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ACQUISITIONS | 12 Months Ended
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Feb. 29, 2012
ACQUISITIONS |
ACQUISITIONS |
NOTE 5 – ACQUISITIONS PUR Acquisition - On December 30, 2011, we completed an asset and stock purchase transaction in which we acquired 100 percent of the stock of PUR Water Purification Products, Inc., and certain other assets and liabilities from The Procter & Gamble Company and certain of its affiliates (“P&G”) for a net cash purchase price of $160 million, subject to future adjustments. The acquisition was funded entirely with short-term debt. Significant assets acquired include manufacturing equipment, trademarks, customer lists, distribution rights, patents, and the goodwill of the PUR water filtration business (“PUR”). PUR’s product line includes faucet mount water filtration systems and filters, pitcher systems and filters, and refrigerator filters. We are operating the PUR business in our Healthcare / Home Environment segment and market its products primarily into retail trade channels in the U.S. Goodwill of $86.16 million arising from the acquisition consists largely of the distribution network, marketing synergies and economies of scale that are anticipated from the addition of the new product line. In connection with this acquisition, the parties entered into transitional services and supply agreements whereby P&G or one or more of its affiliates will provide certain short-term services for and supply certain products to the Company in exchange for specified fees. Upon the completion of certain of these services in the second quarter of fiscal 2013, we will acquire any remaining PUR inventory on-hand from P&G. We have accounted for the acquisition as the purchase of a business and have recorded the excess purchase price as goodwill. None of the goodwill recognized is expected to be deductible for income tax purposes. We have completed our analysis of the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase price. We assigned the acquired trademarks indefinite economic lives and will amortize the customer list, patents, trademarks and technology license agreements, and covenant not to compete over expected weighted average lives of approximately 15.0, 12.4, 5.2 and 2.0 years, respectively. For the customer list, we used historical attrition rates to assign an expected life. For patent rights, we used the underlying non-renewable term of a royalty free license we acquired for the use of patented designs in certain PUR products. The trademarks acquired are considered to have indefinite lives that are not subject to amortization. The goodwill arising from the PUR acquisition consists largely of the distribution network, marketing synergies and economies of scale expected to occur from the addition of the new product line. The following schedule presents the acquisition date fair value of the net assets of PUR:
PUR - NET ASSETS ACQUIRED ON DECEMBER 30, 2011 |  |  |
(in thousands) |  |  |
Supplier tooling advances |  | $ | 1,432 |
Tools, dies, molds and other production equipment |  | 12,495 |
Goodwill |  | 86,162 |
Trademarks |  | 54,000 |
Trademark and technology licensing agreements |  | 14,900 |
Patents |  | 4,140 |
Customer list |  | 18,600 |
Covenant not to compete |  | 200 |
Total assets acquired |  | 191,929 |
Less: Deferred tax liabilities recorded at acquisition |  | (31,929 | )
Net assets acquired |  | $ | 160,000 |
The fair values of the PUR assets acquired were estimated by applying income and market approaches. The fair value measurement of the intangible assets are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 15.20 percent weighted average cost of capital, a royalty rate of 7.0 percent used in the determination of the trademark fair value, royalty rates of 0.50 to 1.00 percent used in the determination of patent estate values, and customer attrition rates of 5.00 percent per year used in the determination of customer list values. The impact of the PUR acquisition on the Company’s consolidated statement of income from the acquisition date through the two month period ended February 29, 2012 is as follows: PUR - IMPACT ON CONSOLIDATED STATEMENT OF INCOME December 30, 2011 (Acquisition Date) through February 29, 2012 (in thousands, except per share data)
|  | Two Months |
|  | Ended |
|  | February 29, 2012 |
Sales revenue, net |  | $ | 21,447 |
Net income |  | 2,913 |
Earning per share: |  |  |
Basic |  | $ | 0.09 |
Diluted |  | $ | 0.09 |
The supplemental pro forma information on the following page presents the Company’s financial results as if the PUR acquisition had occurred as of the beginning of the fiscal periods presented. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred if the acquisition had been completed on March 1, 2011 or 2010, and this information is not intended to be indicative of future results. PUR - PRO FORMA IMPACT ON CONSOLIDATED CONDENSED STATEMENTS OF INCOME As if the Acquisition Had Been Completed at the Beginning of Each Period (in thousands, except per share data)
|  | Fiscal Years Ended the Last Day of February, |
|  | 2012 |  | 2011 |
Sales revenue, net |  | $ | 1,285,070 |  | $ | 898,626 |
Net income |  | 122,473 |  | 107,934 |
Earning per share: |  |  |  |  |
Basic |  | $ | 3.91 |  | $ | 3.52 |
Diluted |  | $ | 3.86 |  | $ | 3.44 |
Kaz, Inc. Acquisition – On December 31, 2010, we completed the merger of Kaz under the terms of an Agreement and Plan of Merger dated December 8, 2010, among us, Helen of Troy Texas Corporation, our wholly-owned subsidiary, KI Acquisition Corp., our indirect wholly-owned subsidiary, Kaz, and certain shareholders of Kaz. Pursuant to the terms of the merger agreement, all of the shares of capital stock of Kaz were cancelled and converted into a total cash purchase price of $271.50 million, subject to certain future adjustments. The acquisition was funded with $77.50 million of cash and $194.00 million in short- and long-term debt. Based in Southborough, Massachusetts, Kaz is a world leader in providing a broad range of consumer products in two primary product categories consisting of healthcare and home environment. Kaz sources, markets and distributes a number of well-recognized brands including: Vicks, Braun, Kaz, SmartTemp, SoftHeat, Honeywell, Duracraft, Protec, Stinger, and Nosquito. The acquisition helps broaden the Company’s geographic footprint, increase our mutual significance with common customers and vendors, and expand our customer base worldwide. The following schedule presents the identifiable assets and liabilities acquired, assumed or recognized at the acquisition date at their fair values. KAZ - NET ASSETS RECORDED UPON ACQUISITION AT DECEMBER 31, 2010 (in thousands)
Assets: |  |  |
Cash |  | $ | 4,258 |
Receivables |  | 70,792 |
Inventory |  | 62,415 |
Prepaid expenses and other current assets |  | 2,197 |
Property and equipment |  | 4,083 |
Goodwill |  | 154,700 |
Other intangible assets - finite |  | 91,550 |
Deferred tax assets |  | 12,376 |
Other assets |  | 3,098 |
Subtotal - assets |  | 405,469 |
Liabilities: |  |  |
Accounts payable |  | 41,371 |
Accrued expenses |  | 64,118 |
Income taxes payable |  | 1,496 |
Deferred tax liabilities |  | 24,303 |
Liabilities for uncertain tax positions |  | 1,453 |
Deferred compensation |  | 1,230 |
Subtotal - liabilities |  | 133,971 |
Net assets recorded |  | $ | 271,498 |
The fair values of the intangible assets acquired were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 10.25 percent weighted average cost of capital, royalty rates ranging from 2.00 to 3.50 percent used in the determination of patent estate values and customer attrition rates of 10.0 percent per year used in the determination of customer list values. Gross receivables of $77.49 million were recorded in the transaction. We estimated that $6.70 million of gross receivables would not be collected and recorded the acquired receivables at their estimated fair value of $70.79 million. Since these receivables were recorded at a fair value, which contemplated their ultimate collectability, no additional allowances for collectability needed to be recorded against acquired receivables while they remained on our balance sheets. As of February 29, 2012, allowances totaling $2.90 million have been established against Kaz’s post-acquisition trade receivables. These allowances are included in the $5.54 million of receivables allowance shown in the accompanying consolidated balance sheet at February 29, 2012. The goodwill of $154.70 million arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Kaz. All of the goodwill was assigned to the Company’s Healthcare / Home Environment segment. None of the goodwill recognized is expected to be deductible for income tax purposes. During fiscal 2012, the Company made certain post-acquisition adjustments resulting in a net increase to Kaz’s goodwill of $10.01 million. The majority of these adjustments were due to increases to unrecognized tax benefits related to certain Kaz pre-acquisition tax positions, as further discussed under Note (10) to these consolidated financial statements. Under the terms of the merger agreement and included in the consideration paid, the Company deposited $20.00 million into escrow. As of February 29, 2012, $4.50 million of the escrow fund has been released as part of the settlement of working capital adjustments and other items pursuant to the terms of the agreement. The remaining $15.50 million of the escrow amount is security for any indemnification claims under the merger agreement. The remaining escrow fund will be held until May 15, 2012, subject to amounts held back for any indemnification claims. Pert Plus and Sure Acquisition - On March 31, 2010, we completed the acquisition of certain assets and liabilities of the Pert Plus hair care and Sure antiperspirant and deodorant businesses from Innovative Brands, LLC for a net purchase price of $69.00 million, which we paid with cash on hand. Net assets acquired consist principally of accounts receivable, finished goods inventories, prepaid expenses, goodwill, patents, trademarks, trade names, product design specifications, production know-how, certain fixed assets, distribution rights, and customer lists, less certain product related operating accruals and other current liabilities. We market Pert Plus and Sure products primarily into retail trade channels. We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill. All of the goodwill is held in jurisdictions that do not allow deductions for tax purposes. We assigned the acquired trademarks indefinite economic lives and will amortize the customer list and patent rights over expected average lives of approximately 8.2 and 7.5 years, respectively. For the customer list, we used our historical attrition rates to assign an expected life. For patent rights, we used the underlying non-renewable term of a royalty free license we acquired for the use of patented formulas in certain Pert Plus and Sure products. The trademarks acquired are considered to have indefinite lives that are not subject to amortization. The goodwill of $15.85 million arising from the Pert Plus and Sure acquisition consists largely of the distribution network, marketing synergies and economies of scale expected to occur from the addition of the new product line. The following schedule presents the acquisition date fair value of the net assets of Pert Plus and Sure: PERT PLUS AND SURE - NET ASSETS ACQUIRED ON MARCH 31, 2010 (in thousands)
Receivables |  | $ | 8,589 |
Inventory |  | 4,887 |
Prepaid expenses |  | 392 |
Tools, dies and molds |  | 730 |
Goodwill |  | 15,845 |
Trademarks |  | 23,650 |
Patent rights |  | 2,600 |
Customer list |  | 21,275 |
Total assets acquired |  | 77,968 |
Less: Accounts payable and other current liabilities assumed or recorded at acquisition |  | (8,968 | )
Net assets acquired |  | $ | 69,000 |
The fair values of the intangible assets acquired were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Key assumptions included various discount rates based upon a 15.80 percent weighted average cost of capital, royalty rates of 5.00 percent used in the determination of trademark values and customer attrition rates of 11.50 percent per year used in the determination of customer list values.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 51, 52 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=6909870&loc=d3e1524-128463 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 88-16 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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