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Business Acquisitions | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Business Acquisitions | Business Acquisitions On January 20, 2017, the Company completed the acquisition of Conwed pursuant to the Equity Interest Purchase Agreement, dated as of December 14, 2016, by and among the Company, Delstar Technologies, Inc., Baldwin Enterprises, Inc., Conwed and Leucadia National Corporation. As a result of the transaction, Conwed and its subsidiaries became wholly-owned indirect subsidiaries of the Company. The acquisition of Conwed expanded and continued the diversification of SWM's global presence in advanced materials and has been integrated into the Company's AMS segment. The consideration transferred to acquire Conwed was $295.0 million in cash, subject to certain customary post-closing adjustments, plus three potential earn-out payments not to exceed $40.0 million in the aggregate, which payments are contingent upon the achievement of certain financial metrics in each of 2019, 2020 and 2021, in each case, upon the terms and subject to the conditions contained in the Purchase Agreement. The estimated fair value of the potential earn-out payments at the acquisition date was $8.6 million, for total consideration transferred of $303.6 million. The estimated fair value of the deferred contingent consideration was determined based on management's projections related to the achievement of certain financial metrics for the aforementioned years. The discount rate used to value the liability was based on specific business risk, cost of capital and other factors. The fair value of the contingent consideration was determined using significant unobservable inputs and is considered a Level 3 liability. There were no changes to the assumptions underlying the estimated fair value calculation during the year ended December 31, 2017. As of December 31, 2017, the balance of the contingent liability was $9.5 million, including $0.9 million in accretion year-to-date. The purchase price for Conwed was funded from the Company’s borrowings under the First Amendment to Second Amended and Restated Credit Agreement, while the purchase price for Conwed NV was funded from cash on hand. See Note 13. Debt, for additional information. The consideration paid for Conwed and the final fair values of the assets acquired and liabilities assumed as of the January 20, 2017 acquisition date were as follows ($ in millions):
| Fair Value as of January 20, 2017
Cash and cash equivalents | $ | 3.3 |
Accounts receivable | 15.4 |
Inventory | 20.6 |
Other current assets | 1.1 |
Property, plant and equipment | 31.7 |
Identifiable intangible assets | 134.4 |
Total assets | 206.5 |
Accounts payable | 8.2 |
Deferred tax liabilities | 0.9 |
Net assets acquired | 197.4 |
Goodwill | 106.2 |
Total consideration | $ | 303.6 |
The Company used the income, market, or cost approach (or a combination thereof) for the valuation as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers in the principal or most advantageous market for the asset or liability. For certain items, the carrying amount was determined to be a reasonable approximation of fair value based on information available to SWM management. The fair value of receivables acquired from Conwed on January 20, 2017 was $15.4 million, with gross contractual amounts receivable of $15.8 million. Acquired inventories and property, plant and equipment were recorded at their fair values. Acquired intangible assets are primarily customer relationships, developed technology, trade names and non-competition agreements. The fair value of the inventory acquired from Conwed on January 20, 2017 was $20.6 million, which included a step-up in basis of $2.9 million. Finished goods and work-in-process inventory was valued using the comparative sales method, which is a function of the estimated selling price less the sum of (a) any cost to complete, (b) costs of disposal, (c) holding costs and (d) a reasonable profit for allowance for the acquirer. Raw materials were valued using the replacement cost method of the cost approach. Properties acquired included manufacturing and related facilities, land and leased sites that include leasehold improvements, and machinery and equipment for use in manufacturing operations. Management valued properties using the market and cost approaches, supported where available by observable market data which included consideration of obsolescence. Intangible assets acquired included a number of customer relationships in the infrastructure, construction and industrial end-markets. In addition to these intangible assets, the Company acquired a number of patented and unpatented technologies, a number of business-to-business trade names and non-competition agreements. Management valued intangible assets using the relief from royalty, multi-period excess earnings and with-and-without methods, all forms of the income approach supported by observable market data for peer companies. The following table shows the fair values assigned to intangible assets ($ in millions):
| Fair Value as of January 20, 2017 |  | Weighted-Average Amortization Period (Years)
Amortizable intangible assets: |  |  |
Customer relationships | $ | 108.0 |  |  | 15.0
Developed technology | 18.1 |  |  | 17.2
Non-competition agreements | 1.2 |  |  | 7.2
Total amortizable intangible assets | 127.3 |  |  |
Indefinite-lived intangible assets: |  |  |
Trade names | 7.1 |  |  | Indefinite
Total | $ | 134.4 |  |  |
In connection with the acquisition, the Company recorded goodwill, which represents the excess of the consideration transferred over the fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill is attributed primarily to Conwed's revenue growth and potential operational synergies from combining the SWM and Conwed businesses and workforces as well as the benefits of access to different markets and customers. Goodwill from the Conwed acquisition was assigned to the AMS reportable segment. The goodwill was determined on the basis of the fair values of the assets and liabilities identified as part of the transaction. The goodwill acquired in connection with Conwed and its domestic subsidiaries is expected to be deductible for tax purposes. The goodwill associated with Conwed NV is not expected to be deductible for tax purposes. For the years ended December 31, 2017 and 2016, the Company recognized $0.2 million and $1.4 million, respectively, in direct and indirect acquisition-related costs. For the year ended December 31, 2017, the Company incurred $0.6 million in financing costs related to the acquisition. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the consolidated statements of income. Financing costs related to expanding the Amended Credit Agreement (as defined below) have been capitalized and will be amortized in Interest expense over the life of the Amended Credit Agreement. The amounts of Net sales and Income from continuing operations of Conwed included in the Company's consolidated income statement from the acquisition date are as follows ($ in millions):
|  | Net Sales |  | Income from Continuing Operations
January 21, 2017 - December 31, 2017 |  | $ | 141.3 |  |  | $ | 11.9 |
The amounts of the unaudited pro forma Net sales and Income from continuing operations of the combined entity had the acquisition date been January 1, 2016 are as follows ($ in millions):
|  | Net Sales |  | Income from Continuing Operations
2017 Supplemental Pro Forma from January 1, 2017 - December 31, 2017 |  | $ | 989.8 |  |  | $ | 31.1 |
2016 Supplemental Pro Forma from January 1, 2016 - December 31, 2016 |  | 984.1 |  |  | 90.6 |
On October 28, 2015, the Company acquired Argotec Intermediate Holdings, LLC, or Argotec, through an Equity Interest Purchase Agreement entered into, by and among the Company, SWM Argotec, LLC, an indirect wholly-owned subsidiary of the Company, Argotec Intermediate Holdings Two LLC, and certain equity holders of Argotec Holdings LLC. The acquisition of Argotec expanded and diversified SWM's global presence in advanced materials and is now a part of the Company's AMS segment. Total consideration paid by the Company was $282.7 million in cash, subject to certain customary post-closing adjustments, primarily for the adjusted value of working capital at the acquisition date. The acquisition was financed using borrowings under the Company's Amended Credit Agreement, see Note 13. Debt, for additional information. The consideration paid for Argotec and the fair values of the assets acquired and liabilities assumed as of the October 28, 2015 acquisition date were as follows ($ in millions):
| Fair Value as of October 28, 2015
Cash and cash equivalents | $ | 2.7 |
Accounts receivable | 16.1 |
Inventory | 16.3 |
Other current assets | 0.1 |
Property, plant and equipment | 15.9 |
Other noncurrent assets | 0.9 |
Identifiable intangible assets | 130.5 |
Total assets | 182.5 |
Accounts payable | 4.6 |
Accrued expenses | 4.5 |
Net assets acquired | 173.4 |
Goodwill | 109.3 |
Cash paid | $ | 282.7 |
The Company used the income, market, or cost approach (or a combination thereof) for the valuation as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers in the principal or most advantageous market for the asset or liability. For certain items, the carrying amount was determined to be a reasonable approximation of fair value based on information available to SWM management. The fair value of receivables acquired from Argotec on October 28, 2015 was $16.1 million, with gross contractual amounts receivable of $16.8 million. Acquired inventories and property, plant and equipment were recorded at their fair values. Acquired intangible assets are primarily customer relationships, trade names and non-competition agreements. Properties acquired included a manufacturing and related facility, land and leased sites that include leasehold improvements, and machinery and equipment for use in manufacturing operations. Management valued properties using the cost approach supported where available by observable market data which included consideration of obsolescence. One of the properties acquired, the Argotec-Stevens facility in Easthampton, Massachusetts with an estimated fair value of $1.0 million, was held for sale as of the acquisition date and during the fourth quarter of 2015 came under contract for sale to a third party. The sale of this property was completed in April 2016 and no gain or loss was recognized on the disposition. Intangible assets acquired included trade names that are both business-to-business and business-to-consumer. In addition to these intangible assets, the Company acquired a number of customer relationships in the aeronautical, transportation, graphics, medical and industrial markets. Management valued intangible assets using the relief from royalty and multi-period excess earnings methods, both forms of the income approach supported by observable market data for peer companies. The following table shows the fair values assigned to intangible assets ($ in millions):
| Fair Value as of October 28, 2015 |  | Weighted-Average Amortization Period (Years)
Amortizable intangible assets: |  |  |
Customer relationships | $ | 115.9 |  |  | 15
Non-competition agreements | 1.7 |  |  | 4
Indefinite-lived intangible assets: |  |  |
Trade names | 12.9 |  |  | Indefinite
Total | $ | 130.5 |  |  |
In connection with the acquisition, the Company recorded goodwill, which represents the excess of the consideration transferred over the fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill is attributed primarily to Argotec's revenue growth from combining the SWM and Argotec business and workforce as well as the benefits of access to different markets and customers. Goodwill from the Argotec acquisition was assigned to the AMS reportable segment. The goodwill from this acquisition was determined on the basis of the preliminary fair values of the assets and liabilities identified as part of the transaction and is expected to be deductible for tax purposes. In 2016 and 2015, the Company recognized $0.4 million and $1.8 million in direct and indirect acquisition-related costs. In 2015, the Company incurred $7.4 million in financing costs related to the acquisition. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General Expense line item in the Consolidated Statements of Income. Financing costs related to expanding the Credit Agreement have been capitalized and will be amortized in Interest Expense over the life of the Credit Agreement. The amounts of the acquisition's Net Sales and Income from Continuing Operations included in the Company's Consolidated Statements of Income for the year ended December 31, 2015, and the unaudited pro forma Net Sales and Income from Continuing Operations of the combined entity had the acquisition date been January 1, 2015 are as follows ($ in millions):
|  | Net Sales |  | Income from Continuing Operations
Actual from October 28, 2015 - December 31, 2015 |  | $ | 22.3 |  |  | $ | 0.9 |
2015 Supplemental Pro Forma from January 1, 2015 - December 31, 2015 |  | 859.7 |  |  | 90.2 |

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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