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Business Combinations
 9 Months Ended
Dec. 27, 2014
Business Combinations  
Business Combinations

3.Business Combinations

 

Baskins Acquisition Holdings, LLC

 

Effective May 25, 2013, the Company completed the acquisition of 100% of the member interests in Baskins, including 30 stores and an online retail website. Baskins was a specialty western retailer with stores in Texas and Louisiana, and the acquisition expanded the Company’s operations into these core markets. All of the acquired Baskins stores were subsequently converted into Boot Barn stores. The goodwill represents the additional amounts paid in order to expand the Company’s geographical presence.

 

The acquisition-date fair value of the consideration transferred totaled $37.7 million, which consisted of $36.0 million in cash and $1.7 million of contingent consideration. The $36.0 million of cash included $13.7 million paid to the members of Baskins, $2.2 million paid into an escrow account and $20.1 million to repay Baskins’ outstanding debt. These payments were partially offset by $1.9 million, which represents the amount of cash on hand immediately prior to the closing of the acquisition. Claims against the escrow account could have been made until November 30, 2014. However, no claims were made as of that date, and the escrow funds were released during the thirteen weeks ended December 27, 2014.

 

The Company was obligated to make additional earnout payments, contingent on the achievement of milestones relating to 12-month store sales associated with three new stores for the periods beginning January 24, 2013, January 31, 2013 and February 20, 2013 at each of the three stores. The maximum amount payable upon achievement of the milestones was $2.1 million. Each of the milestones was achieved, and the Company made a cash payment of $2.1 million in the fourth quarter of fiscal 2014. As of the acquisition date, the Company estimated that these earnout payments would be $1.7 million, based on then existing facts and circumstances. The estimated fair value of this earnout was determined by using revenue projections and applying a discount rate to reflect the risk of the underlying conditions not being satisfied, such that no payment would be due. The fair value measurement of the earnout was based primarily on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. A total of $0.4 million from the revaluation of contingent consideration was recorded in the fourth quarter of fiscal 2014 to selling, general and administrative expenses in the Company’s consolidated statement of operations.

 

The total fair value of consideration transferred for the acquisition was allocated to the net tangible and intangible assets based upon the Company’s estimate of their fair values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. The goodwill is deductible for income tax purposes. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price (in thousands):

 

 

 

At May 25, 2013
(Level 3)

 

 

 

 

 

Assets acquired:

 

 

 

Cash and cash equivalents

 

$
1,935 

 

Current assets

 
22,083 

 

Property and equipment, net

 
5,850 

 

Intangible assets acquired

 
5,006 

 

Goodwill

 
15,064 

 

Other assets

 
109 

 

Total assets acquired

 
50,047 

 

Liabilities assumed:

 

 

 

Other current liabilities

 
12,119 

 

Line of credit - current

 
10,259 

 

Notes payable - current

 
9,819 

 

Contingent consideration

 
1,740 

 

Above-market leases

 
83 

 

Capital lease obligation

 
138 

 

Total liabilities assumed

 
34,158 

 

Total purchase price

 

$
15,889 

 

 

Definite-lived intangible assets are recorded at their fair value as of the acquisition date with amortization computed utilizing the straight-line method over the assets’ estimated useful lives, with the exception of customer lists, which are amortized based on the estimated attrition rate. The period of amortization for trademarks is six months, non-compete agreements is four years, customer lists is five years, and below-market leases is four to 18 years. For leases under market rent, amortization is based on the discounted future benefits from lease payments under market rents.

 

Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. The Company incurred $0.7 million of acquisition-related costs during the thirty-nine weeks ended December 28, 2013. The amount of net revenue and net income of Baskins included in the Company’s condensed consolidated statements of operations from the acquisition date to December 28, 2013 were $41.9 million and $3.3 million, respectively.

 

Supplemental As Adjusted Data (Unaudited)

 

The unaudited as adjusted statements of operations data below gives effect to the Baskins acquisition, as well as the Company’s acquisition of RCC on August 31, 2012, as if they had all occurred as of March 30, 2013. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Baskins, RCC and Boot Barn Holding Corporation to reflect the effects of amortization of purchased intangible assets and acquired inventory valuation step-up, additional financing as of April 3, 2011 in order to complete the acquisitions, income tax expense and other transaction costs directly associated with the acquisitions such as legal, accounting and banking fees. The adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Pre-acquisition net sales and net income numbers for acquired entities are derived from their books and records prepared prior to the acquisition. This as adjusted data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisitions taken place as of the date noted above.

 

As adjusted net sales (Unaudited)

 

(in thousands)

 

Thirty-Nine Weeks Ended
December 28, 2013

 

 

 

 

 

Net sales (as reported)

 

$
257,382 

 

Baskins

 
8,290 

 

As adjusted net sales

 

$
265,672 

 

 

As adjusted net income (Unaudited)

 

(in thousands)

 

Thirty-Nine weeks ended
December 28, 2013

 

 

 

 

 

Net income (as reported)

 

$
3,768

 

Baskins

 
831

 

RCC

 
(821

)

Boot Barn Holding Corporation

 
2,593

 

As adjusted net income

 

$
6,371