On February 1, 2020, we completed the acquisition of NewSouth Window Solutions LLC and NewSouth Window Solutions of Orlando LLC (together, “NewSouth”, and “NewSouth Acquisition”), which became wholly-owned subsidiaries of PGT Innovations, Inc. The fair value of consideration transferred in the acquisition was $90.4 million. The acquisition was financed with proceeds of $53.2 million from the add-on issuance of $50.0 million in 2018 Senior Notes due 2026 (“Add-On Senior Notes”), including a premium of $3.2 million, and with $37.2 million in cash, including a post-closing adjustment owed to sellers of $0.2 million, which was paid during the third quarter of 2020, described below. See Note 10 for a discussion of the First Additional Senior Notes.

The estimated fair value of assets acquired, and liabilities assumed as of the closing date, are as follows:


	Initial Allocation			Adjustments to Allocation			Final Allocation
Accounts receivable	$	10,294		$	(1,860	)	$	8,434
Inventories		3,757			(821	)		2,936
Contract assets, net		4,413			—			4,413
Prepaid expenses and other assets		1,756			—			1,756
Property and equipment		7,423			10			7,433
Operating lease right-of-use asset		10,578			—			10,578
Intangible assets		28,670			(1,300	)		27,370
Goodwill		46,200			5,894			52,094
Accounts payable		(6,621	)		—			(6,621	)
Accrued and other liabilities		(5,524	)		(1,923	)		(7,447	)
Operating lease liability		(10,578	)		—			(10,578	)
Purchase price	$	90,368		$	—		$	90,368

Consideration:
Cash	$	90,145		$	223		$	90,368
Due to Sellers		223			(223	)		-
Total fair value of consideration	$	90,368		$	—		$	90,368

The fair value of certain working capital related items, including NewSouth’s retail accounts receivable, prepaid expenses, and accounts payable and accrued liabilities, approximated their book values at the date of the NewSouth Acquisition. Subsequent to our initial allocation, we adjusted the fair value of certain acquired commercial receivable accounts based on a further post-acquisition assessment of their collectability. The fair value of inventory was estimated by major category, at net realizable value. The substantial majority of inventories at the acquisition date was composed of raw materials. The fair value of property and equipment and remaining useful lives were estimated by management, with the assistance of a third-party valuation firm, using the cost approach. Valuations of the intangible assets were done using income and royalty relief approaches based on projections provided by management, which we consider to be Level 3 inputs, with the assistance of a third-party valuations firm.

We incurred acquisition costs totaling $2.4 million relating to legal expenses, representations and warranties insurance, diligence, accounting and printing services in the NewSouth Acquisition, which includes $0.9 million in 2020, and $1.5 million in 2019, classified as selling, general and administrative expenses in the accompanying consolidated statements of operations for the years ended January 2, 2021, and December 28, 2019, respectively.

The remaining consideration, after identified intangible assets and the net assets and liabilities recorded at fair value, has been determined to be $52.1 million, all of which we expected to be deductible for tax purposes. Goodwill represents the increased value of the combined entity through new direct-to-consumer sales channel opportunities, as well as NewSouth’s extensive advertising throughout Florida, and NewSouth’s market intelligence, which we expect to utilize. During 2020, we made additional adjustments to accrued liabilities assumed in the acquisition totaling $1.9 million, relating to certain commercial contracts that existed at the acquisition date, which required additional warranty-related rework to complete and which we were not aware of until after the acquisition date, during 2020. Other adjustments to our initial allocation primarily relate to the commercial assets acquired and liabilities assumed in the NewSouth Acquisition. The adjustments included a $1.9 million decrease in acquired commercial accounts receivable, which we determined were uncollectible, a $1.3 million decrease in acquired intangible assets relating to the commercial trade name, which we have determined had no fair value at the acquisition date, and $0.8 million relating to certain commercial inventories, which we determined were obsolete at the acquisition date. The net increase in goodwill relating to these adjustments since the initial allocation was $5.9 million.

The purchase agreement relating to the NewSouth Acquisition (“PA”) requires certain post-closing adjustments, under which we determined that we owe sellers an additional $0.2 million. The calculation resulted in a net increase in purchase price of $0.2 million. We paid this amount during the third quarter of 2020.

The valuation of the identifiable intangible assets acquired in the NewSouth Acquisition and our estimate of their respective useful lives are as follows:

								Initial
	Initial		Adjustment to			Final		Useful Life
	Valuation		Valuation			Valuation		(in years)
(in thousands)
Trade name	$	23,500	$	(1,300	)	$	22,200	15
Non-compete agreements		1,670		—			1,670	5
Developed technology		2,600		—			2,600	6
Customer-related intangible		900		—			900	<1

Other intangible assets, net	$	28,670	$	(1,300	)	$	27,370

The following unaudited pro forma financial information assumes the acquisition had occurred at the beginning of the earliest period presented that does not include NewSouth’s actual results for the entire period. Pro forma results have been prepared by adjusting our historical results to include the results of NewSouth adjusted for the following: amortization expense related to the intangible assets arising from the acquisition and interest expense to reflect the First Additional Senior Notes. The unaudited pro forma results below do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the earliest periods presented, nor does it indicate the results of operations in future periods. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the following unaudited pro forma results.

	Years Ended
	January 2,		December 28,
Pro Forma Results (unaudited)	2021		2019
(in thousands, except per share amounts)	(unaudited)
Net sales		890,373		831,610

Net income		45,338		44,925

Net income per common share:
Basic	$	0.77	$	0.77

Diluted	$	0.76	$	0.76

Net sales of NewSouth, included in the consolidated statement of operations for the year ended January 2, 2021, was $93.9 million. The net income of NewSouth in the consolidated statements of operations for the year ended January 2, 2021, after allocation of interest expense and other corporate costs to NewSouth, was $2.0 million.

On August 13, 2018, PGT Innovations, Inc. completed the acquisition of GEF WW Parent LLC (now known as “Western Window Systems” or “WWS”) and its subsidiaries (the “WWS Acquisition”). Headquartered in Phoenix, Arizona, Western Window Systems designs and manufactures contemporary door and window systems that unify indoor/outdoor living for the residential, commercial and multi-family markets. As a result of the acquisition, WWS became a wholly owned subsidiary of PGT Innovations, Inc. and its accounts and results are reflected in the accompanying consolidated financial statements as of and from August 13, 2018.

The fair value of consideration transferred in the WWS Acquisition was $354.6 million. The WWS Acquisition was financed primarily with proceeds of $315.0 million from the issuance of the 2018 Senior Notes due 2026, and with $39.6 million in cash on hand. See Note 10 for a discussion of the 2018 Senior Notes due 2026.

The fair value of assets acquired, and liabilities assumed as of the closing date, are as follows:

	Initial Allocation			Adjustments to Allocation			Final Allocation
Accounts and notes receivable	$	7,555		$	(217	)	$	7,338
Inventories		12,580			-			12,580
Contract assets, net		890			-			890
Prepaid expenses and other assets		1,190			-			1,190
Property and equipment		16,416			(447	)		15,969
Intangible assets		167,000			-			167,000
Goodwill		164,379			5,162			169,541
Accounts payable		(5,622	)		-			(5,622	)
Accrued and other liabilities		(9,175	)		53			(9,122	)
Deferred income tax liabilities		-			(5,180	)		(5,180	)
Purchase price	$	355,213		$	(629	)	$	354,584

Consideration:
Cash	$	355,213		$	(629	)	$	354,584
Total fair value of consideration	$	355,213		$	(629	)	$	354,584

The fair value of certain working capital related items, including accounts receivable, prepaid expenses, and accounts payable and accrued liabilities, approximated their book values at the date of the WWS Acquisition. The fair value of inventory was estimated by major category, at net realizable value. The substantial majority of inventories at the acquisition date was composed of raw materials. The fair value of property and equipment and remaining useful lives were estimated by management, with the assistance of a third-party valuation firm, using the cost approach. Valuations of the intangible assets (See Note 12) were done using income and royalty relief approaches based on projections provided by management, which we consider to be Level 3 inputs.

The WWS Acquisition included its subsidiary, WWS Blocker LLC (“Blocker”). Blocker was a single-purpose U.S. tax blocker which held a 18.06% ownership percentage of the combined ownership of WWS, and for which that portion of the fair value of assets acquired and liabilities assumed in the WWS Acquisition was not eligible for a step-up in basis. As a result, we recorded a net deferred tax liability of $5.2 million in the WWS Acquisition, primarily relating to the fair value of the acquired identifiable indefinite-lived and amortizable intangible assets. Subsequent to the acquisition, Blocker was merged out of existence. See Note 13 for details of the components of the net deferred tax liability recorded in the WWS Acquisition.

We incurred costs totaling $4.4 million relating to the WWS Acquisition, which includes $0.7 million in additional costs in the first quarter of 2019, included in selling, general, and administrative expenses in the consolidated statement of operations for the years ended January 2, 2021, and December 28, 2019, and relates to legal expenses, representations and warranties insurance, diligence, accounting and printing services.

The remaining consideration, after identified intangible assets and the net assets and liabilities recorded at fair value, has been determined to be $169.5 million, of which we estimate $139.6 million is expected to be deductible for tax purposes. Goodwill represents the increased value of the combined entity through additional sales channel opportunities as well as penetration of a new geographic market with enhanced opportunities for cross-selling of our multiple brands in all markets.

The purchase agreement relating to the WWS Acquisition has a post-closing working capital calculation whereby we were required to prepare, and which we delivered to the sellers, a final statement of purchase price, including our calculation of actual net working capital as of the closing date. The calculation resulted in a net decrease in purchase price of $0.6 million.

Net sales of WWS, included in the consolidated statement of operations for the years ended January 2, 2021, and December 28, 2019 was $130.2 million and $138.3 million, respectively. Net sales of WWS included in the consolidated statement of operations for the year ended December 29, 2018 from the August 13, 2018 acquisition date was $49.7 million. The net income of WWS in the consolidated statements of operations in all periods were de minimis after allocation of interest and other corporate costs to WWS.

The valuation of the identifiable intangible assets acquired in the WWS Acquisition and our estimate of their respective useful lives are as follows:

			Initial
	Final		Useful Life
	Valuation		(in years)
(in thousands)
Trade name	$	73,000	indefinite
Customer relationships		94,000	10

Other intangible assets, net	$	167,000

The following unaudited pro forma financial information assumes the WWS Acquisition had occurred at the beginning of the earliest period presented. Pro forma results have been prepared by adjusting our historical results to include the results of WWS adjusted for the following: amortization expense related to the amortizable intangible assets arising from the acquisition, interest expense to reflect the 2018 Senior Notes issued in connection with the acquisition. The following pro forma results of WWS do not include any adjustment for the adoption of the revenue recognition guidance under Topic 606 at the beginning of each period as it was not practicable to determine its effects. The unaudited pro forma results below do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the earliest periods presented, nor does it indicate the results of operations in future periods. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the following unaudited pro forma results.

	Year Ended
	December 29,
Pro Forma Results (unaudited)	2018
(in thousands, except per share amounts)

Net sales	$	775,473

Net income	$	50,407

Net income per common share:
Basic	$	0.96

Diluted	$	0.93