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Note 4 - Acquisition | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 4. ACQUISITION The Performance and Lifestyle Footwear Business of Honeywell International Inc. On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell International Inc. (collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the "Acquisition") for an aggregate purchase price of $212 million. On March 15, 2021 (the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we completed the Acquisition for an aggregate preliminary closing price of approximately $207 million, net of cash acquired, based on preliminary working capital and other adjustments. Upon a final agreement of net working capital as of the Acquisition Date, we owed Honeywell an additional $5.4 million. The Acquisition was funded through cash on hand and borrowings under two new credit facilities. See Note 11 for information regarding the two new credit facilities. The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, NEOS and Ranger brands (the "Acquired Brands"). We acquired 100% of the voting interests of certain subsidiaries and additional assets comprising the performance and lifestyle footwear business of Honeywell with the Acquisition. On September 30, 2022, we completed the sale of the NEOS brand and the related assets. See Note 5 - Asset Sale for additional information. Through the Acquisition, we have greatly enhanced our portfolio of footwear brands and significantly increased our sales. We acquired a well-run business with a corporate culture and a customer base similar to ours, which provides meaningful growth opportunities within our existing product categories as well as an entry into new market segments. Its innovative and authentic product collections complement our existing offering with minimal overlap, which will allow us to strengthen our wholesale relationships and serve a wider consumer audience. At the same time, we plan to leverage our existing advanced fulfillment capabilities to improve distribution of the Acquired Brands to wholesale customers and accelerate direct-to-consumer penetration. In connection with the Acquisition, we also entered into employment agreements with seven key employees from the performance and lifestyle footwear business of Honeywell, pursuant to which, among other things, we agreed to grant 25,000 non-qualified stock options in the aggregate to the seven employees as an inducement for continuing their employment with us. We acquired multiple leases through the Acquisition including the lease of our Rock Island, Illinois and China manufacturing facilities and an office building in Westwood, Massachusetts. The Acquisition contributed net sales of $62.0 million and $37.2 million, respectively, for the three months ended September 30, 2022 and 2021, and net sales of $193.2 million and $94.4 million, respectively, to the unaudited condensed consolidated operating results for the nine months ended September 30, 2022 and 2021. The Acquisition contributed net income of $1.9 million and net loss of $3.8 million, respectively, to the unaudited condensed consolidated operating results for the three months ended September 30, 2022 and 2021, and net income of $3.8 million and net loss of $3.1 million, respectively, to the unaudited condensed consolidated operating results for the nine months ended September 30, 2022 and 2021. Acquisition-related costs Costs incurred to complete and integrate the Acquisition are expensed as incurred and included in operating expenses in the accompanying condensed consolidated statements of operations. During the three months ended September 30, 2022 and 2021, there were approximately $0.8 million and $2.9 million, respectively, of acquisition-related costs recognized. During the nine months ended September 30, 2022 and 2021, there were approximately $2.7 million and $10.3 million, respectively, of acquisition-related costs recognized. These acquisition-related costs represent investment banking fees, legal and professional fees, transaction fees, integration costs, amortization, consulting fees and restructuring costs associated with the Acquisition. Purchase Price Allocation The Acquisition has been accounted for under the business combinations accounting guidance. As a result, we have applied acquisition accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the Acquisition Date. The aggregate closing price noted above was allocated to the major categories of assets acquired and liabilities assumed based on their fair values at the Acquisition Date using primarily Level 2 and Level 3 inputs. These Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. Additionally, estimated fair values are based, in part, upon outside valuation for certain assets, including specifically identified intangible assets. The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill is finalized and is no longer subject to adjustment as the final valuation related to assets acquired and liabilities assumed has been obtained. The following table summarizes the consideration paid and estimated fair value of the assets acquired and liabilities assumed as of the Acquisition Date.
($ in thousands) |  | Fair Value |
Cash |  | $ | 2,655 |
Accounts receivable (1) |  |  | 36,734 |
Inventories (2) |  |  | 41,057 |
Property, plant and equipment |  |  | 16,243 |
Goodwill (3) |  |  | 50,246 |
Intangible assets |  |  | 98,620 |
Other assets |  |  | 1,250 |
Accounts payable |  |  | (18,108 | )
Accrued expenses |  |  | (13,634 | )
Total identifiable net assets |  |  | 215,063 |
Cash acquired |  |  | (2,655 | )
Total cash paid, net of cash acquired |  | $ | 212,408 |
(1) The recorded amount for accounts receivable considers expected uncollectible amounts of approximately $0.6 million in its determination of fair value. (2) Fair value of finished goods inventories included a preliminary step up value of approximately $3.5 million, of which approximately $0.9 million and $3.5 million, respectively, was expensed during the three months and nine months ended September 30, 2021, and are included in costs of goods solds in the accompanying unaudited condensed consolidated statements of operations. (3) Goodwill consists largely of the acquired workforce, expected cost synergies and economies of scale resulting from the Acquisition. Unaudited Pro Forma Financial Information The following unaudited pro forma results of operations assume that the Acquisition occurred at the beginning of the periods presented. These unaudited pro forma results are presented for information purposes only and are not necessarily indicative of what the results of operations would have been if the Acquisition had occurred at the beginning of the periods presented, nor are they indicative of the future results of operations. The pro forma results presented below are adjusted for the removal of acquisition-related costs of approximately $0.8 million and $2.9 million, for the three months ended September 30, 2022 and 2021, respectively, and approximately $2.7 million and $10.3 million, respectively, for the three and nine months ended September 30, 2022 and 2021.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
($ in thousands, except per share amount) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net sales |  | $ | 147,486 |  |  | $ | 125,507 |  |  | $ | 476,549 |  |  | $ | 383,454 |
Net income |  | $ | 6,289 |  |  | $ | 2,517 |  |  | $ | 16,075 |  |  | $ | 22,620 |
Diluted earnings per share |  | $ | 0.86 |  |  | $ | 0.34 |  |  | $ | 2.18 |  |  | $ | 3.04 |

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