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Note 2 - Acquisitions | 3 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
2) | Acquisitions
The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and September 30, 2019, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors. GS Engineering During the fourth quarter of fiscal year 2019, the Company acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering). The privately held company is a provider of specialized “soft surface” skin texturized tooling. GS Engineering primarily serves the automotive end market and its operating results are included in the Company’s Engraving segment. The Company paid $30.5 million in cash for all of the issued and outstanding equity interests of GS Engineering. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary valuation results. Goodwill from the transaction is attributable to the combined organization utilizing the GS technology across its global production footprint to enable customers worldwide to benefit from a combined offering for harmonized designs across a variety of surfaces and materials. Intangible assets of $8.9 million are preliminarily recorded, consisting of $5.6 million for developed technology to be amortized over a period of 15 years, $0.9 million for indefinite lived trademarks, and $2.4 million of customer relationships to be amortized over 13 years. The Company’s assigned fair values are preliminary as of September 30, 2019 until reviewed closing financial statements, including U.S. 338(h)10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement. The goodwill of $18.1 million created by the transaction is deductible for income tax purposes. The components of the fair value of the GS Engineering acquisition, including the preliminary allocation of the purchase price at September 30 2019, are as follows (in thousands):
|  | Preliminary Allocation June 30, 2019 |  |  | Adjustments |  |  | Adjusted Preliminary Allocation September 30, 2019 |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments |  | $ | 30,502 |  |  | $ | - |  |  | $ | 30,502 |
Less, cash acquired |  |  | (622 | ) |  |  | - |  |  |  | (622 | )
Total |  | $ | 29,880 |  |  | $ | - |  |  | $ | 29,880 |
|  | Preliminary Allocation June 30, 2019 |  |  | Adjustments |  |  | Adjusted Preliminary Allocation September 30, 2019 |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 2,197 |  |  | $ | (72 | ) |  | $ | 2,125 |
Inventories |  |  | 228 |  |  |  | (75 | ) |  |  | 153 |
Customer Backlog |  |  | 180 |  |  |  | - |  |  |  | 180 |
Property, plant, & equipment |  |  | 1,391 |  |  |  | - |  |  |  | 1,391 |
Identifiable intangible assets |  |  | 8,910 |  |  |  | - |  |  |  | 8,910 |
Goodwill |  |  | 17,976 |  |  |  | 147 |  |  |  | 18,123 |
Liabilities assumed |  |  | (1,002 | ) |  |  | - |  |  |  | (1,002 | )
Total |  | $ | 29,880 |  |  | $ | - |  |  | $ | 29,880 |
Agile Magnetics On the last business day of the first quarter of fiscal year 2019, the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics). The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries. The Company has included the results of Agile in its Electronics segment in the consolidated financial statements. The Company paid $39.2 million in cash for all of the issued and outstanding equity interests of Agile. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a their fair values on the closing date. Goodwill recorded from this transaction is attributable to expanded capabilities of the combined organization which will allow for improved responsiveness to customer demands via a larger pool of engineering resources and local manufacturing. Intangible assets of $17.4 million are recorded, consisting of $13.5 million of customer relationships to be amortized over a period of 13 years, $3.8 million for indefinite lived trademarks, and $0.1 million for a non-compete arrangement to be amortized over 5 years. The goodwill of $16.4 million recorded in connection with the transaction is deductible for income tax purposes. The Company’s assigned fair values are final as of September 30, 2019. The components of the fair value of the Agile acquisition, including the final allocation of the purchase price at September 30, 2019, are as follows (in thousands):
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Final Allocation September 30, 2019 |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments |  | $ | 39,194 |  |  | $ | - |  |  | $ | 39,194 |
Less, cash acquired |  |  | (1 | ) |  |  | - |  |  |  | (1 | )
Total |  | $ | 39,193 |  |  | $ | - |  |  | $ | 39,193 |
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Final Allocation September 30, 2019 |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 1,928 |  |  | $ | (35 | ) |  | $ | 1,893 |
Inventories |  |  | 2,506 |  |  |  | 268 |  |  |  | 2,774 |
Customer Backlog |  |  | - |  |  |  | 200 |  |  |  | 200 |
Property, plant, & equipment |  |  | 1,318 |  |  |  | (348 | ) |  |  | 970 |
Identifiable intangible assets |  |  | 13,718 |  |  |  | 3,632 |  |  |  | 17,350 |
Goodwill |  |  | 20,142 |  |  |  | (3,708 | ) |  |  | 16,434 |
Liabilities assumed |  |  | (419 | ) |  |  | (9 | ) |  |  | (428 | )
Total |  | $ | 39,193 |  |  | $ | - |  |  | $ | 39,193 |
Tenibac-Graphion Inc. During August of fiscal year 2019, the Company acquired Tenibac-Graphion Inc. (“Tenibac”). The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets. The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements. The Company paid $57.3 million in cash for all of the issued and outstanding equity interests of Tenibac. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to the complementary services that the combined business can now offer to customers, through increased responsiveness to customer demands, and providing innovative approaches to solving customer needs by offering a full line of mold and tool services to customers. Intangible assets of $16.9 million are recorded, consisting of $11.3 million of customer relationships to be amortized over a period of 15 years, $4.2 million for indefinite lived trademarks, and $1.4 million of other intangibles assets to be amortized over 5 years. The Company’s assigned fair values are final as of June 30, 2019. The goodwill of $34.4 million created by the transaction is deductible for income tax purposes. The components of the fair value of the Tenibac acquisition, including the final allocation of the purchase price are as follows (in thousands):
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Final Allocation |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments |  | $ | 57,284 |  |  | $ | - |  |  | $ | 57,284 |
Less cash acquired |  |  | (558 | ) |  |  | - |  |  |  | (558 | )
Total |  | $ | 56,726 |  |  | $ | - |  |  | $ | 56,726 |
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Final Allocation |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 5,023 |  |  | $ | (1,253 | ) |  | $ | 3,770 |
Inventories |  |  | 324 |  |  |  | - |  |  |  | 324 |
Customer backlog |  |  | 1,000 |  |  |  | (800 | ) |  |  | 200 |
Property, plant, & equipment |  |  | 2,490 |  |  |  | (19 | ) |  |  | 2,471 |
Identifiable intangible assets |  |  | 15,960 |  |  |  | 900 |  |  |  | 16,860 |
Goodwill |  |  | 32,949 |  |  |  | 1,411 |  |  |  | 34,360 |
Liabilities assumed |  |  | (1,020 | ) |  |  | (239 | ) |  |  | (1,259 | )
Total |  | $ | 56,726 |  |  | $ | - |  |  | $ | 56,726 |
Acquisition-Related Costs Acquisition-related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation and (ii) acquisition-related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets. Deferred compensation costs relate to the acquisition of Horizon Scientific on October 16, 2016, for which payments were due to the seller of $2.8 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase. For the three months ended September 30, 2019 we recorded deferred compensation costs of $0.7 million related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same period in fiscal year 2019. The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date. Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions. The components of acquisition-related costs are as follows (in thousands):
|  | Three Months Ended |
|  | September 30, |
|  | 2019 |  |  | 2018 |
Deferred compensation arrangements |  | $ | 703 |  |  | $ | 667 |
Other acquisition-related costs |  |  | 31 |  |  |  | 21 |
Total |  | $ | 734 |  |  | $ | 688 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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