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Hydro Flask Acquisition
 12 Months Ended
Feb. 28, 2018
Hydro Flask Acquisition  
Hydro Flask Acquisition

Note 8 – 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 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

 

$

1,410,171

 

$

1,450,530

Net income

 

 

144,947

 

 

105,669

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic

 

$

5.27

 

$

3.74

Diluted

 

$

5.20

 

$

3.68