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ACQUISITIONS
3 Months Ended
Apr. 02, 2023
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS
5. ACQUISITIONS
General 
The Company completed no acquisitions in the first quarter of 2023. The Company completed one acquisition in the first quarter of 2022. For the first quarter ended March 27, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisition completed in the first quarter of 2022 were $8.4 million, and operating income was $1.4 million.

For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
Contingent Consideration
In connection with certain acquisitions, if certain financial results for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
Changes in the fair value of contingent consideration for the first quarter ended April 2, 2023 are as follows:
(thousands) April 2, 2023
Balance - December 31, 2022 $ 9,213 
Additions 90 
Fair value adjustments(1)
1,000 
Settlements (5,120)
Balance - April 2, 2023
5,183 
(1) The company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first quarter of 2023.
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at April 2, 2023 and December 31, 2022:
(thousands) April 2, 2023 December 31, 2022
Accrued liabilities $ 5,083  $ 5,250 
Other long-term liabilities 100  3,963 
Total fair value of contingent consideration 5,183  9,213 
Maximum amount of contingent consideration 6,770  10,747 
2022 Acquisitions
The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):
Company Segment Description
Rockford Corporation Manufacturing Designer and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022
Diamondback Towers, LLC Manufacturing Manufacturer of wakeboard/ski towers and accessories for marine original equipment manufacturers ("OEMs"), based in Cocoa, Florida, acquired in May 2022
Transhield Manufacturing Designer and manufacturer of customized and proprietary protection solutions for the marine, military and industrial markets, including covers and shrinkable packaging, to protect equipment during transport and storage, based in Elkhart, Indiana, acquired in November 2022.
Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $248.7 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Purchase price allocations and all valuation activities in connection with the acquisition completed in the first quarter of 2022 have been finalized. Changes to preliminary purchase accounting estimates recorded in the first quarter ended April 2, 2023 related to the 2022 Acquisitions were immaterial.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2022 Acquisitions:
2022
Acquisitions
(thousands) Acquisition A Acquisition B All Others Total
Consideration
Cash, net of cash acquired $ 132,557  $ 95,571  $ 20,526  $ 248,655 
Working capital holdback and other, net   (1,291) 315  (977)
Contingent consideration(1)
    1,840  1,840 
Total consideration $ 132,557  $ 94,280  $ 22,681  $ 249,518 
Assets Acquired
Trade receivables $ 20,640  $ 4,917  $ 904  $ 26,461 
Inventories 32,744  8,732  2,353  43,829 
Prepaid expenses & other 1,325  164  120  1,609 
Property, plant & equipment 4,681  6,026  1,638  12,345 
Operating lease right-of-use assets 2,917  1,435  599  4,951 
Identifiable intangible assets
Customer relationships 58,000  38,630  7,045  103,675 
Non-compete agreements 500  230  250  980 
Patents 7,500  9,400    16,900 
Trademarks 17,000  7,910  1,220  26,130 
Liabilities Assumed
Current portion of operating lease obligations (512) (289) (273) (1,074)
Accounts payable & accrued liabilities (24,521) (3,408) (1,255) (29,184)
Operating lease obligations (2,405) (1,146) (326) (3,877)
Deferred tax liabilities (19,930) (14,466)   (34,396)
Total fair value of net assets acquired 97,939  58,135  12,275  168,349 
Goodwill(2)
34,618  36,145  10,406  81,169 
$ 132,557  $ 94,280  $ 22,681  $ 249,518 
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $70.8 million)
We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the first quarter ended April 2, 2023 and March 27, 2022 assumes the 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $1.7 million for the first quarter ended March 27, 2022.
 
First Quarter Ended
(thousands, except per share data) April 2, 2023 March 27, 2022
Revenue $ 900,100  $ 1,373,573 
Net income 30,173  113,769 
Basic earnings per common share 1.40  5.05 
Diluted earnings per common share 1.35  4.59 
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.