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Acquisitions | 12 Months Ended
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Apr. 27, 2019
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 as they are due, with the last payment being completed in the second quarter of fiscal 2022. These acquisitions are an integral part of our ongoing 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 |
|  | Retail segment |
(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 |
During fiscal 2018, we acquired the assets of an independent operator of one La-Z-Boy Furniture Galleries® store in Grand Rapids, Michigan for $0.6 million of cash. 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, which was subject to a working capital adjustment of $2.5 million which we received during the third quarter of fiscal 2019 from amounts placed in escrow at the time of the closing of the transaction. We acquired Joybird to better position ourselves for growth in the online selling environment and increase our visibility with millennial and Gen X consumers, while simultaneously leveraging our supply chain assets. The guaranteed payments include a closing date cash payment of $37.5 million in purchase price consideration (net of the working capital adjustment), $7.5 million in prepaid compensation, and the assumption of $5.0 million of liabilities that will be paid over the next two years. The remaining $25 million will be paid in annual installments of $5 million 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 $7.5 million of prepaid compensation relates to the retention of the four Joybird founders, now our employees, each of whom will forfeit proportional amounts if one or more of them resigns 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 on the date of acquisition of $7.5 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 SG&A expense on a straight-line basis over its useful life of eight years. The undiscounted range of the contingent consideration is zero to $65 million and is 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 SG&A expense in our consolidated statement of income. We recorded $79.6 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. When we acquired Joybird during the second quarter of fiscal 2019, we based the purchase price allocations on provisional fair values at the date of acquisition. During the fourth quarter of fiscal 2019, we obtained additional data and have revised certain of our estimates, resulting in the purchase price allocations shown below:
|  | Second quarter fiscal
|  | 2019 Corporate &
(Amounts in thousands) |  | Other acquisitions
Fair value of consideration: |  |  |
Cash (paid at closing) |  | $ | 37,482
Guaranteed payment |  |  | 22,489
Acquisition earn-out |  |  | 7,500
Assumption of liability |  |  | 5,000
Working capital adjustment |  |  | (2,486)
Total fair value of consideration |  |  | 69,985
Amounts recognized for assets acquired and liabilities assumed: |  |  |
Inventory |  |  | 5,258
Other current assets |  |  | 3,733
Property, plant and equipment |  |  | 2,057
Finite-lived tradename |  |  | 6,400
Other long-term assets |  |  | 2,878
Accounts payable |  |  | (8,222)
Customer deposits |  |  | (13,904)
Other current liabilities |  |  | (7,681)
Other long-term liabilities |  |  | (150)
Total identifiable net liabilities acquired |  |  | (9,631)
Goodwill |  | $ | 79,616
We included the Joybird operating segment 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 amounts 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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