Acquisition

David Edward

On October 26, 2018, we acquired substantially all the assets and assumed certain specified limited liabilities of David Edward headquartered in Baltimore, Maryland. David Edward is a premier designer and manufacturer of contract furniture, sold in the healthcare, corporate, education, and premium hospitality markets. David Edward sells primarily in the North American and Middle Eastern markets. David Edward’s products are generally specified by architects and designers, represented through a network of independent representatives, and sold through authorized furniture dealerships. The David Edward product portfolio consists of classic and contemporary designs, focused primarily in the seating, tables, and ancillary furniture categories. In conjunction with the asset acquisition, we leased the two existing David Edward production facilities in Baltimore, Maryland and Red Lion, Pennsylvania. The acquisition purchase price totaled $4.9 million. The purchase price is subject to certain post-closing working capital adjustments.

A summary of the preliminary purchase price allocation is as follows:



Purchase Price Allocation
(Amounts in Thousands)
Assets:
Receivables	$	359
Inventories	2,740
Prepaid expenses and other current assets	284
Net property and equipment	796
Goodwill	2,111
	$	6,290
Liabilities:
Accounts payable	$	1,321
Accrued expenses	119
	$	1,440
	$	4,850

The operating results of this acquisition are included in our condensed consolidated financial statements beginning on October 26, 2018. For both the quarter and year-to-date periods ended December 31, 2018, net sales and net loss related to David Edward were $2.6 million and $0.4 million, respectively. Direct costs of the acquisition during the quarter and year-to-date periods ended December 31, 2018, of approximately $0.3 million and $0.5 million, respectively, were expensed as incurred and were included on the Selling and Administrative Expenses line of our Condensed Consolidated Statements of Income.

Goodwill is primarily attributable to the anticipated revenue and supply chain synergies expected from the operations of the combined company. For tax purposes, goodwill is tax deductible over 15 years. See Note 2 - Recent Accounting Pronouncements and Supplemental Information in the Notes to Condensed Consolidated Financial Statements for more information on goodwill. The following summarizes our goodwill activity:



Goodwill related to David Edward Acquisition
(Amounts in Thousands)
Goodwill - June 30, 2018	$	—
Goodwill - at acquisition date	1,960
Adjustments to purchase price allocation	151
Goodwill - December 31, 2018	$	2,111

The purchase price allocation is provisional pending final valuations and purchase accounting adjustments, which were not final as of December 31, 2018. We utilized management estimates to assist in the valuation process.

D’style

On November 6, 2017, we acquired certain assets of D’style, Inc. (“D’style”) and all of the capital stock of Diseños de Estilo S.A. de C.V. headquartered in Tijuana, Mexico, a member of the D’style group which manufactures exclusively for D’style, strengthening our North American manufacturing footprint. The purchase price allocation was adjusted during the second quarter of fiscal year 2019 and included an increase of $0.2 million in goodwill and a decrease of $0.2 million in receivables and is final as of December 31, 2018. The portion of the earn-out related to fiscal year 2018 performance totaling $0.4 million was paid during our quarter ended September 30, 2018 which reduced the fair value earn-out liability from $1.1 million as of June 30, 2018 to $0.7 million as of September 30, 2018. During the quarter ended December 31, 2018, the fair value of the contingent earn-out liability was adjusted to $0.4 million relating to an adjustment of the contingent earn-out liability that is based upon fiscal year 2019 D’style, Inc. operating income compared to a predetermined target.