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Acquisitions

3 Months Ended

May 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Note 4 - Acquisitions

Curlsmith

On April 22, 2022, we completed the acquisition of Recipe Products Ltd., a producer of innovative prestige hair care products for all types of curly and wavy hair under the Curlsmith brand. Curlsmith's products are a category leader in the market for prestige haircare products for curly hair and include conditioners, shampoos and co-washes purposefully designed for the unique joys and challenges of all types of curls and textured hair. The Curlsmith brand and products were added to the Beauty segment. The total purchase consideration was $149.7 million in cash, net of a preliminary net working capital adjustment of $0.3 million and cash acquired. The acquisition was funded with cash on hand and borrowings under our existing revolving credit facility. We incurred pre-tax acquisition expenses of $2.7 million during the first quarter of fiscal 2023, which were recognized in SG&A within our condensed consolidated statement of income.

We accounted for the acquisition as a purchase of a business and recorded the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed as goodwill. The goodwill recognized is attributable primarily to expected synergies including leveraging our Beauty segment's existing marketing and sales structure, as well as our global sourcing, distribution, shared service, and international go-to-market capabilities. The goodwill is not expected to be deductible for income tax purposes. We have provisionally determined the appropriate fair values of the acquired intangible assets and completed our analysis of the economic lives of the assets acquired. We assigned $21.0 million to trade names and are amortizing over a 20 year expected life. We assigned $12.0 million to customer relationships and are amortizing over a 19.5 year expected life, based on historical attrition rates.

The following table presents the preliminary estimated fair values of assets acquired and liabilities assumed at the acquisition date:

(in thousands)
Assets:
Receivables			$	3,874
Inventory			7,890
Prepaid expenses and other current assets			119
Property and equipment			212
Goodwill			118,529
Trade names - definite			21,000
Customer relationships - definite			12,000
Deferred tax assets, net			395
Total assets			164,019
Liabilities:
Accounts payable			1,335
Accrued expenses and other current liabilities			1,854
Income taxes payable			2,947
Deferred tax liabilities, net			8,187
Total liabilities			14,323
Net assets recorded			$	149,696

Both the fair value and gross contractual amount of receivables acquired was $3.9 million, as an immaterial amount is expected to be uncollectible.

The impact of the acquisition of Curlsmith on our condensed consolidated statement of income for the first quarter of fiscal 2023 was as follows:

April 22, 2022 (acquisition date) through May 31, 2022 (in thousands, except earnings per share data)			Three Months Ended May 31, 2022
Sales revenue, net			$	3,246
Net income			439
EPS:
Basic			$	0.02
Diluted			$	0.02

The following supplemental unaudited pro forma information presents our financial results as if the acquisition of Curlsmith had occurred on March 1, 2021. 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, 2021, and this information is not intended to be indicative of future results:

			Three Months Ended May 31,
(in thousands, except earnings per share data)			2022						2021
Sales revenue, net			$	515,170					$	550,857
Net income			26,508						55,104
EPS:
Basic			$	1.11					$	2.26
Diluted			$	1.10					$	2.24

These amounts have been calculated after applying our accounting policies and adjusting the results of Curlsmith to reflect the effect of definite-lived intangible assets recognized as part of the business combination on amortization expense as if the acquisition had occurred on March 1, 2021.

Osprey

On December 29, 2021, we completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. The Osprey brand and products were added to the Home & Outdoor segment. The total purchase consideration, net of cash acquired, was $409.3 million in cash, including the impact of a final $10.7 million favorable net working capital adjustment. The acquisition was funded with cash on hand and borrowings under our existing revolving credit facility. We incurred pre-tax acquisition-related expenses of $0.1 million during the first quarter of fiscal 2023, which were recognized in SG&A within our condensed consolidated statement of income.

We accounted for the acquisition as a purchase of a business and recorded the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed as goodwill. The goodwill recognized is attributable primarily to expected synergies including leveraging our information systems, shared service capabilities and international footprint. The goodwill is not expected to be deductible for income tax purposes. We have provisionally determined the appropriate fair values of the acquired intangible assets and completed our analysis of the economic lives of the assets acquired. We assigned $170.0 million to trade names which were determined to have an indefinite life. We assigned $22.0 million to customer relationships and are amortizing over a 4.5 year expected life, based on historical attrition rates.

During the first quarter of fiscal 2023, we finalized the net working capital adjustment, which resulted in a $1.6 million reduction to the total purchase consideration and we reduced the provisional accounts payable liability by $0.7 million, both with a corresponding decrease to goodwill totaling $2.3 million.

The following table presents the preliminary estimated fair values of assets acquired and liabilities assumed at the acquisition date:

(in thousands)
Assets:
Receivables			$	11,758
Inventory			30,056
Prepaid expenses and other current assets			3,699
Income taxes receivable			4,197
Property and equipment			11,386
Goodwill			206,680
Trade names - indefinite			170,000
Customer relationships - definite			22,000
Operating lease assets			2,155
Total assets			461,931
Liabilities:
Accounts payable			3,780
Accrued expenses and other current liabilities			7,345
Lease liabilities, non-current			1,719
Deferred tax liabilities, net			39,792
Total liabilities			52,636
Net assets recorded			$	409,295

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- References

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X

- 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 https://asc.fasb.org/topic&trid=2303972

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 20
-Section 50
-Paragraph 5
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472

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