NOTE 6 – ACQUISITIONS

On June 30, 2014, we completed the acquisition of Healthy Directions, a leader in the premium branded vitamin, mineral and supplement market for a total cash purchase price of $195.94 million. The purchase price was funded from borrowings under the Credit Agreement, as described below, and cash on hand. The sellers were certain funds controlled by American Securities, LLC and ACI Capital Co., LLC. Significant assets acquired include inventory, property and equipment, customer relationships, brand assets, and goodwill. Brand assets consist of a portfolio of complementary marketing related assets determined to have indefinite lives that are utilized across multiple product lines. Brand assets include trademarks, tradenames, product formulations, proprietary research, doctor endorsements and all other associated elements of brand equity. Acquisition-related expenses incurred in fiscal year 2015 were approximately $3.61 million ($2.31 million after tax). Healthy Directions reports its operations as the Nutritional Supplements segment.

We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill. The goodwill recognized is expected to be deductible for income tax purposes. As of February 28, 2015, we 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 brand assets an indefinite economic life and are amortizing the customer relationships over an expected weighted average life of approximately 7 years. For the customer relationships, we used historical attrition rates to assign an expected life. Since the brand assets acquired are considered to have an indefinite life, they are not subject to amortization.

The following table presents the acquisition date fair value of the net assets of Healthy Directions. These balances are provisional and may be subject to additional adjustment:

HEALTHY DIRECTIONS - NET ASSETS RECORDED UPON ACQUISITION AT JUNE 30, 2014

(in thousands)


Assets:
Receivables	$	257
Inventory		6,226
Prepaid expenses and other current assets		1,875
Property and equipment		5,962
Goodwill		95,308
Brand assets - indefinite		65,500
Customer relationships - definite		43,800
Subtotal - assets		218,928

Liabilities:
Accounts payable		6,479
Accrued expenses		13,964
Other long-term liabilities		2,542
Subtotal - liabilities		22,985

Net assets recorded	$	195,943

The fair values of the above 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 14.6 percent weighted average cost of capital, a royalty rate of 5 percent used in the determination of the brand assets fair value, and a customer attrition rate averaging 14 percent per year used in the determination of customer relationship values.

The impact of the Healthy Directions acquisition on the Company’s consolidated statements of income from the acquisition date through February 28, 2015 is as follows:

HEALTHY DIRECTIONS - IMPACT ON CONSOLIDATED STATEMENT OF INCOME

June 30, 2014 (Acquisition Date) through February 28, 2015

(in thousands, except earnings per share data)


		Eight Months
		Ended
		February 28, 2015
Sales revenue, net	$	100,395
Net income		3,507

Earnings per share:
Basic	$	0.12
Diluted	$	0.12

Net income for the eight months ended February 28, 2015 includes after tax acquisition-related expenses of $2.31 million.

The following supplemental pro forma information presents the Company’s financial results as if the Healthy Directions 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, 2013, and this information is not intended to be indicative of future results.

HEALTHY DIRECTIONS

PRO FORMA IMPACT ON CONSOLIDATED STATEMENTS OF INCOME

As if the Acquisition had been completed at the beginning of March 1, 2013

(in thousands, except earnings per share data)


	Fiscal Years Ended
	the Last Day of February,
	2015		2014
Sales revenue, net	$	1,498,249	$	1,465,057
Net income		134,614		88,460

Earnings per share:
Basic	$	4.71	$	2.76
Diluted	$	4.64	$	2.73