NOTE 2 – ACQUISITION ACTIVITIES

On July 24, 2024, the Company acquired 100% of the outstanding membership interests of ITU Holdings, Inc. and its subsidiary Independent Truck Upfitters, LLC (collectively “ITU”) for cash consideration of $50,889 and up to an additional $8,000 earn-out amount subject to meeting certain performance criteria within the first two years after the acquisition. The purchase price was funded with cash on hand and borrowings under our existing credit facility. ITU is a Midwest-based provider of turnkey upfit services for fleets of commercial and government service vehicles. We recorded pretax charges totaling $1,182 and $1,558 during the three months and the nine months ended September 30, 2024, respectively, for legal expenses and other transaction costs related to the acquisition, which were reported in Selling, general and administrative expense on the Condensed Consolidated Statements of Operations. ITU is part of our Specialty Vehicle segment.

The ITU acquisition was accounted for using the acquisition method of accounting with the purchase price allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. Identifiable intangible assets include customer relationships, backlog, trade names and trademarks, unpatented technology and non-competition agreements. The excess of the purchase price over the estimated fair values of the tangible and intangible assets acquired of $16,022 was recorded as goodwill, which is expected to be deductible for tax purposes. The fair value of the net assets acquired were based on a preliminary valuation and the estimates and assumptions are subject to change within the measurement period.

The preliminary purchase price was comprised of the following:

The Company recorded a current and a non-current contingent consideration liability for the earn-out at a fair value of $2,680 and $1,620, respectively, as of the acquisition date. The fair value was estimated using a Monte Carlo simulation to model the likelihood of achieving the agreed-upon performance criteria based on available information as of the acquisition date. The valuation methodology includes assumptions and judgments regarding the discount rate, estimated probability of achieving the performance criteria, and expected timing of payments.

As of September 30, 2024, the preliminary purchase price allocation to the fair value of assets acquired and liabilities assumed is as follows:

Intangible assets totaling $18,650 have provisionally been assigned to customer relationships, backlog, trade names and trademarks, unpatented technology and non-competition agreements as a result of the acquisition and consist of the following (in thousands):

The Company amortizes the customer relationships utilizing an accelerated approach and amortizes backlog, trade names and trademarks, unpatented technology and non-competition agreement assets utilizing a straight-line approach. Amortization expense was $587 for the three and nine months ended September 30, 2024.

Goodwill consists of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter into new markets which will enable us to increase value to our customers and shareholders. Key areas of expected cost savings include an expanded dealer network, complementary product portfolios and manufacturing and supply chain work process improvements.

Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the prior reporting period is not provided.