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Note 6 - Acquisitions | 9 Months Ended
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Sep. 28, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
6. | Acquisitions
The Company has acquired numerous companies throughout its history and those acquisitions have generally included significant future contingent consideration. The Company gives no assurance that it will make acquisitions in the future and if they do make acquisitions gives no assurance that such acquisitions will be successful. Future Contingent Payments As of September 28, 2019, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1 ) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and 2 ) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at September 28, 2019 as follows:
Fiscal Year Ending |  | Total |
December 28, 2019 (after September 28, 2019) |  | $ | - |
January 2, 2021 |  |  | 388 |
January 1, 2022 |  |  | 1,754 |
December 31, 2022 |  |  | 919 |
Estimated future contingent consideration payments |  | $ | 3,061 |
Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates. Potential future contingent payments to be made to all active acquisitions after September 28, 2019 are capped at a cumulative maximum of $6.3 million. The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of September 28, 2019. During the thirty-nine week period ended September 28, 2019, the Company measured the intangibles acquired at fair value on a non-recurring basis. Contingent consideration related to acquisitions are recorded at fair value (level 3 ) with changes in fair value recorded in other (expense) income, net. For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the estimated contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated statements of comprehensive income. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of comprehensive income. The Company paid contingent consideration of $0.6 million and $0.3 million during the thirty-nine week periods ended September 28, 2019 and September 29, 2018, respectively. TKE Effective September 30, 2018, the Company acquired the business operations of Thermal Kinetics Engineering, PLLC, a New York professional limited liability company and Thermal Kinetics Systems, LLC, a New York limited liability company (together, “TKE”). TKE is an established Buffalo-based engineering company providing full service process equipment supply, engineering, development and design services for construction and industrial customers. TKE provides engineering services on construction and industrial processes. TKE engineers and builds optimal thermal integrations and unique separations approaches for industrial processes and equipment, with clients primarily in the chemical, oil and gas, renewable fuels, pharmaceutical, and industrial manufacturing industries. TKE will complement and expand the Company’s services offerings, providing a stronger depth of experienced engineering resources and capabilities. The Company estimated the contingent consideration to be paid to TKE as of the acquisition date and indicated such estimate resulted in a preliminary purchase price and allocation. Those estimates were highly dependent on uncertain estimates. The Company has finalized the purchase price by reducing its original estimate of contingent consideration by $1.2 million. The final estimated fair value of assets acquired and liabilities assumed is as follows:
Cash |  | $ | 1,066 |
Common stock of the Company |  |  | 1,878 |
Contingent consideration, at fair value |  |  | 1,757 |
Total consideration |  | $ | 4,701 |
The shareholders of TKE are eligible to receive post-closing contingent consideration upon the business exceeding certain base levels of operating income, potentially earned over three years. The amount recorded for the contingent consideration represents the acquisition date fair value of expected consideration to be paid based on TKE’s forecasted operating income during the three year period. Expected consideration was valued based on different possible scenarios for projected operating income. Each case was assigned a probability which was used to calculate an estimate of the forecasted future payments. Then a discount rate was applied to these forecasted future payments to determine the acquisition date fair value to be recorded. At the time of the acquisition, the book and tax basis of assets and liabilities acquired are the same. The acquisition has been accounted for under the purchase method of accounting. The total purchase price has been allocated as follows:
Fixed assets |  | $ | 12 |
Restricted covenants |  |  | 50 |
Customer relationships |  |  | 720 |
Goodwill |  |  | 4,669 |
Less: net liabilities assumed |  |  | (750 | )
Total consideration |  | $ | 4,701 |
The results of operations of TKE have been included in the consolidated statement of operations as of the effective date of acquisition. The following revenue and operating loss of TKE are included in the Company’s consolidated results of operations:
|  | Thirteen Week |  |  | Thirty-Nine Week |
|  | Period Ended September 28, 2019 |  |  | Period Ended September 28, 2019 |
Revenue |  | $ | 398 |  |  | $ | 3,761 |
Operating loss |  | $ | (236 | ) |  | $ | (63 | )
The following table represents the pro forma revenue and earnings for the thirteen and thirty-nine week periods ended September 29, 2018:
|  | Thirteen Week Period Ended September 29, 2018 |  |  | Thirty-Nine Week Period Ended September 29, 2018 |
|  | Historical |  |  | Pro Forma Combined (Unaudited) |  |  | Historical |  |  | Pro Forma Combined (Unaudited) |
Revenue |  | $ | 42,559 |  |  | $ | 44,352 |  |  | $ | 145,081 |  |  | $ | 150,161 |
Operating income |  | $ | 1,232 |  |  | $ | 1,538 |  |  | $ | 3,842 |  |  | $ | 4,760 |
Diluted net income per share |  | $ | 0.06 |  |  | $ | 0.07 |  |  | $ | 0.17 |  |  | $ | 0.22 |
The combined pro forma revenue and operating income for the quarter ended September 29, 2018 was prepared as though the TKE Acquisition had occurred as of January 1, 2018. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of TKE. This summary is not necessarily indicative of what the results of operations would have been had the TKE Acquisition occurred during such period, nor does it purport to represent results of operations for any future periods.

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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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