|12 Months Ended|
Dec. 29, 2022
|Business Combination and Asset Acquisition [Abstract]|
The Company made acquisitions during fiscal 2022 and fiscal 2021 to expand its commercial flooring business which are accounted for in accordance with ASC 805. The results of operations, financial position, and cash flows related to these acquisitions have been included in the Company’s consolidated financial statements since their respective acquisition dates. During fiscal 2021, the Company recognized business acquisition and integration costs totaling $3.4 million in general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income. Business acquisition and integration costs incurred during fiscal 2022 and 2020 were immaterial.
On June 4, 2021, the Company acquired 100% of Spartan, a commercial specialty hard-surface flooring distribution company for total purchase consideration of $77.7 million. Total purchase consideration was comprised of the following components at their respective acquisition date fair values: $63.6 million cash, net of cash acquired, $9.1 million of contingent consideration, and $5.0 million of the Company’s common stock.
The contingent consideration represents the estimated fair value associated with potential earn-out payments to the seller of up to $18.0 million subject to Spartan's achievement of certain financial performance targets in fiscal years 2021 through 2024. Of the total earn-out consideration, $9.0 million is related to the achievement of certain annual adjusted EBITDA margin targets, and $9.0 million is related to the achievement of certain annual gross profit targets. A portion of these earn-out opportunities is payable each year subject to achievement of the applicable performance targets for that year, with the maximum payout requiring that each of the individual annual targets are met. Refer to Note 7, “Fair Value Measurements” for additional information regarding the contingent consideration.
At the acquisition date, the acquired assets and liabilities were recorded at their estimated fair values including $44.4 million of intangible assets comprised of customer relationships, a trade name, and non-compete agreement, $28.0 million of goodwill, $16.5 million of accounts receivable, inventory, and other current assets, $4.3 million of lease right-of-use and other non-current assets, $12.4 million of accounts payable and other current liabilities, and $3.1 million of operating lease and other non-current liabilities.
The fair values of identifiable intangible assets are classified within Level 3 of the fair value hierarchy and were determined with assistance from a third-party valuation specialist using the multi-period excess earnings method for customer relationships, the relief-from-royalty method for the trade name, and an incremental income method for the non-compete agreement. These valuation methodologies included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, royalty rates (for use in estimating the fair value of the Spartan trade name), and the assessment of each asset’s life cycle.
The goodwill arising from the acquisition is primarily attributable to operational synergies and acceleration of growth strategies. The goodwill and intangible assets from the Spartan acquisition are fully deductible for U.S. federal and state tax purposes.
Other Commercial Flooring Distributors
During fiscal 2022, the Company acquired three small commercial flooring sales distributors for total consideration of $4.6 million, including $3.8 million of cash and $0.8 million of contingent earn-out consideration. The acquired assets and liabilities were recorded at their estimated fair values and were primarily comprised of $3.3 million of customer relationships with useful lives of 12 years.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef