Annual report pursuant to Section 13 and 15(d)

Note 4 - Acquisitions

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Note 4 - Acquisitions
12 Months Ended
Apr. 01, 2018
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
Note
4
– Acquisitions
 
Carousel:
 On
August 4, 2017,
Carousel Acquisition, LLC, a newly formed subsidiary of the Company, acquired substantially all of the assets and business, and assumed certain specified liabilities, of a privately held manufacturer and online retailer of infant and toddler bedding based in Douglasville, Georgia, which was at that time named Carousel Designs, LLC (the “Carousel Acquisition”). On
August 11, 2017,
the seller of such assets having relinquished its rights to its name as part of the terms of the acquisition transaction, Carousel Acquisition, LLC changed its name to Carousel Designs, LLC.
 
The Company anticipates that certain synergies, including administrative and capital efficiencies,
may
be achieved as a result of the Company’s control of the combined assets and that the Company will benefit from the direct-to-consumer opportunities that will result from the Carousel Acquisition. Carousel paid an acquisition cost of
$8.7
million from cash on hand and assumed certain specified liabilities relating to the business. Carousel also recognized as expense
$347,000
of costs associated with the acquisition during
2018,
which is included in marketing and administrative expenses in the accompanying consolidated statements of income.
 
The Carousel Acquisition has been accounted for in accordance with FASB ASC Topic
805,
Business Combinations.
The Company is currently determining the allocation of the acquisition cost with the assistance of an independent
third
party. The identifiable assets acquired were recorded at their estimated fair value, which has been preliminarily determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company. Certain data necessary to complete the acquisition cost allocation is
not
yet available, including the valuation of pre-acquisition contingencies and the final appraisals and valuations of assets acquired and liabilities assumed.
 
The following table represents the Company’s allocation of the acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.
 
Tangible assets:
       
Inventory
  $
967
 
Prepaid expenses
   
5
 
Fixed assets
   
1,068
 
Total tangible assets
   
2,040
 
Amortizable intangible assets:
       
Tradename
   
1,100
 
Developed technology
   
1,100
 
Non-compete covenants
   
360
 
Total amortizable intangible assets
   
2,560
 
Goodwill
   
5,679
 
Total acquired assets
   
10,279
 
         
Liabilities assumed:
       
Accounts payable
   
319
 
Accrued wages and benefits
   
59
 
Unearned revenue
   
271
 
Other accrued liabilities
   
60
 
Capital leases
   
845
 
Total liabilities assumed
   
1,554
 
Net acquisition cost
  $
8,725
 
 
During the purchase price measurement period, the Company recorded an adjustment to decrease amortizable intangible assets acquired by
$300,000
,
with a corresponding offset to goodwill, based on information obtained that existed at the acquisition date.  The Company expects to complete the acquisition cost allocation during the
12
-month period following the acquisition date, during which time the values of the assets acquired and liabilities assumed, including the goodwill,
may
need to be revised as appropriate.  Based upon the preliminary allocation of the acquisition cost, the Company has recognized
$5.7
million of goodwill, the entirety of which has been assigned to the reporting unit of the Company that produces and markets infant and toddler bedding, blankets and accessories, and the entirety of which is expected to be deductible for income tax purposes.
 
In connection with the Carousel Acquisition, Carousel paid off capital leases amounting to
$845,000
that were associated with certain fixed assets that were acquired.  The Carousel Acquisition resulted in net sales of
$5.4
million during fiscal year
2018.
Carousel recorded amortization expense associated with the acquired amortizable intangible assets in the amount of
$183,000
during fiscal
2018,
which is included in marketing and administrative expenses in the accompanying consolidated statements of income. Amortization is computed for the acquired amortizable intangible assets using the straight-line method over the estimated useful lives of the assets, which are
15
years for the tradename,
10
years for the developed technology,
5
years for the non-compete agreements and
11
years on a weighted-average basis for the grouping taken together.
 
Sassy:
On
December 15, 2017,
Hamco acquired certain assets associated with the Sassy®-branded developmental toy, feeding and baby care product line from Sassy
14,
LLC and assumed certain related liabilities (the “Sassy Acquisition”). The Company anticipates that certain synergies, including administrative and capital efficiencies,
may
be achieved as a result of the Company’s acquisition of the Sassy product line and that the Company will benefit from the added diversity to the Company’s portfolio of products. The Company further anticipates that the Sassy Acquisition will strengthen the Company’s overall position in the infant and juvenile products market. Hamco paid an acquisition cost of
$6.5
million from a combination of cash on hand and the revolving line of credit. Hamco also recognized as expense
$169,000
of costs associated with the acquisition during fiscal year
2018,
which is included in marketing and administrative expenses in the accompanying consolidated statements of income.
 
The Sassy Acquisition has been accounted for in accordance with FASB ASC Topic
805,
Business Combinations.
The Company is currently determining the allocation of the acquisition cost with the assistance of an independent
third
party. The identifiable assets acquired were recorded at their estimated fair value, which has been preliminarily determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company. Certain data necessary to complete the acquisition cost allocation is
not
yet available, including the valuation of pre-acquisition contingencies and the final appraisals and valuations of assets acquired and liabilities assumed.
 
The following table represents the Company’s preliminary allocation of the acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.
 
Tangible assets:
       
Inventory
  $
3,297
 
Prepaid expenses
   
120
 
Fixed assets
   
383
 
Total tangible assets
   
3,800
 
Amortizable intangible assets:
       
Tradename
   
580
 
Customer relationships
   
1,840
 
Total amortizable intangible assets
   
2,420
 
Goodwill
   
320
 
Total acquired assets
   
6,540
 
Liabilities assumed:
       
Accrued wages
   
20
 
Net acquisition cost
  $
6,520
 
 
The Company expects to complete the acquisition cost allocation during the
12
-month period following the acquisition date, during which time the values of the assets acquired and liabilities assumed, including the goodwill,
may
need to be revised as appropriate.
 
Based upon the preliminary allocation of the acquisition cost, the Company has recognized
$320,000
of goodwill, the entirety of which has been assigned to the reporting unit of the Company that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products, and the entirety of which is expected to be deductible for income tax purposes.
 
The Sassy Acquisition resulted in net sales of
$2.1
million of developmental toy, feeding and baby care products during
2018.
Hamco recorded amortization expense associated with the amortizable intangible assets acquired in the Sassy Acquisition in the amount of
$56,000
during fiscal year
2018,
which is included in marketing and administrative expenses in the accompanying consolidated statements of income. Amortization is computed for the acquired amortizable intangible assets using the straight-line method over the estimated useful lives of the assets, which are
15
years for the tradename,
10
years for the customer relationships and
11
years on a weighted-average basis for the grouping taken together.