Acquisitions and Intangibles

12 Months Ended

Jan. 31, 2013

Acquisitions and Intangibles

NOTE D — ACQUISITIONS AND INTANGIBLES

Acquisition of Vilebrequin

In August 2012, the Company acquired all of the outstanding shares of Vilebrequin International SA, a Swiss corporation (“Vilebrequin”) for aggregate consideration consisting of (i) €70.5 million (approximately $87.6 million) in cash and (ii) €15.0 million (approximately $18.6 million) of unsecured promissory notes due December 31, 2017, with interest payable at the rate of 5% per year. In addition to the aggregate consideration paid at closing, the purchase agreement provides for contingent consideration of up to €22.5 million (approximately $27.9 million) based upon achieving certain performance objectives related to the growth of the Vilebrequin business over the three years ending December 31, 2015. At January 31, 2013, the estimated contingent consideration payable was $5.8 million. The dollar equivalents to the amounts in Euro set forth in the notes to these Consolidated Financial Statements are based on the exchange rate at the time of the acquisition (EURO equal to USD$1.242).

Vilebrequin is a premier provider of status swimwear, resort wear and related accessories. Vilebrequin sells its products in over 50 countries around the world through a network of company owned and franchised specialty retail stores and shops, as well as through select wholesale distribution. The Company believes that Vilebrequin is capable of significant worldwide expansion.

The total consideration was approximately $111.7 million, including the estimated fair value of the contingent consideration. The purchase price has been preliminarily allocated to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values, and is subject to adjustment when additional information concerning asset and liability valuations is finalized. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the expected contingent payments, which are determined using weighted probabilities of possible payments. The preliminary allocation has resulted in goodwill and intangible assets in the aggregate amount of $101.0 million related to the acquisition of Vilebrequin. Such amounts could change upon finalization of the purchase accounting.

The following table (in thousands) summarizes the components of the preliminary purchase price allocation for the acquisition of Vilebrequin:

Purchase price:
Cash paid	$	87,573
Notes issued		18,633
Fair value of contingent consideration		5,452
	$	111,658
Allocation:
Current assets	$	25,793
Property, plant and equipment		5,724
Identifiable intangible assets		68,847
Other non-current assets, net		4,551
Assumed liabilities		(12,938	)
Deferred income taxes		(12,515	)
Goodwill		32,196
	$	111,658

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. Identifiable intangible assets acquired include trademarks valued at $58.6 million with an indefinite life, franchise agreements valued at $7.4 million with an estimated useful life of 14 years, and customer relationships valued at $2.6 million with an estimated useful life of 8 years. The goodwill represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including use of our existing infrastructure to expand sales of Vilebrequin products.

The following unaudited pro forma information presents the results of operations of the Company as if the Vilebrequin acquisition had taken place on February 1, 2011:

	Year Ended January 31,
	2013		2012
	(In thousands, except per share amounts)
Net sales	$	1,434,784	$	1,294,161
Net income	$	59,105	$	54,465
Net income per share:
Basic	$	2.95	$	2.75
Diluted	$	2.91	$	2.70

The unaudited pro forma results shown above reflect the assumption that the Company would have financed the acquisition under identical terms and conditions as the actual financing and do not reflect any anticipated cost savings that may result from combining the entities. The unaudited pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Vilebrequin acquisition occurred as of February 1, 2011.

The operating results of Vilebrequin have been included in the Company’s financial statements since August 7, 2012, the date of acquisition, and are reported on a calendar year basis (as noted in Note A.1, Vilebrequin is presented in the consolidated financial statements on a one month lag). Net sales attributable to Vilebrequin since the date of acquisition through December 31, 2012 were $19.1 million.

Intangible assets consist of:

		January 31,
	Estimated Life	2013		2012
		(In thousands)
Gross carrying amounts
Licenses	14 years	$	20,432	$	12,573
Trademarks	8 - 12 years		2,193		2,194
Customer relationships	8 - 15 years		8,620		5,900
Other	3 - 10 years		1,994		1,058
Subtotal			33,239		21,725
Accumulated amortization
Licenses			12,798		12,533
Trademarks			1,595		1,374
Customer relationships			2,995		2,359
Other			1,393		1,058
Subtotal			18,781		17,324
Net
Licenses			7,634		40
Trademarks			598		820
Customer relationships			5,625		3,541
Other			601		—
Subtotal			14,458		4,401
Unamortized intangible assets
Goodwill (Deductible for tax purposes)			60,396		26,100
Trademarks			75,464		13,210
Subtotal			135,860		39,310
Total intangible assets, net		$	150,318	$	43,711

Intangible amortization expense amounted to approximately $1.2 million, $0.9 million and $1.3 million for the years ended January 31, 2013, 2012 and 2011, respectively.

The estimated intangible amortization expense for the next five years is as follows:

Year Ending January 31,	Amortization Expense
	(In thousands)
2014	$	1,523
2015		1,523
2016		1,394
2017		1,350
2018		1,324

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. We perform our 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.

Goodwill has been allocated to the reporting segments based upon the relative fair values of the licenses (licensed product segment) and trademarks (non-licensed product segment) acquired. For the year ended January 31, 2013, the carrying amount of goodwill was $26.1 million and $34.3 million in the licensed and non-licensed product segments, respectively, including $2.0 million in exchange differences arising during the period. For the year ended January 31, 2012, the carrying amount of goodwill was $26.1 million and was included in the licensed product segment.