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ACQUISITION | 9 Months Ended
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May 31, 2019
Business Combinations [Abstract] |
Acquisition | NOTE 2. ACQUISITION On November 5, 2018 (the "Acquisition Date"), the Company completed the acquisition of 33 rebar fabrication facilities in the United States, as well as four electric arc furnace mini mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Rancho Cucamonga, California from Gerdau S.A., hereinafter collectively referred to as the "Acquired Businesses." The total cash purchase price, including working capital adjustments, was $701.2 million, subject to customary purchase price adjustments, and was funded through a combination of domestic cash on-hand and borrowings under the 2018 Term Loan, as defined in Note 9, Credit Arrangements. The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the Acquisition Date fair value. In valuing acquired assets and liabilities, fair value estimates were determined using Level 3 inputs, including expected future cash flows and discount rates. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the Acquisition Date, the Company’s estimates are inherently uncertain and subject to refinement. The results of operations of the Acquired Businesses are reflected in the Company’s condensed consolidated financial statements from the Acquisition Date. The financial statements were not retrospectively adjusted for any measurement-period adjustments that occurred in subsequent periods. Rather, any adjustments to provisional amounts identified during the allowable one year measurement period (the "Measurement Period") are recorded in the reporting period in which the adjustment was determined. The table below presents the preliminary fair value that was allocated to the Acquired Businesses' assets and liabilities based upon fair values as determined by the Company, as well as any Measurement Period adjustments made during the third quarter of fiscal 2019. Final determination of the fair values may result in further adjustments to the values presented in the following table:
(in thousands) |  | Estimated Fair Value*
Cash and cash equivalents |  | $ | 6,399 |
Accounts receivable |  | 301,740 |
Inventories |  | 202,082 |
Other current assets |  | 26,290 |
Property, plant and equipment |  | 414,237 |
Deferred income taxes |  | 11,606 |
Accounts payable-trade, accrued expenses and other payables |  | (134,702 | )
Acquired unfavorable contract backlog |  | (110,166 | )
Other long-term liabilities |  | (9,920 | )
Pension and other post retirement employment benefits |  | (6,365 | )
Total assets acquired and liabilities assumed |  | $ | 701,201 |
_________________ *As previously reported in the Company's Quarterly Report on Form 10-Q for the period ended February 28, 2019. No measurement period adjustments occurred in the third quarter of fiscal 2019. Inventories The acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was preliminarily calculated as the estimated selling price, adjusted for the selling costs and a reasonable profit margin. The fair value of semi-finished goods was preliminarily calculated as the estimated selling price, adjusted for estimated costs to complete manufacturing, estimated selling costs, and a reasonable profit margin. The fair value of raw materials was determined to approximate the historical carrying value as it represented market cost. The inventory step up recognized for the nine months ended May, 31, 2019 was $10.3 million, which has been reflected in the Company's Americas Mills segment as cost of goods sold as the related inventory has been sold. Property, Plant and Equipment The fair value of real property was preliminarily calculated using the cost approach for buildings and improvements and either a sales comparison or market approach for land. The fair value of personal property was preliminarily calculated using the cost approach. The cost approach measures the value by estimating the cost to acquire or construct comparable assets and adjusts for age and condition. The Company assigned real property a useful life ranging from 1 to 35 years and personal property a useful life ranging from 1 to 25 years. Deferred Income Taxes Deferred income tax assets include the expected future federal and state tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating the deferred tax assets represent a preliminary consolidated tax rate which may be adjusted during the Measurement Period as the Company applies the appropriate tax rate for each legal entity. Pension and Other Postretirement Liabilities The Company recognized a net liability of $6.4 million, representing the unfunded portion of the acquired defined-benefit pension plan and other postretirement-benefit plan. Acquired Unfavorable Contract Backlog The Company determined that the backlog associated with existing contracts at the acquired fabrication facilities in which the selling price was less than estimated costs to fulfill using market participant assumptions represented a separable intangible liability. The unfavorable contract backlog was valued using the income approach. Amortization of the backlog will correspond with completion of the acquired contracts, which is estimated to be between 1 to 2 years. Other Assets Acquired and Liabilities Assumed The Company used historical carrying values for trade accounts receivable and payables, as well as certain other current and non-current assets and liabilities, as their carrying values represented the fair value of those items as of the Acquisition Date. Financial Results The following table summarizes the financial results of the Acquired Businesses from the Acquisition Date for the three and nine months ended May 31, 2019 included in the Company’s condensed consolidated statement of earnings and condensed consolidated statement of comprehensive income.
(in thousands) |  | Three Months Ended May 31, 2019 |  | Nine Months Ended May 31, 2019
Net sales |  | $ | 453,479 |  |  | $ | 958,550 |
Earnings before income taxes |  | 42,951 |  |  | 78,047 |
Pro Forma Supplemental Information Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of the Acquired Businesses occurred on September 1, 2017. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable, but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition of the Acquired Businesses had been completed on September 1, 2017. These results were not used as part of management analysis of the financial results and performance of the Company. These results are adjusted, where possible, for transaction and integration related costs. These results involve a significant amount of estimates.
|  | Three Months Ended May 31, |  | Nine Months Ended May 31,
(in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Pro forma net sales (1) |  | $ | 1,582,478 |  |  | $ | 1,648,962 |  |  | $ | 4,507,485 |  |  | $ | 4,560,929 |
Pro forma net earnings (2) |  | 63,018 |  |  | 49,402 |  |  | 88,987 |  |  | 40,311 |
_________________ (1) Pro forma net sales for the three and nine months ended May 31, 2018 includes estimated fair value adjustments related to amortization of unfavorable contract backlog. The impact of the amortization of unfavorable contract backlog has been removed from the pro forma net sales for the three and nine months ended May 31, 2019. (2) Pro forma net earnings for the three and nine months ended May 31, 2018 reflects the impact of fair value adjustments related to the amortization of unfavorable contract backlog described above. Pro forma net earnings for the nine months ended May 31, 2018 includes estimated fair value adjustments related to inventory step-up, as well as non-recurring acquisition and integration costs of approximately $49.8 million.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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