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Acquisitions (Notes) | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Acquisitions |
5. | Acquisitions
IP Cleaning S.p.A. On April 6, 2017, we acquired 100 percent of the outstanding capital stock of IP Cleaning S.p.A. and its subsidiaries ("IPC Group") for a purchase price of $353,769, net of cash acquired of $8,804. The primary seller was Ambienta SGR S.p.A., a European private equity fund. IPC Group, based in Italy, is a designer and manufacturer of innovative professional cleaning equipment, cleaning tools and supplies. The acquisition strengthens our presence and market share in Europe and will allow us to better leverage our EMEA cost structure. We funded the acquisition of IPC Group, along with related fees, including refinancing of existing debt, with funds raised through borrowings under a senior secured credit facility in an aggregate principal amount of $420,000. Further details regarding our acquisition financing arrangements are discussed in Note 9. The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:
ASSETS |
Receivables | $ | 39,984 |
Inventories | 46,442 |
Other Current Assets | 5,314 |
Assets Held for Sale | 2,247 |
Property, Plant and Equipment | 63,890 |
Intangible Assets Subject to Amortization: |
Trade Name | 26,753 |
Customer Lists | 123,061 |
Technology | 9,631 |
Other Assets | 8,261 |
Total Identifiable Assets Acquired | 325,583 |
LIABILITIES |
Accounts Payable | 32,227 |
Accrued Expenses | 15,611 |
Deferred Income Taxes | 60,433 |
Other Liabilities | 9,360 |
Total Identifiable Liabilities Assumed | 117,631 |
Net Identifiable Assets Acquired | 207,952 |
Noncontrolling Interest | (2,028 | )
Goodwill | 147,845 |
Total Estimated Purchase Price, net of Cash Acquired | $ | 353,769 |
The acquired assets, liabilities and operating results have been included in our Consolidated Financial Statements from the date of acquisition. During 2017, we included net sales of $174,444 and a net loss of $14,483 from IPC Group in our Consolidated Statements of Operations. The net loss includes a fair value adjustment, net of tax, of $5,237 to the acquired inventory of IPC Group. In addition, costs of $10,408, net of tax, associated with the acquisition of the IPC Group were expensed as incurred in the 2017 Consolidated Statement of Operations. The preliminary gross amount of the accounts receivable acquired is $44,654, of which $4,670 is expected to be uncollectible. The fair value measurements were final at December 31, 2017, with the exception of the fair value of accounts receivable, inventory excess and obsolescence reserves, intangible assets subject to amortization, goodwill, warranty, income tax payable and deferred income taxes. We expect the fair value measurement process to be completed no later than one year from the acquisition date. Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net identifiable assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in an estimated purchase price in excess of the fair value of identifiable net assets acquired. The estimated purchase price also included the fair value of other assets that were not identifiable and not separately recognizable under accounting rules (e.g., assembled workforce) or these assets were of immaterial value. In addition, there is a going concern element that represents our ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. Based on preliminary fair value measurement of the assets acquired and liabilities assumed, we allocated $147,845 to goodwill for the expected synergies from combining IPC Group with our existing business. None of the goodwill is expected to be deductible for income tax purposes. The assignment of goodwill to reporting units is not complete, pending finalization of the valuation measurements. The fair value of acquired identifiable intangible assets was primarily determined using discounted expected cash flows. The fair value of acquired identifiable tangible assets was primarily determined using the cost or market approach. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy. The preliminary fair value of the acquired intangible assets is $159,445. The expected lives of the acquired amortizable intangible assets are approximately 15 years for customer lists, 10 years for trade names and 10 years for technology. Trade names are being amortized on a straight-line basis while the customer lists and technology are being amortized on an accelerated basis. We recorded amortization expense of $15,746 in Selling and Administrative Expense on our Consolidated Statements of Operations for these acquired intangible assets in 2017. The following unaudited pro forma financial information presents the combined results of operations of Tennant Company as if the acquisition of IPC Group had occurred as of January 1, 2016:
Years ended December 31 | 2017 |  | 2016
Net Sales |  |  |
Pro forma | $ | 1,057,127 |  |  | $ | 1,013,710 |
As reported | 1,003,066 |  |  | 808,572 |
Net Earnings (Loss) Attributable to Tennant Company |  |  |
Pro forma | $ | 12,288 |  |  | $ | 30,412 |
As reported | (6,195 | ) |  | 46,614 |
Net Earnings (Loss) Attributable to Tennant Company per Diluted Share |  |  |
Pro forma | $ | 0.68 |  |  | $ | 1.69 |
As reported | (0.35 | ) |  | 2.59 |
The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year, nor does it attempt to project the future results of operations of the combined company. The unaudited pro forma financial information above gives effect to the following:
• | Incremental depreciation expense related to the estimated fair value of the property, plant and equipment from the preliminary purchase price allocation.
• | Exclusion of the purchase accounting impact of the $7,245 inventory step-up reported in 2017 Cost of Sales on our Consolidated Statements of Operations related to the sale of acquired inventory.
• | Incremental interest expense related to additional debt used to finance the acquisition.
• | Exclusion of non-recurring acquisition-related transaction and financing costs.
• | Pro forma adjustments tax affected based on the jurisdiction where the costs were incurred.
Other Acquisitions On July 28, 2016, pursuant to an asset purchase agreement and real estate purchase agreement with Crawford Laboratories, Inc. and affiliates thereof ("Sellers"), we acquired selected assets and liabilities of the Seller's commercial floor coatings business, including the Florock® Polymer Flooring brand ("Florock"). Florock manufactures commercial floor coatings systems in Chicago, IL. The purchase price was $11,843, including working capital and other adjustments, and is comprised of $10,965 paid at closing, with the remaining $878 paid in two installments. We paid the first installment of $575 in 2016. The remaining amount was paid during the 2017 first quarter. On September 1, 2016, we acquired selected assets and liabilities of Dofesa Barrido Mecanizado ("Dofesa") which was our largest distributor in Mexico. The operations are based in Aguascalientes, Mexico, and their addition allows us to expand our sales and service network in an important market. The purchase price was $4,650 less assumed liabilities of $3,448, subject to customary working capital adjustments. The net purchase price of $1,202 and a value added tax of $191 were paid at closing. The acquisitions have been accounted for as business combinations and the results of their operations have been included in the Consolidated Financial Statements since their respective dates of acquisition. The impact of the incremental revenue and earnings recorded as a result of the acquisitions are not material to our Consolidated Financial Statements. The purchase price allocations for both the Florock and Dofesa acquisitions are complete. The components of the final purchase price of the Florock and Dofesa acquisitions, as described above, have been allocated as follows:
Current Assets | $ | 5,949 |
Property, Plant and Equipment, net | 4,112 |
Identified Intangible Assets | 6,055 |
Goodwill | 1,739 |
Other Assets | 7 |
Total Assets Acquired | 17,862 |
Current Liabilities | 4,764 |
Other Liabilities | 53 |
Total Liabilities Assumed | 4,817 |
Net Assets Acquired | $ | 13,045 |

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