Acquisition of Donna Karan International

9 Months Ended

Oct. 31, 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 DKI from LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) for a total purchase price of approximately $669.8 million.

DKI owns Donna Karan and DKNY, two of the world’s most iconic and recognizable power brands. DKI sells its products through department stores, specialty retailers and online retailers worldwide, as well as through company-operated retail stores, e-commerce sites and distribution agreements. 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 the Company’s consolidated financial statements since the date of acquisition.

Allocation of the purchase price consideration

The Company initially recognized goodwill of approximately $220.6 million in connection with the acquisition of DKI.

Under Accounting Standards Codification (“ASC”) 805 — Business Combinations, a company may adjust preliminary amounts recognized at the acquisition date to their subsequently determined final fair values during the measurement period. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition).

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

(In thousands)	Preliminary Purchase Price Allocation at October 31, 2017
Cash and cash equivalents	$	44,375
Accounts receivable		16,129	*
Inventories		13,716	*
Prepaid expenses & other current assets		22,235	*
Property, plant and equipment		15,414	*
Goodwill		212,803	*
Tradenames		370,000
Other intangibles		40,000
Other long-term assets		2,703
Total assets acquired		737,375
Accounts payable		(21,436	)
Accrued expense		(39,087	)*
Income taxes payable		(3,443	)
Other long-term liabilities		(3,631	)
Total liabilities assumed		(67,597	)
Total fair value of acquisition consideration (net of  $40 million imputed debt discount)	$	669,778

* In the three and nine months ended October 31, 2017, the Company reduced goodwill by $1.3 million and $7.8 million, respectively, due to certain adjustments related to unrecorded indemnification obligations from LVMH to us, asset reserves and fixed assets.

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.

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 integrated into G-III’s credit and collection operating system and both entities are expected to share several processes such as information technology, finance, logistics, human resources, sourcing and overseas quality control. The Company and the seller have made an election under Internal Revenue Code Section 338(h)(10). Accordingly, the book and tax basis of the acquired domestic 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.