Note 7 – Acquisitions

Hydro Flask Acquisition – On March 18, 2016, we completed the acquisition of all membership units of Steel Technology, LLC, doing business as Hydro Flask. Hydro Flask is a leading designer, distributor and marketer of high performance insulated stainless steel food and beverage containers for active lifestyles. The aggregate purchase price for the transaction was approximately $209.3 million, net of cash acquired. Significant assets acquired include receivables, inventory, prepaid expenses, property and equipment, trade names, technology assets, customer relationships, and goodwill. Acquisition-related expenses, incurred during fiscal 2016, were approximately $0.7 million (before and after tax).

We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill, which is not expected to be deductible for income tax purposes. We have completed our analysis of the economic lives of the assets acquired and determined the appropriate fair values of the acquired assets. We assigned $59.0 million to trade names with indefinite economic lives. We assigned $10.3 million to technology assets and $14.2 million to customer relationships and are amortizing these assets over expected lives of 10 and 24 years, respectively. For technology assets, we considered the average life cycle of the underlying products, which range from 7 - 15 years, and the overall average life of the associated patent portfolio. For the customer relationships, we used historical attrition rates to assign an expected life.

The following schedule presents the net assets of Hydro Flask recorded at acquisition, excluding cash acquired:

HYDRO FLASK - NET ASSETS RECORDED UPON ACQUISITION AT MARCH 18, 2016

(in thousands)


Assets:
Receivables	$	7,955
Inventory		6,243
Prepaid expenses and other current assets		336
Property and equipment		1,108
Goodwill		116,053
Trade names - indefinite		59,000
Technology assets - definite		10,300
Customer relationships - definite		14,200
Subtotal - assets		215,195

Liabilities:
Accounts payable		2,275
Accrued expenses		3,662
Subtotal - liabilities		5,937
Net assets recorded	$	209,258

The fair values of the above assets acquired and liabilities assumed were estimated by applying income and market approaches. Key assumptions include various discount rates based upon a 12.3% weighted average cost of capital; royalty rates used in the determination of trade names and technology asset values of 6% and 2%, respectively; and a customer attrition rate used in the determination of customer relationship values of approximately 4% per year.

The impact of the Hydro Flask acquisition on our consolidated statements of income for fiscal 2017 is as follows:

HYDRO FLASK - IMPACT ON CONSOLIDATED STATEMENT OF INCOME


	Fiscal Year
March 18, 2016 (acquisition date) through February 28, 2017	Ended
(in thousands, except earnings per share data)	February 28, 2017
Sales revenue, net	$	107,005
Net income		27,902

Earnings per share:
Basic	$	1.01
Diluted	$	1.00

The following supplemental unaudited pro forma information presents our financial results as if the Hydro Flask 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, 2015, and this information is not intended to be indicative of future results.

HYDRO FLASK - PRO FORMA IMPACT ON CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


As if the acquisition had been completed at the beginning of March 1, 2015	Fiscal Years Ended the Last Day of February,
(in thousands, except earnings per share data)	2017		2016
Sales revenue, net	$	1,540,714	$	1,603,656
Net income		141,325		113,906

Earnings per share:
Basic	$	5.13	$	4.03
Diluted	$	5.07	$	3.96

Vicks VapoSteam Acquisition – On March 31, 2015, the Company completed the acquisition of the Vicks VapoSteam U.S. liquid inhalant business from The Procter & Gamble Company (“P&G”), which includes a fully paid-up license of P&G’s Vicks VapoSteam inhalants. In a related transaction, we acquired a fully paid-up U.S. license of P&G’s Vicks VapoPad scent pads. The vast majority of Vicks VapoSteam and VapoPads are used in our Vicks humidifiers, vaporizers and other health care devices. The aggregate purchase price for the two transactions was approximately $42.8 million financed primarily with borrowings under our Credit Agreement. Acquisition-related expenses were not material. VapoSteam operations are reported in the Health & Home segment.

We have completed our analysis of the economic lives of the assets acquired and determined the appropriate fair values of the acquired assets. We assigned $7.4 million to trademark licenses with indefinite economic lives. We assigned $1.0 million to customer relationships and $1.2 million to product formulations and will amortize these assets over expected lives of 19.5 and 20.0 years, respectively. For the customer relationships, we used historical attrition rates to assign an expected life. For product formulations, we used our best estimate of the remaining product life. The trademarks are considered to have indefinite lives that are not subject to amortization. We assigned $33.0 million to goodwill, which is expected to be deductible for income tax purposes.

Healthy Directions Acquisition – 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 $195.9 million. The purchase price was funded primarily with borrowings under the Credit Agreement. 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 2015 were approximately $3.6 million ($2.3 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 purchase price. We assigned the acquired brand assets an indefinite economic life, therefore they are not subject to amortization. We are amortizing the customer relationships over an expected weighted average life of approximately 7 years, determined using historical attrition rates.

The following table presents the net assets of Healthy Directions as recognized at the acquisition date:

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. Key assumptions included various discount rates based upon a 14.6% weighted average cost of capital, a royalty rate of 5% used in the determination of the brand assets fair value, and a customer attrition rate averaging 14% per year used in the determination of customer relationship values.