Business Acquisition

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Business Acquisition

BUSINESS ACQUISITION

On December 31, 2015, we acquired all of the outstanding capital stock of OF Holdings, Inc., sole parent of Octane Fitness, LLC ("Octane" or "Octane Fitness") for an aggregate base purchase price of $115.0 million, plus net adjustments for working capital and cash acquired on the closing date. We funded the acquisition through an $80.0 million term loan and cash on hand. Based in Brooklyn Park, Minnesota, Octane is a leader in zero-impact training with a line of fitness equipment focused on Retail specialty and commercial channels. The acquisition of Octane is expected to strengthen and diversify our brand portfolio, broaden our distribution and deepen our talent pool. Octane's business is anticipated to be highly complementary to our existing business from both product and channel perspectives and create numerous revenue synergies for us.

Since the acquisition occurred on December 31, no amount of net sales or net income related to the Octane business were included in our reported 2015 amounts. We expect to categorize Octane's results of operations in our Retail segment.

Total acquisition costs incurred through December 31, 2015 were $0.6 millionand were expensed in general and administrative costs.

Purchase Price Allocation

Acquired assets and liabilities were recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of identifiable net assets resulted in the recognition of goodwill of $58.4 million, all of which was assigned to the Retail segment, and is attributed primarily to Octane's intellectual property base, benefits of access to different markets and customers, and employee workforce. The goodwill is not expected to be deductible for income tax purposes.

The goodwill was determined on the basis of the provisional fair values of the assets and liabilities identified as of the acquisition date. It may be adjusted, within a period of no more than 12 months from the acquisition date, if the provisional fair values change as a result of circumstances existing at the acquisition date. Such fair value adjustments may arise in respect to intangible assets, inventories, and property, plant and equipment, upon completion of the necessary valuations and physical verifications of such assets. The amount of deferred taxes may also be adjusted during the measurement period.

As of December 31, 2015, the fair values of the assets acquired and liabilities assumed for the acquisition of Octane are provisional because final appraisals and/or valuations have not yet been completed. The following table summarizes the preliminary fair values of the net assets acquired and liabilities assumed, net of any working capital and other adjustments, as of December 31, 2015 (in thousands):

	Preliminary Valuation at December 31, 2015
Cash	$	7,759
Accounts receivable	12,507
Inventories	12,168
Prepaid expenses	1,028
Deferred tax assets	1,287
Property, plant and equipment	3,240
Intangible assets	63,100
Total assets acquired	$	101,089
Accounts payable	6,215
Accrued liabilities	1,614
Warranty obligations	5,550
Deferred tax liabilities, non-current	20,914
Other non-current liabilities	519
Total liabilities assumed	$	34,812
Net identifiable assets acquired	$	66,277
Goodwill	58,357
Net assets acquired	$	124,634

The following table sets forth the components of identifiable intangible assets and their estimated fair values and useful lives as of December 31, 2015 (dollars in thousands):

	Estimated fair value		Estimated useful life (years)	Weighted-average amortization period (years)
Trade name - Octane Fitness	$	23,000	Indefinite	N/A
Trade name - others	2,600		10 - 15	12.5
Patents	12,800		11 - 24	18
Customer relationships	24,700		10 - 15	13
	$	63,100

Summary of Unaudited Pro Forma Information

The following table reflects the unaudited pro forma consolidated results of operations for the period presented, as though the acquisition of Octane had occurred on January 1, 2014 (in thousands):

		(unaudited)
		Year Ended December 31,
		2015		2014
Net sales		$	400,078	$	338,990
Net income		29,352		20,233
Net income per share:
	Basic	$	0.94	$	0.65
	Diluted	0.93		0.64

The unaudited pro forma financial information is presented for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results. The pro forma results do not include, for example, the effects of anticipated synergies from combining the two companies.