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Acquisition of Field and Stream Stores | 9 Months Ended
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Nov. 02, 2019
Acquisition of Field and Stream Stores |
Acquisition of Field and Stream Stores | (13) Acquisition of Field and Stream Stores On September 28, 2019, Sportsman’s Warehouse, Inc. (“SWI”), a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with DICK’S Sporting Goods, Inc. (“DICK’S”). Pursuant to the Purchase Agreement, SWI agreed, subject to certain conditions, to acquire from DICK’S all cash, inventory, furniture, fixtures, and equipment, and certain other assets related to up to eight Field & Stream stores operated by DICK’S (the “Acquired Stores”). The Acquired Stores are located in New York (2), Pennsylvania (3), North Carolina (2) and Michigan (1). The acquisition of the eight Acquired Stores closed on October 11, 2019 (the “Closing Date”). On or prior to the Closing Date, SWI entered into a sublease with DICK’s with respect to each Acquired Store location. Pursuant to the Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement related to the Acquired Stores by which DICK’S will provide transition services to the Company for a period of up to 120 days of the Closing Date. The aggregate consideration to be paid to DICK’S under the Purchase Agreement is $28.7 million (the “Purchase Price”), subject to certain post-closing adjustments set forth in the Purchase Agreement. On the Closing Date, SWI drew $19.8 million under the Revolving Line of Credit to fund a portion of the purchase price. The remaining approximately $9 million of consideration owed to DICK’S in connection with the acquisition is due in January 2020. As part of the Acquisition, the Company incurred legal, accounting, and other due diligence fees that were expensed as incurred. Total fees incurred for the three months ended November 2, 2019 were $387 which were included as a component of Selling, general, and administrative expenses. The following table summarizes the Purchase Price consideration and related cash outflow at the Closing Date:
|  |  | October 11, 2019
Cash paid to seller |  | $ | 19,241
Payable to seller |  |  | 9,462
Total purchase price |  | $ | 28,703
The net Purchase Price of $28,703 has been allocate to identifiable assets acquired based on their respective estimated fair values. No liabilities were assumed as part of the acquisition of the Acquired Stores other than the lease obligation. The excess of the Purchase Price over the fair value of the tangible and intangible assets acquired is recorded as goodwill. The following table summarizes the estimated fair value of the identifiable assets acquired and assumed liabilities as of the Closing Date:
|  |  | (Preliminary Allocation) October 11, 2019
Cash |  | $ | 167
Inventory |  |  | 19,152
Property, plant, and equipment |  |  | 5,250
Operating lease right of use asset |  |  | 33,436
Operating lease right of use liability |  |  | (31,051)
Goodwill |  |  | 1,749
Total |  | $ | 28,703
Due to the fact that the Acquisition occurred during an interim period, the Company is still waiting on the finalization of the fair value measurements of the assets acquired and post closing adjustments. As a result, the Company’s fair value estimate for the purchase price and assets acquired may change during the allowable measurement period. The allowable measurement period continues from the date the Company obtains and analyzes all relevant information that existed as of the Acquisition date to determine the fair values of the assets acquired, but in no case is to exceed more that one year from the Acquisition date. Right of Use Asset and Liability The right of use asset and liability were determined by taking the present value of the future minimum lease payments associated with the acquired stores. The Company utilized discount rates for the leases similar to the rates used to present value its other leases. The difference between the asset and the liability noted above is attributable to favorable lease rates in the acquired store leases. Goodwill Goodwill represents the excess of the purchase price over the fair value of the assets acquired. The Company believes that the primary factors supporting the amount of goodwill is the workforce acquired in the store locations. The amount of goodwill that is amortizable for tax purposes is $4,134. Results of Operations The results of operations of the Acquired stores were included in the Company’s results of operations beginning on October 11, 2019. From October 11, 2019 through November 2, 2019 the acquired stores generated net sales of $3,759 which had an immaterial impact on net income. Pro Forma Results The following pro forma results are based on the individual historical results of the acquired stores with adjustments to give effect to the combined operations as if the acquisition had been consummated at the beginning of fiscal year 2018. The pro forma results are intended for informational purposes only and do not purport to represent what the combined results of operations would actually have been had the acquisition in fact occurred at the beginning of the earliest period presented. The pro forma information includes the following adjustments (i) depreciation based on the fair value of acquired property, plant, and equipment; (ii) cost of goods sold based on the step-up in fair value of the acquired inventory; (iii) interest expense incurred in connection with the borrowings on the revolving line of credit used to finance the acquisition; and (iv) elimination of acquisition expenses.
|  |  | Thirteen Weeks Ended |  | Thirty-Nine Weeks Ended
|  |  | November 2, |  | November 3, |  | November 2, |  | November 3,
|  |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net sales |  | $ | 282,734 |  | 242,482 |  | 668,517 |  | 659,376
Net income |  | $ | 10,630 |  | 13,120 |  | 10,669 |  | 15,161
Earnings per share: |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.25 |  | 0.31 |  | 0.25 |  | 0.35
Diluted |  | $ | 0.24 |  | 0.30 |  | 0.25 |  | 0.35

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