Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Acquisitions

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Note 2 - Acquisitions
6 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
Note
2
– Acquisition
s
 
Carousel:
On
August 4, 2017,
Carousel Acquisition, LLC, a wholly-owned 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 premium infant and toddler bedding and nursery décor based in Douglasville, Georgia, which was at the time named Carousel Designs, LLC (the “Carousel Acquisition”). On
August 11, 2017,
the seller of such assets having relinquished its rights to its name under the terms of the acquisition, Carousel Acquisition, LLC changed its name to Carousel Designs, LLC (“Carousel”).
 
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. 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 has been accounted for as a business combination in accordance with FASB ASC Topic
805,
Business Combinations.
The Company determined 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 was 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. In its allocation of the acquisition cost, the Company recognized of
$5.7
million of goodwill, the entirety of which was 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.
 
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
 
 
The Carousel Acquisition resulted in net sales of
$1.8
million and
$3.6
million of infant and toddler bedding, blankets and accessories during the
three
and
six
months ended
September 30, 2018,
respectively. Carousel recorded amortization expense associated with the acquired amortizable intangible assets of
$64,000
and
$114,000
during the
three
and
six
months ended
September 30, 2018,
respectively, which is included in marketing and administrative expenses in the accompanying unaudited condensed 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.
 
S
a
ssy
:
On
December 15, 2017,
Sassy Baby, Inc. (formerly known as Hamco, Inc.) (“Sassy Baby”), a wholly-owned subsidiary of the Company, 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”). Sassy Baby paid an acquisition cost of
$6.5
million from a combination of cash on hand and the revolving line of credit. The Company has achieved certain administrative and capital efficiencies as a result of its acquisition of the Sassy product line. For example, synergies were attained in
April 2018
when the Company transferred the remaining inventory acquired in the Sassy Acquisition from Grand Rapids, Michigan to the Company’s distribution facility in Compton, California. The Company anticipates that it will benefit from the diversity added to the Company’s portfolio of products and that the Sassy Acquisition will strengthen the Company’s overall position in the infant and juvenile products market.
 
The Sassy Acquisition has been accounted for as a business combination in accordance with FASB ASC Topic
805,
Business Combinations.
The Company determined 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 was determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired was determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.
 
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
  $
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
 
 
In its allocation of the acquisition cost, the Company 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, bath, developmental toys, feeding, baby 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
$2.8
million and
$5.0
million of developmental toy, feeding and baby care products during the
three
and
six
-month periods ended
September 30, 2018,
respectively. Sassy Baby recorded amortization expense associated with the amortizable intangible assets acquired in the Sassy Acquisition of
$56,000
and
$111,000
during the
three
and
six
-month periods ended
September 30, 2018,
respectively, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income. Amortization is computed for the acquired amortizable intangible assets using the straight-line method over their estimated useful lives, 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.