Acquisition and Investment

12 Months Ended

Feb. 03, 2018

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3. Acquisition and Investment

Business Combination - etailz

On October 17, 2016, the Company completed the purchase of all of the issued and outstanding shares of etailz. The acquisition of etailz is part of our strategy to diversify our business into the fastest growing segment of retail: the Digital Marketplace. The Company plans to access the relationships, operational expertise, and infrastructure built by etailz to help unlock the full potential of etailz and to accelerate our progress towards being the industry leader for digital marketplace sales and expertise.

The Company paid $32.3 million in cash, issued 5.7 million shares of TWMC common stock at closing to the shareholders of etailz as consideration for their shares, and paid $4.3 million in cash advances to settle obligations of the selling shareholders. Based on the fair value of $3.56 per share on the acquisition date, the shares had a value of $20.4 million. An earn-out of up to a maximum of $14.6 million will be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6 million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlined in the share purchase agreement. In connection with the acquisition, the Company assumed a liability of the selling shareholders for an etailz employee bonus plan, of which $1.9 million was due and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service period. The acquisition and related costs were funded primarily from the Company’s cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase method of accounting.

During the Company’s second quarter of fiscal 2017, the share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the earnout escrow account and the $3.1 million remaining in the earnout escrow account may be payable in cash to the selling shareholders in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.

The amount released from the earnout escrow was disbursed during the Company’s second quarter of fiscal 2017 as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and $1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee bonus plan from $4.2 million to $5.7 million).

During fiscal 2017, the Company recorded a $3.3 million benefit related to its contingent consideration liability. The decrease in the value of the contingent consideration liability resulted from the actual financial results of etailz and the amendment of the earnout agreement as described in the paragraph above. This benefit is recorded in selling, general, and administrative expenses in the Company’s Consolidated Statements of Operations.

In the fourth quarter of fiscal 2016, the Company recorded a $1.4 million benefit related to the contingent consideration liability. The decrease in the value of contingent liability resulted from actual fourth quarter financial results of etailz. This benefit is recorded in selling, general, and administrative expenses in the Company’s Consolidated Statements of Operations.

The acquisition date fair value of the consideration for the above transaction consisted of the following as of October 17, 2016 (in thousands):

Cash consideration	$	36,600
Fair value of stock consideration		20,415
Fair value of contingent consideration		10,381
Fair value of indemnification consideration held in escrow		1,500
Fair value of purchase consideration	$	68,896

The following table summarizes the allocation of the aggregate purchase price to the estimated fair value of the net assets acquired:

	($in thousands)
	October 17, 2016
Assets (Liablilities) Acquired
Accounts receivable		1,533
Prepaid expenses and other current assets		5,896
Inventory		14,608
Property and equipment, net		663
Other long term-assets		12
Acquired intangible assets:
Trade names		3,200
Technology		6,700
Vendor relationships		19,100
Unfavorable lease valuation		(53	)
Goodwill		39,191
Total assets acquired	$	90,850
Liabilities Assumed
Accounts payable	$	4,888
Debt		4,729
Other current liabilities		5,349
Deferred taxes		6,988
Total liabilities assumed	$	21,954
Net assets acquired	$	68,896

The amount of goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and for the knowledge and expertise of, and established presence in, the digital marketplace, which do not qualify as separate amortizable intangible assets. Goodwill arising from the acquisition of etailz is not deductible for tax purposes. There were no adjustments from preliminary purchase price accounting to final.

The results of operations of etailz are reported in the Company’s etailz segment and included in the fiscal 2016 consolidated results of operations of the Company from the date of acquisition. The following unaudited pro forma financial information for the fifty-two weeks ended January 28, 2017, presents consolidated information as if the etailz acquisition had occurred on January 31, 2016. Because of different fiscal period ends, and in order to present results for comparable periods, the unaudited pro forma financial information for the fifty-weeks ended January 28, 2017, combines (i) the Company’s historical statement of operations for the fifty-two weeks ended January 28, 2017, and (ii) etailz historical statement of operations for the period from January 1, 2016 through August 31, 2016 and October 1, 2016 through October 16, 2016. The unaudited pro forma financial information is presented after giving effect to certain adjustments for acquisition-related costs, depreciation, amortization of definite lived intangible assets, interest expense on acquisition financing, and related income tax effects. The unaudited pro forma financial information is based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor does it project the Company’s financial position or results of operations at any future date or for any future period.

	Fifty-two Weeks Ended
	January 28,
	2017
(in thousands)
Pro forma total revenue	$	434,171
Pro forma net loss		(4,986)
Pro forma basic and diluted loss per share	$	(0.14)
Pro forma weighted average number of common shares outstanding – basic and diluted		36,239

Joint Venture

On April 11, 2017, the etailz segment of the Company entered into an agreement with another party for the purpose of acquiring and selling certain retail merchandise. etailz holds a 50% economic interest in the arrangement as of February 3, 2018. The initial cash investment was $2.6 million dollars. During the fiscal year ended February 3, 2018, the Company received distributions in the amount of $2.9 million from the joint venture, of which $1.1 million was return of capital and $1.8 million was the Company’s share of joint venture income. The remaining investment of $1.5 million was included in other assets in the Company’s Consolidated Balance Sheet as of February 3, 2018.