ACQUISITION

Allen Edmonds

On December 13, 2016, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Apollo Investors, LLC (the "Seller") and Apollo Buyer Holding Company, Inc. (the "Holding Company"), pursuant to which the Company acquired all outstanding capital stock of Allen Edmonds ("Allen Edmonds"). The aggregate purchase price for the Allen Edmonds stock was $259.9 million, net of cash received of $0.7 million. The purchase was funded with cash and funds available under the Company's revolving credit agreement. Refer to Note 11 to the consolidated financial statements for additional information regarding the revolving credit agreement. The operating results of Allen Edmonds since December 13, 2016 have been included in the Company’s consolidated financial statements within the Brand Portfolio segment.

Allen Edmonds, founded in 1922, is a U.S.-based direct-to-consumer and wholesaler of premium men’s footwear, apparel, leather goods and accessories with a strong manufacturing heritage. The acquisition increased the Company's exposure in men’s footwear, solidifying a new revenue stream to drive overall growth.

During 2017, the Company incurred integration and reorganization costs totaling $4.0 million ($2.6 million on an after-tax basis, or $0.06 per diluted share), related to the men's business, as further discussed in Note 4 to the consolidated financial statements. During 2016, the Company incurred acquisition and integration costs of $5.8 million ($5.0 million on an after-tax basis, or $0.11 per diluted share), which were recorded as a component of restructuring and other special charges, net. Of the $5.8 million, $5.2 million was reflected within the Other category and $0.6 million was reflected within the Brand Portfolio segment. In addition, the Brand Portfolio segment recognized $4.9 million ($3.0 million on an after-tax basis, or $0.07 per diluted share) in cost of goods sold in 2017 and $1.2 million ($0.7 million on an after-tax basis, or $0.02 per diluted share) in 2016 related to the amortization of the inventory fair value adjustment required for purchase accounting. The inventory fair value adjustment was fully amortized as of July 29, 2017.

The assets and liabilities of Allen Edmonds were recorded at their estimated fair values, and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill. The Company allocated the purchase price as of the acquisition date, December 13, 2016 as follows:



($ thousands)	December 13, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	668
Receivables	6,273
Inventories	52,364
Prepaid expense and other current assets	2,353
Total current assets	61,658
Other assets	1,060
Goodwill	113,127
Intangible assets	102,920
Property and equipment	32,243
Total assets	$	311,008

LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable	$	12,256
Other accrued expenses	12,692
Total current liabilities	24,948
Deferred income taxes	25,109
Other liabilities	351
Total liabilities	50,408
Net assets	$	260,600

The Company’s purchase price allocation contained uncertainties because it required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies.

A third-party valuation specialist assisted the Company with its fair value estimates for inventory, property and equipment and intangible assets other than goodwill. The Company estimated the fair value of inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date, less the sum of the costs to complete the work-in-process, the costs of disposal and a reasonable profit allowance for the completion and post-transaction selling effort based on profit for similar finished goods. The book value of the raw materials acquired was considered a reasonable representation of fair value. With respect to other acquired assets and liabilities, the Company used all available information to make its best estimate of fair values at the acquisition date. The Company's allocation of purchase price was considered complete as of October 28, 2017.

Goodwill and intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to non-separable retail customer relationships, synergies and an assembled workforce and is not deductible for tax purposes. Refer to Note 10 to the consolidated financial statements for additional information regarding goodwill and intangible assets.

Allen Edmonds contributed $178.6 million of net sales in 2017 and $24.3 million during the period from the acquisition date through January 28, 2017.