4. ACQUISITION

On October 2, 2017, the Company completed its acquisition of NauticStar which unites two leading and complementary boat brands and adds to its product diversity. The purchase price was $80,511, including customary adjustments for the amount of working capital in the acquired business at the closing date. A portion of the purchase price was deposited into an escrow account in order to secure certain post-closing obligations of the former members of NauticStar. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations.

The total consideration has been allocated to the assets acquired and liabilities assumed based on estimates of their fair values as of the date of acquisition. The Company has recorded the tangible and intangible assets acquired and liabilities assumed based on their fair values as of October 2, 2017. The measurements of fair value were based upon estimates utilizing the assistance of third party valuation specialists.

The following table summarizes the purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed of NauticStar at the acquisition date:


Purchase Price:
Cash paid, net of cash acquired	$	80,511


Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Accounts receivable	$	1,773
Inventories		6,358
Other current assets		94
Indemnification asset		166
Deferred income taxes		83
Property, plant and equipment		4,945
Identifiable intangible assets		36,000
Current liabilities		(4,858)
Unrecognized tax positions		(249)
Fair value of assets acquired and liabilities assumed		44,312
Goodwill		36,199
	$	80,511

The fair value estimates for the Company’s identifiable intangible assets acquired as part of the acquisition are as follows:


	Estimates of Fair Value		Estimated Useful Life (in years)
Definite-lived intangible:
Dealer network	$	20,000	10
Indefinite-lived intangible:
Trade name		16,000
Total identifiable intangible assets	$	36,000

The value allocated to inventories reflects the fair value of the acquired inventory based on the sales price of the inventory, less cost to complete and a reasonable profit margin. The value allocated to accounts receivable represents the fair value of the acquired receivables based on the expected collection of those receivables. The fair value of the identifiable intangible assets were determined based on the following approaches:

Dealer Network - The value associated with NauticStar’s dealer network is attributed to its long standing dealer distribution network. The estimate of fair value assigned to this asset was determined using the income approach, which requires an estimate or forecast of the expected future cash flows from the dealer network through the application of the multi-period excess earnings approach. The estimated remaining useful life of dealer network is approximately ten years.

Trade Name - The value attributed to NauticStar’s trade name was determined using the relief from royalty method, a variation of the income approach, which requires an estimate or forecast of the expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible asset is being amortized using the straight-line method to amortization of intangible assets expense over the estimated useful life. Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable definite-lived intangible assets acquired was 10 years. Goodwill of $36,199 arising from the acquisition consists of future growth prospects including dealer expansion into new geographic markets and capacity expansion as well as intangible assets that do not qualify for separate recognition such as an assembled workforce. The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

The value allocated to property, plant and equipment reflects the fair value of the acquired property, plant and equipment using a combination of the income, cost, and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of absorption period, lease-up costs, market rent, operating expenses, and terminal capitalization and discount rates.

Acquisition related costs of $1,486, which were incurred by the Company during the fiscal year ended June 30, 2018, were expensed during the period, and are included in general and administrative expenses in the consolidated statement of operations.

Pro Forma Financial Information:

The following unaudited pro forma consolidated results of operations for the fiscal year ended June 30, 2018, June 30, 2017 and June 30, 2016, assumes that the acquisition of NauticStar occurred as of July 1, 2016. The unaudited pro forma financial information combines historical results of MasterCraft and NauticStar, with adjustments for depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2016 or the results that may occur in the future:


	Fiscal Years Ended
	2018		2017		2016
Net sales	$	350,794	$	305,505	$	285,321
Net income	$	41,802	$	22,592	$	10,327
Basic earnings per share	$	2.25	$	1.22	$	0.58
Diluted earnings per share	$	2.23	$	1.21	$	0.57