(5) Acquisitions

Brillion Transaction

On September 2, 2016, the Grede segment acquired 100% of the equity of Brillion Iron Works, Inc. (“Brillion”) from its parent company Accuride Corporation (NYSE: ACW). Brillion was a reportable segment for Accuride Corporation and consists of a foundry located in Brillion, Wisconsin, (the “Brillion Facility”) which supplies castings to the industrial machinery, construction, agricultural equipment and oil and gas markets, including flywheels, pump housings, valve body housings, small engine components, and other industrial components.

The purchase price for the acquisition was $14.0 million of cash consideration. Under the acquisition method of accounting, all assets acquired and liabilities assumed were recorded in the consolidated financial statements at estimated fair value. The allocation of purchase price paid resulted in receivables of $8.1 million, inventory of $3.8 million, property, plant, and equipment of $15.9 million, assumed liabilities of $12.8 million, and a gain on bargain purchase of $1.0 million. The $1.0 million gain on bargain purchase is recorded within other, net on the consolidated statement of operations for the year ended December 31, 2016.

On September 12, 2016, the Company announced its plan to close the Brillion Facility and to consolidate substantially all of Brillion’s business into Grede’s existing locations. As of December 31, 2016, the Brillion Facility had ceased operations.

Grede Transaction

On June 2, 2014 (the “Acquisition Date”), a subsidiary of American Securities, ASP Grede Intermediate Holdings LLC (together with its subsidiaries, “Grede”), purchased 97.1% of the membership interests in Grede Holdings LLC (the “Grede Transaction”). Management and outside investors purchased the remaining membership interests. Upon completion of the Combination, 100% of Grede was owned by the Company.

Purchase Accounting

The Grede Transaction was a cash purchase and was accounted for under the acquisition method. The accounting for the acquisition has been pushed-down to the financial statements of the Company. All assets acquired and liabilities assumed were recorded in the consolidated financial statements at estimated fair value.

The purchase price for the acquisition, net of cash and cash equivalents, was $829.7 million. The acquisition was funded by cash from capital contributions ($251.1 million from affiliates of American Securities, $6.5 million from certain members of the Grede management team and $1.0 million from outside investors) and the issuance of term loan debt.

The Grede Transaction was recorded, as revised for updated valuation information, in the accounts of the Company as follows:

	June 2, 2014
	(In millions)
Fair value of consideration	$	829.7
Assets acquired:
Receivables		120.2
Inventories		40.1
Prepaid expenses and other current assets		11.4
Property and equipment		208.5
Amortizable intangible assets		369.1
Other assets		9.1
Total assets acquired		758.4
Liabilities assumed:
Accounts payable		94.7
Accrued liabilities		25.7
Deferred tax liabilities		47.5
Short-term debt		1.7
Other long-term liabilities		20.7
Total liabilities assumed		190.3
Net identifiable assets acquired, net of cash and cash equivalents		568.1
Goodwill	$	261.6

The valuation method used to estimate the fair value of assets acquired and liabilities assumed entailed a cost approach, a market approach, an income approach or a combination of those approaches based on the nature of the asset or liability being valued. The estimated value of property and equipment was determined using a cost approach, relying on estimated replacement costs. Within amortizable intangible assets, customer relationships and platforms were valued using an income approach, relying on estimated multi-period excess earnings attributable to the relationship or platform.

Goodwill recognized was primarily attributable to potential operational synergies related to overhead cost reductions and the assembled workforce. None of the goodwill recognized is expected to be deductible for tax purposes.

Additional details of the assets recognized were as follows:

	June 2, 2014
	(In millions)
Inventories
Raw materials	$	11.9
Work in process		12.6
Finished goods		15.6
Total inventories	$	40.1

	June 2, 2014		Estimated Useful Lives
	(In millions)		(In years)
Property and equipment
Land	$	12.2		—
Buildings		31.8	5 – 29
Machinery and equipment		148.8	1 – 20
Assets not yet placed in service		15.7		—
Total property and equipment	$	208.5

	June 2, 2014		Amortization Period
	(In millions)		(In years)
Amortizable intangible assets
Customer relationships and platforms	$	338.7		10
Other: trade names		30.4		15
Total amortizable intangible assets	$	369.1

The estimated fair value of inventories was $4.4 million higher than the carrying value at the time of the acquisition. The entire amount of this step-up in value was expensed in cost of sales during 2014 based on an analysis of Grede’s inventory turns.

Grede has estimated a remaining useful life of 10 years for the customer relationships and platforms due to the strong and longstanding relationships with our customers, which include many of the leading global OEMs and Tier 1 Suppliers. Grede has estimated a remaining useful life of 15 years for the trade names based on the nature of the industry, the length of time it has been in business and the relative strength of the name in the marketplace.

Included within other long-term liabilities are obligations for noncontributory defined benefit plans maintained by Grede for certain employees covered by collective bargaining agreements. The obligations for these plans were measured as of the acquisition date.

The funded status as of the Acquisition Date was as follows:

	June 2, 2014
	(In millions)
Projected benefit obligation	$	33.9
Fair value of plan assets		27.6
Funded Status	$	(6.3	)

A weighted average discount rate of 4.04% was used to determine the projected benefit obligation. The rate of compensation increase is not applicable due to the fact that the plans’ benefits are based on credited years of service. The plans’ assets are composed primarily of pooled separate accounts in which the underlying securities are primarily publicly traded domestic equities and government debt securities. The amount of Grede revenues and earnings included in the consolidated statements of operations subsequent to the Grede Transaction was as follows:

		2016	2015	2014
	(In millions)
Revenues: Net sales	$	787.3	906.8	572.1
Earnings: Income (loss) before tax		17.9	43.3	(19.2	)

Grede Transaction-related expenses incurred in 2014 were $13.0 million, which were recorded within acquisition costs, of which $8.3 million was paid to related parties.

Supplemental Pro Forma Information (Unaudited)

The following table presents the revenues and earnings of MPG on a pro forma basis as if the Grede Transaction had occurred on January 1, 2013:

	Pro Forma
		2014	2013
	(In millions)
Revenues: Net sales	$	3,144.0	3,052.9
Earnings: Income before tax		93.3	103.4

These results do not purport to be indicative of the results of operations which actually would have resulted had the Grede Transaction occurred on January 1, 2013, or of the future results of operations of the Company.