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. The businesses acquired with Warnaco design, source, market and distribute a broad line of intimate apparel, underwear, jeanswear and swim products worldwide under the Calvin Klein, Speedo, Warner’s and Olga brand names. Warnaco also sold men’s sportswear under the Chaps brand name. Ralph Lauren Corporation, the owner of Chaps, reacquired the Chaps license on February 14, 2013 as a result of the 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. The former Warnaco operations in Asia and Latin America are expected to enhance Company’s opportunities for Tommy Hilfiger in those 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 4, “Goodwill and Other Intangible Assets,” Note 7, “Debt,” Note 12, “Stockholders’ Equity,” and Note 13, “Stock-Based Compensation,” 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 noncash valuation adjustments and amortization, totaling approximately $170.0 million, of which approximately $43.0 million was recorded in 2012 and approximately $127.0 million was recorded during 2013. Please see Note 16, “Exit Activity Costs,” for a discussion of restructuring costs incurred during 2013 and 2014 associated with the integration.

The operations acquired with Warnaco had total revenue of $2,085.1 million and a net loss, after noncash valuation adjustments and amortization and integration costs, of $(45.3) million for the period from the date of acquisition through February 2, 2014. These amounts are included in the Company’s results of operations for the year then ended.

Pro Forma Impact of the Transaction

The following table presents the Company’s pro forma consolidated results of operations for the year ended February 2, 2014 and February 3, 2013, 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 years ended February 2, 2014 and February 3, 2013; and (vi) the tax effects of the above adjustments. The pro forma results do not include any realized or anticipated cost synergies or other effects of the 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
	Year Ended
(In millions)	2/2/14		2/3/13
Total revenue	$	8,249.4	$	8,056.4
Net income attributable to PVH Corp.	441.7		379.4

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 FASB guidance for business combinations.

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 has been or is expected to be deductible for tax purposes. Please see Note 19, “Segment Data” for a further discussion on the Company’s reportable segments.

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.

Acquisition of Russia Franchisee

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

Acquisition of Ireland Franchisee

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

Acquisition of Calvin Klein Performancewear Retail Businesses in Hong Kong and China

The Company acquired the Calvin Klein performancewear retail businesses in Hong Kong and China from a former Calvin Klein sublicensee during the third quarter of 2014. The Company paid $6.1 million as consideration for this transaction, which is subject to adjustment. 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 adjustment to the purchase price.

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 that 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.

Sale of Bass Business

On November 4, 2013, the Company sold substantially all of the assets of its G.H. Bass & Co. (“Bass”) business. The Company completed the sale of these assets for gross proceeds of $49.2 million and recorded a loss of $16.0 million, which represents the excess of the carrying value of the assets over the proceeds received, plus transaction costs. This loss was principally included in selling, general and administrative expenses in the Company’s Consolidated Income Statements for the year ended February 2, 2014 and was included in the Heritage Brands Retail segment.

A small number of the Company’s Bass stores were excluded from the sale and were deemed to be impaired as of the end of the third quarter of 2013. The Company recorded a loss of $1.2 million related to the impaired stores. Please see Note 10, “Fair Value Measurements,” for a further discussion. In addition, the Company recorded a gain of $3.3 million as a result of writing off certain liabilities in connection with the transaction. The Company also recognized costs related to severance and termination benefits for certain Bass employees, which totaled $1.9 million. The above-mentioned items were included in selling, general and administrative expenses in the Company’s Consolidated Income Statements for the year ended February 2, 2014 and were included in the Heritage Brands Retail segment.

In connection with the sale, the Company guaranteed lease payments for substantially all Bass retail stores included in the sale pursuant to the terms of noncancelable leases expiring on various dates through 2022. The estimated fair value of these guarantee obligations at the time of the sale was $4.4 million, which was recorded in the Heritage Brands Retail segment and was included in selling, general and administrative expenses in the Company’s Consolidated Income Statements for the year ended February 2, 2014. The estimated fair value of these guarantee obligations as of February 1, 2015 and February 2, 2014 was $3.0 million and $4.1 million, respectively, which was included in accrued expenses and other liabilities in the Company’s Consolidated Balance Sheet. Please see Note 10, “Fair Value Measurements,” and Note 20, “Guarantees,” for a further discussion.

In connection with the items outlined above, the Company recorded a net pre-tax loss of $20.2 million during 2013.

Acquisition of Netherlands Franchisee

During the third quarter of 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 $13.1 million as consideration for this transaction, which was accounted for as a business combination.

Reacquisition of Tommy Hilfiger Tailored Apparel License

During 2011, the Company entered into agreements to reacquire from a licensee, the rights to distribute Tommy Hilfiger brand tailored apparel in Europe and acquire an outlet store from the licensee. The transfer of the rights and store ownership was effective December 31, 2012. Under these agreements, the Company made a payment of $9.6 million to the licensee in 2011 and an additional payment of $24.8 million to the licensee in 2012. This reacquisition was accounted for as a business combination.