Acquisition of Parlux

12 Months Ended

Feb. 01, 2014

Business Combinations [Abstract]

ACQUISITION OF PARLUX

ACQUISITION OF PARLUX

On April 18, 2012, pursuant to the Agreement and Plan of Merger, dated as of December 23, 2011 (the “Merger Agreement”), by and among Perfumania, Parlux Fragrances, Inc., a Delaware corporation ("Parlux Inc."), and PFI Merger Corp., a Delaware corporation and wholly owned subsidiary of Perfumania (“Merger Sub”), Perfumania acquired all of the outstanding shares of Parlux Inc. common stock via a merger of Parlux Inc. with Merger Sub, with Parlux Inc. surviving the merger. Parlux Inc. was then merged into PFI Merger Sub I, LLC,which survived this second merger as a wholly owned subsidiary of Perfumania and changed its name to Parlux Fragrances, LLC ("Parlux"). We refer to these two transactions as the “merger.” The merger was consummated following the approval and adoption of the Merger Agreement by Parlux Inc.'s shareholders and the approval by Perfumania shareholders of the issuance of shares of Perfumania common stock to the Parlux Inc.'s shareholders pursuant to the Merger Agreement. Trading in Parlux Inc.'s common stock on the Nasdaq Stock Market terminated after market close on April 18, 2012.

The accompanying consolidated financial statements include the results of operations and cash flows for Parlux beginning on April 18, 2012. Parlux is not considered a separate segment for financial reporting purposes. Total net sales of $39.9 millionexcluding $38.1 million of inter-company sales at cost are attributable to Parlux and are included in the Company's consolidated statement of operations for the fiscal year ended February 2, 2013.

Under the terms of the Merger Agreement, each share of Parlux Inc.'s common stock issued and outstanding immediately before the merger was cancelled and converted into the right to receive either (i) 0.533333 shares of Perfumania common stock or (ii) 0.20 shares of Perfumania common stock plus $4.00 in cash, depending on the elections made by Parlux Inc.'s shareholders, without proration or other adjustments. Parlux Inc.'s shareholders received cash for any fractional shares of Perfumania common stock which they might otherwise have received in the merger. As a result, Perfumania issued approximately 6.014 million shares of its common stock and paid approximately $62.1 million in cash to the former Parlux Inc. shareholders in the merger. The Perfumania shares issued to Parlux Inc.'s shareholders represented approximately 40% of Perfumania's issued and outstanding common stock after the merger.

The cash portion of the merger consideration was financed through a combination of $32.1 million that Perfumania borrowed under Perfumania's Senior Credit Facility and $30 million that a Perfumania subsidiary borrowed from family trusts of the Nussdorf family, its principal shareholders, each on April 18, 2012. These borrowings, the Senior Credit Facility and the Nussdorf Trusts are described in greater detail in Note 9.

Pursuant to various licensing arrangements entered into by Parlux Inc., in connection with the closing of the merger, Perfumania issued 300,000 shares of common stock and warrants for the purchase of an aggregate of 4,799,971 shares of Perfumania common stock at $8.00 per share.

The merger has been accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. No material assets or liabilities arose from contingencies recognized at the acquisition date. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company's judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact its results of operations. The following tables summarize the purchase price and the assets acquired and liabilities assumed as of the acquisition date at estimated fair value:

(in thousands except price per share)
Proceeds from Senior Credit Facility		$	32,062
Proceeds from notes payable to affiliates		30,000
Total cash consideration		62,062
Total shares of Perfumania common stock issued (1)	6,314
Perfumania price per share, April 18, 2012	$9.38	59,225
Fair value of Perfumania stock options and warrants issued		30,338
Total purchase price		$	151,625

(1) Includes 300 shares issued pursuant to various licensing agreements

(in thousands)
Cash	$	17,114
Accounts receivable	21,242
Inventories	60,966
Other current assets	10,841
Property and equipment	1,107
Other non-current assets	167
Identified intangible assets	24,676
Goodwill	38,769
Accounts payable	(16,032		)
Deferred tax liabilities	(3,239		)
Other liabilities assumed	(3,986		)
Net assets acquired	$	151,625

Identifiable intangibles were acquired as a result of the acquisition of Parlux Inc., which are being amortized as follows:

•Customer relationships: amortized on a straight-line basis based on the expected period of benefit.

• License agreements: amortized on a straight-line basis over their useful lives based on the terms of the respective license agreements.

Goodwill in the amount of $38.8 million was recorded as a result of the acquisition of Parlux Inc. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill will not be amortized, but will be tested for impairment at least annually. None of the goodwill is deductible for tax purposes.

The unaudited pro forma results presented below include the effects of the Parlux Inc. acquisition as if it had been consummated as of January 28, 2012. The pro forma results include the amortization associated with the acquired intangible assets. In addition, the pro forma results do not include any anticipated synergies, operating efficiencies or cost savings or other expected benefits of the acquisition or any integration costs. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 28, 2012.

	Fiscal Year Ended February 2, 2013
	(in thousands, except per share data)
Net sales	$	554,648
Net loss	(53,501		)
Net loss per share - basic	$	(2.64	)
Net loss per share - diluted	(2.64		)