2, 2014 associated with the integration.

The operations acquired with Warnaco had total revenue of $1,567.6 million and a net loss, after non cash valuation adjustments and amortization and integration costs, of $(21.4) million for the period from the date of acquisition through November 3, 2013. These amounts were 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, as if the acquisition and the related financing transactions had occurred at the beginning of the year prior to the acquisition date. 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 (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 at the beginning of the year prior to the acquisition date, nor are they indicative of the future operating results of the combined company.



	Pro Forma		Pro Forma
	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
(In millions)	11/3/13		11/3/13
Total revenue	$	2,259.2	$	6,197.2
Net income attributable to PVH Corp.	300.2		450.1

Allocation of the Acquisition Consideration

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



(In millions)
Cash and cash equivalents	$	364.7
Trade receivables	286.7
Other receivables	46.9
Inventories	442.9
Prepaid expenses	38.7
Other current assets	56.0
Property, plant and equipment	123.3
Goodwill	1,513.2
Tradenames	604.6
Other intangibles	1,023.7
Other assets	169.3
Total assets acquired	4,670.0
Accounts payable	180.1
Accrued expenses	260.5
Short-term borrowings	26.9
Current portion of long-term debt	2.0
Long-term debt	195.0
Other liabilities	862.8
Total liabilities assumed	1,527.3
Redeemable non-controlling interest	5.6
Total fair value of acquisition consideration	$	3,137.1

The Company finalized the purchase price allocation during the fourth quarter of 2013 and applied applicable measurement period adjustments retrospectively in accordance with Financial Accounting Standards Board (“FASB”) guidance for business combinations.

During the process of finalizing the purchase price allocation, the Company received additional information about facts and circumstances that existed as of the Warnaco acquisition date. As a result of the receipt of new information, which was included in the final valuation report received from a third-party valuation firm, and considering the results of that report, the Company estimated the fair value of the order backlog acquired as part of the Warnaco acquisition to be $24.1 million lower than the estimated provisional amount. As a result of this adjustment to fair value, the carrying amount of the order backlog (which was being amortized principally over six months) was retrospectively decreased as of February 13, 2013, with a corresponding increase to goodwill and other intangible assets (net of related deferred taxes), and the related order backlog amortization expense for the first and second quarters of 2013 was reduced by $11.6 million and $12.3 million, respectively. The difference between the decrease in backlog amortization expense and the decrease in the fair value of the intangible asset relates to changes in exchange rates subsequent to the acquisition date. The Company recorded these measurement period adjustments in the fourth quarter of 2013 and applied the adjustments retrospectively to the first and second quarters of 2013. The measurement period adjustments were included in the results of the Calvin Klein International segment.

In connection with the acquisition, the Company recorded goodwill of $1,513.2 million, which was assigned to the Company’s Calvin Klein North America, Calvin Klein International, Tommy Hilfiger North America, Tommy Hilfiger International, Heritage Brands Wholesale and Heritage Brands Retail segments in the amounts of $456.0 million, $658.6 million, $5.9 million, $296.5 million, $84.3 million and $11.9 million, respectively. In accordance with FASB guidance, the goodwill acquired in the Warnaco acquisition was assigned as of the acquisition date to the Company’s reporting units that are expected to benefit from the synergies of the combination. For those reporting units that had not been assigned any of the assets acquired or liabilities assumed in the acquisition, the amount of goodwill assigned was determined by calculating the estimated fair value of such reporting units before the acquisition and their estimated fair values after the acquisition. None of the goodwill is expected to be deductible for tax purposes.

The Company also recorded other intangible assets of $1,628.3 million, which included reacquired license rights of $593.3 million, order backlog of $73.0 million and customer relationships of $149.8 million, which are all amortizable, as well as tradenames of $604.6 million and perpetual license rights of $207.6 million, which have indefinite lives.

Sale of Chaps Sportswear Assets

As a result of the Company’s acquisition of Warnaco, Ralph Lauren Corporation reacquired on February 14, 2013 the license for Chaps men’s sportswear that Warnaco held from affiliates of Ralph Lauren Corporation. The Chaps sportswear business was previously operated by Warnaco under such license. In connection with this transaction, the Company sold all of the assets of the Chaps sportswear business, which consisted principally of inventory, to Ralph Lauren Corporation for gross proceeds of $18.3 million.

Acquisition of Russia Franchisee

The Company acquired three Tommy Hilfiger stores in Russia during the fourth quarter of 2013 and two additional stores during the first quarter of 2014 from a former Tommy Hilfiger franchisee. The Company paid $6.0 million during the fourth quarter of 2013 for the first three stores and $4.3 million during the first quarter of 2014 for the other two stores. These transactions were accounted for as business combinations.

Acquisition of Ireland Franchisee

The Company acquired six Tommy Hilfiger stores in Ireland from a former Tommy Hilfiger franchisee during the first quarter of 2014. The Company paid $3.1 million as consideration for this transaction. This transaction was accounted for as a business combination.

Acquisition of Calvin Klein Performance Wear Retail Businesses in Hong Kong and China

The Company acquired the Calvin Klein performance wear retail businesses in Hong Kong and China from a former Calvin Klein sublicensee during the third quarter of 2014. The Company paid $7.3 million as consideration for this transaction. This transaction was accounted for as a business combination. The Company and the former shareholders of the acquired entity are in the process of finalizing the value of the net assets acquired; thus the amount paid is subject to adjustment.