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Note 2 - Acquisitions

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Business Combination Disclosure [Text Block]

2.	*Acquisitions:*

On January 3, 2023, the Company acquired all the outstanding shares of capital stock of Metal-Fab for a cash purchase price of $131.2 million. Metal-Fab, headquartered in Wichita, Kansas, is a manufacturer of venting, micro air and clean air products for residential, commercial and industrial applications.

The Company paid total cash consideration of $131.2 million, consisting of a base purchase price of $131.0 million and a cash adjustment of $0.2 million. The acquisition was funded with borrowings under the Company’s asset-based credit facility (ABL Credit Facility). During 2023, the Company incurred $2.6 million of direct acquisition-related costs, which are included in “Administrative and general” in the Consolidated Statements of Comprehensive Income and $2.1 million of non-recurring amortization of inventory step up to fair market value adjustments, which are included in “Costs of materials sold” in the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023.

Purchase Price Allocation

The acquisition of Metal-Fab was accounted for as a business combination and the assets and liabilities were valued at fair market value on January 3, 2023, the date of acquisition. The Consolidated Balance Sheet as of March 31, 2023, reflects the allocation of Metal-Fab’s purchase price.

The purchase price allocations presented below is based upon management’s estimate of the fair value of the acquired assets and assumed liabilities using Level 3 valuation techniques including income, cost and market approaches. The fair value estimates involve the use of estimates and assumptions, including, but not limited to, the timing and amounts of future cash flows, revenue growth rates, discount rates, and royalty rates. The table below summarizes the preliminary purchase price allocation of the fair market values of the assets acquired and liabilities assumed.

Details of Acquisition (in thousands)		Total

Assets acquired
Cash and cash equivalents		$	1,728
Accounts receivable, net			10,597
Prepaid expenses and other			740
Inventories, net			17,236
Property and equipment			20,408
Goodwill			33,194
Intangible assets			54,740
Right-of-use and other long-term assets			6,930
Total assets acquired			145,573
Total liabilities assumed			(14,369	)
Cash paid		$	131,204

In connection with the acquisition of Metal-Fab, the Company identified and valued certain intangible assets, including the Metal-Fab trade name, internally developed technology and know-how, restrictive covenants and customer relationships. The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology. The trade name intangible asset was valued at $11.5 million, and the useful life was determined to be indefinite primarily due to their history and reputation in the marketplace, the Company’s expectation that the trade name will continue to be used, and the conclusion that there are currently no other factors identified that would limit their useful life. The internally developed technology and know-how intangible asset was valued at $5.3 million, and the useful life was determined to be fifteen years. The non-compete agreements intangible asset was valued at $1.4 million, and the useful life was determined to be the length of the non-compete agreements, which range from two to five years. The customer relationships intangible asset was valued at $36.5 million, and the useful life was determined to be twenty-six years, based primarily on the consistent and predictable revenue source associated with the existing customer base, the present value of which extends through the twenty-six-year amortization period.

The accompanying Consolidated Statements of Comprehensive Income includes the revenues and expenses of Metal-Fab since the acquisition date. Metal-Fab’s operations are included within the carbon flat-rolled segment.

Pro Forma Financial Information

The following unaudited pro forma summary of financial results presents the consolidated results of operations as if the Metal-Fab acquisition had occurred on January 1, 2022, after the effect of certain adjustments. The historical consolidated financial information has been adjusted to give effect to the impact of the consideration issued by the Company to Metal-Fab’s stockholders in connection with the acquisition and the effect of debt refinancing necessary to complete the transaction. The unaudited pro forma summary also includes certain purchase price accounting adjustments, including the items expected to have a continuing impact on combined results, such as depreciation and amortization expense on acquired assets. The unaudited pro forma combined financial information does not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from integration activities.

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 on January 1, 2022, or of any potential results that may occur in the future.

		For the three months ended March 31, 2022

		Historical OSI				Historical Metal-Fab				Pro Forma Adjustments				Pro Forma Combined
(in thousands, except per share amounts)
Pro forma (unaudited):
Net sales		$	696,333			$	22,685			$	184			$	719,202
Net income (loss)		$	37,302			$	4,042			$	(4,401	)		$	36,943

Basic earnings per share		$	3.23			$	0.35			$	(0.38	)		$	3.20
Diluted earnings per share		$	3.23			$	0.35			$	(0.38	)		$	3.20