Acquisitions

12 Months Ended

Dec. 31, 2020

Acquisition of Farner-Bocken Company

On July 10, 2017, the Company completed the acquisition of substantially all of the assets of Farner-Bocken Company (“Farner-Bocken”), a regional convenience wholesaler headquartered in Carroll, Iowa. The acquisition increased the Company’s market presence primarily in the Midwestern U.S. and will further enhance the Company’s ability to cost effectively service national and regional retailers. The acquisition was accounted for as a business combination in accordance with ASC 805 - Business Combinations. The total purchase consideration was $174.0 million of which $169.0 million was paid at closing. The remaining $5.0 million indemnity holdback was released in annual installments over two years from the date of the agreement, less amounts related to indemnification claims made pursuant to the purchase agreement, if any. In July 2018 and 2019, the Company released $2.5 million, respectively, as annual installments of the indemnity holdback. The acquisition was funded through borrowings under the Company’s revolving credit facility.

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches, all Level 3 measurements under the fair value hierarchy. The income approach was primarily used to value the intangible assets, consisting primarily of acquired customer relationships and trade names. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used primarily for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

The Company determined the fair values of tangible fixed assets and intangible assets acquired with the assistance of independent valuation consultants. Goodwill is calculated as the difference between the acquisition date fair value of the total purchase consideration and the fair value of the net assets acquired, and represents the future economic benefits that the Company expects to achieve as a result of the acquisition. The following table presents the assets acquired and liabilities assumed, based on their fair values and purchase consideration as of the acquisition date (in millions):


	July 10, 2017
Accounts receivable	$	43.2
Inventories	35.5
Deposits and prepayments	10.2
Other receivables	0.4
Property and equipment	43.1
Goodwill (tax deductible)	36.8
Other intangible assets	22.6
Less: Capital lease liability	(15.8)
Less: Accrued liabilities	(2.0)
Total consideration	$	174.0

Based on the Company’s final valuation, intangible assets acquired include the following (in millions, except useful life data):


	Fair Value		Useful Life in Years
Customer relationships	$	19.7	9-11
Non-competition agreements	0.1		4-6
Trade names	2.8		1-2

Total other intangible assets	$	22.6

The results of Farner-Bocken’s operations have been included in the Company’s consolidated financial statements since the date of acquisition. The Company incurred $1.8 million of acquisition-related costs, which are included in selling, general and administrative expenses for the year ended December 31, 2017. Simultaneous with the closing of the acquisition, the Company executed a capital lease for a warehouse facility in Carroll, Iowa. The lease had an initial 15 year term and an initial capital lease obligation of $15.8 million based on the valuation as of December 31, 2017.

Pro Forma Information

The consolidated financial statements for 2017 include Farner-Bocken’s results from operations from July 10, 2017 through December 31, 2017, with the Company’s consolidated statement of income including $703.4 million in net sales and $9.4 million in operating income.

The following unaudited pro forma information presents the combined results of operations as if the asset acquisition of Farner-Bocken had occurred as of January 1, 2016, giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition-related costs. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the assets of Farner-Bocken been operated as part of the Company since January 1, 2016. Furthermore, the pro forma results do not intend to project the future results of operations of the Company (in millions, except per share amounts):


	(Unaudited) Year Ended December 31,
	2017(1)		2016(1)
	Pro forma		Pro forma
Net sales	$	16,427.9	$	15,973.6
Net income	38.1		63.6
Basic and diluted earnings per share	0.82		1.37

__________________________________________________

(1) Includes consolidated results of Farner-Bocken.