Note 5 – Acquisitions

Griswold

On July 6, 2018, we acquired 100% of the membership interests in Griswold for an aggregate purchase price of $78.0 million, net of cash acquired, pursuant to the terms of the Membership Interest Purchase Agreement, dated July 6, 2018 by and among the Company and the owners of Griswold (the MIPA). We used borrowings of $82.5 million under our revolving credit facility to fund the acquisition. There was a possible earn-out capped at $3.0 million based on certain of Griswold’s 2018 product sales. At the time of acquisition, we determined that the probability of the earn-out was extremely low, and as a result, assigned no fair value to the contingent consideration as of the valuation date. No earn-out was actually paid based on the related sales results.

Griswold is a manufacturer of a wide range of high-performance engineered cellular elastomer and microcellular polyurethane products and solutions across the automotive, transportation, medical, office products, printing and electronics industries. The acquisition built on our existing EMS platform of engineered materials and added new products and capabilities to the portfolio of our EMS operating segment.

The acquisition has been accounted for in accordance with applicable purchase accounting guidance. We recorded goodwill primarily related to the expected synergies from combining operations and the value of Griswold’s existing workforce, which is expected to be deductible for tax purposes. We also recorded other intangible assets related to acquired customer relationships, developed technology, trademarks and trade names, and a covenant not to compete.

The following table represents the fair values assigned to the acquired assets and liabilities assumed in the transaction. As of the filing date of this Form 10-K, the purchase accounting and purchase price allocation for the Griswold acquisition are substantially complete, as we continue to refine our valuation of certain acquired assets and assumed liabilities.



(Dollars in thousands)	July 6, 2018
Assets:
Accounts receivable, less allowance for doubtful accounts	$	2,553
Inventories	2,951
Other current assets	155
Property, plant & equipment	7,554
Other intangible assets	34,120
Goodwill	31,738
Total assets	79,071

Liabilities:
Accounts payable	711
Accrued employee benefits and compensation	299
Other accrued liabilities	92
Total liabilities	1,102

Fair value of net assets acquired	$	77,969

The other intangible assets consist of customer relationships valued at $22.1 million, developed technology valued at $9.6 million, trademarks and trade names valued at $1.8 million, and a covenant not to compete valued at $0.6 million. The fair value of acquired identified other intangible assets was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 under the fair value measurements and disclosure guidance.

At the acquisition date, the weighted average amortization period for the other intangible asset classes was 9.5 years for customer relationships, 3.5 years for developed technology, 10.4 years for trademarks and trade names, and 3.2 years for the covenant not to compete, resulting in amortization expenses ranging from $0.7 million to $3.0 million annually. The estimated annual future amortization expense is $2.8 million for 2019, $3.0 million for 2020, $2.8 million for 2021, $2.7 million for 2022, and $2.5 million for 2023.

During 2018, we incurred transaction costs of $1.1 million related to the Griswold acquisition, which were recorded within selling, general and administrative (SG&A) expenses in the consolidated statements of operations.

The results of Griswold have been included in our consolidated financial statements for the period subsequent to the completion of the acquisition on July 6, 2018, through December 31, 2018. Griswold’s net sales for that period totaled $13.7 million.

DSP

On January 6, 2017, we acquired the principal operating assets of DSP, pursuant to the terms of the Asset Purchase Agreement by and among the Company, DSP and the principal shareholders of DSP (the Purchase Agreement). Pursuant to the terms of the Purchase Agreement, we acquired certain assets and assumed certain liabilities of DSP for a total purchase price of approximately $60.2 million. We used borrowings of $30.0 million under our revolving credit facility in addition to cash on hand to fund the acquisition.

The acquisition was accounted for in accordance with applicable purchase accounting guidance. We recorded goodwill primarily related to the expected synergies from combining operations and the value of the existing workforce. We also recorded other intangible assets related to customer relationships, developed technology, trade names and a covenant not to compete.

The following table represents the fair values assigned to the acquired assets and liabilities in the transaction:



(Dollars in thousands)	January 6, 2017
Assets:
Accounts receivable	$	2,724
Prepaid expenses	21
Inventory	2,433
Property, plant & equipment	1,589
Other intangible assets	35,860
Goodwill	17,793
Total assets	60,420

Liabilities:
Accounts payable	179
Accrued expenses	50
Total liabilities	229

Fair value of net assets acquired	$	60,191

The other intangible assets consist of customer relationships valued at $30.5 million, developed technology valued at $1.8 million, trademarks valued at $3.3 million, and a covenant not to compete valued at $0.3 million. The fair value of acquired identified other intangible assets was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 under the fair value measurements and disclosure guidance.

At the acquisition date, the weighted average amortization period for the other intangible asset classes was 11.8 years for customer relationships, 4.3 years for developed technology, 11.7 years for trademarks, and 4.1 years for the covenant not to compete, resulting in amortization expenses ranging from $1.1 million to $2.0 million annually. The estimated annual future amortization expense is $1.8 million for each of 2019, 2020 and 2021, and $1.7 million for each of 2022 and 2023.

During 2017, we incurred transaction costs of $0.5 million related to the DSP acquisition, which were recorded within SG&A expenses in the consolidated statements of operations. DSP’s net sales totaled $22.3 million for the year ended December 31, 2017.

DeWAL

On November 23, 2016, we acquired all of the membership interests in DeWAL pursuant to the terms of the Membership Interest Purchase Agreement, dated November 23, 2016, by and among the Company and the owners of DeWAL for an aggregate purchase price of $135.5 million. We used borrowings of $136.0 million under our revolving credit facility to fund the acquisition.

The acquisition was accounted for in accordance with applicable purchase accounting guidance. We recorded goodwill, primarily related to the expected synergies from combining operations and the value of the existing workforce. We also recorded other intangible assets related to customer relationships, developed technology, trade names and covenants not to compete.

The following table represents the fair values assigned to the acquired assets and liabilities in the transaction:



(Dollars in thousands)	November 23, 2016
Assets:
Cash and cash equivalents	$	1,539
Accounts receivable	7,513
Other current assets	691
Inventory	9,915
Property, plant & equipment	9,932
Other intangible assets	73,500
Goodwill	35,985
Other long-term assets	101
Total assets	139,176

Liabilities:
Accounts payable	2,402
Other current liabilities	1,292
Total liabilities	3,694

Fair value of net assets acquired	$	135,482

The other intangible assets consist of customer relationships valued at $46.7 million, developed technology valued at $22.0 million, trademarks valued at $4.3 million, and covenants not to compete valued at $0.5 million. The fair value of acquired identified other intangible assets was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 under the fair value measurements and disclosure guidance.

At the acquisition date, the weighted average amortization period for the other intangible asset classes was 13.5 years for customer relationships, 8.6 years for developed technology, 5.2 years for trademarks, and 3.8 years for the covenants not to compete, resulting in amortization expenses ranging from $2.4 million to $4.3 million, annually. The future estimated annual amortization expense is $4.1 million for 2019, $4.3 million for each of 2020, 2021, 2022 and 2023.

During 2016, we incurred transaction costs of $2.1 million related to the DeWAL acquisition, which were recorded within SG&A expenses in the consolidated statements of operations. DeWAL’s net sales totaled $5.4 million for the year ended December 31, 2016.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of Rogers, Griswold, DSP, and DeWAL as if the Griswold acquisition had occurred on January 1, 2017, the DSP acquisition had occurred on January 1, 2016 and the DeWAL acquisition had occurred on January 1, 2015. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the Griswold, DSP, and DeWAL acquisitions been completed as of January 1, 2017, January 1, 2016 and January 1, 2015, respectively, and should not be taken as indicative of our future consolidated results of operations.



	For the Years Ended December 31,
(Dollars in thousands)	2018		2017		2016
Net sales	$	893,878	$	851,122	$	724,877
Net income	87,584		80,283		50,349

Isola Asset Acquisition

On August 28, 2018, the Company entered into an Asset Purchase Agreement (APA) with Isola USA Corp. (Isola) to acquire a production facility and related machinery and equipment located in Chandler, Arizona for cash consideration of $43.4 million. In connection with the APA, the Company also entered into a Transition Services Agreement and a Lease Agreement with Isola whereby Isola leases back a portion of the facility and related machinery and equipment from the Company during the transition period through December 31, 2019. We used cash on hand to fund the asset purchase. This transaction was evaluated under ASC 805, Business Combinations and was determined to be an asset acquisition as the transaction did not meet the definition of a business.

The assets acquired in connection with the acquisition were recorded by the Company at their estimated relative fair values as follows:



(Dollars in thousands)	August 28, 2018
Land	$	6,104
Buildings	8,401
Machinery and equipment	18,616
Equipment in process	12,633
Total property, plant and equipment	$	45,754

The $45.8 million of capitalized cost summarized above includes both lease consideration valued at $2.0 million and transaction costs incurred of $0.4 million.