Acquisitions

12 Months Ended

Dec. 31, 2019

Acquisitions

Acquisitions

Note 2. Acquisitions

United Steel Supply

On March 1, 2019, the company purchased 75% of the equity interest of United Steel Supply, LLC (USS) for cash consideration of $93.4 million, plus a customary working capital transaction purchase price adjustment of $3.7 million, which was paid in September 2019. Additionally, the company has an option to purchase, and the sellers have the option to require the company to purchase, the remaining 25% equity interest of USS in the future. Headquartered in Austin, Texas, USS is a leading distributor of painted Galvalume^® flat roll steel used for roofing and siding applications, with distribution centers strategically located in Mississippi, Indiana, Arkansas, and Oregon. USS provides the steel segment a new, complementary distribution channel and connects it to a rapidly growing industry segment with customers that do not traditionally purchase steel directly from a steel producer. USS’s operating results from and after March 1, 2019, are reflected in the company’s financial statements in the steel operations reporting segment.

Note 2. Acquisitions (Continued)

The aggregate purchase price was allocated to the opening balance sheet of USS as of the March 1, 2019, acquisition date based on the company’s valuation of the fair value of the acquired assets, liabilities, and identifiable intangible assets (in thousands).

			Measurement
	As Initially		Period
	Reported		Adjustments		As Adjusted
Current assets, net of cash acquired	$	94,020	$	(7,784)	$	86,236
Property, plant & equipment		7,388		-		7,388
Intangible assets		-		87,150		87,150
Goodwill		101,918		(75,258)		26,660
Total assets acquired		203,326		4,108		207,434
Liabilities assumed		81,224		(3,270)		77,954
Redeemable noncontrolling interest		28,690		3,684		32,374
Net assets acquired	$	93,412	$	3,694	$	97,106

The fair values of inventory were determined on the market approach, property, plant and equipment on the market and cost approaches, identifiable intangible assets on the income approach (customer relationships using the multi-period excess earnings method and trade name using relief-from-royalty method), and redeemable noncontrolling interest on the market approach. The company utilized a third party valuation firm to assist in the determination of fair value of customer relationships and trade name. The company has determined that nonrecurring fair value measurements related to certain assets acquired rely primarily on company-specific inputs and the company’s assumptions about the use of the assets, as observable inputs, which are not available, and as such, reside within Level 3 as provided for under ASC 820.

Upon the working capital settlement during the third quarter, there were changes to the initially reported amounts for current assets and liabilities assumed, redeemable noncontrolling interest, and net assets acquired. Upon receipt of the final valuation report from a third-party valuation firm during the fourth quarter 2019, the company’s fair value of the customer relationship and trade name intangible assets amounting to $66.0 million and $20.6 million, respectively, were recorded in 2019. These changes resulted in a decrease in goodwill to the final amount of $26.7 million.

Goodwill recognized from the acquisition primarily relates to the expected contributions of USS to the overall steel segment strategy in addition to the acquired workforce, which is not separable from goodwill. The goodwill is deductible for tax purposes. The identifiable intangible assets related to the acquisition consisted primarily of customer relationships and trade name, with estimated useful lives of 25 years.

The company utilizes an accelerated amortization method for customer relationships so as to follow the pattern in which the economic benefits of the intangible assets are anticipated to be consumed. The related customer relationships and trade name intangible assets aggregate amortization expense recognized for the year ended December 31, 2019 was $2.3 million; and the estimated amortization expense for the next five years, and thereafter is: 2020 - $2.4 million, 2021 - $2.5 million, 2022 - $3.4 million, 2023 - $3.9 million, 2024 - $4.5 million, and thereafter - $68.2 million.

Heartland

On June 29, 2018, the company completed its acquisition of 100% of Heartland Steel Processing, LLC (formerly known as Companhia Siderurgica Nacional, LLC) (Heartland), for an initial cash purchase price of $396.4 million, plus a customary working capital transaction purchase price adjustment of $37.6 million, which was paid in September 2018. Located in Terre Haute, Indiana, Heartland produces various types of higher-margin, flat roll steel by further processing hot roll coils into pickle and oil, cold roll, and galvanized products. The acquisition expanded the company’s annual flat roll steel shipping capacity of lighter-gauge and greater width flat roll steel offerings that broadens and diversifies the company’s value-added product portfolio and provides operational and logistics benefits to other nearby operations. Heartland’s post-acquisition operating results are reflected in the company’s financial statements in the steel operations reporting segment.