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Acquisition of Orlaco
 9 Months Ended
Sep. 30, 2017
Acquisition of Orlaco [Abstract]  
Acquisition of Orlaco

(3) Acquisition of Orlaco



On January 31, 2017, Stoneridge B.V., an indirect wholly-owned subsidiary of Stoneridge, Inc., entered into and closed an agreement to acquire Orlaco. Orlaco designs, manufactures and sells camera-based vision systems, monitors and related electronic products primarily to the heavy off-road machinery, commercial vehicle, lifting crane and warehousing and logistics industries.  Stoneridge and Orlaco jointly developed the MirrorEye mirror replacement system, which is a system solution to improve the safety and fuel economy of commercial vehicles.  The MirrorEye system integrates Orlaco’s vision processing technology and Stoneridge’s driver information capabilities as well as the combined software capabilities of both businesses. The acquisition of Orlaco enhances the Stoneridge’s Electronics segment global technical capabilities in vision systems and facilitates entry into new markets.

 

The aggregate consideration for the Orlaco acquisition was €74,939  ($79,675), which included customary estimated adjustments to the purchase price. The Company paid €67,439  ($71,701) in cash, and €7,500  ($7,974) is held in an escrow account for a period of eighteen months to secure the payment obligations of the seller under the terms of the purchase agreement. The purchase price is subject to certain customary adjustments set forth in the purchase agreement. The escrow amount will be transferred promptly following the completion of the escrow period. The Company may also be required to pay an additional amount up to €7,500 as contingent consideration (“earn-out consideration”) if certain performance targets are achieved during the first two years.



The acquisition date fair value of the total consideration transferred consisted of the following:





 

 



 

 

Cash

 

$               79,675

Fair value of earn-out consideration and other adjustments

 

 4,208 

Total purchase price

 

$               83,883



The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (including measurement period adjustments).  The purchase price and associated allocation is preliminary pending completion of the valuation of acquired inventory, property, plant and equipment, intangible assets and deferred income taxes and may be subsequently adjusted to reflect final valuation results and purchase price adjustments. Based upon information obtained, certain of the fair value amounts previously estimated were adjusted during the measurement period.  These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates recorded at September 30, 2017 include an increase in inventory of $265; an increase in intangible assets of $113; a decrease in other long-term assets of $684; an increase in other current liabilities of $29; a decrease in accounts receivable of $201 and a decrease in earn-out consideration of $1,007. The measurement period and working capital adjustments resulted in a decrease to goodwill of $727.





 

 

At January 31, 2017

 

 

Cash

 

$                 2,165

Accounts receivable

 

 7,929 

Inventory

 

 9,409 

Prepaid and other current assets

 

 298 

Property, plant and equipment

 

 6,668 

Identifiable intangible assets

 

 38,739 

Other long-term assets

 

 6 

Total identifiable assets acquired

 

 65,214 



 

 

Accounts payable

 

 3,020 

Other current liabilities

 

 834 

Deferred tax liabilities

 

 9,994 

Warranty liability

 

 1,462 

Total liabilities assumed

 

 15,310 

Net identifiable assets acquired

 

 49,904 

Goodwill

 

 33,979 

Net assets acquired

 

$               83,883



Assets acquired and liabilities assumed were recorded at estimated fair values based on management's estimates, available information, and reasonable and supportable assumptions. Also, the Company utilized a third-party to assist with certain estimates of fair values, including:

·

Fair value estimate for inventory was based on a comparative sales method

·

Fair value estimate for property, plant and equipment was based on appraised values utilizing cost and market approaches

·

Fair values for intangible assets were based on a combination of market and income approaches, including the relief from royalty method

·

Fair value for the earn-out consideration was based on a Monte Carlo simulation utilizing forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the 2017 and 2018 measurement period

These fair value measurements are classified within Level 3 of the fair value hierarchy. See Note 6 for details on fair value hierarchy.





Goodwill is calculated as the excess of the fair value of consideration transferred over the fair market value of the identifiable assets and liabilities and represents the future economic benefits arising from other assets acquired that could not be separately recognized. The goodwill is not deductible for income tax purposes.

   

Of the $38,739 of acquired identifiable intangible assets, $27,518 was provisionally assigned to customer lists with a 15-year useful life; $5,142 was provisionally assigned to trademarks with a 20-year useful life; and $6,079 was provisionally assigned to technology with a 7-year weighted-average useful life.



The Company recognized $1,259 of acquisition related costs in the condensed consolidated statement of operations as a component of selling, general and administrative (“SG&A”) expense for the nine months ended September 30, 2017, respectively.  

 

Included in the Company's statement of operations for the three and nine months ended September 30, 2017 are post-acquisition sales of $18,502 and $46,956, and net income of $1,254 and $1,299, respectively, related to Orlaco which are included in results of the Electronics segment. The Company’s statement of operations also included $0 and $1,636 of expense in cost of goods sold (“COGS”) for the three and nine months ended September 30, 2017, respectively, associated with the step-up of the Orlaco inventory to fair value and the $1,823 and $3,926 fair value adjustment for earn-out consideration in SG&A expenses for the three and nine months ended September 30, 2017, respectively.



The following unaudited pro forma information reflects the Company’s condensed consolidated results of operations as if the acquisition had taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results. 







 

 

 

 

 

 

 

 

 



 

 

Three months ended

 

Nine months ended



 

 

September 30,

 

September 30,



 

 

 2017 

 

 2016 

 

 2017 

 

 2016 



 

 

 

 

 

 

 

 

 

Net sales

 

$

 203,582 

$

 187,626 

$

 622,034 

$

 566,518 

Net income attributable to Stoneridge, Inc. and subsidiaries

$

 8,049 

$

 11,406 

$

 26,375 

$

 33,195