Business Acquisitions

12 Months Ended

Jan. 03, 2015

Business Combinations [Abstract]

Business Acquisitions

BUSINESS ACQUISITIONS

On October 9, 2012, the Company acquired all of the outstanding equity interests of 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 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 Company funded the transaction using a combination of approximately $88.8 million of cash on hand and new borrowings. The Company’s debt financing included net proceeds from the term loan debt associated with the Credit Agreement and net proceeds from the senior notes.

For fiscal 2014, the Company incurred $15.2 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include other purchased services ($1.1 million), compensation expenses ($3.9 million) and other integration costs ($10.2 million). For fiscal 2013, the Company incurred $41.5 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include compensation expenses ($26.2 million), other purchased services ($10.6 million), amortization expense related to short-lived intangible assets ($2.4 million) and professional and legal fees ($2.3 million). For fiscal 2012, the Company incurred $42.2 million of acquisition-related transaction and integration costs of which $4.5 million, $32.5 million and $5.2 million were included within cost of goods sold, selling, general, and administrative expenses and interest expense, respectively, within the Company’s consolidated statements of operations. The charge to cost of goods sold of $4.5 million relates to the fair value adjustment to acquisition-date inventory and severance costs. The costs within selling, general and administrative expenses include professional and legal fees ($14.9 million), taxes paid on behalf of the seller ($9.7 million), other purchased services ($5.2 million) and severance ($2.7 million). The $5.2 million of interest expense includes an acquisition-related financing commitment fee and refinancing fees associated with the Company’s acquisition of PLG.

During the measurement period, the Company made certain post-closing adjustments related to the valuation of a receivable due from the seller, other assets and accruals, intangible assets and deferred income taxes that resulted in a net reduction to goodwill of $10.8 million. The following table summarizes the final fair values of the assets acquired and liabilities assumed in connection with the PLG acquisition.

(In millions)	Initial valuation  at December 29, 2012		Measurement period adjustments			Final valuation at December 28, 2013
Cash	$	23.6	$	—		$	23.6
Accounts receivable	146.9		4.3			151.2
Inventories	203.5		—			203.5
Deferred income taxes	13.6		—			13.6
Other current assets	13.2		—			13.2
Property, plant and equipment	77.1		—			77.1
Goodwill	419.6		(10.8		)	408.8
Intangible assets	820.6		1.2			821.8
Other	11.2		—			11.2
Total assets acquired	1,729.3		(5.3		)	1,724.0
Accounts payable	97.4		—			97.4
Other accrued liabilities	40.0		2.2			42.2
Deferred income taxes	294.7		(7.5		)	287.2
Accrued pension liabilities	37.7		—			37.7
Other liabilities	10.0		—			10.0
Total liabilities assumed	479.8		(5.3		)	474.5
Net assets acquired	$	1,249.5	$	—		$	1,249.5

The excess of the purchase price over the fair value of net assets acquired of $408.8 million was recorded as goodwill in the consolidated balance sheets and has been assigned to the Performance Group and Lifestyle Group reportable operating segments as follows:

(In millions)	Goodwill from the acquisition of PLG
Performance Group	$	82.5
Lifestyle Group	326.3
Total	$	408.8

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 PLG acquisition were valued as follows:

(In millions)	Intangible asset		Useful life
Trade names and trademarks	$	671.8	Indefinite
Customer lists	100.5		3-20 years
Licensing agreements	28.8		4-5 years
Developed product technology	14.9		3-5 years
Backlog	5.2		6 months
Net favorable leases	0.6		10 years
Total intangible assets acquired	$	821.8

The Company 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 $4.0 million 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 deemed sold. In addition, fixed assets were written up by approximately $18.8 million to their estimated fair market value based on a valuation method that included both cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets.