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Acquisitions
 6 Months Ended
Aug. 31, 2012
Acquisitions  
Acquisitions

NOTE 9 - 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’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 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, we 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. We finished using certain of these services in the second quarter of fiscal 2013 and acquired the remaining PUR inventory on-hand from P&G.

 

We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill. None of the goodwill recognized is expected to be deductible for income tax purposes. We completed our preliminary estimate of the economic lives of all the assets acquired and a preliminary allocation of the initial purchase price. We assigned the acquired trademarks indefinite economic lives and are amortizing 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 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 relationships

 

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

 

 

We estimated the fair values of the PUR assets acquired by applying income and market approaches. The fair value measurement of the intangible assets is 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 to determine the trademark fair value, royalty rates of 0.50 to 1.00 percent used to determine patent estate values, and customer attrition rates of 5.00 percent per year used to determine customer list value.