Acquisitions

6 Months Ended

Aug. 01, 2021

Business Combination and Asset Acquisition [Abstract]

Acquisitions

ACQUISITIONS

R&B Co.

On March 11, 2020, the Company completed the acquisition of all of the outstanding shares of R&B Co. (“R&B”) in a transaction valued at $215.0 million, subject to a working capital adjustment (the “R&B Acquisition”). The transaction price consisted of $212.0 million of initial cash consideration, subject to working capital adjustments, and $3.0 million of contingent consideration to be paid upon satisfaction of certain conditions to either the sellers of R&B or certain former R&B employees and recognized as compensation expense. During the six months ended August 1, 2021 the Company settled the R&B contingent consideration liability. This resulted in a financing cash outflow of $0.3 million to the R&B sellers for the six months ended August 1, 2021. With the R&B Acquisition, the Company added approximately 10 branch locations to the business, which expanded the Company's presence in California and strengthened the Company's ability to offer complementary waterworks products and fusible services. The transaction price was funded with cash on hand.

The following represents the final allocation of the transaction price to the fair value of identifiable assets acquired and liabilities assumed in the R&B Acquisition.

	R&B Acquisition
Cash	$	2.7
Accounts receivable	25.0
Inventories	19.8
Intangible assets	114.5
Goodwill	88.4
Operating lease right-of-use assets	9.5
Other assets, current and non-current	10.7
Total assets acquired	270.6
Accounts payable	17.5
Deferred income taxes	31.2
Operating lease liabilities	9.5
Other liabilities, current and non-current	3.6
Net assets acquired	$	208.8

The following reconciles the total consideration to net assets acquired:

	R&B Acquisition
Total consideration, net of cash	$	207.4
Plus: Cash acquired in acquisition	2.7
Less: Working capital adjustment	(1.3)
Total consideration	208.8
Less: non-cash contingent consideration	—
Net assets acquired	$	208.8

The R&B Acquisition included a contingent consideration arrangement of up to $3.0 million that was payable to the R&B sellers, if certain R&B employees failed to complete a post-acquisition one-year service period. The range of the undiscounted amounts payable by the Company under the contingent consideration agreement was between zero and $3.0 million. The fair value of the contingent consideration recognized on the acquisition date of zero was determined based on the expectation that all former R&B employees would be retained during the one-year retention period (a level 3 fair value measurement based on unobservable inputs).

In connection with the R&B Acquisition, the Company purchased all of the outstanding shares of R&B, a corporate entity, and assumed R&B’s tax basis in their assets and liabilities. This resulted in the recognition of $31.2 million in deferred tax liabilities as part of the purchase price allocation, as further described in Note 7.

In the R&B Acquisition, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce and anticipated long-term growth in new markets, customers and products.

Pro Forma Financial Information

The following pro forma information presents a summary of the results of operations for the periods indicated as if the R&B Acquisition and associated senior notes issuance had been completed as of February 4, 2019. The pro forma financial information is based on the historical financial information for the Company and R&B, along with certain pro forma adjustments. These pro forma adjustments consist primarily of:

•Increased amortization expense related to the intangible assets acquired in the R&B Acquisition;

•Increased interest expense to reflect the fixed rate notes entered into in connection with the R&B Acquisition including interest and amortization of deferred financing costs;

•Reclassification of direct acquisition transaction costs, retention bonuses and inventory fair value adjustments from the period incurred to periods these expenses would have been recognized given the assumed transaction dates identified above; and

•The related income tax effects of the aforementioned adjustments and legal entity restructuring performed to effect the R&B Acquisition.

The following pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the R&B Acquisition occurred on the assumed dates, nor is it necessarily an indication of future operating results. In addition, the pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the R&B Acquisition or revenue growth that may be anticipated.

	Six Months Ended
	August 2, 2020
Net sales	$	1,817.0
Net income	$	10.1

As a result of integration of the R&B Acquisition, including the consolidation of certain acquired and existing branches, it is impracticable to identify the explicit financial performance associated with the R&B Acquisition. As such, the Company has not presented the post-acquisition net sales and net income for the R&B Acquisition.

Intangible Assets

For the R&B Acquisition discussed above, the Company valued intangible assets acquired, which included customer relationships, non-compete agreements, and/or trademarks.

The customer relationship intangible assets represent the value associated with those customer relationships in place at the date of the R&B Acquisition. The Company valued the customer relationships using an excess earnings method using various inputs such as customer attrition rate, revenue growth rate, gross margin percentage and discount rate. Cash flows associated with the existing relationships are expected to diminish over time due to customer turnover. The Company reflected this expected diminishing cash flow through the utilization of an annual customer attrition rate assumption and in its method of amortization.

The non-compete intangible asset represents the value associated with a non-compete agreement for a former executive in place at the date of the R&B Acquisition. The trademark intangible asset represents the value associated with the brand name in place at the date of the R&B Acquisition.

A summary of the intangible assets acquired and assumptions utilized in the valuation for the R&B Acquisition is as follows:

	Intangible Asset Amount		Amortization Period	Discount Rate		Attrition Rate
R&B Acquisition
Customer relationships	$	113.7	15 years	10.0	%	7.5	%
Non-compete agreement	0.4		5 years	10.0	%	N/A
Trademark	0.4		1 year	10.0	%	N/A

Acquisition-Related Costs

Acquisition-related costs, which are included within selling, general and administrative expenses, for the R&B Acquisition were as follows:

	Three Months Ended				Six Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
R&B Acquisition	$	—	$	0.2	$	—	$	1.4