ACQUISITIONS AND DIVESTITURES

12 Months Ended

Dec. 31, 2024

STCN Transfer and Exchange Agreement

On April 30, 2023, the Company and Steel Connect, executed a series of agreements, in which the Steel Partners Group transferred an aggregate of 3,597,744 shares of common stock, par value $0.10 per share, of Aerojet held by the Steel Partners Group to Steel Connect in exchange for 3,500,000 shares of newly created Series E Convertible Preferred Stock. The Series E Convertible Preferred Stock was convertible into an aggregate of 184.9 million shares (19.8 million shares post June 21, 2023 reverse/forward stock split) of Steel Connect common stock, par value $0.01 per share (the "common stock" or "Common Stock"), and voted together with the Steel Connect common stock and participated in any dividends paid on the Steel Connect common stock, in each case on an as-converted basis. Upon conversion of the Series E Convertible Preferred Stock, when combined with STCN common stock, STCN convertible debt, if converted, and STCN Series C preferred shares, also if converted, owned by the Company, would result in the Steel Partners Group holding approximately 84.0% of the outstanding equity interests of Steel Connect as of the Exchange Transaction closing date. The Exchange Transaction closed on May 1, 2023, the date that the consideration was exchanged between the Company and Steel Connect and as of that date Steel Connect became a consolidated subsidiary for financial reporting purposes. Steel Connect was not consolidated for federal income tax purposes as of the Exchange Transaction because the ownership in Steel Connect was dispersed between different federal tax consolidation groups. Steel Connect's assets and liabilities have been included in the Company's consolidated balance sheet, with a related noncontrolling interest of 16.0% of STCN's common stock as of the Exchange Transaction closing date. Prior to May 1, 2023, the Company held a 49.6% ownership interest in Steel Connect and accounted for its investment in Steel Connect in accordance with the equity method of accounting. The Company remeasured the previously held equity method investment to its fair value based upon a valuation of Steel Connect, as of the date of the Exchange Transaction.

The Exchange Transaction was accounted for in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations, and, accordingly, Steel Connect’s results of operations have been consolidated in our financial statements since the date of the Exchange Transaction. The Company recorded a preliminary allocation of the Exchange Transaction to assets acquired and liabilities assumed based on their estimated fair values as of May 1, 2023. The purchase price and purchase price allocation of the Exchange Transaction were finalized as of December 31, 2023, with no significant changes to preliminary amounts.

The following table summarizes the total Exchange Transaction consideration:


(in thousands)	May 1, 2023
Fair value of Aerojet common stock	$	202,733

Fair value of previously held interests in Steel Connect:
Steel Connect common stock	19,010
Steel Connect Series C Preferred Stock	35,000
Steel Connect Convertible Note	13,006

Noncontrolling interest ("NCI") at fair value	44,800

Less cash acquired	(65,896)

Total estimated consideration, less cash acquired	$	248,653

The Company remeasured the fair value of STCN common stock using the quoted market price available on the date immediately prior to when the Exchange Transaction was executed, which was the closing market price as of Friday, April 28, 2023, as that represented the information known and knowable at the time of the Exchange Transaction. The Company notes that the change in the calculation resulted in other adjustments which reallocated the components of total estimated consideration between the fair value of previously held STCN common stock and NCI, with no change to the overall consideration transferred. The other adjustments were recorded as of December 31, 2023, and did not result in any other changes to assets or liabilities recognized by the Company.

The Company's fair value estimates of the assets acquired and the liabilities assumed in the Exchange Transaction, as well as final fair value allocations reflecting adjustments made during the measurement period to date, are as follows:


(in thousands)	Initial Estimate		Other Adjustments		Final Allocation

Trade and other receivables	$	36,900	$	—	$	36,900
Inventories, net	6,900		—		6,900
Prepaid expenses and other current assets	5,000		—		5,000
Identifiable intangible assets	36,000		(500)		35,500
Other non-current assets	3,900		—		3,900
Property, plant and equipment, net	3,400		—		3,400
Operating lease right-of-use assets	29,250		—		29,250
Investments	202,733		—		202,733
Total assets acquired	324,083		(500)		323,583

Accounts payable	26,300		—		26,300
Accrued liabilities	29,100		(3,082)		26,018
Other current liabilities	15,230		—		15,230
Long-term operating lease liabilities	21,300		—		21,300
Other non-current liabilities	5,500		300		5,800
Total liabilities assumed	97,430		(2,782)		94,648

Goodwill	22,000		(2,282)		19,718
Net assets acquired at fair value	$	248,653	$	—	$	248,653

The excess of the Exchange Transaction consideration over the fair value of net identifiable assets acquired and liabilities assumed was recorded as goodwill, which was primarily attributed to expected synergies and the assembled workforce of Steel Connect and will not be deductible for income tax purposes. The fair values assigned to the net identifiable assets and liabilities assumed were based on management’s estimates and assumptions.

Identifiable intangible assets were recognized at their estimated acquisition date fair values. The fair value of the trade name asset was determined using the relief-from-royalty method and the fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The estimated fair value and estimated remaining useful lives of identifiable intangible assets as of the Exchange Transaction closing date were as follows:


(in thousands)	Useful Life (Years)	Amount
Customer relationships	7	$	25,000
Trade name	Indefinite	10,500
Estimated fair value of identifiable intangible assets		$	35,500

The operating results of Steel Connect have been included in the Company's consolidated financial statements since the date of the Exchange Transaction.

STEEL PARTNERS HOLDINGS L.P. 10-K