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Acquisitions | 9 Months Ended
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Nov. 30, 2016
Acquisitions |
Acquisitions | Note 9 – Acquisitions Hydro Flask Acquisition - On March 18, 2016, the Company completed its 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. Hydro Flask adds a fast growing brand that has built equity among outdoor and active lifestyle enthusiasts with a product lineup, innovation pipeline and margin profile that complements, and will operate in, our Housewares segment. The acquisition extends the segment’s reach into the outdoor and athletic specialty, natural foods and e-commerce channels. The aggregate purchase price for the transaction was approximately $209.26 million in cash. 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 year 2016, were approximately $0.70 million (before and after 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. As of May 31, 2016, we completed our analysis of the economic lives of all the assets acquired and determined the appropriate initial allocation of the purchase price; however, allocated balances are preliminary and may be subject to additional adjustment as we continue to integrate the acquisition. We assigned $59.00 million to trade names with indefinite economic lives. We assigned $10.30 million to technology assets and $14.20 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 as recognized at the acquisition date: 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. These fair value measurements are based on significant inputs that are not observable in the market. Therefore, they represent Level 3 measurements. Key assumptions include various discount rates based upon a 12.3 percent weighted average cost of capital; royalty rates used in the determination of trade names and technology asset values of 6 and 2 percent, respectively; and a customer attrition rate used in the determination of customer relationship values of approximately 4 percent per year. The impact of the Hydro Flask acquisition on the Company’s consolidated condensed statements of income for the three- and nine-months ended November 30, 2016 is as follows: HYDRO FLASK - IMPACT ON CONSOLIDATED CONDENSED STATEMENTS OF INCOME March 18, 2016 (Acquisition Date) through November 30, 2016 (in thousands, except earnings per share data)
|  | November 30, 2016
|  | Three Months |  | Nine Months
|  | Ended |  | Ended
Sales revenue, net |  | $ | 34,349 |  | $ | 77,777
Net income |  |  | 10,684 |  |  | 22,428
Earnings per share: |  |  |  |  |  |
Basic |  | $ | 0.39 |  | $ | 0.81
Diluted |  | $ | 0.38 |  | $ | 0.80
The following supplemental pro forma information presents the Company’s 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 CONDENSED STATEMENTS OF INCOME As if the Acquisition had been completed at the beginning of March 1, 2015 (in thousands, except earnings per share data)
|  | Three Months Ended November 30,
|  | 2016 |  | 2015
Sales revenue, net |  | $ | 444,414 |  | $ | 464,158
Net income |  |  | 57,612 |  |  | 51,259
Earnings per share: |  |  |  |  |  |
Basic |  | $ | 2.10 |  | $ | 1.82
Diluted |  | $ | 2.07 |  | $ | 1.79
|  | Nine Months Ended November 30,
|  | 2016 |  | 2015
Sales revenue, net |  | $ | 1,164,017 |  | $ | 1,201,647
Net income |  |  | 105,630 |  |  | 101,139
Earnings per share: |  |  |  |  |  |
Basic |  | $ | 3.81 |  | $ | 3.57
Diluted |  | $ | 3.76 |  | $ | 3.50
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 inhalant trademarks. In a related transaction, the Company acquired a fully paid-up U.S. license of P&G’s Vicks VapoPad trademarks for scent pads. The vast majority of Vicks VapoSteam and VapoPads are used in Vicks humidifiers, vaporizers and other health care devices already marketed by the Company. The aggregate purchase price for the two transactions was approximately $42.75 million financed primarily with borrowings under the Credit Agreement, as defined in Note 10 to these consolidated condensed financial statements. 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 $7.40 million to trademarks with indefinite economic lives. We assigned $1.04 million to customer relationships and $1.20 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 $32.96 million to goodwill, which is deductible for income tax purposes. The fair values of the intangible assets were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market. Therefore, they represent Level 3 measurements.

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