Famous Footwear 2012 Annual Report Download - page 58

56 2012 BROWN SHOE COMPANY, INC. FORM 10-K
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 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 acquired assets and assumed
liabilities could materially aect the results of its operations. Management estimated the fair value of 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 aect the accuracy of the
Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies.
The Company estimated the fair value of acquired receivables to be $21.1 million with a gross contractual amount of
$22.1 million. The Company does not expect to collect $1.0 million of the acquired receivables. The Company also 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 our post acquisition selling eorts and current replacement cost for raw materials acquired at the closing
date. In estimating the fair values for intangible assets other than goodwill, the Company relied in part upon the work
of a third-party valuation specialist. With respect to other acquired assets and liabilities, the Company used all available
information to make its best estimate of fair values at the business combination date. The Company’s allocation of purchase
price was considered complete as of July 30, 2011.
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 synergies and an assembled
workforce and is not deductible for tax purposes.
The following table illustrates the unaudited pro forma eect on operating results as if the acquisition had been completed
as of the beginning of 2010:
(in thousands, except per share amounts) 2011 2010
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,589,581 $ 2,686,503
Net earnings attributable to Brown Shoe Company, Inc. . . . . . . 28,178 46,201
Basic earnings per common share attributable to
Brown Shoe Company, Inc. shareholders. . . . . . . . . . . . . 0.66 1.06
Diluted earnings per common share attributable to
Brown Shoe Company, Inc. shareholders. . . . . . . . . . . . . 0.65 1.05
The pro forma net sales for 2011 and 2010 exclude the discontinued operations of The Basketball Marketing Company, Inc.
(“TBMC”), which was sold during 2011. The primary adjustments to the pro forma disclosures above for 2010 include:
i) a non-cash cost of goods sold impact reflecting the sell-through of higher cost product due to a fair value adjustment
to acquired inventory of $4.2 million; ii) amortization of acquired intangibles of $1.9 million; and iii) additional interest
expense of $5.5 million assuming borrowings at the beginning of 2010 of $156.6 million at 3.5% interest under our Credit
Agreement to fund the acquisition. The primary adjustments for 2011 include: i) the elimination of a non-cash cost of goods
sold impact related to the inventory fair value adjustment of $4.2 million; and ii) the elimination of $1.6 million of expenses
related to the acquisition.
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to
represent what the Company’s results of operations would have been had the Company completed the acquisition on the date
assumed, nor is it necessarily indicative of the results of operations that may be expected in future periods.
During the period from the acquisition date through January 28, 2012, the Company’s consolidated statement of earnings
included net sales from ASG of $135.5 million (net of intercompany eliminations and net sales from the discontinued
operations of TBMC) and net earnings of $14.5 million, which included a net gain on the sale of TBMC of $14.0 million
and an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the
acquisition of ASG of $4.2 million ($2.5 million after-tax, or $0.05 per diluted share).
The Basketball Marketing Company, Inc.
On October 25, 2011, the Company sold TBMC for $55.4 million in cash. TBMC markets and sells footwear bearing the
AND 1 brand-name and was acquired in the Company’s February 17, 2011 acquisition of ASG. TBMC was included in
the Wholesale Operations segment of the Company. In conjunction with the sale, the Company recorded a gain of
$20.6 million ($14.0 million after-tax, or $0.32 per diluted share), which is reflected in the consolidated statements of
earnings as a component of discontinued operations. The Company also reduced goodwill by $21.6 million, intangible
assets by $8.0 million and other net assets by $5.2 million.
Accordingly, the results of TBMC are reflected in the consolidated statement of earnings as discontinued operations.
Earnings from the discontinued operations of TBMC for 2011 included $19.7 million of net sales and $3.0 million of earnings
before income taxes.