Business Combinations

Fiscal 2017 Business Combinations

During Fiscal 2017 we completed certain acquisitions which resulted in our acquisition of Beaufort Bonnet and 12 Lilly Pulitzer Signature Stores. Beaufort Bonnet designs, sources, markets and distributes premium childrenswear including bonnets, hats, apparel, swimwear and accessories through the Beaufort Bonnet e-commerce website as well as wholesale specialty retailers. The Lilly Pulitzer Signature Stores that were acquired are located in Massachusetts, Virginia and Maryland. We believe the Beaufort Bonnet acquisition further advances our strategic goal of owning a diversified portfolio of lifestyle brands, while the acquisition of the Lilly Pulitzer Signature Stores allows for growth of Lilly Pulitzer's direct to consumer business, particularly in some key markets. Subsequent to their respective acquisitions, the acquired Lilly Pulitzer Signature Stores are included in our Lilly Pulitzer operating group, while the Beaufort Bonnet operations are included in Corporate and Other.

The purchase price, in the aggregate, of our Fiscal 2017 acquisitions was $17.5 million primarily consisting of cash, subject to adjustment based on net working capital or inventory amounts as of the closing dates of the respective acquisitions. We used borrowings under our revolving credit facility to finance the transactions. Transaction and integration costs related to the acquisitions totaled $1.0 million and are included in SG&A in Fiscal 2017.

Our allocations of the purchase price for Fiscal 2017 acquisitions are preliminary. The allocations may be revised during the one year allocation period as we obtain additional information about the estimated fair values of the acquired assets, identify and quantify assumed liabilities and finalize working capital amounts related to the acquisitions. The following table summarizes our preliminary allocation of the purchase price for the Fiscal 2017 acquisitions, in the aggregate (in thousands):



	Fiscal 2017 acquisitions
Cash and cash equivalents	$	406
Inventories (1)	3,910
Prepaid expenses and other current assets	595
Property and equipment	682
Intangible assets	5,940
Goodwill	6,642
Accounts payable, accrued expenses and other liabilities	(640		)
Purchase price (2)	$	17,535

(1) Includes a step-up of acquired inventory from cost to fair value of $1.3 million with $1.2 million of this step-up amount recognized in Fiscal 2017 in cost of goods sold in our consolidated statement of operations.
(2) In connection with the Beaufort Bonnet acquisition, we entered into a contingent consideration agreement pursuant to which we will be obligated to pay cash payments to the sellers of up to $3.5 million in the aggregate subject to Beaufort Bonnet's achievement of certain earnings targets over a four year period subsequent to the acquisition. Estimated fair value of the contingent consideration amount as the acquisition date was $0.3 million.

Goodwill represents the amount by which the cost to acquire the businesses exceeds the fair value of individual acquired assets less liabilities of the business at acquisition. Intangible assets allocated in connection with our purchase price allocation consisted of the following (in thousands):



	Useful life	Fiscal 2017 acquisitions
Finite lived intangible assets acquired:
Trade names and trademarks	20 years	$	4,220
Other intangible assets including reacquired rights, customer relationships and non-compete agreements	3 - 10 years	$	1,720
		$	5,940

Fiscal 2016 Business Combinations

On April 19, 2016, we acquired Southern Tide, LLC, which owns the Southern Tide lifestyle apparel brand. Southern Tide carries an extensive selection of men’s shirts, pants, shorts, outerwear, ties, swimwear, footwear and accessories, as well as a women’s collection. The brand’s products are sold through its wholesale operations to specialty stores and department stores as well as through its direct to consumer operations on the Southern Tide website. We believe that the acquisition of Southern Tide further advances our strategic goal of owning a diversified portfolio of lifestyle brands. The acquisition provides strategic benefits through growth opportunities and further diversification of our business.

The purchase price for the acquisition of Southern Tide was $85 million in cash, subject to adjustment based on net working capital as of the closing date of the acquisition. After giving effect to the final working capital adjustment paid in Fiscal 2016, the purchase price paid was $92.0 million, net of acquired cash of $2.4 million. We used borrowings under our revolving credit facility to finance the transaction. Transaction costs related to this acquisition totaled $0.8 million and are included in SG&A in Corporate and Other in Fiscal 2016.

The following table summarizes our allocation of the purchase price for the Southern Tide acquisition (in thousands):



	Southern Tide acquisition
Cash and cash equivalents	$	2,423
Receivables	6,616
Inventories (1)	16,251
Prepaid expenses	740
Property and equipment	220
Intangible assets	30,240
Goodwill	42,745
Other non-current assets	344
Accounts payable, accrued expenses and other liabilities	(3,473		)
Deferred taxes	(1,812		)
Purchase price	$	94,294

(1) Includes a step-up of acquired inventory from cost to fair value of $2.7 million. This step-up amount was recognized in Fiscal 2016 in cost of goods sold in our consolidated statement of operations.

Goodwill represents the amount by which the cost to acquire Southern Tide exceeds the fair value of individual acquired assets less liabilities of the business at acquisition. Intangible assets allocated in connection with our purchase price allocation consisted of the following (in thousands):



	Useful life	Southern Tide acquisition
Finite lived intangible assets acquired, primarily consisting of customer relationships	5 - 20 years	$	3,440
Trade names and trademarks	Indefinite	26,800
		$	30,240

Pro Forma Information (unaudited)

The consolidated pro forma information presented below (in thousands, except per share data) gives effect to the April 19, 2016 acquisition of Southern Tide as if the acquisition had occurred as of the beginning of Fiscal 2015. The information presented below is for illustrative purposes only, is not indicative of results that would have been achieved if the acquisition had occurred as of the beginning of Fiscal 2015 and is not intended to be a projection of future results of operations. The pro forma statements of operations have been prepared from our and Southern Tide's historical statements of operations for the periods presented, including without limitation, purchase accounting adjustments, but excluding any seller specific management/advisory or similar expenses and any synergies or operating cost reductions that may be achieved from the combined operations in the future.



	Fiscal 2016		Fiscal 2015
Net sales	$	1,034,369	$	1,007,330
Earnings from continuing operations before income taxes	$	92,212	$	95,963
Earnings from continuing operations	$	58,035	$	58,609
Earnings from continuing operations per share:
Basic	$	3.51	$	3.59
Diluted	$	3.49	$	3.57

Fiscal 2016 pro forma information above includes amortization of acquired intangible assets but excludes the transaction expenses associated with the transaction and the incremental cost of goods sold associated with the step-up of inventory at acquisition that were recognized by us in our Fiscal 2016 consolidated statement of operations. Fiscal 2015 pro forma information above includes amortization of acquired intangible assets, transaction expenses associated with the transaction and incremental cost of goods sold associated with the step-up of inventory at acquisition. Additionally, the pro forma adjustments for each period prior to the date of acquisition reflect an estimate of incremental interest expense associated with additional borrowings and income tax expense that would have been incurred subsequent to the acquisition.

In addition to the Southern Tide acquisition, Lanier Apparel completed two acquisitions resulting in total cash payments of $3.1 million during Fiscal 2016. Assets acquired in these acquisitions primarily consisted of intangible assets, as disclosed in Note 4, and inventory.