Note P - Business Acquisitions

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Business Combination Disclosure [Text Block]

P.   BUSINESS ACQUISITIONS

On July 29, 2022, the Company’s wholly owned subsidiary, UESCO, Inc., purchased with cash on hand of $3,125,000 certain assets and assumed certain liabilities of Knox Safety, Inc., a company formed in 2019 with operations in Illinois and North Carolina. In addition, upon closing the Company paid a deposit of $500,000 and, subsequently in the first fiscal quarter of 2023, an additional deposit of $1,000,000 to a vendor that had previously been a supplier of Knox Safety.   Knox Safety is a startup company that designs and sells carbon monoxide detectors for residential use, the acquisition of which should complement the product lines currently offered by the Company’s Safety segment. Subsequent to the acquisition of Knox Safety, UESCO legally adopted the corporate name Rely Innovations, Inc.

The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity.  Accordingly, the consideration paid by the Company to complete the acquisition was recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities.  The following table shows the amounts recorded as of their acquisition date. 

	(in thousands)
Accounts receivable		1,832
Inventories		1,274
Other current assets		7
Property, plant and equipment		868
Intangible assets		290
Right-of-use lease assets		1,126
Total assets acquired		5,397
Less: Current liabilities assumed		(776	)
Less: Lease liability - noncurrent		(1,004	)
Net assets acquired	$	3,617

The acquired intangibles primarily included trademarks and safety certifications that will be amortized over a period of two years. Due to its startup nature and history of operating losses, the acquisition of Knox Safety resulted in a bargain purchase gain of $492,000, which was included with Selling and general expenses in the Consolidated Statements of Comprehensive Income. There was no material tax impact from the acquisition on the Company’s Consolidated Financial Statements. The Company’s results of operations for 2022 included revenue of $265,000 and loss of ($1,546,000) from the acquired facility from the date of acquisition through December 31, 2022.  

On October 26, 2022, the Company’s wholly owned subsidiary, National Defense Corporation, and newly formed subsidiary Woodlawn Manufacturing, LLC, acquired with cash on hand of $21,558,000 the equity interests of Woodlawn Manufacturing, Ltd.  Woodlawn Manufacturing, Ltd, is a high volume manufacturer of precision metal parts and assemblies primarily for the defense and aerospace industry.

The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity.  Accordingly, the consideration paid by the Company to complete the acquisition was recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities.  The following table shows the amounts recorded as of their acquisition date.  During the quarter ended April 2, 2023, $860,000 of additional deferred tax liabilities were identified that would have existed as of the date of acquisition.  Accordingly, both Goodwill and Deferred tax liability balances were increased during that quarter. Additionally, the Company reclassed land assets to land improvement assets during 2023. The reclass had no net effect on property, plant, and equipment. The table below reflects those adjustments.

	(in thousands)
Accounts receivable		2,136
Inventories		2,309
Other current assets		130
Property, plant and equipment		6,400
Intangible assets		6,058
Goodwill		7,948
Total assets acquired		24,981
Less: Current liabilities assumed		(1,084	)
Less: Deferred tax liability		(2,339	)
Net assets acquired	$	21,558

The acquired intangible assets primarily include customer contracts and will be amortized over a period of four years.  The amount of goodwill recorded reflects expected earning potential and synergies with other operations in the Defense segment.  The recorded goodwill is not deductible for income tax purposes.  The Company’s results of operations for 2022 included revenue of $3,219,000 and net earnings of $101,000 from the acquired facility from the date of acquisition through December 31, 2022. 

The following pro forma condensed consolidated results of operations has been prepared as if the acquisitions had occurred as of January 1, 2022.

	(unaudited)
	(in thousands, except per share data)
	Year Ended
	12/31/2022
Net sales	$	340,140
Net earnings		19,299
Net earnings per share (basic and diluted)	$	2.92
Weighted average shares outstanding (basic and diluted)		7,081

The unaudited pro forma financial information presented above is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and is not indicative of what the Company’s actual results of operations would have been had the acquisition been completed at the beginning of the period indicated above.  The pro forma combined results reflect one-time costs to fully merge and operate the combined organization more efficiently, but do not reflect anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that the Company will experience.