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QUALITY OF EARNINGS REPORTS
CPE DAY – November 9, 2017
I. Objectives
• Compare and contrast buy-side v. sell-side Quality of Earnings
• Discuss in context of sample report
II. Similarities
• Summarize accounting policies and practices
• Analyze financial information
• Identify potential contingent liabilities and assess possible impact
• Estimate required working capital
• Address tax matters and risks
• Examine and evaluate EBITDA adjustments
III. Differences
• Audience
• Perspective/Approach
• Timing
IV. Deliverables
• Accounting Due Diligence Sample Report
QUALITY OF EARNINGS REPORTS
©Grossman Yanak & Ford llp CPE DAY – NOVEMBER 9, 2017 paGe 1
I. Objectives
• Highlight similarities and differences in buy-side v. sell-side Quality of Earnings (Q of E)
• Summarize typical sell-side areas of focus
• Provide example of approach and deliverable
II. Similarities
• Summarize accounting policies and practices
• Analyze:
– Revenue recognition
– Margins by product, customer, etc.
– SG&A levels and trends
– Significant concentrations
• Major customers
• Limited supply of key materials or components
• Sales by sales person or rep
• Labor and collective bargaining agreements
– Receivables, inventories, PP&E and other relevant asset accounts
– Payables, accrued liabilities and other relevant liability accounts for those likely to be assumed
by the buyer
• Identify potential contingent liabilities and describe likelihood and potential impact, such as:
– Environmental liabilities
– Potential product liability or warranty matters
– Pension obligations
– Others that may financially impact the buyer, even if the liability is excluded or indemnified
QUALITY OF EARNINGS REPORTS
paGe 2 CPE DAY – NOVEMBER 9, 2017 ©Grossman Yanak & Ford llp
• Estimate required minimum working capital levels
• Address tax matters and risks relative to the likely transaction structure
• List, describe and evaluate the various EBITDA adjustments
III. Differences
• Audience
– Buy-Side
• Distribution typically limited to buyer and its advisors and lenders
• Work paper access typically not provided to other parties
– Sell-Side
• Distribution typically intended to include several potential buyers and their advisors
• Work paper access may be provided to selected potential buyers and their advisors
• Perspective/Approach
– Buy-Side
• Identify risks that the client may use to:
– Reduce purchase price or modify agreement
– Use as negotiating points
– Develop mitigation plans
• Assess capabilities of target’s personnel
– Sell-Side
• Identify risks early to allow some combination of:
– Reaching resolution before distribution of Confidential Information Memorandum (CIM)
– Describing the issue, impact and mitigating factors (seller has initial control of the dialog)
– Communicating early as part of vetting potential buyers
– Allowing time to desensitize the issue
QUALITY OF EARNINGS REPORTS
©Grossman Yanak & Ford llp CPE DAY – NOVEMBER 9, 2017 paGe 3
• Assess and test the readiness of Company personnel
– Bolster where needed
– Consult/guide
– Serve as the primary point of contact if helpful
• Timing
– Buy-Side
• Typically between Letter of Intent and closing
• Usually time-critical
– Sell-Side
• Typically before release of CIM
• Timing to allow for iterations and improvements before CIM
IV. Deliverables
• Formal, detailed report
• Access to various relevant data and analyses
• Additional insight provided verbally
• Other as required by the specific case
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
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AR
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TA
X M
AT
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RS
34
BU
YE
R’S
TA
X C
ON
SEQ
UE
NC
ES
RE
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FR
OM
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UC
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AN
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PE
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[RE
PO
RT
DA
TE
]
Mr.
Bu
yer
Re
pre
sen
tati
ve
Bu
yer
Stre
et
Cit
y, S
tate
ZIP
De
ar
Mr.
Bu
yer
Re
pre
sen
tati
ve
Intr
od
uct
ion
We
h
ave
co
ncl
ud
ed
o
ur
en
ga
ge
me
nt,
w
hic
h
wa
s p
erf
orm
ed
in
a
cco
rda
nce
w
ith
co
nsu
ltin
g
gu
ide
line
s
est
ab
lish
ed
by
the
Am
eri
can
In
stit
ute
of
Ce
rtif
ied
Pu
blic
Acc
ou
nta
nts
, to
ass
ist
wit
h y
ou
r in
vest
iga
tio
n a
nd
an
aly
sis
of
Go
od
De
al,
LLC
(“G
oo
d D
ea
l”)
an
d S
ub
sid
iary
. G
oo
d D
ea
l, L
LC i
s o
wn
ed
by
a h
old
ing
co
mp
an
y,
Go
od
De
al
Ho
ldin
gs,
LLC
(“H
old
ing
s” o
r th
e “
Co
mp
an
y”),
wh
ich
on
ly a
sse
t is
th
e i
nve
stm
en
t in
Go
od
De
al,
LLC
. T
his
re
po
rt p
rese
nts
ou
r co
mm
en
ts a
nd
re
com
me
nd
ati
on
s b
ase
d o
n t
he
re
sult
s o
f th
e p
roce
du
res.
Na
ture
of
the
In
form
ati
on
Th
e
info
rma
tio
n
pre
sen
ted
is
b
ase
d
on
d
iscu
ssio
ns
wit
h
an
d
info
rma
tio
n
pro
vid
ed
b
y G
oo
d
De
al
ma
na
ge
me
nt.
W
e h
ave
no
t in
de
pe
nd
en
tly
veri
fie
d t
he
info
rma
tio
n g
ath
ere
d o
r co
nta
ine
d in
th
is r
ep
ort
an
d,
acc
ord
ing
ly,
ou
r p
roce
du
res
do
no
t co
nst
itu
te a
n a
ud
it,
revi
ew
, o
r co
mp
ilati
on
of
the
in
form
ati
on
pro
vid
ed
.
Th
us,
we
do
no
t e
xpre
ss a
co
ncl
usi
on
or
pro
vid
e a
ny
oth
er
form
of
ass
ura
nce
on
th
e c
om
ple
ten
ess
or
acc
ura
cy o
f th
e i
nfo
rma
tio
n.
Ad
dit
ion
ally
, w
e e
xpre
ss n
o o
pin
ion
on
We
ld’s
in
tern
al
con
tro
l sy
ste
ms
ove
r
fin
an
cia
l re
po
rtin
g o
r a
ny
pa
rt t
he
reo
f.
Ou
r a
ssis
tan
ce w
as
dir
ect
ed
to
th
ose
bu
sin
ess
act
ivit
ies,
op
era
tio
na
l a
rea
s, a
nd
fin
an
cia
l in
form
ati
on
th
at
you
id
en
tifi
ed
as
be
ing
of
con
cern
to
Bu
yer
Re
pre
sen
tati
ve L
LC.
In p
erf
orm
ing
ou
r se
rvic
es,
we
pe
rfo
rme
d
inq
uir
ies
an
d a
na
lyze
d i
nfo
rma
tio
n p
rovi
de
d b
y G
oo
d D
ea
l m
an
ag
em
en
t w
hic
h w
as
relie
d u
po
n a
s to
its
suff
icie
ncy
, a
ccu
racy
, a
nd
re
liab
ility
.
Pro
ced
ure
s P
erf
orm
ed
We
pe
rfo
rme
d t
he
pro
ced
ure
s e
nu
me
rate
d i
n t
he
en
ga
ge
me
nt
lett
er
da
ted
{E
NG
LE
TT
ER
DA
TE
}.
Th
e
pro
ced
ure
s w
ere
lim
ite
d t
o t
ho
se w
hic
h y
ou
de
term
ine
d b
est
me
t yo
ur
info
rma
tio
na
l n
ee
ds
an
d c
an
no
t b
e
relie
d u
po
n t
o d
iscl
ose
all
sig
nif
ica
nt
ma
tte
rs a
bo
ut G
oo
d D
ea
l or
to d
iscl
ose
err
ors
, fr
au
d,
or
oth
er
ille
ga
l
Gro
ssm
an
Ya
na
k &
Fo
rd,
LLP
Th
ree
Ga
tew
ay
Ce
nte
r
Pit
tsb
urg
h,
PA
15
05
7
T:
(41
2)
33
8-9
30
0
F: (
41
2)
33
8-9
30
5
act
s th
at
ma
y e
xist
. T
he
fin
an
cia
l st
ate
me
nts
pre
sen
ted
in
Ap
pe
nd
ix V
I h
ave
no
t b
ee
n a
ud
ite
d,
revi
ew
ed
, o
r
com
pile
d b
y u
s a
nd
, a
cco
rdin
gly
, w
e a
ssu
me
no
re
spo
nsi
bili
ty f
or
the
m.
H
ad
we
pe
rfo
rme
d a
dd
itio
na
l
pro
ced
ure
s o
r h
ad
we
co
nd
uct
ed
an
au
dit
or
revi
ew
of
the
fin
an
cia
l st
ate
me
nts
, o
the
r m
att
ers
mig
ht
ha
ve
com
e t
o o
ur
att
en
tio
n t
ha
t w
ou
ld h
ave
be
en
re
po
rte
d t
o y
ou
.
Yo
u h
ave
re
vie
we
d a
dra
ft o
f o
ur
rep
ort
in
ord
er
to c
on
firm
th
at
the
pro
ced
ure
s p
erf
orm
ed
we
re c
on
sist
en
t
wit
h t
ho
se r
eq
ue
ste
d b
y yo
u.
In a
dd
itio
n,
we
ha
ve m
ad
e o
ur
file
s a
vaila
ble
to
yo
u a
nd
yo
u h
ave
ob
tain
ed
cop
ies
of
an
aly
ses
an
d o
the
r in
form
ati
on
as
you
de
term
ine
d a
pp
rop
ria
te.
Use
of
the
Re
po
rt
Du
e t
o i
ts s
pe
cia
l n
atu
re,
ou
r re
po
rt m
ay
no
t b
e s
uit
ab
le f
or
an
y p
urp
ose
oth
er
tha
n t
o a
ssis
t yo
u i
n y
ou
r
eva
lua
tio
n o
f G
oo
d D
ea
l. C
on
seq
ue
ntl
y, o
ur
rep
ort
is
for
you
r in
form
ati
on
an
d u
se o
nly
an
d s
ho
uld
no
t b
e
pro
vid
ed
to
an
y o
the
r p
art
y, i
n w
ho
le o
r in
pa
rt,
wit
ho
ut
ou
r e
xpre
ss w
ritt
en
ap
pro
val
wh
ich
ma
y re
qu
ire
tha
t w
e p
erf
orm
ad
dit
ion
al
wo
rk.
Acc
ess
to
th
is r
ep
ort
by
a p
art
y o
the
r th
an
Bu
yer
Re
pre
sen
tati
ve L
LC
req
uir
es
ou
r e
xpre
ss c
on
sen
t a
nd
ea
ch r
eci
pie
nt
mu
st s
ign
a r
ele
ase
lett
er
in a
fo
rm s
ati
sfa
cto
ry t
o G
ross
ma
n
Ya
na
k &
Fo
rd L
LP p
rio
r to
ob
tain
ing
a c
op
y o
f th
is r
ep
ort
or
rece
ivin
g in
form
ati
on
fro
m o
ur
firm
de
rive
d f
rom
this
re
po
rt.
Un
au
tho
rize
d u
se o
f th
is r
ep
ort
is s
tric
tly
pro
hib
ite
d.
Ou
r re
po
rt i
s b
ase
d o
n c
urr
en
t ci
rcu
mst
an
ces.
Giv
en
th
e f
act
th
at
ma
ny
asp
ect
s o
f th
e t
ran
sact
ion
ha
ve
eit
he
r n
ot
be
en
fin
aliz
ed
or
are
no
t ye
t d
ocu
me
nte
d,
cert
ain
ch
an
ge
s m
ay
ma
teri
ally
aff
ect
th
e f
ina
nci
al
info
rma
tio
n w
e r
ece
ive
d a
nd
are
no
t re
fle
cte
d i
n t
his
re
po
rt.
We
ha
ve n
o r
esp
on
sib
ility
to
up
da
te o
ur
rep
ort
for
eve
nts
an
d c
ircu
mst
an
ces
tha
t o
ccu
r a
fte
r [R
EP
OR
T D
AT
E].
Sin
cere
ly,
Gro
ssm
an
Ya
na
k &
Fo
rd L
LP
Pit
tsb
urg
h,
Pe
nn
sylv
an
ia
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
61
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
DE
FIN
ITIO
NS
, A
BB
RE
VIA
TIO
NS
AN
D G
LOS
SA
RY
OF
TE
RM
S
Ab
bre
via
tio
nD
efi
nit
ion
s
Dil
ige
nce
Te
rms
Bu
yer
Bu
yer
Re
pre
sen
tati
ve,
LLC
GY
FG
ross
ma
n,
Ya
na
k a
nd
Fo
rd L
LP
LOI
Lett
er
of
Inte
nt
(da
ted
Se
pte
mb
er
29
, 2
01
6)
Co
mp
an
y T
erm
s
Go
od
De
al
or
Co
mp
an
yG
oo
d D
ea
l, L
LC (
an
d w
ho
lly o
wn
ed
su
bsi
dia
ry)
Ma
na
ge
me
nt
Co
llect
ive
ly:
Mr.
Acc
ou
nti
ng
, C
hie
f Fi
na
nci
al O
ffic
er
& M
s. B
oss
, C
hie
f E
xecu
tive
Off
ice
r
Re
po
rtin
g P
eri
od
s
20
13
Th
e t
we
lve
mo
nth
pe
rio
d e
nd
ed
D
ece
mb
er
31
, 2
01
3
20
14
Th
e t
we
lve
mo
nth
pe
rio
d e
nd
ed
D
ece
mb
er
31
, 2
01
4
20
15
Th
e t
we
lve
mo
nth
pe
rio
d e
nd
ed
D
ece
mb
er
31
, 2
01
5
Au
g-2
01
5A
ug
ust
31
, 2
01
5
Au
g-2
01
6A
ug
ust
31
, 2
01
6
TT
M A
ug
-20
16
Tra
ilin
g t
we
lve
mo
nth
s e
nd
ed
Au
gu
st 3
1,
20
16
YT
D 2
01
4T
he
eig
ht
mo
nth
pe
rio
d e
nd
ed
Au
gu
st 3
1,
20
15
YT
D 2
01
6T
he
eig
ht
mo
nth
pe
rio
d e
nd
ed
Au
gu
st 3
1,
20
16
Oth
er
Te
rms
EB
ITD
AE
arn
ing
s b
efo
re in
tere
st t
axe
s d
ep
reci
ati
on
an
d a
mo
rtiz
ati
on
ca
lcu
late
d b
y su
btr
act
ing
inte
rest
, ta
xes,
de
pre
cia
tio
n a
nd
am
ort
iza
tio
n f
rom
ne
t in
com
e
GA
AP
U.S
. G
en
era
lly A
cce
pte
d A
cco
un
tin
g P
rin
cip
les
NW
CN
et
Wo
rkin
g C
ap
ita
l
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
62
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
SC
OP
E O
F P
RO
CE
DU
RE
S
Fin
an
cia
l D
ue
Dil
ige
nce
GY
F p
erf
orm
ed
th
e p
roce
du
res
de
term
ine
d b
y B
uye
r a
s se
t fo
rth
in
ou
r e
ng
ag
em
en
t le
tte
r d
ate
d F
eb
rua
ry 1
, 2
01
7.
In a
dd
itio
n t
o d
ata
pro
vid
ed
by
Go
od
De
al,
ou
r w
ork
an
d o
bse
rva
tio
ns
incl
ud
ed
he
rein
we
re b
ase
d p
rim
ari
ly o
n t
he
fo
llow
ing
so
urc
es
of
info
rma
tio
n:
♦G
YF
visi
t to
Go
od
De
al
corp
ora
te o
ffic
es
in A
nyt
ow
n,
USA
du
rin
g
Sep
tem
be
r 2
01
6
♦G
YF
com
mu
nic
ati
on
s w
ith
Ma
na
ge
me
nt
Ta
x D
ue
Dil
ige
nce
GY
F p
erf
orm
ed
U
.S.
fed
era
l,
sta
te
an
d
loca
l ta
x d
ue
d
ilig
en
ce
in
con
ne
ctio
n w
ith
th
e c
on
tem
pla
ted
tra
nsa
ctio
n b
y a
sp
eci
al
pu
rpo
se
LLC
fo
rme
d b
y th
e B
uye
r to
acq
uir
e t
he
sto
ck o
f G
oo
d D
ea
l.
♦T
he
C
om
pa
ny'
s ta
x re
turn
s fo
r th
e
yea
rs
en
de
d
De
cem
be
r 3
1,
20
15
, 2
01
4 a
nd
20
13
we
re c
on
sid
ere
d.
♦O
ur
tax
du
e d
ilig
en
ce w
as
inte
nd
ed
to
id
en
tify
po
ten
tia
l h
isto
rica
l
tax
exp
osu
res
tha
t m
ay
resu
lt in
a $
50
K o
r g
rea
ter
cash
ad
just
me
nt,
pe
r is
sue
(a
"m
ate
ria
l e
xpo
sure
").
All
exp
osu
res
ide
nti
fie
d e
xclu
de
pe
na
ltie
s a
nd
in
tere
st,
to t
he
ext
en
t su
ch m
ay
be
ap
plic
ab
le.
Ou
r
pro
ced
ure
s w
ere
n
ot
inte
nd
ed
to
id
en
tify
a
ny
issu
es
occ
urr
ing
ou
tsid
e t
he
His
tori
cal
Ta
x P
eri
od
th
at
ma
y e
xte
nd
th
e s
tatu
te o
f
limit
ati
on
s fo
r th
e I
RS
to a
sse
ss t
axe
s b
eyo
nd
th
ree
ye
ars
(e
.g.,
sub
sta
nti
al
un
de
rsta
tem
en
t o
f in
com
e,
an
d
fals
e,
fra
ud
ule
nt,
mis
sin
g o
r in
com
ple
te r
etu
rns)
.
Ba
sis
of
Pre
sen
tati
on
♦A
ll d
olla
r a
mo
un
ts p
rese
nte
d i
n t
his
re
po
rt a
re i
n t
ho
usa
nd
s (0
00
s)
un
less
oth
erw
ise
no
ted
.
♦T
his
re
po
rt
con
sid
ers
th
e
con
solid
ate
d
fin
an
cia
l in
form
ati
on
o
f
Go
od
De
al
an
d i
ts w
ho
lly-o
wn
ed
su
bsi
dia
ry.
We
un
de
rsta
nd
th
at
all
sig
nif
ica
nt
inte
rco
mp
an
y tr
an
sact
ion
s h
ave
be
en
elim
ina
ted
by
Ma
na
ge
me
nt
in c
on
solid
ati
on
.
♦T
he
an
aly
sis
pre
sen
ted
in
th
is r
ep
ort
is
ba
sed
on
fin
an
cia
l re
cord
s
pro
vid
ed
to
u
s b
y th
e
Co
mp
an
y.
O
ur
com
me
nta
ry
on
sp
eci
fic
tre
nd
s a
nd
re
sult
s a
re b
ase
d o
n M
an
ag
em
en
t’s
rep
rese
nta
tio
ns
ove
r th
e p
eri
od
s a
na
lyze
d.
Fo
r p
urp
ose
s o
f th
is r
ep
ort
, G
YF
will
sep
ara
tely
id
en
tify
if
cert
ain
tre
nd
s in
th
e C
om
pa
ny’
s o
pe
rati
ng
resu
lts
are
b
ase
d
on
o
ur
ow
n
con
clu
sio
ns
dra
wn
fr
om
th
e
Co
mp
an
y’s
fin
an
cia
l re
cord
s.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
63
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
OV
ER
VIE
W
Tra
nsa
ctio
n O
ve
rvie
w -
Su
mm
ary
fro
m L
ett
er
of
Inte
nt
♦B
uye
r is
co
nte
mp
lati
ng
th
e p
urc
ha
se o
f 1
00
% o
f th
e m
em
be
rsh
ip
un
its
of
the
Co
mp
an
y fo
r $
28
,00
0 v
ia a
sp
eci
al p
urp
ose
en
tity
.
♦T
he
co
nte
mp
late
d t
ran
sact
ion
is o
n a
ca
sh-f
ree
, d
eb
t-fr
ee
ba
sis.
♦T
he
pu
rch
ase
pri
ce is
ba
sed
on
TT
M a
dju
ste
d E
BIT
DA
of
$3
,70
0.
♦T
arg
ete
d w
ork
ing
ca
pit
al i
s $
3,6
76
.
Co
mp
an
y O
ve
rvie
w
♦G
oo
d
De
al,
LL
C
an
d
Sub
sid
iari
es
is
en
ga
ge
d
in
t
he
ma
nu
fact
ure
o
f g
oo
d p
rod
uct
s.
Th
e C
om
pa
ny’
s p
rod
uct
s a
re s
old
to
dis
trib
uto
rs
acr
oss
N
ort
h
Am
eri
ca
an
d
to
ma
rke
ts
in
the
Eu
rop
ea
n U
nio
n,
Au
stra
lia,
an
d E
ast
ern
Asi
a.
♦T
he
Co
mp
an
y a
cqu
ire
d c
ert
ain
ass
ets
fro
m D
ea
l O
ne
, In
c. (
no
w
"DO
") i
n O
cto
be
r 2
01
4 a
nd
ce
rta
in a
sse
ts o
f D
ea
l T
wo
, In
c. (
“DT
I”)
in
Oct
ob
er
20
15
(n
ow
p
art
o
f G
oo
d
De
al)
.
Th
e
Co
mp
an
y h
as
con
solid
ate
d
the
D
O
an
d
DT
I fa
cilit
ies
into
it
s A
nyt
ow
n
USA
loca
tio
n.
Ext
ern
al
Au
dit
s
Th
e
Co
mp
an
y’s
fin
an
cia
l s
tate
me
nts
a
re
au
dit
ed
o
n
an
a
nn
ua
l
ba
sis
by
an
ext
ern
al
acc
ou
nti
ng
fi
rm,
CP
A,
LLC
. E
ach
of
the
au
dit
s
resu
lte
d i
n u
nm
od
ifie
d o
pin
ion
s.
GY
F a
gre
ed
th
e C
om
pa
ny’
s in
tern
al
tria
l b
ala
nce
s to
th
e
revi
ew
ed
fi
na
nci
al
sta
tem
en
ts
for
the
ye
ars
en
de
d D
ece
mb
er
31
, 2
01
3,
20
14
, a
nd
20
15
.
Em
plo
ye
es
♦T
he
C
om
pa
ny
em
plo
ys
a
wo
rkfo
rce
o
f a
pp
roxi
ma
tely
1
00
,
com
pri
sed
o
f b
oth
sa
lary
a
nd
h
ou
rly
em
plo
yee
s.
N
on
e
of
the
Co
mp
an
y's
em
plo
yee
s a
re a
re r
ep
rese
nte
d b
y a
un
ion
. S
ee
fu
rth
er
dis
cuss
ion
re
ga
rdin
g e
mp
loye
es
on
pa
ge
19
.
♦K
ey
ma
na
ge
me
nt
incl
ud
es:
Exe
cuti
veB
ack
gro
un
d
Ms.
Bo
ss,
Ch
ief
Exe
cuti
ve O
ffic
er
Red
acte
d
Mr.
Acc
ou
nti
ng
, C
hie
f Fi
na
nci
al O
ffic
er
Red
acte
d
Mr.
Sale
s, V
ice P
resi
dent
of
Sale
sR
ed
acte
d
Acc
ou
nti
ng
Sy
ste
m
Th
e
Co
mp
an
y u
tiliz
es
a c
lou
d-b
ase
d
ER
P
syst
em
(“
PLE
X”)
fo
r i
ts
ge
ne
ral
le
dg
er,
in
ven
tory
m
an
ag
em
en
t,
an
d f
ina
nci
al
rep
ort
ing
fun
ctio
ns.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
64
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
RE
VE
NU
E R
EC
OG
NIT
ION
, M
AJO
R C
US
TO
ME
RS
AN
D
SIG
NIF
ICA
NT
ES
TIM
AT
ES
Re
ve
nu
e R
eco
gn
itio
n
Th
e
Co
mp
an
y g
en
era
lly
reco
gn
ize
s r
eve
nu
e
wh
en
p
rod
uct
s a
re
ship
pe
d,
le
ga
l t
itle
is
tra
nsf
err
ed
to
th
e
cust
om
er,
co
llect
ion
o
f
the
re
leva
nt
re
ceiv
ab
le
is
pro
ba
ble
, p
ers
ua
sive
evi
de
nce
of
an
arr
an
ge
me
nt
exi
sts
an
d t
he
sa
les
pri
ce i
s fi
xed
or
de
term
ina
ble
. P
er
Mr.
Acc
ou
nti
ng
, th
ere
ha
ve b
ee
n n
o c
ha
ng
es
to r
eve
nu
e r
eco
gn
itio
n
po
licie
s,
no
si
gn
ific
an
t so
urc
es
of
oth
er
reve
nu
e (
i.e
., r
eve
nu
e n
ot
resu
ltin
g f
rom
th
e C
om
pa
ny’
s co
re b
usi
ne
ss),
an
d n
o s
ign
ific
an
t n
on
-
recu
rrin
g r
eve
nu
e d
uri
ng
th
e e
valu
ati
on
pe
rio
d.
Ma
jor
Cu
sto
me
rs
Th
e a
ud
ite
d f
ina
nci
al
sta
tem
en
ts i
nd
ica
te t
wo
ma
jor
cust
om
ers
th
at
acc
ou
nte
d f
or
27
% a
nd
33
% o
f sa
les
for
the
ye
ars
en
de
d D
ece
mb
er
26
, 2
01
5 a
nd
De
cem
be
r 2
7,
20
14
, re
spe
ctiv
ely
. T
he
lo
ss o
f e
ith
er
of
the
se c
ust
om
ers
co
uld
ad
vers
ely
aff
ect
th
e C
om
pa
ny’
s b
usi
ne
ss.
Sig
nif
ica
nt
Acc
ou
nti
ng
Est
ima
tes
Th
e g
ove
rna
nce
le
tte
rs i
ssu
ed
in
co
nju
nct
ion
wit
h t
he
20
15
, 2
01
4 a
nd
20
13
au
dit
s in
dic
ate
th
e f
ollo
win
g s
en
siti
ve e
stim
ate
s a
ffe
ctin
g t
he
con
solid
ate
d f
ina
nci
al
sta
tem
en
ts (
ou
r co
mm
en
ts r
eg
ard
ing
ea
ch a
re
in it
alic
s):
♦R
eco
vera
bili
ty
of
lon
g-l
ive
d
an
d
inta
ng
ible
a
sse
ts
–
No
is
sue
s w
ere
ide
nti
fie
d i
n c
on
jun
ctio
n w
ith
th
e a
ud
its.
T
his
est
ima
te w
ill
no
t b
e f
urt
he
r
ass
ess
ed
in
co
nju
nct
ion
wit
h t
his
en
ga
ge
me
nt
as
it d
oe
s n
ot
ha
ve
an
y
imp
act
on
EB
ITD
A o
r w
ork
ing
ca
pit
al.
♦D
ep
reci
ati
on
an
d a
mo
rtiz
ati
on
- T
his
est
ima
te w
ill
no
t b
e f
urt
he
r a
sse
sse
d
in c
on
jun
ctio
n w
ith
th
is e
ng
ag
em
en
t a
s it
do
es
no
t h
ave
an
y i
mp
act
on
EB
ITD
A o
r w
ork
ing
ca
pit
al.
♦In
ven
tory
ob
sole
sce
nce
– S
ee
co
nsi
de
rati
on
on
pa
ge
25
.
♦O
verh
ea
d a
lloca
tio
n –
Se
e c
on
sid
era
tio
n o
n p
ag
e 2
5.
♦A
llow
an
ce f
or
do
ub
tfu
l acc
ou
nts
– S
ee
co
nsi
de
rati
on
on
pa
ge
23
.
♦C
on
tin
ge
nt
con
sid
era
tio
n
–
Mr.
A
cco
un
tin
g
no
ted
th
at
the
co
nd
itio
ns
req
uir
ing
th
e
pa
ym
en
t o
f th
e
rem
ain
ing
re
cord
ed
co
nti
ng
en
t
con
sid
era
tio
n a
sso
cia
ted
wit
h t
he
DO
tra
nsa
ctio
n w
ill
no
t b
e a
chie
ve
d a
nd
tha
t it
wil
l n
ee
d t
o b
e r
eve
rse
d.
Th
is e
stim
ate
wil
l n
ot
be
fu
rth
er
ass
ess
ed
in c
on
jun
ctio
n w
ith
th
is e
ng
ag
em
en
t a
s it
do
es
no
t a
pp
ea
r to
ha
ve
an
y
imp
act
on
EB
ITD
A o
r th
e p
ro f
orm
a w
ork
ing
ca
pit
al.
We
un
de
rsta
nd
as
we
ll t
ha
t th
e c
on
tin
ge
nt
con
sid
era
tio
n a
sso
cia
ted
wit
h D
TI
wil
l a
lso
no
t b
e
pa
id.
Se
e c
on
sid
era
tio
n o
n p
ag
e 9
.
♦Sh
are
ba
sed
co
mp
en
sati
on
– T
he
20
15
go
ve
rna
nce
le
tte
r in
dic
ate
s th
at
the
ab
sen
ce o
f sh
are
ba
sed
co
mp
en
sati
on
exp
en
se o
r a
ny r
ela
ted
lia
bil
ity
for
eq
uit
y
op
tio
ns
aw
ard
ed
p
rio
r to
2
01
5
is
ba
sed
o
n
ma
na
ge
me
nt’
s
ass
um
pti
on
th
at
op
tio
n a
wa
rds
we
re g
en
era
lly g
ran
ted
wit
h a
n e
xe
rcis
e
pri
ce e
qu
al
to o
r g
rea
ter
tha
n th
e fa
ir va
lue
o
f th
e C
om
pa
ny’s
eq
uit
y
op
tio
ns
at
the
da
te o
f th
e g
ran
t.
Th
e p
ro f
orm
a E
BIT
DA
ad
just
me
nts
incl
ud
e a
n a
dju
stm
en
t fo
r p
aym
en
ts m
ad
e t
o o
pti
on
ho
lde
rs d
uri
ng
20
16
.
Mr.
A
cco
un
tin
g
no
ted
th
at
he
e
xp
ect
s o
uts
tan
din
g
op
tio
ns
wil
l b
e
exe
rcis
ed
in
co
nju
nct
ion
wit
h t
he
tra
nsa
ctio
n i
n l
igh
t o
f th
e o
pti
on
pri
ces
an
d t
he
pu
rch
ase
pri
ce i
n t
he
le
tte
r o
f in
ten
t.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
65
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
RE
CE
NT
FIN
AN
CIA
L P
ER
FOR
MA
NC
E
Inco
me
Sta
tem
en
t S
um
ma
ry
Un
ad
just
ed
20
13
20
14
20
15
TT
M
Au
g-2
01
6
YT
D
Au
g-2
01
6
Ne
t sa
les
$1
3,4
67
$1
5,7
30
$2
2,3
45
$2
2,5
28
$1
6,1
02
Co
st o
f sa
les
9,3
75
10
,51
41
5,1
73
14
,93
41
0,3
56
Gro
ss P
rofi
t4
,09
25
,21
67
,17
27
,59
45
,74
6
Ge
ne
ral a
nd
ad
min
istr
ati
ve e
xpe
nse
s2
,21
62
,33
13
,14
53
,40
42
,34
3
Sale
s a
nd
ma
rke
tin
g e
xpe
nse
s1
,53
72
,15
02
,48
32
,85
51
,91
6
Op
era
tin
g I
nco
me
$3
39
$7
35
$1
,54
4$
1,3
35
$1
,48
7
Un
ad
just
ed
EB
ITD
A$
67
0$
1,4
12
$2
,55
1$
1,6
16
$1
,15
4
Pro
Fo
rma
EB
ITD
A$
1,3
44
$1
,38
5$
3,1
34
$3
,64
3$
3,0
93
Ke
y P
erf
orm
an
ce I
nd
ica
tors
Gro
ss M
arg
in%
30
.4%
33
.2%
32
.1%
33
.7%
35
.7
Op
era
tin
g M
arg
in%
2.5
%4
.7%
6.9
%5
.9%
9.2
Un
ad
just
ed
EB
ITD
A M
arg
in%
5.0
%9
.0%
11
.4%
7.2
%7
.2
Pro
Fo
rma
EB
ITD
A M
arg
in%
10
.0%
8.8
%1
4.0
%1
6.2
%1
9.2
Ne
t S
ale
s
Fro
m 2
01
3 t
o T
TM
Au
g-2
01
6 n
et
sale
s in
cre
ase
d b
y $
9,0
61
(6
7%
).
Ma
na
ge
me
nt
rep
rese
nts
th
at
this
in
cre
ase
is
a
fu
nct
ion
o
f b
oth
org
an
ic g
row
th a
nd
acq
uis
itio
ns.
Gro
ss M
arg
in
Th
e C
om
pa
ny’
s m
arg
ins
imp
rove
d f
rom
ap
pro
xim
ate
ly 3
3%
in
20
14
an
d 2
01
5 t
o a
pp
roxi
ma
tely
36
% t
hro
ug
h Y
TD
Se
p-2
01
6.
Th
e m
arg
in
imp
rove
me
nt
wa
s p
rin
cip
ally
a
fu
nct
ion
o
f p
rici
ng
in
cre
ase
s o
f
ap
pro
xim
ate
ly 7
% -
8%
, o
n a
vera
ge
, in
Ap
ril
20
15
an
d a
pp
roxi
ma
tely
3%
, o
n a
vera
ge
, in
Ja
nu
ary
20
16
. T
he
im
pa
ct o
f th
e p
rici
ng
in
cre
ase
s
on
pro
fita
bili
ty i
s so
me
wh
at
mu
ted
by
the
fa
cilit
y co
nso
lida
tio
n i
tem
s
ide
nti
fie
d a
s p
ro f
orm
a E
BIT
DA
ad
just
me
nts
.
Op
era
tin
g E
xpe
nse
s
Ge
ne
ral
an
d
ad
min
istr
ati
ve
exp
en
ses
are
ra
the
r co
nsi
ste
nt
as
a
pe
rce
nta
ge
of
sale
s, b
ut
rea
l d
olla
r sp
en
d h
as
incr
ea
sed
ea
ch y
ea
r
sin
ce 2
01
3.
Se
llin
g a
nd
ma
rke
tin
g i
ncr
ea
ses
du
rin
g t
he
pe
rio
d a
re
dri
ven
by
pe
rso
nn
el
cost
s a
nd
are
ge
ne
rally
co
mm
en
sura
te w
ith
th
e
incr
ea
se in
sa
les.
Se
e f
urt
he
r co
nsi
de
rati
on
on
pa
ge
20
.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
66
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
KE
Y F
IND
ING
S
ISS
UE
SU
MM
AR
Y O
BS
ER
VA
TIO
NS
/ R
EC
OM
ME
ND
AT
ION
S
Va
lue
Ma
tte
rs
Re
cen
t A
cqu
isit
ion
sT
he
p
urc
ha
se
pri
ce
is
pre
dic
ate
d
on
si
gn
ific
an
t p
ro
form
a
EB
ITD
A
ad
just
me
nts
, in
clu
din
g
sig
nif
ica
nt
ass
um
pti
on
s re
late
d
to
pro
spe
ctiv
e c
ost
sa
vin
gs
rela
ted
to
th
e D
O a
nd
DT
I a
cqu
isit
ion
s (p
rin
cip
ally
pe
rso
nn
el
an
d f
reig
ht)
. F
urt
he
r, s
ale
s a
t D
O h
ave
de
clin
ed
sin
ce t
he
acq
uis
itio
n.
Co
nsi
de
rati
on
sh
ou
ld b
e g
ive
n t
o t
he
op
era
tio
na
l e
ffic
ien
cie
s o
f th
ese
ass
um
pti
on
s a
s w
ell
as
the
ma
rke
t fo
r th
e D
TI
an
d D
O p
rod
uct
s.
Sell
Sid
e D
ilig
en
ceT
he
Bu
yer
sho
uld
co
nsi
de
r re
qu
est
ing
th
at
sell
sid
e d
ilig
en
ce r
ep
ort
re
ga
rdin
g q
ua
lity
of
ea
rnin
gs
be
fin
aliz
ed
Pu
rch
ase
Ag
ree
me
nt
Ma
tte
rs
Eq
uit
y O
pti
on
sE
qu
ity
op
tio
ns
sho
uld
be
co
nsi
de
red
in c
on
jun
ctio
n w
ith
ne
go
tia
tio
n o
f p
urc
ha
se/s
ale
ag
ree
me
nt.
Leg
acy
Co
sts
- D
TI
& D
OT
he
pu
rch
ase
pri
ce in
th
e L
OI
con
tem
pla
tes
pro
fo
rma
EB
ITD
A b
ase
d o
n f
ull
con
solid
ati
on
of
the
DT
I a
nd
DO
op
era
tio
ns
in A
nyt
ow
n
USA
. W
e u
nd
ers
tan
d t
ha
t b
oth
th
e D
TI
an
d D
O o
pe
rati
on
s h
ave
be
en
fu
lly in
teg
rate
d.
DT
I a
dju
stm
en
ts c
ea
sed
in A
pri
l 20
16
, w
he
n
the
le
ase
te
rm e
nd
ed
. D
O a
dju
stm
en
ts r
ela
ted
to
fa
cilit
ies
will
en
d i
n O
cto
be
r 2
01
6,
wh
en
th
e l
ea
se t
erm
en
ds.
T
he
ad
just
me
nts
rela
ted
to
DO
se
ller
em
plo
yme
nt
ag
ree
me
nts
will
en
d i
n O
cto
be
r 2
01
6.
It
ap
pe
ars
th
at
the
fa
cilit
ies
are
fu
lly i
nte
gra
ted
an
d t
ha
t
no
le
ga
cy p
aym
en
ts w
ill b
e r
eq
uir
ed
aft
er
clo
sin
g.
To
th
e e
xte
nt
tha
t le
ga
cy p
aym
en
ts a
re r
eq
uir
ed
aft
er
clo
sin
g,
such
sh
ou
ld b
e
con
sid
ere
d in
th
e p
urc
ha
se p
rice
.
Ind
em
nif
ica
tio
nB
uye
r sh
ou
ld
en
sure
th
at
the
p
urc
ha
se
do
cum
en
t in
clu
de
s a
n
ind
em
nif
ica
tio
n
ag
ain
st
an
y p
rio
r ta
x lia
bili
tie
s re
late
d
pre
-
acq
uis
itio
n D
O.
In
ad
dit
ion
, d
ocu
me
nta
tio
n s
ho
uld
be
ob
tain
ed
wh
ich
su
pp
ort
s th
e c
laim
th
at
Go
od
De
al
DO
, LL
C h
as
wit
hd
raw
n
fro
m t
he
sta
tes
it w
as
pre
vio
usl
y re
gis
tere
d t
o d
o b
usi
ne
ss in
.
Ma
tte
rs f
or
Foll
ow
-up
DO
Me
rge
rB
uye
r sh
ou
ld r
evi
ew
th
e D
O m
erg
er
do
cum
en
t p
rio
r to
clo
sin
g t
o e
nsu
re t
ha
t B
uye
r u
nd
ers
tan
ds
the
me
rge
r.
Mr.
Acc
ou
nti
ng
no
tes
tha
t th
is m
erg
er
wa
s co
mp
lete
d o
n O
cto
be
r 7
, 2
01
6.
CA
Sa
les
Ta
xB
uye
r sh
ou
ld o
bta
in r
ep
rese
nta
tio
n f
rom
Se
ller
tha
t a
ll C
alif
orn
ia s
ale
s ta
xes
tha
t a
re d
ue
are
sa
tisf
ied
an
d t
ha
t th
ere
are
no
op
en
ma
tte
rs t
ha
t n
ee
d t
o b
e r
eso
lve
d.
Bu
yer
sho
uld
ob
tain
Ca
lifo
rnia
sa
les
tax
cle
ara
nce
ce
rtif
ica
tes
fro
m S
elle
r b
efo
re c
losi
ng
.
Clo
sin
g M
att
ers
Inve
nto
ry O
bse
rva
tio
nIn
ven
tory
ob
serv
ati
on
s h
ave
his
tori
cally
re
sult
ed
in
un
favo
rab
le a
dju
stm
en
ts.
Wh
ile a
n o
bse
rva
tio
n w
as
pe
rfo
rme
d i
n O
cto
be
r
20
16
, w
e r
eco
mm
en
d t
ha
t a
fu
ll o
bse
rva
tio
n b
e p
erf
orm
ed
as
of
the
clo
sin
g d
ate
.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
67
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
KE
Y F
IND
ING
S (
CO
NT
INU
ED
)
ISS
UE
SU
MM
AR
Y O
BS
ER
VA
TIO
NS
/ R
EC
OM
ME
ND
AT
ION
S
Ta
x P
lan
nin
g M
att
ers
IC D
ISC
Mr.
Acc
ou
nti
ng
no
ted
th
at
fore
ign
sa
les
ap
pro
ach
$1
,50
0,0
00
an
nu
ally
. C
on
sid
era
tio
n s
ho
uld
be
giv
en
to
fo
rmin
g a
n I
nte
rest
-
Ch
arg
e D
om
est
ic I
nte
rna
tio
na
l Sa
les
Co
rpo
rati
on
(IC
-DIS
C)
in o
rde
r to
re
du
ce f
ed
era
l in
com
e t
axe
s fo
r m
em
be
rs i
f th
e t
ran
sact
ion
is c
on
sum
ma
ted
.
Fixe
d A
sse
t A
pp
rais
al
Fixe
d
ass
et
ap
pra
isa
ls
sho
uld
b
e
pe
rfo
rme
d
in
con
jun
ctio
n
wit
h
the
tr
an
sact
ion
in
o
rde
r to
pro
pe
rly
allo
cate
co
nsi
de
rati
on
be
twe
en
pro
pe
rty
an
d e
qu
ipm
en
t a
nd
in
tan
gib
le a
sse
ts s
o a
s to
ma
xim
ize
ta
x d
ed
uct
ion
s. (
Such
wo
uld
no
t n
ee
d t
o b
e c
om
ple
ted
for
the
DT
I o
r D
O a
sse
ts if
su
ch a
re e
asi
ly id
en
tifi
ed
.)
Acc
ou
nti
ng
Ma
tte
rs
Sale
s/M
arg
in D
eta
il b
y
Bra
nd
Th
e C
om
pa
ny
ma
inta
ins
info
rma
tio
n i
n a
n E
xce
l P
ivo
t ta
ble
th
at
incl
ud
es
sale
s a
nd
ma
rgin
in
form
ati
on
by
bra
nd
, cl
ass
an
d p
art
.
Mr.
Acc
ou
nti
ng
no
ted
th
at
this
in
form
ati
on
wa
s u
sed
in
th
e d
eve
lop
me
nt
of
pri
cin
g i
ncr
ea
ses
in o
rde
r to
ta
rge
t p
rici
ng
in
cre
ase
s
tow
ard
lo
w m
arg
in p
art
s.
Th
e i
nfo
rma
tio
n i
s ve
ry d
eta
iled
an
d c
an
be
so
rte
d a
nd
su
bto
tale
d i
n m
an
y m
ea
nin
gfu
l w
ays
. H
ow
eve
r,
the
info
rma
tio
n a
pp
ea
rs t
o b
e in
com
ple
te w
ith
re
spe
ct t
o D
O in
form
ati
on
an
d s
ho
uld
be
re
con
cile
d t
o t
he
ge
ne
ral l
ed
ge
r.
Acc
rue
d L
iab
iliti
es
Th
e B
uye
r m
ay
wa
nt
to c
on
sid
er
revi
ew
ing
de
taile
d s
che
du
les
sup
po
rtin
g v
ari
ou
s a
ccru
al
acc
ou
nts
as
som
e a
na
lyse
s in
clu
de
d
un
usu
al i
tem
s a
nd
did
no
t re
con
cile
to
th
e g
en
era
l le
dg
er.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
68
I.
EX
EC
UT
IVE
SU
MM
AR
Y I
. E
XE
CU
TIV
E S
UM
MA
RY
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
KE
Y F
IND
ING
S (
CO
NT
INU
ED
)
ISS
UE
SU
MM
AR
Y O
BS
ER
VA
TIO
NS
/ R
EC
OM
ME
ND
AT
ION
S
Acc
ou
nti
ng
Ma
tte
rs (
con
tin
ue
d)
Po
ten
tia
l Ad
just
me
nts
♦R
em
ain
ing
co
nti
ng
en
t co
nsi
de
rati
on
will
no
t b
e p
aid
an
d s
ho
uld
be
ad
just
ed
– n
o im
pa
ct o
n p
ro f
orm
a E
BIT
DA
/wo
rkin
g c
ap
ita
l.
♦T
he
pra
ctic
e o
f va
luin
g p
urc
ha
sed
pa
rts
an
d o
uts
ide
pro
cess
ing
su
bst
an
tia
lly m
itig
ate
s th
e r
isk
tha
t th
e i
nve
nto
ry c
ost
is
hig
he
r
tha
n i
ts m
ark
et
valu
e.
Ho
we
ver,
bo
th t
his
pra
ctic
e a
nd
th
e a
pp
lica
tio
n o
f b
ud
ge
ted
la
bo
r/o
verh
ea
d s
tan
da
rds
to i
nve
nto
ry a
t
yea
r-e
nd
co
uld
re
sult
in
mis
sta
tem
en
ts i
n a
n i
nfl
ati
on
ary
ma
rke
t.
Th
is r
isk
like
ly w
arr
an
ts c
on
sid
era
tio
n t
o p
rote
ct t
he
Bu
yer
fro
m w
ork
ing
ca
pit
al i
mp
lica
tio
ns
tha
t co
uld
re
sult
fro
m r
isin
g c
ost
s e
stim
ate
d f
or
20
17
.
♦T
he
Co
mp
an
y e
xpe
rie
nce
d s
ign
ific
an
t st
an
da
rd c
ost
va
ria
nce
s in
20
15
an
d 2
01
6 r
esu
ltin
g f
rom
acq
uis
itio
ns.
V
ari
an
ces
sho
uld
be
mo
nit
ore
d a
nd
sta
nd
ard
s a
dju
ste
d a
s n
ece
ssa
ry.
♦A
ccru
ed
re
nt
ma
y b
e
ove
rsta
ted
a
s a
pp
roxi
ma
tely
$
10
5,0
00
e
xpe
cte
d
to
be
re
ceiv
ed
fr
om
th
e l
ess
or
rela
ted
to
te
na
nt
imp
rove
me
nts
ma
y n
ot
be
pro
pe
rly
con
sid
ere
d.
An
y a
dju
stm
en
t p
rio
r to
clo
sin
g w
ou
ld a
lso
re
qu
ire
re
pa
ir o
f th
e t
raili
ng
tw
elv
e
mo
nth
info
rma
tio
n u
sed
to
de
term
ine
th
e w
ork
ing
ca
pit
al t
arg
et.
♦T
he
Co
mp
an
y d
oe
s n
ot
acc
rue
va
cati
on
. W
hile
we
un
de
rsta
nd
th
at
vaca
tio
n i
s e
arn
ed
in
a y
ea
r fo
r u
se i
n t
ha
t ye
ar
an
d u
nu
sed
vaca
tio
n i
s g
en
era
lly f
orf
eit
ed
at
the
en
d o
f th
e y
ea
r, a
t a
ny
giv
en
tim
e d
uri
ng
th
e y
ea
r th
ere
is
like
ly a
n o
blig
ati
on
fo
r va
cati
on
ea
rne
d,
bu
t n
ot
yet
use
d.
Co
nsi
de
rin
g t
he
pro
xim
ity
of
the
exp
ect
ed
clo
sin
g d
ate
to
ye
ar-
en
d,
this
ma
tte
r m
ay
no
t b
e
sig
nif
ica
nt;
ho
we
ver,
va
cati
on
tim
e a
rou
nd
ho
lida
ys m
ay
ha
ve a
n im
pa
ct.
♦T
he
Co
mp
an
y e
xpe
cts
to p
ay
ap
pro
xim
ate
ly $
45
,00
0 t
o C
alif
orn
ia f
or
sale
s ta
xes
resu
ltin
g f
rom
ne
xus
in C
alif
orn
ia,
no
t
ide
nti
fie
d u
nti
l th
e c
urr
en
t ye
ar.
M
r. A
cco
un
tin
g n
ote
d t
ha
t th
is i
s n
ot
acc
rue
d a
t Se
pte
mb
er
24
, 2
01
6,
bu
t is
exp
ect
ed
to
be
reso
lve
d b
efo
re t
he
tra
nsa
ctio
n i
s co
nsu
mm
ate
d.
Bu
yer
ma
y a
lso
wa
nt
to c
on
sid
er
exp
osu
re t
o s
imila
r ta
xes
in o
the
r st
ate
s a
s
the
pu
rch
ase
ag
ree
me
nt
is f
ina
lize
d.
♦T
he
Co
mp
an
y o
ffe
rs c
ash
dis
cou
nts
, b
ut
do
es
no
t m
ain
tain
an
acc
rua
l.
Mr.
Acc
ou
nti
ng
in
dic
ate
d t
ha
t ca
sh d
isco
un
ts a
re
insi
gn
ific
an
t.
♦T
he
Co
mp
an
y e
xpe
rie
nce
d l
imit
ed
re
turn
s, b
ut
do
es
no
t m
ain
tain
an
acc
rua
l. T
he
re a
re,
ho
we
ver,
pro
fo
rma
ad
just
me
nts
fo
r
retu
rns
in t
he
pro
fo
rma
wo
rkin
g c
ap
ita
l an
d E
BIT
DA
an
aly
ses.
♦T
he
wa
rra
nty
acc
rua
l sh
ou
ld l
ike
ly c
on
sid
er
lab
or
an
d o
verh
ea
d i
n a
dd
itio
n t
o m
ate
ria
ls;
ho
we
ver,
an
y a
dju
stm
en
t w
ou
ld a
lso
req
uir
e a
dju
stm
en
t to
th
e t
raili
ng
tw
elv
e m
on
th in
form
ati
on
use
d t
o d
ete
rmin
e t
he
wo
rkin
g c
ap
ita
l ta
rge
t.
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
69
II.
QU
ALI
TY
OF
EA
RN
ING
S I
I. Q
UA
LIT
Y O
F E
AR
NIN
GS
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
EB
ITD
A A
NA
LYS
IS
RE
F2
01
32
01
42
01
5
TT
M
Au
g-2
01
6
YT
D
Au
g-2
01
6
Un
ad
just
ed
EB
ITD
A$
67
0$
1,4
12
$2
,55
1$
1,6
16
$1
,15
4
Se
lle
r P
rop
ose
d A
dju
stm
en
ts
Va
lua
tio
n a
dju
stm
en
tA
-(1
96
)(4
55
)(4
55
)-
Faci
lity
con
solid
ati
on
B-
-3
17
86
75
5
Acq
uis
itio
n e
xpe
nse
C-
17
71
93
28
41
54
Selle
r e
mp
loym
en
t a
gre
em
en
tD
--
15
01
57
99
Seve
ran
ce a
nd
re
late
d p
aym
en
tsE
14
84
21
05
51
33
Syst
em
re
imp
lem
en
tati
on
F-
-6
12
61
20
Sta
nd
ard
inve
nto
ry r
ese
tG
--
-(7
2)
-
Oth
er
sale
s a
dju
stm
en
tH
(14
)(4
4)
64
65
-
Pu
rch
ase
acc
ou
nti
ng
ad
just
me
nt
I-
-3
45
11
7
Pro
ject
co
nsu
ltin
gJ
64
--
10
31
03
Stra
igh
t-lin
e r
en
t a
dju
stm
en
tK
11
53
25
34
9
Sale
s &
use
ta
x co
mp
lian
ceL
--
25
25
-
FL o
pe
rati
on
s su
pp
ort
tra
vel
M-
-7
58
50
Bo
ard
fe
es
an
d t
rave
lN
-1
72
42
21
0
Re
cru
itin
g &
re
loca
tio
nO
17
32
54
03
31
7
De
ferr
ed
co
mp
en
sati
on
P-
-8
16
8
Acc
rue
d r
oya
lty
Q-
-2
08
-
Dis
cre
tio
na
ry c
om
pe
nsa
tio
nR
30
--
10
10
Allo
wa
nce
fo
r re
turn
sS
-(8
)(7
)1
16
inte
rna
tio
na
l ma
rke
t e
xplo
rati
on
T8
1-
--
-
DO
re
ten
tio
n p
aym
en
tsU
--
-1
91
9
DT
I p
rofo
rma
& f
aci
lity
con
sol.
V-
--
74
74
89
To
tal
Se
lle
r P
rop
ose
d A
dju
stm
en
ts5
97
16
24
72
,09
81
,93
9
Se
lle
r P
rop
ose
d E
BIT
DA
$1
,26
7$
1,4
28
$2
,79
8$
3,7
14
$3
,09
3
RE
F2
01
32
01
42
01
5
TT
M
Au
g-2
01
6
YT
D
Au
g-2
01
6
Se
lle
r P
rop
ose
d E
BIT
DA
$1
,26
7$
1,4
28
$2
,79
8$
3,7
14
$3
,09
3
Du
e D
ilig
en
ce A
dju
stm
en
ts
Ch
an
ge
in m
eth
od
olo
gy
for
calc
ula
tin
g
inve
nto
ry r
ese
rve
Pg
. 2
51
75
--
--
De
cem
be
r u
pd
ate
s to
sta
nd
ard
lab
or
an
d
ove
rhe
ad
Pg
. 2
4-
(63
)1
61
--
Re
nt
Pg
. 1
4(9
8)
20
12
(59
)-
Est
ima
ted
imp
act
of
fou
r m
on
ths
wit
ho
ut
Co
ntr
olle
rP
g.
21
--
-(1
2)
-
Pro
du
ct li
ab
ility
se
ttle
me
nt
Pg
. 2
1-
-1
63
--
To
tal
Du
e D
ilig
en
ce A
dju
stm
en
ts7
7(4
3)
33
6(7
1)
-
Pro
Fo
rma
EB
ITD
A$
1,3
44
$1
,38
5$
3,1
34
$3
,64
3$
3,0
93
Ov
erv
iew
♦T
he
EB
ITD
A a
na
lysi
s p
rese
nts
a b
rid
ge
fro
m u
na
dju
ste
d E
BIT
DA
to
pro
form
a E
BIT
DA
.
♦T
TM
Au
g-2
01
6 E
BIT
DA
is d
eta
iled
on
pa
ge
11
.
♦Se
ller
EB
ITD
A a
dju
stm
en
ts a
re d
esc
rib
ed
in
de
tail
pa
ge
s 1
2 -
16
. D
ue
Dili
ge
nce
E
BIT
DA
a
dju
stm
en
ts
are
d
esc
rib
ed
o
n
the
p
ag
es
refe
ren
ced
ab
ove
.
♦In
ge
ne
ral,
EB
ITD
A a
dju
stm
en
ts:
>C
on
sid
er
no
n-r
ecu
rrin
g a
nd
life
-sty
le e
xpe
nse
s
>C
on
sid
er
ou
t o
f p
eri
od
ite
ms
>E
xclu
de
th
e e
ffe
ct o
f p
ote
nti
al p
ost
-clo
sin
g s
yne
rgie
s/ch
an
ge
s
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
61
0
II.
QU
ALI
TY
OF
EA
RN
ING
S I
I. Q
UA
LIT
Y O
F E
AR
NIN
GS
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
EB
ITD
A A
NA
LYS
IS (
CO
NT
INU
ED
)
RE
FS
ep
-15
Oct
-15
No
v-1
5D
ec-
20
15
Jan
-20
16
Feb
-20
16
Ma
r-2
01
6A
pr-
20
16
Ma
y-2
01
6Ju
n-2
01
6Ju
l-2
01
6A
ug
-20
16
TT
M
Au
g-2
01
6
Un
ad
just
ed
EB
ITD
A$
(4)
$7
7$
60
$3
29
$(7
)$
25
8$
40
2$
10
3$
30
0$
23
9$
(97
)$
(44
)$
1,6
16
Se
lle
r P
rop
ose
d A
dju
stm
en
ts
Va
lua
tio
n a
dju
stm
en
tA
--
-(4
55
)-
--
--
--
-(4
55
)
Faci
lity
con
solid
ati
on
B-
--
31
30
28
57
92
81
34
24
01
93
78
6
Acq
uis
itio
n e
xpe
nse
C3
11
64
53
8-
45
3-
21
77
35
28
4
Selle
r e
mp
loym
en
t a
gre
em
en
tD
12
12
12
22
13
13
13
12
12
12
12
12
15
7
Seve
ran
ce a
nd
re
late
d p
aym
en
tsE
42
48
42
85
24
35
51
Syst
em
re
imp
lem
en
tati
on
F-
--
61
71
71
71
71
71
71
8-
12
6
Sta
nd
ard
inve
nto
ry r
ese
tG
--
-(7
2)
--
--
--
--
(72
)
Oth
er
sale
s a
dju
stm
en
tH
25
79
24
--
--
--
--
65
Pu
rch
ase
acc
ou
nti
ng
ad
just
me
nt
I-
-1
71
71
7-
--
--
--
51
Pro
ject
co
nsu
ltin
gJ
--
--
--
-2
72
92
11
11
51
03
Stra
igh
t-lin
e r
en
t a
dju
stm
en
tK
(1)
(1)
(1)
76
66
76
66
65
3
Sale
s &
use
ta
x co
mp
lian
ceL
25
--
--
--
--
--
-2
5
Op
era
tio
ns
sup
po
rt t
rave
lM
--
53
32
57
41
91
0-
58
Bo
ard
fe
es
an
d t
rave
lN
21
0-
-3
--
-3
31
-2
2
Re
cru
itin
g &
re
loca
tio
nO
16
-9
--
--
--
-1
73
3
De
ferr
ed
co
mp
en
sati
on
P-
--
88
--
--
--
-1
6
Acc
rue
d r
oya
lty
Q2
22
2-
--
--
--
-8
Dis
cre
tio
na
ry c
om
pe
nsa
tio
nR
--
--
-1
0-
--
--
-1
0
Allo
wa
nce
fo
r re
turn
sS
21
11
(4)
(4)
(4)
(4)
66
64
11
DO
re
ten
tio
n p
aym
en
tsU
--
--
--
--
--
-1
91
9
DT
I p
rofo
rma
& f
aci
lity
con
sol.
V5
85
97
36
87
26
36
66
56
06
05
74
67
47
To
tal
Se
lle
r P
rop
ose
d A
dju
stm
en
ts1
61
11
41
67
(28
3)
16
91
41
22
12
28
22
21
99
43
73
22
2,0
98
Se
lle
r P
rop
ose
d E
BIT
DA
$1
57
$1
91
$2
27
$4
6$
16
2$
39
9$
62
3$
33
1$
52
2$
43
8$
34
0$
27
8$
3,7
14
Du
e D
ilig
en
ce A
dju
stm
en
ts
Re
nt
Pg
. 1
4-
--
--
--
--
--
(59
)(5
9)
Est
ima
ted
imp
act
of
fou
r m
on
ths
wit
ho
ut
Co
ntr
olle
rP
g.
21
--
--
--
--
--
-(1
2)
(12
)
To
tal
Du
e D
ilig
en
ce A
dju
stm
en
ts-
--
--
--
--
--
(71
)(7
1)
Pro
Fo
rma
EB
ITD
A$
15
7$
19
1$
22
7$
46
$1
62
$3
99
$6
23
$3
31
$5
22
$4
38
$3
40
$2
07
$3
,64
3
Acc
ou
nti
ng
Du
e D
ilig
en
ce |
|
Go
od
De
al,
LLC
|
| S
ep
tem
be
r 2
01
61
1
V.
AP
PE
ND
ICE
S V
. A
PP
EN
DIC
ES
PR
OP
RIE
TA
RY
AN
D C
ON
FID
EN
TIA
L P
RO
PR
IET
AR
Y A
ND
CO
NFI
DE
NT
IAL
CO
NS
OLI
DA
TE
D S
TA
TE
ME
NT
S O
F O
PE
RA
TIO
NS
UN
AD
JUS
TE
D2
01
32
01
42
01
5
TT
M
Au
g-2
01
6
YT
D
Au
g-2
01
5
YT
D
Au
g-2
01
6
NE
T S
ALE
S$
13
,46
7$
15
,73
0$
22
,34
5$
22
,52
8$
15
,91
9$
16
,10
2
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