Acquisition of Donna Karan International

3 Months Ended

Apr. 30, 2017

Business Combinations [Abstract]

Acquisition of Donna Karan International

Note 2 – Acquisition of Donna Karan International

On December 1, 2016, G-III acquired all of the outstanding capital stock of Donna Karan International Inc. (“DKI”) from LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 22, 2016, as amended, by and between the Company and LVMH, for a total purchase price of approximately $669.8 million.

DKI owns some of the world’s most iconic and recognizable power brands including Donna Karan and DKNY. DKI sells its products through department stores, specialty and online retailers worldwide, as well as through company-owned retail stores and an e-commerce site. The acquisition of DKI strengthens and diversifies the Company’s brand portfolio and offers additional opportunities to expand G-III’s business through the development of the DKNY and Donna Karan brands and product categories.

The results of DKI have been included in these consolidated financial statements since the date of acquisition.

Allocation of the purchase price consideration

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

(In thousands)
Cash and cash equivalents	$	44,375
Accounts receivable		13,235
Inventories		10,933
Prepaid expenses & other current assets		19,533
Property, plant and equipment		15,760
Goodwill		217,947
Tradenames		370,000
Other intangibles		40,000
Other long-term assets		2,703
Total assets acquired		734,486
Accounts payable		(18,734 )
Accrued expense		(38,900 )
Income taxes payable		(3,443 )
Other long-term liabilities		(3,631 )
Total liabilities assumed		(64,708 )
Total fair value of acquisition consideration (net of  $40 million imputed debt discount)	$	669,778

The Company initially recognized goodwill of approximately $220.6 million in connection with the acquisition of DKI. In the quarter ended April 30, 2017, the Company reduced goodwill by $2.7 million due to unrecorded indemnification assets from LVMH related to transactions that occurred prior to the acquisition. There was no change to the purchase price, however, the estimates of fair value of assets acquired and liabilities assumed are preliminary and subject to change based on finalizing the election under Internal Revenue Code Section 338(h)(10) which may have an impact on purchase price.

The goodwill was assigned to the Company’s wholesale operations reporting unit as the wholesale operations reporting unit is expected to benefit from the synergies of the combination and from the future growth of DKI. Subsequent to the acquisition, DKI’s wholesale operations were fully integrated into G-III’s credit and collection platform and both entities are expected to share several processes in the short term such as IT, finance, logistics, human resources, sourcing and overseas quality control. The Purchase Agreement included an option to make an election under Internal Revenue Code Section 338(h)(10). Accordingly, the book and tax basis of the acquired assets and liabilities are the same as of the purchase date and the goodwill is deductible for tax purposes over a 15 year period.

The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management using unobservable inputs reflecting the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available. The fair values of these identifiable intangible assets were determined using the discounted cash flow method and the Company classifies these intangibles as Level 3 fair value measurements. The Company recorded other intangible assets of  $410.0 million, which included customer relationships of  $40.0 million (17 year life), as well as tradenames of  $370.0 million, which have an indefinite life.

The results of DKI have been included in these consolidated financial statements since the date of acquisition.