Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.8.0.1
Acquisitions
9 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions

Note (3) – Acquisitions:

 

Tri-State Acquisition

 

The Tri-State Acquisition was effected on October 31, 2017 in accordance with the Asset Purchase Agreement between the parties dated September 8, 2017, pursuant to which the Company, indirectly through Tri-State, the Company’s wholly-owned subsidiary, purchased substantially all of the assets of TSTS for a purchase price consisting of approximately $7,952,000 in cash (subject to working capital and other preliminary adjustments) and 338,115 shares of the Company’s common stock. The Company used borrowings under its Credit Facility (as described in Note 5) to fund the cash consideration. Fees and expenses related to the Tri-State Acquisition, consisting primarily of legal and other professional fees, totaled approximately $137,000 and are classified as selling, general and administrative expenses in the Company’s condensed consolidated statements of operations for the nine months ended March 31, 2018. Pursuant to the Asset Purchase Agreement, the Company, indirectly through Tri-State, also assumed certain of the liabilities of TSTS. The total purchase price for accounting purposes was $17.0 million, which included cash acquired of $1.8 million.

 

The Tri-State Acquisition was treated for accounting purposes as a purchase of TSTS using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the aggregate consideration in the Tri-State Acquisition is allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The computation of the purchase price consideration and the preliminary allocation of the consideration to the net assets acquired are presented in the following tables (in thousands):

 

Purchase price:      
Cash consideration, net of cash acquired(a)   $ 6,177  
Stock consideration(b)     9,028  
Total purchase price, net of cash acquired   $ 15,205  
         

(a)Includes $7,952,000 paid at closing (inclusive of a preliminary working capital adjustment) net of $1.8 million of cash acquired.

(b)Calculated as 338,115 shares of the Company’s common stock, multiplied by $26.70, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration (in thousands):      
Accounts receivable   $ 3,416  
Inventory     2,747  
Other assets     1,565  
Property, plant and equipment     806  
Intangible assets     5,200  
Accounts payable and accrued expenses     (2,220 )
Customer deposits     (1,289 )
Total identifiable net assets     10,225  
Goodwill     4,980  
Total   $ 15,205  

 

The Company is continuing its valuation of the intangible assets acquired, as well as the final working capital amount, which are subject to adjustment in accordance with the Asset Purchase Agreement. Accordingly, the purchase price allocation set forth above reflects preliminary fair value estimates based on preliminary work and analyses performed by management and is subject to change as additional information to assist in determining the fair value of the net assets acquired at the closing date is obtained during the post-closing measurement period of up to one year.

 

Intangible assets consist of $1.5 million allocated to the Tri-State trade name and $3.7 million allocated to customer-related intangible assets. The Tri-State trade name is indefinite-lived and therefore not subject to amortization. The Tri-State trade name will be evaluated for impairment annually or more frequently if an event occurs or circumstances change that indicate it may be impaired, by comparing its fair value to its carrying amount to determine if a write-down to fair value is required. Customer-related intangible assets will be amortized over 10 years.

 

Goodwill is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the Tri-State Acquisition.

 

AA Acquisition

 

The AA Acquisition was effected on February 9, 2018 in accordance with the Asset Purchase Agreement between the parties dated December 8, 2017, pursuant to which the Company, indirectly through AAdvantage, the Company’s wholly-owned subsidiary, purchased substantially all of the assets of AA for a purchase price consisting of approximately $8.1 million in cash (subject to working capital and other preliminary adjustments) and 348,360 shares of the Company’s common stock. As described in Note 5, the Company entered into an amendment to its Credit Facility in connection with the AA Acquisition and used borrowings under the Credit Facility to fund the cash consideration. Fees and expenses related to the AA Acquisition, consisting primarily of legal and other professional fees, totaled approximately $160,000 and are classified as selling, general and administrative expenses in the Company’s condensed consolidated statements of operations for the three and nine-month periods ended March 31, 2018. Pursuant to the Asset Purchase Agreement, the Company, indirectly through AAdvantage, also assumed certain of the liabilities of AA. The total purchase price for accounting purposes was $20.4 million, which included cash acquired of $0.9 million.

 

The AA Acquisition was treated for accounting purposes as a purchase of AA using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the aggregate consideration in the AA Acquisition is allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The computation of the purchase price consideration and the preliminary allocation of the consideration to the net assets acquired are presented in the following tables (in thousands):

 

Purchase price:      
Cash consideration, net of cash acquired(a)   $ 7,175  
Stock consideration(b)     12,349  
Total purchase price, net of cash acquired   $ 19,524  
         

(a)Includes $8,119,000 paid at closing (inclusive of a preliminary working capital adjustment) net of $0.9 million of cash acquired.

(b)Calculated as 348,360 shares of common stock, multiplied by $35.45, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration (in thousands):      
Accounts receivable   $ 2,834  
Inventory     2,833  
Other assets     2,950  
Property, plant and equipment     771  
Intangible assets     4,300  
Accounts payable and accrued expenses     (1,197 )
Customer deposits     (285 )
Total identifiable net assets     12,206  
Goodwill     7,318  
Total   $ 19,524  

 

The Company is continuing its valuation of the intangible assets acquired, as well as the final working capital amount, which are subject to adjustment in accordance with the Asset Purchase Agreement. Accordingly, the purchase price allocation set forth above reflects preliminary fair value estimates based on preliminary work and analyses performed by management and is subject to change as additional information to assist in determining the fair value of the net assets acquired at the closing date is obtained during the post-closing measurement period of up to one year.

 

Intangible assets consist of $1.8 million allocated to the AA trade name and $2.5 million allocated to customer-related intangible assets. The AA trade name is indefinite-lived and therefore not subject to amortization. The AA trade name will be evaluated for impairment annually or more frequently if an event occurs or circumstances change that indicate it may be impaired, by comparing its fair value to its carrying amount to determine if a write-down to fair value is required. Customer-related intangible assets will be amortized over 10 years.

 

Goodwill is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the AA Acquisition.

 

Supplemental Pro Forma Results of Operations

 

The following unaudited supplemental pro forma information presents the results of operations of the Company, after giving effect to the Tri-State Acquisition and AA Acquisition, as if the Company had completed the Tri-State Acquisition, AA Acquisition and related financing (as described in Note 5) on July 1, 2016, but using the preliminary estimates of the fair values of the assets acquired and liabilities assumed as of the respective closing dates of the acquisitions. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been if the Tri-State Acquisition, AA Acquisition and related financing had occurred on the date assumed, nor are they indicative of future results of operations.

 

    For the nine months ended
March 31,
(in thousands)   2018
(Unaudited)
  2017
(Unaudited)
Revenues   $ 132,631     $ 108,858  
Net income     5,013       5,732