Business Combinations

12 Months Ended

Jan. 28, 2012

Business Combinations

Business Combinations

Note 14. Business Combinations

        On December 21, 2010, we acquired all of the outstanding capital stock of Sugartown from SWI Holdings, Inc., pursuant to a stock purchase agreement. Sugartown owns the Lilly Pulitzer trademark and designs, sources and distributes upscale collections of women's dresses, sportswear and other products to specialty and department stores, as well as through direct to consumer channels, including retail stores and an e-commerce site. Subsequent to the date of acquisition, we reported the acquired operations of Sugartown as our Lilly Pulitzer operating group. We anticipate that this acquisition will assist us in pursuing our strategic goal of owning a portfolio of lifestyle brands. The acquisition will provide strategic benefits through growth opportunities and further diversification of our business over distribution channels, product categories and target consumers.

        We paid $60 million in cash, subject to adjustment based on net working capital as of the closing date for the acquisition. After giving effect to a preliminary working capital adjustment, the purchase price paid was approximately $58.3 million, net of acquired cash of $0.9 million. In connection with the acquisition, we entered into a contingent consideration agreement dated as of December 21, 2010, pursuant to which we will be obligated to pay cash payments of up to $2.5 million in each of the four years following the closing of the transaction and an additional $10 million subsequent to the end of the fourth year, contingent upon Lilly Pulitzer's achievement of certain financial targets. Transaction costs related to this transaction totaled approximately $0.8 million and are included in SG&A in our consolidated statement of earnings in fiscal 2010.

        Our allocation of purchase price to the fair value of the acquired assets and liabilities assumed, as reported at January 29, 2011, was preliminary and was revised through the one year allocation period, which ended in the fourth quarter of fiscal 2011, as we obtained new information about the fair values of these assets and liabilities and as we revised our estimates of the fair values of the assets and liabilities based on any new information. The most significant changes from the preliminary allocation were adjustments to receivables reserves and other accrued expenses, which resulted in a net impact of reducing goodwill by approximately $0.4 million from the initial allocation. The following table summarizes our final allocation of purchase price to the fair value of the acquired assets and liabilities assumed for the December 2010 Lilly Pulitzer acquisition (in thousands):

	December 2010 Lilly Pulitzer acquisition
Cash	$	936
Receivables		7,022
Inventories(1)		9,439
Prepaid expenses and other current assets		1,082
Property and equipment		10,153
Intangible assets		30,500
Goodwill		16,866
Other non-current assets		645
Deferred income tax assets		688
Trade accounts payable, accrued compensation and other accrued expenses assumed		(6,462	)
Deferred income tax liability		(688	)
Purchase price(2)	$	70,181

(1)

Included a write-up of acquired inventory from cost to fair value of $1.8 million pursuant to the purchase method of accounting, which was recognized during fiscal 2010 and fiscal 2011 as the acquired inventory was sold.

(2)

The purchase price included $10.5 million of estimated fair value of contingent consideration associated with the acquisition which may be payable in future periods if certain financial targets are met. The contingent consideration is discussed in Note 1 to our consolidated financial statements.

• Pro Forma Information (unaudited)

        The pro forma information presented below (in thousands, except per share data) gives effect to the December 21, 2010 acquisition of Lilly Pulitzer as if the acquisition had occurred as of the beginning of fiscal 2009. The information presented below is for illustrative purposes only and is not indicative of results that would have been achieved if the acquisition had occurred as of the beginning of fiscal 2009, nor does it intend to be a projection of future results of operations. The pro forma statements of operations have been prepared from our and Lilly Pulitzer's historical audited consolidated statements of operations for the period presented, including without limitation, purchase accounting adjustments, but does not include any synergies or operating cost reductions that may be achieved from the combined operations. The fiscal 2009 pro forma information includes the following items which negatively impacted earnings from continuing operations: (1) transaction costs of approximately $0.8 million related to the acquisition, (2) $1.8 million of additional cost of goods sold resulting from the application of purchase accounting to inventory acquired at acquisition and (3) approximately $0.5 million of amortization of acquired intangible assets.

	Fiscal 2010		Fiscal 2009
Net sales	$	669,621	$	650,494
Earnings from continuing operations before income taxes	$	25,785	$	(5,064	)
Earnings from continuing operations	$	19,624	$	(4,277	)
Earnings from continuing operations per common share:
Basic	$	1.19	$	(0.05	)
Diluted	$	1.19	$	(0.05	)