Note 9 - Acquisition of Business

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE

9

– Acquisition of Business:

On

March

8,

2016

, the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc. (“BAMKO”). The transaction had an effective date of

March

1,

2016.

BAMKO is a full-service merchandise sourcing and promotional products company based in Los Angeles, CA. With sales offices in the United States, England and Brazil, as well as support offices in China, Hong Kong, and India, BAMKO serves many of the world’s most successful brands. The purchase price for the asset acquisition consisted of approximately

$15,161,000

in cash, net of cash acquired, the issuance of approximately

324,000

restricted shares of Superior’s common stock that will vest over a

five

year period, the potential future payment of approximately

$5,500,000

in additional contingent consideration through

2021,

and the assumption of certain liabilities of BAMKO.  The transaction also includes the acquisition of BAMKO’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India.

The foregoing description of the asset purchase agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the agreement, which is filed as an exhibit to this Quarterly Report on Form

10

-Q filed on

April

28,

2016

.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows:
Cash consideration at closing, net of cash acquired	$	15,161,000
Restricted shares of Superior common stock issued		4,558,000
Contingent consideration		5,205,000
Total Considerations	$	24,924,000

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their estimated fair values as of

March

1,

2016.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their fair values as of the effective date of the transaction.

The following is our assignment of the aggregate consideration:

Accounts receivable	$	4,885,000
Prepaid expenses and other current assets		3,200,000
Inventories		236,000
Property, plant and equipment		199,000
Other assets		100,000
Identifiable intangible assets		11,360,000
Goodwill		6,994,000
Total assets	$	26,974,000
Accounts Payable	$	1,314,000
Other current liabilities		736,000
Total liabilities	$	2,050,000

The Company recorded

$11,360,000

in identifiable intangibles at fair value, consisting of

$2,090,000

in acquired customer relationships,

$370,000

in non-compete agreements from the former owners of BAMKO, and

$8,900,000

for the acquired trade name.

The estimated fair value for acquisition-related contingent consideration payable was

$5,313,000

as of

March

31,

2017.

The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company's consolidated statement of comprehensive income. The carrying amount of the liability

may

fluctuate significantly and actual amounts paid

may

be materially different from the estimated value of the liability.

Goodwill was calculated as the difference between the fair value of the consideration and the values assigned to the assets acquired and liabilities assumed.

The intangible assets associated with the customer relationships will be amortized for

seven

years beginning on

March

1,

2016

and the non-compete agreement will be amortized for

five

years and

ten

months. The trade name is considered an indefinite-life asset and as such will not be amortized.

The Company recognized amortization expense on these acquired intangible assets of

$90,000

and

$30,000

for the

three

-month periods ended

March

31,

2017

and

2016.

For the

three

-month periods ended

March

31,

2017

and

2016,

the Company incurred and expensed transaction related expenses of approximately

$0

and

$898,000.

These amounts are included in selling and administrative expenses on the consolidated statements of comprehensive income.

Net sales for BAMKO of

$8,933,000

and

$3,800,000,

respectively, are included in the Company's consolidated statements of comprehensive income for the

three

months ended

March

31,

2017

and

2016.

For the

three

months ended

March

31,

2017

and

2016,

income before taxes of

$416,000

and a loss of

$760,000

is included in the Company’s consolidated statements of comprehensive income. The

2016

amount is inclusive of the acquisition related expenses of

$898,000.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the entire

three

-month periods ended

March

31,

2016,

net sales would have increased approximately

$6,585,000.

Net income for the

three

-month period ended

March

31,

2016

would have increased approximately

$900,000.