(3) Acquisition of Field & Stream Stores

On September 28, 2019, Sportsman’s Warehouse, 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, Sportsman’s Warehouse 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, Sportsman’s Warehouse 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 provided transition services to the Company for a period of up to 120 days of the Closing Date.

The aggregate consideration paid to DICK’S under the Purchase Agreement was $28.7 million (the “Purchase Price”). On the Closing Date, Sportsman’s Warehouse drew $19.8 million under the Revolving Line of Credit (as defined below) to fund a portion of the Purchase Price. The remaining approximately $9 million of consideration owed to DICK’S was paid 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 year ended February 1, 2020 were $662 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 Purchase Price of $28,703 has been allocated to the 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:


		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)
Deferred tax asset		253
Goodwill		1,496
Total	$	28,703

As of February 1, 2020, the Company has finalized its allocation of the purchase price to the identifiable assets and does not expect any further adjustments to the allocation in future periods.

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 net 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 February 1, 2020 the Acquired stores generated net sales of $24,345 and net income of approximately $2,246.

Pro Forma Results (unaudited)

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.


		Fiscal Year Ended
		February 1,	February 2,
		2020	2019
Net sales	$	931,703	923,678
Net income	$	20,369	26,624

Earnings per share:
Basic	$	0.47	0.62
Diluted	$	0.47	0.62

In addition, in March 2020 the Company acquired one additional Field & Stream stores from DICK’S and entered into an asset purchase agreement for a second additional Field & Stream store. See Note 19, Subsequent Event for additional information.