ACQUISITIONS

3 Months Ended

Jun. 30, 2021

Business Combination and Asset Acquisition [Abstract]

T.A. Industries

On December 15, 2020, we acquired 100% of the outstanding equity of T.A. Industries, Inc. (“TRUaire”), a leading manufacturer of grilles, registers, and diffusers for the residential and commercial HVAC/R end market, based in Santa Fe Springs, California. The acquisition also included TRUaire’s wholly-owned manufacturing facility based in Vietnam. The acquisition has extended the Company’s product offerings to the HVAC market as well as added new customers and provide strategic distribution facilities.

The contractual consideration paid for TRUaire included cash of $284 million ($286.9 million after working capital and closing cash adjustments) and 849,852 shares of the Company’s common stock (valued at approximately $76.0 million at transaction signing on November 4, 2020) valued at $97.7 million at transaction close based on the closing market price of the Company's common shares on the acquisition date. The cash consideration was funded through a combination of cash on hand and borrowings under our revolving credit facility. The 849,852 shares of common stock delivered to the sellers as consideration were reissued from treasury shares.


Acquisition Consideration (Amounts in thousands, except for shares)
Cash (a)	$	286,925
Common stock (849,852 shares)	97,656
Total consideration transferred	$	384,581

(a) Amount includes working capital and closing cash adjustments, and includes the $1.4 million received by the Company on April 1, 2021 as a result of the final working capital true-up adjustment pursuant to the purchase agreement.

The TRUaire acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). Pursuant to Topic 805, the Company allocated the TRUaire purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, December 15, 2020. The excess of the purchase price over those fair values was recorded to goodwill. The Company's evaluation of the facts and circumstances available of December 15, 2020, to assign fair values to assets acquired and liabilities assumed, including income tax related amounts, is ongoing. As we complete further analysis of tangible assets, intangible assets and liabilities assumed, additional information impacting the assets acquired and the related allocation thereof, may become available. A change in information related to the net assets acquired may change the amount of the purchase price assigned to goodwill, and, as a result, the preliminary fair values set forth below are subject to adjustments when additional information is obtained and valuations are completed. Provisional adjustments, if any, will be recognized during the reporting period in which the adjustments are determined. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. The following table summarizes the Company's best initial estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands).


	Initial Estimated Fair Value		Measurement Period		Updated Estimated Fair Value
Cash	$	1,471	$	—	$	1,471
Accounts Receivable, net	13,467		—		13,467
Inventory	46,313		(1,300)		45,013
Short-Term Tax Indemnity Assets	5,000		—		5,000
Other Current Assets	1,285		1,046		2,331
Property, Plant and Equipment	28,832		(3,065)		25,767
Trade Name (indefinite life)	43,500		—		43,500
Customer Lists (useful life of 15 years)	194,000		8,500		202,500
Right-Of-Use Assets	49,040		—		49,040
Long-Term Tax Indemnity Assets	7,500		—		7,500
Other Long-Term Assets	2,850		402		3,252
Accounts Payable	(4,074)		—		(4,074)
Accrued and Other Current Liabilities	(3,678)		(1,406)		(5,084)
Lease Liabilities - Short-Term	(4,811)		—		(4,811)

Deferred Tax Liabilities	(56,249)		(6,912)		(63,161)
Tax Contingency Reserve	(22,511)		5,190		(17,321)
Lease Liabilities - Long-Term	(45,369)		—		(45,369)
Estimated fair value of net assets acquired	256,566		2,455		259,021
Goodwill	129,169		(3,609)		125,560
Total Purchase Price	$	385,735	$	(1,154)	$	384,581

Deferred tax liabilities were established to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangibles assets. Tax contingency reserves relate to uncertain tax positions TRUaire took in the periods prior to the acquisition date.

In accordance with the tax indemnification included in the purchase agreement of TRUaire, the seller has provided contractual indemnification to the Company for up to $12.5 million related to uncertain tax positions taken in prior years. The outcome of this arrangement will either be settled or expire by 2023. During the three months ended March 31, 2021, TRUaire received an audit closing letter from Internal Revenue Service related to calendar 2017, a pre-acquisition tax year. As a result of this, $5.0 million of the relevant tax indemnification assets was released in accordance with the purchase agreement. As of June 30, 2021, approximately $7.5 million of the tax indemnification assets remain outstanding.

Goodwill of $125.6 million represents the excess of the purchase price over the fair value of the underlying tangible and intangible assets acquired and liabilities assumed. The acquisition goodwill represents the value expected to be obtained from expanding the Company’s product offerings more broadly across the HVAC/R end market. The goodwill recorded as part of this acquisition is included in the Contractor Solutions segment. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for income tax purposes.

TRUaire generated net revenue of $67.4 million and a net income before income taxes of $4.4 million for the period from the acquisition date to June 30, 2021. For the three months ended June 30, 2021, TRUaire generated revenue of $33.5 million and a net income before income taxes of $4.8 million. TRUaire activity is currently included in our Contractor Solutions segment. During the year ended March 31, 2021, the Company incurred and paid $7.8 million of transaction expenses in connection with the TRUaire acquisition, which were included in selling, general and administrative expenses in the Consolidated Statement of Operations. No transaction expenses were incurred during the three months ended June 30, 2021.

Pursuant to Topic 805, unaudited supplemental proforma results of operations for the three months ended June 30, 2020, as if the acquisition of TRUaire had occurred on April 1, 2019, are presented below (in thousands, except per share amounts):


	Three Months Ended June 30, 2020
Revenue, net		$	119,674
Net income		15,513

Net earnings per common share:
Diluted		$	0.99
Basic		1.00

These proforma results do not present financial results that would have been realized had the acquisition occurred on April 1, 2019, nor are they intended to be a projection of future results. The unaudited proforma results include certain proforma adjustments to net income that were directly attributable to the acquisition, as if the acquisition had occurred on April 1, 2019, including the following:

•Additional depreciation expense of $0.1 million for the three months ended June 30, 2020 that would have been recognized as a result of the fair value step-up of the property, plant and equipment;

•Additional amortization expense of $3.4 million for the three months ended June 30, 2020 that would have been recognized as a result of the allocation of purchase consideration to customer lists subject to amortization;

•Estimated additional interest expense of $1.2 million for the three months ended June 30, 2020 as a result of incurring additional borrowing and

•Income tax effect of the proforma adjustments calculated using a blended statutory income tax rate of 24.5% of $1.1 million for the three months ended June 30, 2020.