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Acquisition of Field and Stream Stores

6 Months Ended

Aug. 01, 2020

Acquisition of Field and Stream Stores

(13) Acquisition of Field and Stream Stores

2020 Acquisitions

On February 14, 2020, Sportsman’s Warehouse Inc. (“SWI”), a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “2020-I Purchase Agreement”) with DICK’s Sporting Goods (“DICK’S”). Pursuant to the 2020-I 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 one Field & Stream store located in Kentucky and operated by DICK’S (the “2020-I Acquisition”). The acquisition of the 2020-I Acquisition closed on March 12, 2020 (the “2020-I Closing Date”). On the 2020-I Closing Date, SWI entered into a sublease with DICK’s with respect to the 2020-I Acquisition location. Pursuant to the 2020-I Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement related to the 2020-I Acquisition pursuant to which DICK’S provided transition services to the Company for a period of up to 120 days after the 2020-I Closing Date.

The aggregate consideration to be paid to DICK’S under the 2020-I Purchase Agreement is $2,100 (the “2020-I Purchase Price”), subject to certain post-closing adjustments set forth in the 2020-I Purchase Agreement. On the 2020-I Closing Date, SWI drew $1,100 under the Revolving Line of Credit to fund a portion of the 2020-I Purchase Price. The remaining approximately $1,000 of consideration owed to DICK’S in connection with the acquisition was paid in June 2020.

On March 6, 2020, SWI, a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “2020-II Purchase Agreement”) with DICK’S. Pursuant to the 2020-II 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 one Field & Stream store located in Michigan and operated by DICK’S (the “2020-II Acquisition”). The acquisition of the 2020-II Acquisition closed on May 14, 2020 (the “2020-II Closing Date”). On the 2020-II Closing Date, SWI entered into a sublease with DICK’s with respect to the location. Pursuant to the 2020-II Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement related to the 2020-II Acquisition pursuant to which DICK’S will provide transition services to the Company for a period of up to 120 days after the 2020-II Closing Date.

The aggregate consideration to be paid to DICK’S under the 2020-II Purchase Agreement is $2,411 (the “2020-II Purchase Price”), subject to certain post-closing adjustments set forth in the 2020-II Purchase Agreement. On the 2020-II Closing Date, SWI drew $1,317 under the Revolving Line of Credit to fund a portion of the 2020-II Purchase Price. The

remaining approximately $1,100 of consideration owed to DICK’S in connection with the acquisition was paid in August 2020.

As part of the acquisitions, the Company incurred legal, accounting, and other due diligence fees that were expensed as incurred. Total fees incurred for the three and six months ended August 1, 2020 were $6 and $35, respectively, which were included as a component of selling, general, and administrative expenses.

The following table summarizes the 2020-I Purchase Price consideration and related cash outflow at the 2020-I Closing Date:


		March 12, 2020
Cash paid to seller	$	1,075
Payable to seller		1,024
Total purchase price	$	2,099

The net 2020-I purchase price of $2,100 was preliminarily allocated solely to the inventory acquired. In conjunction with the 2020-I acquisition, the Company recorded a right of use asset and liability relating to the lease entered into in the amount of $1,794.

The following table summarizes the 2020-II Purchase Price consideration and related cash outflow at the 2020-II Closing Date:


		May 14, 2020
Cash paid to seller	$	1,317
Payable to seller		1,094
Total purchase price	$	2,411

The net 2020-II purchase price of $2,400 was preliminarily allocated solely to the inventory and fixed assets acquired. In conjunction with the 2020-II acquisition, the Company recorded a right of use asset and liability relating to the lease entered into in the amount of $5,604.

2019 Acquisition

On September 28, 2019, SWI entered into an Asset Purchase Agreement (the “Purchase Agreement”) with 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 “2019 Acquired Stores”). The 2019 Acquired Stores are located in New York (2), Pennsylvania (3), North Carolina (2) and Michigan (1). The acquisition of the eight 2019 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 2019 Acquired Stores pursuant to 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 $28,703 (the “Purchase Price”). On the Closing Date, SWI drew $19,703 under the Revolving Line of Credit to fund a portion of the Purchase Price. The remaining approximately $9,000 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 relating to this acquisition 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 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 2019 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

The allocation of the purchase price for the 2019 stores that were acquired was finalized as of February 1, 2020 and the Company does not expect any further adjustments to the allocation in future periods.

Right of Use Asset and Liability for the 2019 Acquisition

The right of use asset and liability were determined by taking the present value of the future minimum lease payments associated with the 2019 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 for the 2019 Acquisition

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.

Pro Forma Results for 2019 Acquisition and 2020 Acquisitions

The following pro forma results are based on the individual historical results of the 2019 and 2020 acquisitions with adjustments to give effect to the combined operations as if the acquisition had been consummated at the beginning of fiscal year 2019. 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		Twenty-Six Weeks Ended
		August 1,	August 3,	August 1,	August 3,
		2020	2019	2020	2019
Net sales	$	380,989	230,235	629,465	419,310
Net income	$	32,462	5,559	31,340	100

Earnings per share:
Basic	$	0.75	0.13	0.72	0.00
Diluted	$	0.73	0.13	0.71	0.00