Acquisitions

9 Months Ended

Nov. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

On November 4, 2024, we completed the acquisition of UW Solutions for $241.8 million in cash. UW Solutions is a U.S. based, vertically integrated manufacturer of high-performance coated substrates with a portfolio of well-known brands, including ResinDEK®, ChromaLuxe®, RDC Coatings™, and Unisub®, each known as a leader in its specified applications. The UW Solutions business activity is included in our Large-Scale Optical Segment.

The total purchase consideration was $233.1 million in cash, net of a preliminary net working capital adjustment of $1.8 million and cash acquired of $8.7 million. The acquisition was funded with cash on hand and borrowings under our existing credit agreement. During the third quarter of fiscal 2025, we incurred pre-tax acquisition-related expenses of $5.9 million associated with the UW Solutions acquisition. We incurred $0.4 million for inventory step-up expense which was included in costs of sales as well as $3.7 million of transaction costs, $0.9 million of integration costs, and $0.8 million of amortization of acquired backlog, which was included in SG&A within our consolidated results of operations.

We accounted for the acquisition as a purchase of a business and recorded the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed as goodwill of $106.3 million. The goodwill recognized is attributable primarily to expected synergies by integrating UW Solutions into our Large-Scale Optical Segment and by creating a scalable growth platform in the specialty coatings and materials market. The goodwill is expected to be amortized and deductible for income tax purposes. We have provisionally determined the appropriate fair values of the acquired intangible assets and completed our analysis of the economic lives of the assets acquired. We assigned $21.0 million to tradenames and are amortizing over a 15-year expected life. We assigned $3.2 million to contract backlog and are amortizing over a 4-month expected life. We assigned $47.4 million to customer relationships and are amortizing a portion over a 10-year expected life and the remainder over a 15-year expected life, based on historical customer attrition rates. We assigned $7.8 million to developed technology and are amortizing over a 7.5-year expected life.

The following table presents the preliminary estimated fair values of assets acquired and liabilities assumed at the acquisition date:


(In thousands)
Assets:
Cash and cash equivalents	$	8,703
Receivables, net	12,673
Inventories, net	19,805
Other current assets	1,335
Property, plant, and equipment	27,701
Operating lease right-of-use assets	14,268
Intangible assets	79,420
Goodwill	106,264
Other non-current assets	166
Total Assets	$	270,335
Liabilities:
Accounts payable	5,032
Accrued compensation and benefits	6,767
Operating lease liabilities	1,447
Other current liabilities	1,287
Non-current operating lease liabilities	14,030
Total Liabilities	$	28,563
Net assets recorded	$	241,772

The impact of the acquisition of UW Solutions on our consolidated results of operations for the three and nine-month periods ended on November 30, 2024 was $8.8 million of net sales and $4.2 million net loss, respectively. The net sales and net loss represent approximately four weeks of operating results, transaction and integration-related costs, interest and the net tax effect.

The following supplemental unaudited pro forma information presents our financial results as if the acquisition of UW Solutions had occurred on February 26, 2023. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred if the acquisition had been completed on February 26, 2023, and this information is not intended to be indicative of future results.


(in thousands, except earnings per share data) (Unaudited)	Three Months Ended				Nine Months Ended
	November 30, 2024		November 25, 2023		November 30, 2024		November 25, 2023
Net sales	$	359,904	$	368,243	$	1,077,941	$	1,131,489
Net earnings	25,364		26,951		84,804		71,890

Earnings per share:
Basic	1.16		1.24		3.89		3.28
Diluted	1.16		1.22		3.86		3.25

Nonrecurring charges of $3.7 million of transaction costs, $0.9 million of integration costs, $0.8 million of amortization of acquired backlog, and $0.4 million of inventory step-up expense incurred in the third quarter of fiscal 2025 are reflected as if those charges were incurred in the first quarter of fiscal 2024 supplemental pro forma earnings.

These amounts have been calculated after applying our accounting policies and adjusting the results of UW Solutions to reflect the effect of definite-lived intangible assets recognized as part of the business combination on amortization expense as if the acquisition had occurred on February 26, 2023.

APOGEE ENTERPRISES, INC. 10-Q