Quarterly report pursuant to Section 13 or 15(d)

Acquisition of Eagle Alcohol

v3.22.2.2
Acquisition of Eagle Alcohol
9 Months Ended
Sep. 30, 2022
Acquisition of Eagle Alcohol [Abstract]  
ACQUISITION OF EAGLE ALCOHOL

2. ACQUISITION OF EAGLE ALCOHOL.

 

On January 14, 2022, the Company purchased 100% of the membership interests of Eagle Alcohol. The purchase price was $14.0 million in cash plus an estimated net working capital adjustment of $1.3 million in cash. The selling members of Eagle Alcohol are eligible to receive up to an additional $14.0 million of contingent consideration, payable through a combination of $9.0 million in cash over the next three years and an aggregate of $5.0 million in the Company’s common stock on the fourth and fifth year anniversaries of the closing date, subject to the satisfaction of certain conditions, including continued employment with the Company. With respect to these payments, the Company has recognized an estimated $0.9 million and $2.6 million for the three and nine months ended September 30, 2022, respectively, in selling, general and administrative expenses in the accompanying consolidated statements of operations.

 

Eagle Alcohol specializes in break bulk distribution of specialty alcohols. Eagle Alcohol purchases bulk alcohol from suppliers and then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that garner a premium to bulk alcohols. Eagle Alcohol delivers products to customers in the beverage, food, and related-process industries via its own dedicated trucking fleet and common carrier. The acquisition has provided the Company further vertical integration and access to new markets in the specialty alcohol industry.

 

Eagle Alcohol’s unaudited results for the three months ended September 30, 2022 and 2021 generated $4.2 million and $9.9 million in net sales and $0.0 million and $1.0 million in net income, respectively. Eagle Alcohol’s unaudited results for the nine months ended September 30, 2022 and 2021 generated $12.1 million and $27.5 million in net sales and $0.1 million and $3.0 million in net income, respectively. The following table presents unaudited pro forma combined financial information assuming the acquisition occurred on January 1, 2021 (dollars in thousands except per share amounts): 

 

   

Three Months Ended

September 30,

 
    2022     2021  
Revenues – pro forma   $ 336,877     $ 311,821  
Net loss available to common stockholders – pro forma   $ (28,357 )   $ (3,424 )
Diluted net loss per share – pro forma   $ (0.38 )   $ (0.05 )
Diluted shares     73,960       72,332  

 

    Nine Months Ended
September 30,
 
    2022     2021  
Revenues – pro forma   $ 1,007,711     $ 840,947  
Net income (loss) available to common stockholders – pro forma   $ (9,538 )   $ 8,474  
Diluted net income (loss) per share – pro forma   $ (0.13 )   $ 0.12  
Diluted shares     72,764       73,209  

  

The following preliminary allocation of the estimated purchase price assumes, with the exception of property and equipment and intangibles, carrying values approximate fair value. Estimates of uncollectible accounts receivable are not considered material due to the short-term nature and customer collection history. The preliminary estimate of working capital is under review by management and is subject to change. Based upon these assumptions, the preliminary purchase price allocation is as follows (in thousands):

 

Cash and equivalents   $ 705  
Accounts receivable     5,517  
Inventories     1,388  
Other assets     29  
Total current assets     7,639  
         
Property and equipment     1,067  
Right of use assets     2,749  
Total tangible assets   $ 11,455  
         
Current liabilities   $ 6,262  
Right of use liability     2,749  
Total liabilities   $ 9,011  
         
Net tangible assets acquired   $ 2,444  
Customer relationships     6,556  
Tradename     420  
Goodwill     5,970  
Total Purchase Price   $ 15,390  

 

Goodwill represents the value of the downstream integration that the operations of Eagle Alcohol will add to the Company. The Company expects the amortization of goodwill to be deductible for tax purposes. For the identifiable intangible assets, the Company has estimated 12 years for useful lives for customer relationships and 10 years for tradename. For the three months ended September 30, 2022, the Company recorded amortization expense of $137,000 and $10,000 for customer relationships and tradename, respectively. For the nine months ended September 30, 2022, the Company recorded amortization expense of $390,000 and $30,000 for customer relationships and tradename, respectively. Any changes to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill if net assets acquired are less than the purchase price. The Company did not incur any material acquisition costs.