Business Combination

12 Months Ended

Dec. 31, 2016

Business Combination, Description [Abstract]

Business Combination

2.   Business Combination

On October 3, 2016, the Company completed the acquisition of Vertex from DXP Enterprises. The acquisition has been accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Vertex is a master distributor of industrial fasteners, specializing in corrosion resistant and specialty alloy inch and metric threaded fasteners, rivets, and hose clamps, to the industrial market. Under the terms of the acquisition agreement, the purchase price was $32.3 million, subject to an adjustment based on the net working capital of Vertex as of the date of closing. The current working capital adjustment (which is still subject to change) is $0.1 million, making the total purchase price $32.4 million. The Company has elected to treat the acquisition as a stock purchase for tax purposes. The amount of goodwill deductible for tax purposes is $1.0 million. The acquisition was funded by borrowing under the Company’s loan agreement. This acquisition expands the Company’s product offerings to the industrial marketplace that purchases its wire and cable products.

The following table summarizes the current estimated fair value of the acquired assets and assumed liabilities recorded as of the date of acquisition. The fair value of all assets acquired and liabilities assumed are preliminary and subject to the completion of incremental analysis of the fair values of the assets acquired and liabilities assumed:

	At October 3, 2016
	(In thousands)
Cash	$	3
Accounts receivable		2,626
Inventories		14,582
Prepaids		46
Property and equipment		59
Intangibles		9,161
Goodwill		10,266
Other assets		116
Total assets acquired		36,859
Trade accounts payable		1,130
Accrued and other current liabilities		919
Deferred income taxes		2,440
Total liabilities assumed		4,489
Net assets purchased	$	32,370

The preliminary fair values of the assets acquired and liabilities assumed were determined using the market, income and cost approaches. The market approach used by the Company included prices at which comparable assets were purchased under similar circumstances. The income approach indicated value for the subject net assets based on the present value of cash flows projected to be generated by the net assets over their useful life. Projected cash flows were discounted at a market rate of return that reflects the relative risk associated with the asset and the time value of money. The cost approach estimated value by determining the current cost of replacing the asset with another of equivalent economic utility. The cost to replace a given asset reflected the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation

Intangible asset acquired, consist of customer relationships - $7.0 million and trade names - $2.1 million. Trade names are not being amortized, while customer relationships are being amortized over a 9 year useful life. As of December 31, 2016, accumulated amortization and amortization expense recognized on the acquired intangible assets was $0.2 million. Amortization expense to be recognized on the acquired intangible assets is expected to be $0.8 million per year in 2017 through 2024 and $0.6 million in 2025.

Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition consists primarily of sales and operational synergies that will be achieved by consolidating certain of Vertex’s locations into existing Company locations and expanding Vertex’s product offerings throughout the balance of the Company’s national platform.

Under ASC Topic 805-10, acquisition-related costs (e.g. legal, valuation and advisory) are not included as a component of consideration paid, but are accounted for as operating expenses in the periods in which the costs are incurred. For the year ended December 31, 2016, the Company incurred $0.9 million of acquisition-related costs, which were recorded in other operating expenses on the statement of operations.

The amount of revenue and net income of Vertex included in the Company’s consolidated statement of operations from October 3, 2016 through December 31, 2016 was $7.0 million and $0.2 million, respectively.

The results of operations of Vertex are included in the consolidated statement of operations from October 3, 2016 through December 31, 2016. The unaudited pro forma combined historical results of the Company, giving effect to the acquisition assuming the transaction was consummated on January 1, 2015, are as follows:

	Year ended December 31,
	2016			2015
	(unaudited)
	(In thousands)
Sales	$	284,310		$	342,129
Net income (loss)		(5,466	)		3,560
Basic earnings (loss) per share		(0.33	)		0.21
Diluted earnings (loss) per share		(0.33	)		0.21

The unaudited pro forma combined historical results do not reflect any cost savings or other synergies that might result from the transaction. They are provided for informational purposes only and are not necessarily indicative of the results of operations for future periods or the results that actually would have been realized had the acquisition occurred as of January 1, 2015.