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ACQUISITIONS AND INTANGIBLES | 12 Months Ended
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Jan. 31, 2017
Business Combinations [Abstract] |
ACQUISITIONS AND INTANGIBLES | NOTE D — ACQUISITIONS AND INTANGIBLES Acquisition of Donna Karan International Inc. 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, by and between the Company and LVMH, for a total purchase price, including adjustments, 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. Purchase price consideration The purchase price of  $669.8 million, after taking into account certain adjustments, was paid by a combination of  (i) cash, (ii) 2,608,877 newly issued shares of the Company’s common stock valued at $75.0 million and (iii) a note (the “LVMH Note”) issued to LVMH in the principal amount of  $125.0 million. The cash portion of the purchase price was paid from the proceeds of a term loan facility and revolving credit facility. The purchase price has been revised to include adjustments in accordance with the Purchase Agreement. Please see Note E, “Notes payable and other liabilities” and Note H “Stockholders’ equity” for further discussion of these aspects of the acquisition. The total consideration paid for the acquisition of DKI is as follows (in thousands):
| Initial Purchase Price |  |  |  | $ | 650,000 |  |
| plus: 338(h)(10) tax election adjustment |  |  |  |  | 33,500 |  |
| plus: aggregate adjustments to purchase price |  |  |  |  | 26,278 |  |
| Minus: LVMH Note discount |  |  |  |  | (40,000) |  |
| Total consideration |  |  |  | $ | 669,778 |  |
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 |  |  |  |  | 220,649 |  |
Tradenames |  |  |  |  | 370,000 |  |
Other intangibles |  |  |  |  | 40,000 |  |
Other long-term assets |  |  |  |  | 2,703 |  |
Total assets acquired |  |  |  |  | 737,188 |  |
Accounts payable |  |  |  |  | (21,436) |  |
Accrued expense |  |  |  |  | (38,900) |  |
Income taxes payable |  |  |  |  | (3,443) |  |
Other long-term liabilities |  |  |  |  | (3,631) |  |
Total liabilities assumed |  |  |  |  | (67,410) |  |
Total fair value of acquisition consideration (net of  $40 million imputed debt discount) |  |  |  | $ | 669,778 |  |
The Company recognized goodwill of approximately $220.6 million in connection with the acquisition of DKI. 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 Company recognized approximately $7.8 million of acquisition related costs that were expensed in fiscal 2017. These acquisition and integration costs are included in “selling, general and administrative expenses” in the Consolidated Statements of Income and Comprehensive Income for the year ended January 31, 2017. The estimates of fair value of assets acquired and liabilities assumed are preliminary and subject to change based on completion of certain working capital adjustments and the tax implications of our purchase price allocation. The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition. The following table represents the reconciliation of the cash paid for the acquisition of DKI with the fair value of the acquisition consideration (in thousands):
| Purchase price |  |  |  | $ | 669,778 |  |
| Minus cash acquired and non-cash consideration |  |  |  |  |  |  |
| Cash acquired |  |  |  |  | (44,375) |  |
| Note issued to LVMH, net of discount |  |  |  |  | (85,000) |  |
| Common Stock issued to LVMH |  |  |  |  | (75,000) |  |
| Cash disbursed for the acquisition of DKI |  |  |  | $ | (465,403) |  |
Net Sales, Operating Losses and Pro Forma Impact of the Transaction The amount of net sales and operating losses of DKI since the acquisition date included in the consolidated statements of income for the reporting period represented $29.5 million and a loss of  $13.1 million, respectively. The following table reflects the unaudited pro forma consolidated results of operations for the periods presented, as though the acquisition of DKI had occurred on February 1, 2015.
|  |  | Year Ended January 31, |
|  |  | 2017(1) |  |  | 2016 |
|  |  | (unaudited, in thousands) |
Net sales |  |  |  | $ | 2,601,181 |  |  |  |  | $ | 2,840,741 |  |
Net income |  |  |  |  | 7,000 |  |  |  |  |  | 61,089 |  |
Earnings per share: |  |  |
Basic |  |  |  | $ | 0.14 |  |  |  |  | $ | 1.26 |  |
Diluted |  |  |  |  | 0.14 |  |  |  |  |  | 1.23 |  |
(1) Includes nonrecurring pro forma adjustments directly attributable to the business combination consisting of the reversal of  $7.8 million of professional fees and the reversal of severance expenses of $3.9 million. The pro forma adjustments are based upon available information and certain assumptions that we consider reasonable. The unaudited pro forma condensed combined financial data is based on preliminary estimates and assumptions set forth in the accompanying notes. Pro forma adjustments are necessary to (i) reflect the changes in depreciation and amortization expense resulting from fair value adjustments to intangible assets, to (ii) reflect interest expense due to incremental borrowings to fund the Acquisition, to (iii) reflect the taxation of G-III’s and DKI’s combined income as a result of the acquisition, as well as the tax effects related to such pro forma adjustments, (iv) adjust for accounting policy changes to conform to G-III’s presentation and to (v) reflect shares issued as part of the purchase price for the acquisition. The pro forma results do not include any realized or anticipated cost synergies or other effects of the integration of DKI. Accordingly, such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on February 1, 2015, nor are they indicative of the future operating results of the combined company. Intangible assets balances Intangible assets consist of:
​ | ​ | ​ | ​ | ​ | ​ | January 31, | ​
​ | ​ | ​ | Estimated Life | ​ | ​ | 2017 | ​ | ​ | 2016 | ​
​ | ​ | ​ | ​ | ​ | ​ | (In thousands) | ​
Gross carrying amounts | ​ | ​ | ​ | ​
Licenses | ​ | ​ | 14 years​ | ​ | ​ | ​ | $ | 18,846 | ​ | ​ | ​ | ​ | $ | 19,074 | ​ | ​
Trademarks | ​ | ​ | 8 – 12 years​ | ​ | ​ | ​ | ​ | 2,194 | ​ | ​ | ​ | ​ | ​ | 2,194 | ​ | ​
Customer relationships | ​ | ​ | 8 – 17 years​ | ​ | ​ | ​ | ​ | 48,071 | ​ | ​ | ​ | ​ | ​ | 8,163 | ​ | ​
Other | ​ | ​ | 3 – 10 years​ | ​ | ​ | ​ | ​ | 4,387 | ​ | ​ | ​ | ​ | ​ | 4,975 | ​ | ​
Subtotal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 73,498 | ​ | ​ | ​ | ​ | ​ | 34,406 | ​ | ​
Accumulated amortization | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (24,921) | ​ | ​ | ​ | ​ | ​ | (23,540) | ​ | ​
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | 48,577 | ​ | ​ | ​ | ​ | ​ | 10,866 | ​ | ​
Unamortized intangible assets | ​ | ​ | ​ | ​
Goodwill | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 269,262 | ​ | ​ | ​ | ​ | ​ | 49,437 | ​ | ​
Trademarks | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 435,395 | ​ | ​ | ​ | ​ | ​ | 67,200 | ​ | ​
Subtotal | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 704,657 | ​ | ​ | ​ | ​ | ​ | 116,637 | ​ | ​
Total intangible assets, net | ​ | ​ | ​ | ​ | ​ | ​ | $ | 753,234 | ​ | ​ | ​ | ​ | $ | 127,503
Changes in the amounts of our goodwill for each of the years ended January 31, 2017 and 2016 are summarized by reportable segment as follows (in thousands):
|  |  | Wholesale |  |  | Retail |  |  | Total |
January 31, 2015 |  |  |  | $ | 51,414 |  |  |  |  | $ | 716 |  |  |  |  | $ | 52,130 |  |
Currency translation |  |  |  |  | (2,693) |  |  |  |  |  | — |  |  |  |  |  | (2,693) |  |
January 31, 2016 |  |  |  |  | 48,721 |  |  |  |  |  | 716 |  |  |  |  |  | 49,437 |  |
Acquisition |  |  |  |  | 220,649 |  |  |  |  |  | — |  |  |  |  |  | 220,649 |  |
Currency translation |  |  |  |  | (824) |  |  |  |  |  | — |  |  |  |  |  | (824) |  |
January 31, 2017 |  |  |  | $ | 268,546 |  |  |  |  | $ | 716 |  |  |  |  | $ | 269,262 |  |
Amortization expense with respect to intangibles amounted to approximately $2.5 million, $1.9 million and $2.0 million for the years ended January 31, 2017, 2016 and 2015, respectively. The estimated amortization expense with respect to intangibles for the next five years is as follows:
Year Ending January 31, |  |  | Amortization Expense |
|  |  | (In thousands) |
2018 |  |  |  | $ | 4,329 |  |
2019 |  |  |  |  | 3,967 |  |
2020 |  |  |  |  | 3,828 |  |
2021 |  |  |  |  | 3,286 |  |
2022 |  |  |  |  | 3,076 |  |
Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method. The Company reviews and tests its goodwill and intangible assets with indefinite lives for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may be impaired. The Company performs the test in the fourth fiscal quarter of each year using a combination of a discounted cash flow analysis and a market approach. The discounted cash flow approach requires that certain assumptions and estimates be made regarding industry economic factors and future profitability. The market approach estimates the fair value based on comparisons with the market values and market multiples of earnings and revenues of similar public companies. Trademarks and customer relationships having finite lives are amortized over their estimated useful lives and measured for impairment when events or circumstances indicate that the carrying value may be impaired.

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