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Drybar Products Acquisition | 12 Months Ended
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Feb. 29, 2020
Business Combinations [Abstract] |
Drybar Products Acquisition | Note 9 - Drybar Products Acquisition On January 23, 2020, we completed the acquisition of Drybar Products for approximately $255.9 million in cash, subject to certain customary closing adjustments. Acquisition-related expenses incurred during fiscal 2020 were approximately $2.5 million before tax. The purchase price was funded by borrowings under the Company's revolving credit agreement. Drybar is a fast-growing, innovative, trend setting prestige hair care and styling brand in the multi-billion-dollar beauty industry. As part of the transaction, we granted a worldwide license to Drybar Holdings LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their continued operation of Drybar salons. The salons will exclusively use, promote, and sell Drybar products globally. We accounted for the acquisition as a purchase of a business and recorded the excess purchase price as goodwill. We completed our analysis of the economic lives of the assets acquired and determined the appropriate fair values of the acquired assets. We assigned $30.0 million to trade names and are amortizing over a 15 year expected life. We assigned $17.0 million to customer relationships and are amortizing over a 14.5 year expected life. We used historical attrition rates to assign the expected life. We assigned $10.0 million to a consulting agreement and $6.0 million to a non-compete provision, and we are amortizing these assets over expected lives of 5 and 10 years, respectively. The following schedule presents the net assets recorded upon acquisition of Drybar Products at January 23, 2020:
(in thousands) |
Assets: |  |
Receivables | $ | 7,710 |
Inventory | 16,603 |
Prepaid expenses and other current assets | 190 |
Property and equipment | 1,472 |
Goodwill | 172,933 |
Trade names - definite | 30,000 |
Other intangible assets - definite | 33,000 |
Subtotal - assets | 261,908 |
Liabilities: |  |
Accounts payable | 1,948 |
Accrued expenses | 4,099 |
Subtotal - liabilities | 6,047 |
Net assets recorded | $ | 255,861 |
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 12.6% weighted average cost of capital; royalty rates used in the determination trade names and customer relationships asset values of 5.0% and 3.0%, respectively; and a customer attrition rate used in the determination of customer relationship values of 6.7% per year. The impact of the Drybar Products acquisition on our consolidated statements of income for fiscal 2020 is as follows:
January 23, 2020 (acquisition date) though February 29, 2020 (in thousands, except earnings per share data) | Fiscal Year Ended February 29, 2020
Sales revenue, net | $ | 6,039 |
Income from continuing operations | 1,483 |
Earnings per share from continuing operations: |
Basic | $ | 0.06 |
Diluted | $ | 0.06 |
The following supplemental unaudited pro forma information presents our financial results as if the Drybar Products acquisition had occurred at the beginning of the fiscal years presented. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred as if the acquisition had been completed on March 1, 2018, and this information is not intended to be indicative of future results:
As if the acquisition had been completed on March 1. 2018 (in thousands, except earnings per share data) | Fiscal Years Ended the Last Day of February,
2020 |  | 2019
Sales revenue, net | $ | 1,773,592 |  |  | $ | 1,621,117 |
Income from continuing operations | 162,114 |  |  | 179,550 |
Earnings per share from continuing operations: |  |  |  |  |
Basic | $ | 6.45 |  |  | $ | 6.89 |
Diluted | $ | 6.40 |  |  | $ | 6.83 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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