Business Combinations

12 Months Ended

Dec. 31, 2019

3. BUSINESS COMBINATIONS

Bal Seal

On January 3, 2020, the Company acquired all of the equity interests of Bal Seal, of Foothill Ranch, California, at a purchase price of $317.5 million. Bal Seal is a leader in the design, development, and manufacturing of highly engineered products, including precision springs, seals, and contacts. With this acquisition, the Company has significantly expanded its portfolio of engineered products and offerings while creating new opportunities to reach customers in medical technology, aerospace and defense, and industrial end markets.

This acquisition was accounted for as a purchase transaction. The assets acquired and liabilities assumed were recorded based

on their fair values at the date of acquisition as follows (in thousands):


Cash	$	10,953
Restricted cash	1,932
Accounts receivable	9,525
Contract assets	784
Inventories	13,500
Property, plant and equipment	81,997
Operating right-of-use asset	653
Other tangible assets	2,492
Goodwill	95,089
Other intangible assets	110,300
Liabilities	(9,679)
Net assets acquired	317,546
Less cash received	(12,885)
Net consideration	$	304,661

The goodwill associated with this acquisition is tax deductible and is the result of expected synergies from combining the operations of the acquired business with the Company's operations and intangible assets that do not qualify for separate recognition, such as an assembled workforce.

The fair value of the identifiable intangible assets of $110.3 million, consisting of customer relationships, developed technologies, trade name and acquired backlog, was determined using the income approach. Specifically, a multi-period, excess earnings method was utilized for the customer relationships and backlog and the relief-from-royalty method was utilized for the trade name and developed technologies. The fair value of the customer relationships, $70.1 million, is being amortized based on the economic pattern of benefit over periods ranging from 30 to 38 years; the fair value of the developed technologies, $25.5 million, is being amortized on a straight-line basis over periods ranging from 7 to 13 years; the fair value of the trade name, $11.9 million, is being amortized on a straight-line basis over a 40 year term; and the fair value of the acquired backlog, $2.8 million, was amortized on a straight-line basis over a period of 1 year. These amortization periods represent the estimated useful lives of the assets.

As of the acquisition date, Bal Seal had $1.9 million in costs accrued for its employee retention plans in other long term liabilities. Upon closing, the Company funded $24.7 million associated with these employee retention plans into escrow accounts. This amount and related interest was included in restricted cash on the Company's Consolidated Balance Sheets as of December 31, 2020. Eligible participants received an allocation of the escrow balance one year following the acquisition date. In addition to the purchase price of $317.5 million, the Company incurred $22.8 million in compensation expense associated with these retention plans in the year ended December 31, 2020.

3. BUSINESS COMBINATIONS (CONTINUED)

Bal Seal - continued

Bal Seal's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on January 3, 2020. Bal Seal contributed $77.0 million of revenue and $30.8 million of operating loss for the year ended December 31, 2020. The following table reflects the unaudited pro forma operating results of the Company for the twelve-month fiscal periods ended December 31, 2020 and 2019, which gives effect to the acquisition of Bal Seal as if the Company had been acquired on January 1, 2019. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 2019, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and the acquired business adjusted for certain items discussed below. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.


	For the year ended December 31,
	2020		2019
In thousands
Net sales	$	784,459	$	853,192
(Loss) earnings from continuing operations	$	(35,681)	$	27,126
Net (loss) earnings	$	(34,989)	$	180,509

Adjustments to pro forma earnings for the year ended December 31, 2020, include a $22.8 million reduction in compensation expense associated with Bal Seal's employee retention plans, the absence of $8.5 million in acquisition-related costs, a $2.4 million reduction in costs associated with the inventory step-up, $5.3 million in lower amortization of intangible assets and $4.1 million in higher income tax expense. Adjustments to pro forma earnings for the year ended December 31, 2019, include a $4.2 million reduction in net expenses associated with buildings purchased by the Company that were previously leased by Bal Seal, $11.1 million in incremental amortization of intangible assets, $22.8 million in incremental compensation expense associated with Bal Seal's employee retention plans, $8.5 million of acquisition-related costs, a $3.7 million reduction in transaction costs incurred by Bal Seal associated with the acquisition, $2.4 million in additional costs associated with the inventory step-up and $2.6 million in lower income tax expense.