ACQUISITION |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 04, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition |
ACQUISITIONS
Acquisition of Specialty Pipe & Tube, Inc. ("Specialty")
On November 21, 2014, the Company entered into a stock purchase agreement with The Davidson Corporation ("Davidson") to purchase all of the issued and outstanding stock of Specialty. Specialty is a master distributor of seamless carbon pipe and tube, with a focus on heavy wall, large diameter products. The Company views the Specialty acquisition as an excellent complement to the product offerings of the Metals segment with similar end markets and consistent profit margins. Specialty's results of operations since the acquisition date are reflected in the Company's condensed consolidated statements of operations.
During the second quarter of 2015, the Company finalized the purchase price allocation for the Specialty acquisition. Additional information was obtained surrounding the proper lifespan of Specialty's steel pipe. Transactions occurring after the acquisition date indicated that the inventory was undervalued. As a result, the Company changed its accounting policy for valuing inventory and the fair value of inventory increased and goodwill decreased by approximately $2,318,000. Also, as a result of this change in estimate, approximately $486,000 was recorded as income in the second quarter of 2015 to eliminate the amounts expensed subsequent to the acquisition date. This was a prospective adjustment and did not have an impact on prior periods.
Also, with oil industry demand decreasing, it became evident that Specialty's projected sales for the first year of acquisition will not result in an earn-out payment. The estimates used to value the earn-out liability at the acquisition date did not properly reflect the impact of potential oil price fluctuations that ultimately occurred. Had the facts and circumstances that occurred been properly reflected in the beginning valuation at the business combination date, the value of the earn-out would have been lower than what was recorded. Therefore, since this adjustment was identified within one year of the business combination date, the beginning earn-out liability and goodwill were reduced by $2,419,000. These adjustments caused goodwill related to the Specialty acquisition to decrease from $5,994,000 to $1,257,000.
The amount of Specialty's revenues and pre-tax earnings included in the condensed consolidated statements of operation for the three and six month periods ended July 4, 2015 was as follows:
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