Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.20.2
Acquisitions
 6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions
Acquisition of the Assets and Operations of American Stainless Tubing, Inc.
On January 1, 2019, the Company's wholly-owned subsidiary, ASTI Acquisition, LLC (now American Stainless Tubing, LLC) ("ASTI"), completed the acquisition of substantially all of the assets of American Stainless Tubing, Inc. ("American Stainless"). The purchase price for the all-cash acquisition was $21.9 million, subject to a post-closing working capital adjustment. The Company funded the acquisition with a new five-year $20 million term note and a draw against its asset-based line of credit (see Note 6).
The transaction is accounted for using the acquisition method of accounting for business combinations. Under this method, the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed. During the third quarter of 2019, the Company finalized the purchase price allocation for the American Stainless acquisition.
The excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets is reflected as goodwill. Goodwill consists of manufacturing cost synergies expected from combining American Stainless' production capabilities
with the Metals Segment current operations. All of the goodwill recognized was assigned to the Company's Metals Segment and is expected to be deductible for income tax purposes.
American Stainless will receive quarterly earn-out payments for a period of three years following closing. Pursuant to the asset purchase agreement between ASTI and American Stainless, earn-out payments will equate to six and one-half percent (6.5 percent) of ASTI’s revenue over the three-year earn-out period. In determining the appropriate discount rate to apply to the contingent payments, the risk associated with the functional form of the earn-out, and the credit risk associated with the payment of the earn-out were all considered. The fair value of the contingent consideration was estimated by applying the probability weighted expected return method using management's estimates of pounds to be shipped and future price per unit.
During the second quarter of 2019, management identified circumstances that existed on the date of acquisition and as a result, revised the purchase price allocation of certain acquired assets and liabilities as allowable during the measurement period.
The following table shows the initial estimate of value and revisions made during 2019:
(in thousands)
Initial estimate
 
Revisions
 
Final
Inventories
$
5,564

 
$
—

 
$
5,564

Accounts receivable
3,534

 
—

 
3,534

Other current assets - production and maintenance supplies
605

 
—

 
605

Property, plant and equipment
2,793

 
—

 
2,793

Customer list intangible
10,000

 
(496
)
 
9,504

Goodwill
7,044

 
714

 
7,758

Contingent consideration (earn-out liability)
(6,148
)
 
(218
)
 
(6,366
)
Accounts payable
(1,400
)
 
—

 
(1,400
)
Other liabilities
(97
)
 
—

 
(97
)
 
$
21,895

 
$
—

 
$
21,895


ASTI's results of operations are reflected in the Company's Condensed Consolidated Statements of Operations as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Net sales
$
7,255

 
$
8,557

 
$
14,900

 
$
18,070

Income before taxes
$
1,377

 
$
992

 
$
1,718

 
$
1,099