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Acquisitions | 6 Months Ended
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Oct. 27, 2018
Acquisitions |
Acquisitions | Note 2: Acquisitions Retail segment acquisitions On August 15, 2018 and September 30, 2018, respectively, we acquired the assets of two independent operators of La-Z-Boy Furniture Galleries® stores: one that operated nine stores and two warehouses in Arizona and one that operated one store in Massachusetts, for an aggregate $42.8 million, including $38.9 million of cash, $2.6 million of forgiveness of accounts receivable, and $1.3 million of guaranteed future payments. We will pay the guaranteed future payments over the next 34 months. These acquisitions are a core part of our strategy to grow our company-owned retail business and leverage our integrated retail model where we earn a combined profit on both the wholesale and retail sides of the business. Prior to our retail acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries® stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets. The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options. A Retailer Agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market. We recorded an indefinite-lived intangible asset of $6.6 million related to these reacquired rights. We also recognized $32.0 million of goodwill in fiscal 2019 related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies. For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years. We based the purchase price allocations on fair values at the dates of acquisition, and summarize them in the following table:
|  | Second quarter
|  | fiscal 2019
(Unaudited, amounts in thousands) |  | acquisitions
Fair value of consideration: |  |  |
Cash |  | $ | 38,904
Forgiveness of accounts receivable |  |  | 2,610
Guaranteed future payments |  |  | 1,300
Total fair value of consideration |  |  | 42,814
Amounts recognized for identifiable assets acquired and liabilities assumed: |  |  |
Inventory |  |  | 10,491
Other current assets |  |  | 4,194
Property, plant and equipment |  |  | 929
Indefinite-lived reacquired rights |  |  | 6,600
Other long-term assets |  |  | 183
Customer deposits |  |  | (6,515)
Other current liabilities |  |  | (5,055)
Total identifiable net assets acquired |  |  | 10,827
Goodwill |  | $ | 31,987
All acquired stores were included in our Retail segment results upon acquisition. Corporate and Other acquisitions On July 30, 2018, we completed our acquisition of Stitch Industries, Inc. ("Joybird"), an e-commerce retailer and manufacturer of upholstered furniture, for guaranteed cash payments of $75 million, subject to working capital adjustments. We acquired Joybird as they are a leading e-commerce retailer and manufacturer of upholstered furniture, which positions us for growth in the online selling environment and allows us to better reach millennial and Gen X consumers, while leveraging our supply chain assets. The guaranteed payments include a closing date cash payment of $37.5 million in purchase price consideration, $7.5 million in prepaid compensation, and the assumption of $5.0 million of liabilities that will be paid over the next two years, with the remaining $25 million to be paid annually in $5 million installments over the next five years. The merger agreement also includes two future earn-out opportunities based on Joybird’s financial performance in fiscal 2021 and fiscal 2023. The merger agreement also included a working capital adjustment, and as of October 27, 2018, we have recorded a receivable for approximately $2.5 million for working capital adjustments. We received this $2.5 million during the third quarter of fiscal 2019 from amounts placed in escrow at the time of the closing of the transaction. The $7.5 million of prepaid compensation relates to the retention of the four Joybird founders, now our employees, who will forfeit proportional amounts if one or more of them resign in the two years following the acquisition. We are amortizing the $7.5 million to selling, general & administrative expense over the two-year retention period on a straight-line basis. In addition to the guaranteed cash payments of $75 million, we recorded a contingent consideration liability of $3.3 million, which reflects the provisional fair value of the earn-out opportunities as of the date of acquisition, and a finite-lived intangible asset of $6.4 million, which reflects the provisional fair value of the acquired Joybird® trade name, which we are amortizing to selling, general & administrative expense over its useful life of eight years on a straight-line basis. The undiscounted range of the contingent consideration is zero to $65 million based on sales and profitability of Joybird in fiscal 2021 and fiscal 2023. Subsequent adjustments to the fair value of the contingent consideration will impact selling, general & administrative expense in our consolidated statement of income. We recorded $75.8 million of goodwill related to the Joybird acquisition, related primarily to synergies we expect from the integration of the acquisition and the anticipated future benefits of these synergies. The finite-lived intangible asset and goodwill asset for Joybird are not deductible for federal income tax purposes. We based the purchase price allocations on provisional fair values at the dates of acquisition, and summarize them in the following table:
|  | Second quarter
|  | fiscal 2019
(Unaudited, amounts in thousands) |  | acquisitions
Fair value of consideration: |  |  |
Cash |  | $ | 37,482
Guaranteed payment |  |  | 22,489
Acquisition earn-out |  |  | 3,300
Assumption of liability |  |  | 5,000
Working capital adjustment |  |  | (2,486)
Total fair value of consideration |  |  | 65,785
Amounts recognized for assets acquired and liabilities assumed: |  |  |
Inventory |  |  | 5,258
Other current assets |  |  | 3,258
Property, plant and equipment |  |  | 2,057
Finite-lived tradename |  |  | 6,400
Other long-term assets |  |  | 4,010
Accounts payable |  |  | (8,399)
Customer deposits |  |  | (9,619)
Other current liabilities |  |  | (12,876)
Other long-term liabilities |  |  | (150)
Total identifiable net liabilities acquired |  |  | (10,061)
Goodwill |  | $ | 75,846
We included the Joybird acquisition in our other business activities which we report as Corporate and Other results upon acquisition. None of the above acquisitions were material to our financial position or our results of operations, and, therefore, pro-forma financial information is not presented. In accordance with Accounting Standard Codification Topic 805-10-25-15, the acquirer has a period of time, referred to as the measurement period, to finalize the accounting for a business combination. The measurement period provides companies with a reasonable period of time to determine, among other things, the identifiable assets acquired, liabilities assumed and consideration transferred for the acquisition, or other amount used in measuring goodwill. All of our provisional purchase accounting estimates shown above for both our Retail acquisitions and our acquisition of Joybird are based on the information and data available to us as of the time of the issuance of these financial statements, and are subject to change within the first 12 months of acquisition as we have access to additional data.

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