XML 123 R12.htm IDEA: XBRL DOCUMENT
v3.22.4

Acquisition | 12 Months Ended
--- | ---
Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisition | Acquisition On November 1, 2021, the Company acquired the industry-leading electronic materials business of H.C. Starck Group GmbH (HCS-Electronic Materials) for a cash purchase price of approximately $398.9 million, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. In 2022, acquisition-related inventory step-up expense was $7.5 million and classified in Cost of Sales and transaction and integration costs were $4.2 million and classified in Selling, General and Administrative expenses in the accompanying consolidated statements of income. The Company financed the purchase price for the HCS-Electronic Materials acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan facility entered during October 2021 and $103 million of borrowings under its amended revolving credit facility, which was also extended to expire five years in October 2026. This acquired business operates within the Performance Materials and Electronic Materials segments, and the results of operations are included as of the date of acquisition. The combination of Materion and HCS-Electronic Materials enhances the Company's position as the leading supplier to the high growth semiconductor industry. During the period subsequent to the HCS-Electronic Materials acquisition, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period. Additionally, we paid a working capital true-up of approximately $3.0 million during the second quarter of 2022, which increased the total purchase price. As of November 1 2022, the purchase price allocation was final. The following table sets forth cumulative measurement period changes since the acquisition date, as well as the initial allocation of the estimated fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of HCS-Electronic Materials, with the excess recorded to goodwill:
(Thousands) |  | Initial Allocation of Consideration |  | Measurement Period Adjustments |  | Final Allocation
Assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,685 |  |  | $ | — |  |  | $ | 3,685 |
Accounts receivable |  | 28,352 |  |  | 35 |  |  | 28,387 |
Inventories |  | 70,681 |  |  | — |  |  | 70,681 |
Prepaid and other current assets |  | 660 |  |  | (450) |  |  | 210 |
Property, plant, and equipment |  | 44,681 |  |  | 355 |  |  | 45,036 |
Operating lease, right-of-use assets |  | 6,120 |  |  | — |  |  | 6,120 |
Intangible assets |  | 107,800 |  |  | — |  |  | 107,800 |
Other long-term assets |  | 4,528 |  |  | — |  |  | 4,528 |
Goodwill |  | 178,181 |  |  | 3,144 |  |  | 181,325 |
Total assets acquired |  | $ | 444,688 |  |  | $ | 3,084 |  |  | $ | 447,772 |
Liabilities: |  |  |  |  |  |
Accounts payable |  | $ | 12,139 |  |  | $ | (240) |  |  | $ | 11,899 |
Salaries and wages |  | 2,516 |  |  | $ | 625 |  |  | 3,141 |
Other liabilities and accrued items |  | 28 |  |  | $ | — |  |  | 28 |
Income taxes |  | 2,183 |  |  | $ | (457) |  |  | 1,726 |
Other long-term liabilities |  | 5,543 |  |  | $ | 215 |  |  | 5,758 |
Operating lease liabilities |  | 6,042 |  |  | $ | — |  |  | 6,042 |
Deferred income taxes |  | 20,300 |  |  | $ | (30) |  |  | 20,270 |
Total liabilities assumed |  | $ | 48,751 |  |  | $ | 113 |  |  | $ | 48,864 |
Net assets acquired |  | $ | 395,937 |  |  | $ | 2,971 |  |  | $ | 398,908 |
Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The Company engaged specialists to assist in the valuation of inventories, property, plant, and equipment, and intangible assets. In determining the fair value of the amounts above, inventory is fair valued based on the comparative sales method for work in process and finished goods at the selling price less cost to dispose and remaining manufacturing effort. The remaining working capital accounts' carrying values approximate fair value. For property, plant and equipment and intangible asset values, the Company utilized various forms of the income, cost and market approaches depending on the asset being valued. The Company used a relief from royalty method under the income approach to value its trade names and developed technology and the multi-period excess earnings method under the income approach to value customer relationships. The significant assumptions used to estimate the fair value of these intangible assets included the discount rate and certain assumptions that form the basis of future cash flows (including revenue growth rates, royalty rates for trade names and developed technology, and attrition rates for customer relationships). Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions and are considered Level 3 assets as the assumptions are unobservable inputs developed by the Company. As part of the acquisition, the Company recorded approximately $181.3 million of goodwill allocated between its Electronic Materials and Performance Materials segments based on the relative fair values. Goodwill was calculated as the excess of the purchase price over the estimated fair values of the tangible net assets and intangible assets acquired and primarily attributable to the synergies expected to arise after the acquisition dates. The goodwill is not expected to be deductible for U.S. tax purposes. The following table reports the intangible assets by asset category as of the closing date:
(Thousands) |  | Value at Acquisition |  | Useful Life
Customer relationships |  | $ | 50,200 |  |  | 13 years
Technology |  | 35,300 |  |  | 13 years
Trade name |  | 22,300 |  |  | 15 years
Total |  | $ | 107,800 |  |  |
Had the HCS-Electronic Materials acquisition occurred as of the beginning of fiscal 2020, the Company's sales and income (loss) before taxes would have been as follows:
| (Unaudited)
| Year Ended December 31,
| 2021 |  | 2020
Net Sales | $ | 1,659,620 |  |  | $ | 1,308,300 |
Profit income (loss) before taxes | $ | 91,551 |  |  | $ | (17,761) |
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2020. These unaudited pro forma results do not represent financial results realized, nor are they intended to be a projection of future results. The transaction accounting adjustments and other adjustments are based on available information and assumptions that the Company’s management believes are reasonable. Such adjustments are estimates and actual experience may differ from expectations. The amortization of inventory step-up from the preliminary purchase price allocation of approximately $15 million of expense is reflected in the 2020 unaudited pro forma income (loss) before taxes above. Additionally, the 2020 pro forma income (loss) before taxes includes approximately $10 million of additional interest expense related to committed financing to fund the acquisition, annual acquisition-related intangible asset amortization expense of $8.2 million, and transaction expenses of $5.5 million as if it occurred on January 1, 2020.

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationAndAssetAcquisitionAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration