Acquisition of Women's Sportswear Business

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Acquisition of Women's Sportswear Business

7. Acquisition of Women's Sportswear Business

On June 1, 2011, in connection with the Company's strategic decision to transition the women's sportswear business from a licensed to a wholly owned operation in the Wholesale segment, the Company acquired certain net assets from its licensee, Bernard Chaus, Inc. ("Chaus"), in exchange for consideration of approximately $4.8 million. Chaus was the Company's licensee for women's sportswear apparel and accessories until the termination of the licensing agreement.

The Company accounted for the women's sportswear division acquisition as a business combination. Based on an independent third-party appraisal, the acquisition cost of an initial amount of $5.1 million (excluding insignificant transaction costs) was reduced by $0.3 million in the third quarter of 2011 to $4.8 million and has been allocated to the net assets acquired based on their respective fair values as follows: customer relationship intangible asset of $2.5 million; goodwill of $4.6 million, which is deductible for tax purposes over its amortizable tax life; and current liabilities of $2.3 million. The $4.8 million acquisition cost was reduced by accounts receivable due from Chaus of $3.9 million, netting to the final cash payment of $0.9 million. The Company has completed its assessment of the fair value of assets acquired and liabilities assumed for the allocation of the purchase price. As a result, the Company does not expect any subsequent change in the purchase price allocation.

The customer relationship intangible asset was valued using the excess earnings method. This method discounts the estimated after tax cash flows associated with the existing base of customers as of the acquisition date, factoring in expected attrition of the existing customer base. The customer relationship intangible asset will be amortized over an estimated useful life of 19 years.  Amortization expense is recorded within SG&A in the Condensed Consolidated Statement of Operations. Goodwill is not amortized, but is assessed for impairment at least annually based on comparisons of fair values to carrying values.