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Acquisition of Chicago Tube and Iron Company
9 Months Ended
Sep. 30, 2011
Acquisition of Chicago Tube and Iron Company [Abstract] 
Acquisition of Chicago Tube and Iron Company
(2) Acquisition of Chicago Tube and Iron Company:

On July 1, 2011, the Company acquired all of the outstanding common shares of CTI pursuant to the terms of an Agreement and Plan of Merger dated May 18, 2011. CTI stocks, processes and fabricates metal tubing, pipe, bar, valves and fittings and pressure parts at nine operating facilities located primarily throughout the Midwestern United States. The acquisition of CTI enhances the Company’s commercial opportunities by adding new product offerings to an expanded customer base and by increasing its distribution footprint.

The Company paid total cash consideration of $159.9 million, consisting of a base purchase price of $150.0 million, plus the closing cash, working capital and McNeeley purchase agreement payments (as disclosed in the Current Report on Form 8-K filed on May 18, 2011) totaling approximately $9.9 million. In addition, the Company assumed approximately $5.9 million of indebtedness and acquired $11.1 million of cash from CTI. Olympic funded its acquisition of CTI primarily with borrowings under its amended asset-based lending facility. During 2011, the Company incurred $919 thousand of direct acquisition-related costs, which are included in “Administrative and general” in the Consolidated Statement of Operations for the nine months ended September 30, 2011.

Purchase Price Allocation

The acquisition of CTI was accounted for under the acquisition method of accounting and, accordingly, the purchase price of $159.9 million has been allocated to the assets acquired and liabilities assumed based on estimated fair values at July 1, 2011, the date of acquisition.

The preliminary allocation of the total purchase price of CTI to the fair values of the assets acquired and liabilities assumed is as follows:

 

         
    Total  
(in thousands)      

Cash

   $ 11,097  

Accounts receivable, net

     22,378  

Inventories

     52,248  

Assets held for sale

     1,939  

Property and equipment

     49,920  

Goodwill

     38,973  

Intangible assets subject to amortization

     13,332  

Intangible assets not subject to amortization

     23,425  

Other current and long-term assets

     2,505  
   

 

 

  

Total assets acquired

     215,817  
   

 

 

  

Accounts payable

     (10,075 ) 

Current and long-term debt

     (5,880 ) 

Deferred income taxes, net

     (29,222 ) 

Other current and long-term liabilities

     (10,784 ) 
   

 

 

  

Total liabilities assumed

     (55,961 ) 
   

 

 

  

Net assets acquired

   $ 159,856  
   

 

 

  

The accompanying Consolidated Statements of Operations include the revenues and expenses of CTI since the acquisition date. CTI’s net sales during the period July 1, 2011 through September 30, 2011 were $61.4 million. The Consolidated Balance Sheet as of September 30, 2011 reflects the preliminary allocation of CTI’s purchase price, and is subject to change after the completion of certain deferred tax adjustments and pre-acquisition tax returns.

In connection with the acquisition of CTI, the Company identified and valued certain intangible assets, including the CTI trade name and its existing customer relationships. The trade name was recorded at $23.4 million, and is not subject to amortization. The Company determined that the trade name acquired has an indefinite life since its economic life is expected to approximate the life of CTI. Additionally, the Company recorded $13.3 million related to customer relationships, determined to be amortizable over a fifteen year useful life. The goodwill of $39.0 million is not deductible for tax purposes.

Pro Forma Financial Information

The following unaudited pro forma summary of financial results presents the consolidated results of operations as if the acquisition had occurred at January 1, 2011 and 2010, respectively, after the effect of certain adjustments, including increased depreciation expense resulting from recording fixed assets at fair value, interest expense on the acquisition debt and amortization of customer relationships, with the related tax effects. The pro forma results have been presented for comparative purposes only and are not indicative of what would have occurred had the acquisition been made as of January 1, 2011 or 2010, or of any potential results that may occur in the future.

 

                 
    Nine Months Ended  
    September 30, 2011     September 30, 2010  
(in thousands, except per share amounts)            

Pro forma (unaudited):

                

Net sales

   $ 1,062,009     $ 752,409  

Net income

   $ 26.823     $ 5,286  
     

Basic earnings per common share

   $ 2.45     $ 0.48  

Diluted earnings per common share

   $ 2.45     $ 0.48