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Business Combination | 6 Months Ended
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Jun. 30, 2018
Business Combinations [Abstract] |
Business Combination | Business Combination On April 6, 2017, we acquired substantially all of the net assets of Residential Control Systems, Inc. ("RCS"), a U.S.-based designer and manufacturer of energy management and control products for the residential, small commercial and hospitality markets. The purchase price of $12.6 million was comprised of $8.9 million in cash and $3.7 million of contingent consideration. The acquisition of these assets will allow us to expand our product offering of home sensing, monitoring and control solutions to include smart thermostat, sensing and monitoring products previously sold and marketed by RCS. Our consolidated statement of operations for the three and six months ended June 30, 2018 includes net sales of $0.8 million and $1.9 million, respectively, and net losses of $0.6 million and $0.9 million, respectively, attributable to RCS. Our consolidated statement of operations for the three and six months ended June 30, 2017 includes net sales of $1.4 million and a net loss of $0.4 million attributable to RCS for the period commencing on April 6, 2017. Contingent Consideration We are required to make additional earnout payments of up to $10.0 million upon the achievement of certain operating income levels attributable to RCS over the period commencing on the acquisition date through June 30, 2022. The amount of contingent consideration is calculated at the end of each calendar year and is based on the agreed upon percentage of operating income as defined in the Asset Purchase Agreement ("APA"). Operating income will be calculated using certain revenues, costs and expenses directly attributable to RCS as specified in the APA. At the acquisition date, the value of earnout contingent consideration was estimated using a valuation methodology based on projections of future operating income calculated in accordance with the APA. Such projections were then discounted using an average discount rate of 24.8% to reflect the risk in achieving the projected operating income levels as well as the time value of money. The fair value measurement of the earnout contingent consideration was based primarily on significant inputs not observable in an active market and thus represents a Level 3 measurement as defined under U.S. GAAP. At June 30, 2018, the fair value of earnout consideration attributed to RCS was $2.4 million which is presented within long-term contingent consideration in our consolidated balance sheet. Purchase Price Allocation Using the acquisition method of accounting, the acquisition date fair value of the consideration transferred was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired is recorded as goodwill. The goodwill is expected to be deductible for income tax purposes. Management's purchase price allocation was the following:
(in thousands) | Estimated Lives |  | Fair Value
Accounts receivable |  |  | $ | 429 |
Inventories |  |  | 1,508 |
Prepaid expenses and other current assets |  |  | 7 |
Property, plant and equipment | 1-4 years |  | 14 |
Current liabilities |  |  | (408 | )
Net tangible assets acquired |  |  | 1,550 |
Trade name | 8 years |  | 400 |
Customer relationships | 10 years |  | 5,000 |
Order backlog | 1 year |  | 150 |
Goodwill |  |  | 5,494 |
Total purchase price |  |  | 12,594 |
Less: Contingent consideration |  |  | (3,700 | )
Cash paid |  |  | $ | 8,894 |
Management's determination of the fair value of intangible assets acquired was based primarily on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under U.S. GAAP. The fair value assigned to the RCS trade name intangible asset was determined utilizing a relief from royalty method. The fair value assigned to RCS customer relationships and order backlog intangible assets were determined utilizing a multi-period excess earnings approach. The trade name, customer relationships and order backlog intangible assets are expected to be deductible for income tax purposes. Pro Forma Results (Unaudited) The following unaudited pro forma financial information presents the combined results of our operations and the operations of RCS as if this transaction had occurred on January 1, 2016. This unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations that would have been achieved had the acquisition actually been completed as of January 1, 2016, and should not be taken as a projection of the future consolidated results of our operations.
| Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands, except per-share amounts) | 2018 |  | 2017 |  | 2018 |  | 2017
Net sales | $ | 162,523 |  |  | $ | 177,580 |  |  | $ | 327,221 |  |  | $ | 339,548 |
Net income | 22,659 |  |  | 4,767 |  |  | 22,072 |  |  | 4,541 |
Basic earnings per share | $ | 1.61 |  |  | $ | 0.33 |  |  | $ | 1.57 |  |  | $ | 0.31 |
Diluted earnings per share | $ | 1.60 |  |  | $ | 0.32 |  |  | $ | 1.55 |  |  | $ | 0.31 |
For purposes of determining pro forma net income, adjustments were made to the three and six months ended June 30, 2017. The pro forma net income assumes that amortization of acquired intangible assets began at January 1, 2016 rather than on April 6, 2017. The result is a net increase in amortization expense of $0.1 million for the six months ended June 30, 2017. Additionally, acquisition costs totaling $0.1 million are excluded from pro forma net income. All adjustments have been made net of their related tax effects.

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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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- References No definition available. + Details
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