| Acquisitions | Acquisitions Acquisition of Foam Fabricators On February 15, 2018, pursuant to an agreement entered into on January 18, 2018, the Company, through a wholly owned subsidiary, FFI Compass, Inc. (“Buyer”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Warren F. Florkiewicz (“Seller”) pursuant to which Buyer acquired all of the issued and outstanding capital stock of Foam Fabricators, Inc., a Delaware corporation (“Foam Fabricators”). Foam Fabricators is a leading designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer ("OEM") components made from expanded polymers such as expanded polystyrene (EPS) and expanded polypropylene (EPP). Founded in 1957 and headquartered in Scottsdale, Arizona, it operates 13 molding and fabricating facilities across North America and provides products to a variety of end-markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building and other products. The Company made loans to, and purchased a 100% controlling interest in Foam Fabricators. The final purchase price, after the working capital settlement and net of transaction costs, was approximately $253.4 million . The Company funded the acquisition through a draw on the 2014 Revolving Credit Facility. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership. CGM will receive integration service fees of $2.25 million payable over a twelve month period as services are rendered. The results of operations of Foam Fabricators have been included in the consolidated results of operations since the date of acquisition. Foam Fabricator's results of operations are reported as a separate operating segment. The table below provides the recording of assets acquired and liabilities assumed as of the acquisition date. Preliminary Purchase Allocation Measurement Period Adjustments Preliminary Purchase Price Allocation (in thousands) As of 2/15/18 As of 6/30/18 Assets: Cash $ 6,282 $ — $ 6,282 Accounts receivable (1) 19,058 — 19,058 Inventory (2) 13,218 (6 ) 13,212 Property, plant and equipment (3) 23,485 4,885 28,370 Intangible assets 121,392 (3,050 ) 118,342 Goodwill 71,489 1,219 72,708 Other current and noncurrent assets 2,945 — 2,945 Total assets 257,869 3,048 260,917 Liabilities: Current liabilities 5,968 — 5,968 Other liabilities 115,033 115,033 Total liabilities 121,001 — 121,001 Net assets acquired 136,868 3,048 139,916 Intercompany loans to business 115,033 — 115,033 $ 251,901 $ 3,048 $ 254,949 Acquisition Consideration Purchase price $ 247,500 $ — $ 247,500 Cash acquired 3,646 2,433 3,188 Working capital adjustment 755 615 4,261 Total purchase consideration $ 251,901 $ 3,048 $ 254,949 Less: Transaction costs 1,552 — 1,552 Purchase price, net $ 250,349 $ 3,048 $ 253,397 (1) Includes $19.4 million of gross contractual accounts receivable of which $0.03 million is not expected to be collected. The fair value of accounts receivable approximated book value acquired. (2) Includes $0.7 million in inventory basis step-up, which was charged to cost of goods sold in the first quarter of 2018. (3) Includes $20.0 million of property, plant and equipment basis step-up. The Company incurred $1.6 million of transaction costs in conjunction with the Foam Fabricators acquisition, which was included in selling, general and administrative expense in the consolidated results of operations in the quarter ended March 31, 2018. The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities are valued at historical carrying values. Property, plant and equipment is valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $72.7 million reflects the strategic fit of Foam Fabricators in the Company's niche industrial business. Foam Fabricators was an S corporation under Section 1362 of the Internal Revenue Code, and accordingly, taxable income of Foam Fabricators flowed through to its stockholder. The Company and the selling shareholder have agreed to make a joint Section 338(h)(10) election which will treat the acquisition as a deemed asset purchase for United States Federal income tax purposes and accordingly the goodwill is expected to be deductible for income tax purposes. The purchase accounting for Foam Fabricators is preliminary and is expected to be finalized during the third quarter of 2018. The intangible assets recorded on a preliminary basis related to the Foam Fabricators acquisition are as follows (in thousands): Intangible assets Amount Estimated Useful Life Tradename $ 4,215 10 years Customer Relationships 114,127 15 years $ 118,342 The tradename was valued at $4.2 million using a relief from royalty methodology, in which an asset is valuable to the extent that the ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The customer relationships intangible asset was valued at $114.1 million using an excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The customer relationships intangible asset was derived using a risk adjusted discount rate. Acquisition of Rimports On February 26, 2018, the Company's Sterno subsidiary acquired all of the issued and outstanding capital stock of Rimports, Inc., a Utah corporation (“Rimports”), pursuant to a Stock Purchase Agreement, dated January 23, 2018, by and among Sterno and Jeffery W. Palmer, individually and in his capacity as Seller Representative, the Jeffery Wayne Palmer Dynasty Trust dated December 26, 2011, the Angela Marie Palmer Irrevocable Trust dated December 26, 2011, the Angela Marie Palmer Charitable Lead Trust, the Fidelity Investments Charitable Gift Fund, the TAK Irrevocable Trust dated June 7, 2012, and the SAK Irrevocable Trust dated June 7, 2012. Headquartered in Provo, Utah, Rimports is a manufacturer and distributor of branded and private label scented wickless candle products used for home décor and fragrance. Rimports offers an extensive line of wax warmers, scented wax cubes, essential oils and diffusers, and other home fragrance systems, through the mass retailer channel. Sterno purchased a 100% controlling interest in Rimports. The purchase price, after the working capital settlement and net of transaction costs, was approximately $154.4 million , subject to any working capital adjustment. The purchase price of Rimports includes a potential earn-out of up to $25 million contingent on the attainment of certain future performance criteria of Rimports for the twelve-month period from May 1, 2017 to April 30, 2018 and the fourteen month period from March 1, 2018 to April 30, 2019. The fair value of the contingent consideration was estimated at $4.1 million. Sterno funded the acquisition through their intercompany credit facility with the Company. The transaction was accounted for as a business combination. The results of operations of Rimports have been included in the consolidated results of operations since the date of acquisition. Rimport's results of operations are included in the Sterno operating segment. The table below provides the preliminary recording of assets acquired and liabilities assumed as of the acquisition date. The goodwill resulting from the purchase price allocation is expected to be deductible for income tax purposes since Rimports was previously an S-Corporation for Federal income tax purposes and the Company and the selling shareholders have agreed to make a joint Section 338(h)(10) election which will treat the acquisition as a deemed asset purchase for United States Federal income tax purposes. Preliminary Purchase Allocation Measurement Period Adjustments Preliminary Purchase Allocation (in thousands) As of 2/26/18 As of 6/30/18 Assets: Cash $ 10,025 $ — $ 10,025 Accounts receivable (1) 21,431 — 21,431 Inventory 29,691 2,666 32,357 Property, plant and equipment 1,493 1,886 3,379 Intangible assets — 86,900 86,900 Goodwill 121,364 (107,711 ) 13,653 Other current and noncurrent assets 446 — 446 Total assets 184,450 (16,259 ) 168,191 Liabilities Current liabilities 9,034 — 9,034 Other liabilities (2) 25,000 (20,900 ) 4,100 Total liabilities 34,034 (20,900 ) 13,134 Net assets acquired $ 150,416 $ 4,641 $ 155,057 Acquisition Consideration Purchase price $ 145,000 $ — $ 145,000 Cash acquired 9,500 525 10,025 Working capital adjustment (4,084 ) 4,116 32 Total purchase consideration 150,416 4,641 155,057 Less: Transaction costs 632 — 632 Purchase price, net $ 149,784 $ 4,641 $ 154,425 (1) Includes $23.8 million of gross contractual accounts receivable of which $2.4 million is not expected to be collected. The fair value of accounts receivable approximated book value acquired. (2) The purchase price of Rimports includes a potential earn-out of up to $25 million contingent on the attainment of certain future performance criteria of Rimports for the twelve-month period from May 1, 2017 to April 30, 2018 and the fourteen month period from March 1, 2018 to April 30, 2019. The earn-out was valued at $4.1 million using a probability weighted model. The intangible assets recorded on a preliminary basis related to the Rimports acquisition are as follows (in thousands): Intangible assets Amount Estimated Useful Life Tradename $ 6,600 8 years Customer Relationships 80,300 9 years $ 86,900 Sterno incurred $0.6 million of transaction costs in conjunction with the acquisition of Rimports, which was included in selling, general and administrative expense in the consolidated results of operations in the quarter ended March 31, 2018. The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current liabilities are valued at historical carrying values. Property, plant and equipment was valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. Acquisition of Crosman On June 2, 2017, CBCP Acquisition Corp. (the "Buyer"), a wholly owned subsidiary of the Company, entered into an equity purchase agreement pursuant to which it acquired all of the outstanding equity interests of Bullseye Acquisition Corporation, the indirect owner of the equity interests of Crosman Corp. ("Crosman"). Crosman is a designer, manufacturer and marketer of airguns, archery products, laser aiming devices and related accessories. Headquartered in Bloomfield, New York, Crosman serves over 425 customers worldwide, including mass merchants, sporting goods retailers, online channels and distributors serving smaller specialty stores and international markets. Its diversified product portfolio includes the widely known Crosman, Benjamin and CenterPoint brands. The Company made loans to, and purchased an initial 98.9% controlling interest in Crosman. The purchase price, including proceeds from noncontrolling interests and net of transaction costs, was approximately $150.4 million . Crosman management invested in the transaction along with the Company, representing approximately 1.1% of the initial noncontrolling interest on a primary and fully diluted basis. The fair value of the noncontrolling interest was determined based on the enterprise value of the acquired entity multiplied by the ratio of the number of shares acquired by the minority holders to total shares. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of Crosman. CGM will receive integration service fees of $1.5 million payable quarterly over a twelve month period as services are rendered beginning in the quarter ended September 30, 2017. The Company incurred $1.5 million of transaction costs in conjunction with the Crosman acquisition, which was included in selling, general and administrative expense in the consolidated results of operations in the second quarter of 2017. The results of operations of Crosman have been included in the consolidated results of operations since the date of acquisition. Crosman's results of operations are reported as a separate operating segment as a branded consumer business. The table below provides the recording of assets acquired and liabilities assumed as of the acquisition date. Preliminary Purchase Allocation Measurement Period Adjustments Final Purchase Allocation (in thousands) As of 6/2/2017 December 31, 2017 Assets: Cash $ 429 $ 781 $ 1,210 Accounts receivable (1) 16,751 — 16,751 Inventory 25,598 3,275 28,873 Property, plant and equipment 10,963 4,051 15,014 Intangible assets — 84,594 84,594 Goodwill 139,434 (90,675 ) 48,759 Other current and noncurrent assets 2,348 — 2,348 Total assets $ 195,523 $ 2,026 $ 197,549 Liabilities and noncontrolling interest: Current liabilities $ 15,502 $ 781 $ 16,283 Other liabilities 91,268 354 91,622 Deferred tax liabilities 27,286 1,229 28,515 Noncontrolling interest 694 — 694 Total liabilities and noncontrolling interest $ 134,750 $ 2,364 $ 137,114 Net assets acquired $ 60,773 $ (338 ) $ 60,435 Noncontrolling interest 694 — 694 Intercompany loans to business 90,742 — 90,742 $ 152,209 $ (338 ) $ 151,871 Acquisition Consideration Purchase price $ 151,800 $ — $ 151,800 Cash acquired 1,417 (207 ) 1,210 Working capital adjustment (1,008 ) (131 ) (1,139 ) Total purchase consideration 152,209 (338 ) 151,871 Less: Transaction costs 1,397 76 1,473 Purchase price, net $ 150,812 $ (414 ) $ 150,398 (1) Includes $18.0 million of gross contractual accounts receivable of which $1.2 million was not expected to be collected. The fair value of accounts receivable approximated book value acquired. The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including income, cost and market approach. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities are valued at historical carrying values. Property, plant and equipment is valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $48.8 million reflects the strategic fit of Crosman in the Company's branded consumer business and is not expected to be deductible for income tax purposes. The purchase accounting for Crosman was finalized during the fourth quarter of 2017. The intangible assets recorded related to the Crosman acquisition are as follows (in thousands): Intangible Assets Amount Estimated Useful Life Tradename $ 53,463 20 years Customer relationships 28,718 15 years Technology 2,413 15 years $ 84,594 The tradename was valued at $53.5 million using a multi-period excess earnings methodology. The customer relationships intangible asset was valued at $28.7 million using the distributor method, a variation of the multi-period excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The technology was valued at $2.4 million using a relief from royalty method. Unaudited pro forma information The following unaudited pro forma data for the six months ended June 30, 2018 and the three and six months ended June 30, 2017 gives effect to the acquisition of Crosman, Foam Fabricators and Sterno's acquisition of Rimports, as described above, as if the acquisitions had been completed as of January 1, 2017. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense, management fees and related tax effects. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies and should not be construed as representing results for any future period. Three months ended June 30, Six months ended June 30, (in thousands) 2017 2018 2017 Net sales $ 384,203 $ 830,278 $ 759,702 Gross profit 130,991 287,211 249,900 Operating income 12,063 28,114 7,826 Net loss (3,765 ) (3,836 ) (23,471 ) Net loss attributable to Holdings (5,137 ) (5,997 ) (25,313 ) Basic and fully diluted net loss per share attributable to Holdings $ (0.55 ) $ (0.23 ) $ (1.13 ) Other acquisitions Clean Earth On May 23, 2018, Clean Earth acquired all of the outstanding capital stock of Environmental Soil Management, Inc. (“ESMI”), located in Fort Edward, New York and Loudon, New Hampshire. The acquisition provided Clean Earth the opportunity to geographically expand their soil and hazardous waste solutions in the New York and New England market. The purchase price was approximately $30.7 million . Clean Earth has not completed the preliminary purchase price allocation for ESMI and therefore has recorded the excess amount of the purchase price over assets acquired less liabilities assumed as goodwill at June 30, 2018. |
