| Acquisitions | Note O –
Acquisitions Fiscal
2015
Rome Strip
Steel Company, Inc. On January 16, 2015, the Company acquired the assets of
Rome Strip Steel Company, Inc. (“Rome Strip Steel”) for
cash consideration of $54,495,000. This amount differs from the
$55,312,000 paid at closing due to an estimated working capital
deficit of $817,000. Located in Rome, New York, the Rome Strip
Steel business manufactures cold rolled steel to extremely tight
tolerances. The acquired assets became part of our Steel Processing
operating segment upon closing. The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values, with goodwill representing the
excess of the purchase price over the fair value of the net
identifiable assets acquired. In connection with the acquisition of
the assets of Rome Strip Steel, we identified and valued the
following identifiable intangible assets:
(in
thousands) Amount Useful
Life (Years)
Category
Customer
relationships $ 4,300 10
Non-compete
agreements 1,200 5
Total acquired identifiable
intangible assets $ 5,500
The purchase price includes the fair values of other assets
that were not identifiable, not separately recognizable under
accounting rules (e.g., assembled workforce) or of immaterial
value. The purchase price also includes a going-concern element
that represents our ability to earn a higher rate of return on this
group of assets than would be expected on the separate assets as
determined during the valuation process. This additional investment
value resulted in goodwill, which is expected to be deductible for
income tax purposes.
The following table summarizes the consideration transferred
for the assets of Rome Strip Steel and the fair value assigned to
the assets acquired and liabilities assumed at the acquisition
date:
(in
thousands)
Cash $ 10
Accounts
receivable 6,333
Inventories 17,063
Prepaid expenses 41
Intangible
assets 5,500
Property, plant and
equipment 22,775
Total identifiable
assets 51,722
Accounts payable (3,091 )
Other accrued
items (410 )
Other liabilites (313 )
Net assets 47,908
Goodwill 6,587
Purchase price $ 54,495
Plus: estimated working
capital deficit 817
Cash paid at
closing $ 55,312
Operating results of the acquired business have been included
in our consolidated statement of earnings from the acquisition
date, forward. Pro forma net sales and net earnings, including the
acquired business since the beginning of fiscal 2014, would not be
materially different than reported results.
dHybrid
Systems, LLC On October 20, 2014, we acquired a 79.59% ownership
interest in dHybrid, a manufacturer of CNG systems for large
trucks, for total consideration of $15,918,000, including
contingent consideration with an estimated fair value of
$3,979,000, and the assumption of certain liabilities. The
remaining 20.41% was retained by a founding member. The acquired
business became part of our Pressure Cylinders operating segment
upon closing. The contingent consideration arrangement requires the Company
to pay $3,979,000 of additional consideration when cumulative net
sales beginning January 1, 2013 reach $20,000,000 plus 50% of
gross margin above certain thresholds in each of the five
twelve-month periods following the closing date. We determined the
acquisition-date fair value of the contingent consideration
obligation using a probability weighted cash flow approach based on
management’s projections of future sales and gross margin.
Refer to “Note Q – Fair Value Measurements” for
additional information regarding the fair value measurement of the
contingent consideration obligation. The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values, with goodwill representing the
excess of the purchase price over the fair value of the net
identifiable assets acquired. In connection with the acquisition of
the assets of dHybrid, we identified and valued the following
identifiable intangible assets:
(in
thousands) Amount Useful
Life (Years)
Category
Technological
know-how $ 3,100 10
Customer
relationships 600 7
Backlog 88 Less than 1
Total acquired identifiable
intangible assets $ 3,788
The purchase price includes the fair values of other assets
that were not identifiable, not separately recognizable under
accounting rules (e.g., assembled workforce) or of immaterial
value. The purchase price also includes a going-concern element
that represents our ability to earn a higher rate of return on this
group of assets than would be expected on the separate assets as
determined during the valuation process. This additional investment
value resulted in goodwill, which is expected to be deductible for
income tax purposes.
The following
table summarizes the consideration transferred for our 79.59%
interest in dHybrid and the fair value assigned to the assets
acquired and liabilities assumed at the acquisition
date:
(in
thousands)
Consideration
Transferred:
Cash
consideration $ 11,939
Fair value of contingent
consideration 3,979
Total
consideration $ 15,918
Estimated Fair Value of
Assets Acquired and Liabilities Assumed:
Cash and cash
equivalents $ 1,132
Accounts
receivable 1,482
Inventories 2,732
Prepaid expenses and other
current assets 38
Intangible
assets 3,788
Property, plant and
equipment 406
Total identifiable
assets 9,578
Accounts payable (1,867 )
Accrued
liabilities (533 )
Long-term debt (5,000 )
Net identifiable
assets 2,178
Goodwill 17,822
Net assets 20,000
Noncontrolling
interest (4,082 )
Total
consideration $ 15,918
Operating results of the acquired business have been included
in our consolidated statement of earnings from the acquisition
date, forward. Pro forma net sales and net earnings, including the
acquired business since the beginning of fiscal 2014, would not be
materially different than reported results. Midstream Equipment
Fabrication LLC On August 1, 2014, we acquired the assets of Midstream
Equipment Fabrication LLC (“MEF”) for cash
consideration of $38,441,000 and the assumption of certain
liabilities. The MEF business manufactures patented horizontal
heated and high pressure separators used to separate oilfield
fluids and gas. The acquired assets became part of our Pressure
Cylinders operating segment upon closing.
The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values, with goodwill representing the
excess of the purchase price over the fair value of the net
identifiable assets acquired. In connection with the acquisition of
the assets of MEF, we identified and valued the following
identifiable intangible assets:
(in
thousands) Amount Useful Life
Category
Technological
know-how $ 5,100 10
Customer
relationships 4,300 7
Non-compete
agreements 2,400 4
Backlog 1,800 Less than 1
Total acquired identifiable
intangible assets $ 13,600
The purchase price includes the fair values of other assets
that were not identifiable, not separately recognizable under
accounting rules (e.g., assembled workforce) or of immaterial
value. The purchase price also includes a going-concern element
that represents our ability to earn a higher rate of return on this
group of assets than would be expected on the separate assets as
determined during the valuation process. This additional investment
value resulted in goodwill, which is expected to be deductible for
income tax purposes. The following table summarizes the consideration transferred
for the assets of MEF and the fair value assigned to the assets
acquired and liabilities assumed at the acquisition
date:
(in
thousands)
Accounts
receivable $ 3,329
Inventories 3,550
Intangible
assets 13,600
Property, plant and
equipment 166
Total identifiable
assets 20,645
Accounts payable (555 )
Other accrued
items (92 )
Deferred revenue (4,808 )
Net assets 15,190
Goodwill 23,251
Cash
consideration $ 38,441
Operating results of the acquired business have been included
in our consolidated statement of earnings from the acquisition
date, forward. Pro forma net sales and net earnings, including the
acquired business since the beginning of fiscal 2014, would not be
materially different than reported results.
James
Russell Engineering Works, Inc. On July 31, 2014, we acquired the assets of James Russell
Engineering Works, Inc. (“JRE”) for cash consideration
of $1,571,000. The JRE business manufactures aluminum and stainless
steel cryogenic transport trailers used for hauling liquid oxygen,
nitrogen, argon, hydrogen and LNG for producers and distributors of
industrial gases and LNG. The acquired assets became part of our
Pressure Cylinders operating segment upon closing. The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values. The purchase price includes the
fair values of other assets that were not identifiable, not
separately recognizable under accounting rules (e.g., assembled
workforce) or of immaterial value. The purchase price also includes
a going-concern element that represents our ability to earn a
higher rate of return on this group of assets than would be
expected on the separate assets as determined during the valuation
process. This additional investment value resulted in goodwill,
which is expected to be deductible for income tax
purposes. The following table summarizes the consideration transferred
for the assets of JRE and the fair value assigned to the assets
acquired and liabilities assumed at the acquisition
date:
(in
thousands)
Cash $ 253
Accounts
receivable 509
Inventories 2,793
Prepaid expense and other
current assets 40
Property, plant and
equipment 250
Total identifiable
assets 3,845
Accounts payable (514 )
Other accrued
items (2,160 )
Net identifiable
assets 1,171
Goodwill 400
Total cash
consideration $ 1,571
Operating results of the acquired business have been included
in our consolidated statement of earnings from the acquisition
date, forward, and have not been material. Pro forma net sales and
net earnings, including the acquired business since the beginning
of fiscal 2014, would not be materially different than reported
results. Fiscal
2014
The Tank
Manufacturing Division of Steffes Corporation On March 27, 2014, we acquired the tank manufacturing
division of Steffes Corporation (“Steffes”) for cash
consideration of approximately $27,962,000. This division
manufactures oilfield storage tanks for customers drilling in the
Bakken shale and Williston Basin region out of a manufacturing
facility located in Dickinson, North Dakota. The acquired assets
became part of our Pressure Cylinders operating segment upon
closing. The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values, with goodwill representing the
excess of the purchase price over the fair value of the net
identifiable assets acquired. In connection with the acquisition of
Steffes, we identified and valued the following identifiable
intangible assets:
(in
thousands) Amount Useful Life
Category
Customer
relationships $ 10,000 9
Trade name 290 Less than 1
Total acquired identifiable
intangible assets $ 10,290
The purchase price includes the fair values of other assets
that were not identifiable, not separately recognizable under
accounting rules (e.g., assembled workforce) or of immaterial
value. The purchase price also includes a going-concern element
that represents our ability to earn a higher rate of return on this
group of assets than would be expected on the separate assets as
determined during the valuation process. This additional investment
value resulted in goodwill, which is expected to be deductible for
income tax purposes.
The following table summarizes the consideration transferred
for Steffes and the fair value assigned to the assets acquired and
liabilities assumed at the acquisition date:
(in
thousands)
Inventories $ 2,316
Intangible
assets 10,290
Property, plant and
equipment 2,638
Total identifiable
assets 15,244
Goodwill 12,718
Purchase price $ 27,962
Operating results of the acquired business have been included
in our consolidated statement of earnings from the acquisition
date, forward. Pro forma net sales and net earnings, including the
acquired business since the beginning of fiscal 2013, would not be
materially different than reported results.
Aritaş
Basinçli Kaplar Sanayi On January 24, 2014, we acquired a 75% interest in
Worthington Aritas, one of Europe’s leading LNG and cryogenic
technology companies. The remaining 25% stake was retained by the
prior owners. The total purchase price, including an adjustment for
estimated final working capital, was $35,325,000. The purchase
price also included contingent consideration with an estimated fair
value of $404,000 at the acquisition date. The acquired assets
became part of our Pressure Cylinders operating segment upon
closing. The contingent consideration arrangement required earnings
before interest, taxes, depreciation and amortization
(“EBITDA”) to exceed $5,000,000 during any 12
consecutive months during the first 14 month period following the
closing date. The target EBITDA level was not met during the
required time frame and the contingent consideration liability of
$404,000 was written off to miscellaneous income during fiscal
2015. The assets acquired and liabilities assumed were recognized at
their estimated acquisition-date fair values based on a preliminary
valuation analysis, with goodwill representing the excess of the
purchase price over the fair value of the net identifiable assets
acquired. In connection with the acquisition of our 75% interest in
Worthington Aritas, we identified and valued the following
identifiable intangible assets:
(in
thousands) Amount Useful
Life (Years)
Category
Customer
relationships $ 8,400 10
Technological
know-how 8,100 20
Trade name 180 2
Non-compete
agreements 120 3
Total acquired identifiable
intangible assets $ 16,800
The purchase price includes the fair values of other assets
that were not identifiable, not separately recognizable under
accounting rules (e.g., assembled workforce) or of immaterial
value. The purchase price also includes a going-concern element
that represents our ability to earn a higher rate of return on this
group of assets than would be expected on the separate assets as
determined during the valuation process. This additional investment
value resulted in goodwill, which is not expected to be deductible
for income tax purposes.
The following table summarizes the consideration transferred
for Worthington Aritas and the final fair values assigned to the
assets acquired and liabilities assumed at the acquisition
date:
(in
thousands) Preliminary Measurement Final
Cash and cash
equivalents $ 1,037 $ - $ 1,037
Accounts
receivable 3,326 (84 ) 3,242
Inventories 10,678 - 10,678
Prepaid expenses and other
current assets 1,317 - 1,317
Intangible
assets 16,800 - 16,800
Other noncurrent
assets 1,099 - 1,099
Property, plant and
equipment 5,467 - 5,467
Total identifiable
assets 39,724 (84 ) 39,640
Accounts payable (5,587 ) - (5,587 )
Short-term
borrowings (251 ) - (251 )
Accrued
liabilities (2,756 ) (4,146 ) (6,902 )
Other
liabilities (4,954 ) 4,954 -
Deferred taxes (2,787 ) - (2,787 )
Net identifiable
assets 23,389 724 24,113
Goodwill 23,586 (599 ) 22,987
Net assets 46,975 125 47,100
Noncontrolling
interest (11,744 ) (31 ) (11,775 )
Total
consideration $ 35,231 $ 94 $ 35,325
The Company recognized $1,520,000 of acquisition-related costs
that were expensed within SG&A expense in fiscal 2014.
Operating results of Worthington Aritas have been included in our
consolidated statement of earnings from the acquisition date,
forward. Pro forma net sales and net earnings, including the
acquired business since the beginning of fiscal 2013, would not be
materially different than reported results.
TWB Company,
L.L.C. On July 31, 2013, we purchased an additional 10% interest
in our laser welded blank joint venture, TWB, for $17,869,000,
increasing our ownership to a 55% controlling interest. This
transaction was accounted for as a step acquisition, which required
that we re-measure our previously held 45% ownership interest to
fair value and record the difference between fair value and
carrying value as a gain in our consolidated statement of earnings.
The re-measurement to fair value resulted in a non-cash pre-tax
gain of $11,000,000, which is included in miscellaneous income in
our consolidated statement of earnings for fiscal 2014. The
acquired assets became part of our Steel Processing operating
segment upon closing. The assets acquired and liabilities assumed were recognized at
their acquisition-date fair values. In connection with the
acquisition of TWB, we identified and valued the following
identifiable intangible assets:
(in
thousands) Amount Useful
Life (Years)
Category
Customer
relationships $ 17,438 5-6
Trade names 4,120 Indefinite
Non-compete
agreement 470 5
Total acquired identifiable
intangible assets $ 22,028
The estimated fair value of the assets acquired and liabilities
assumed approximated the purchase price and therefore no goodwill
was recognized.
The following table summarizes the consideration transferred
for our 55% controlling interest in TWB and the fair value assigned
to the assets acquired and liabilities assumed at the acquisition
date:
(in
thousands)
Consideration
Transferred:
Cash
consideration $ 17,869
Fair value of previously
held equity interest in TWB 72,369
Total
consideration $ 90,238
Estimated Fair Value of
Assets Acquired and Liabilities Assumed:
Cash and cash
equivalents $ 70,826
Accounts
receivable 52,012
Inventories 20,403
Prepaid expenses and other
current assets 4,027
Intangible
assets 22,028
Other noncurrent
assets 103
Property, plant and
equipment 52,390
Total identifiable
assets 221,789
Accounts payable (50,642 )
Accrued
liabilities (6,431 )
Deferred taxes (2,109 )
Net assets 162,607
Noncontrolling
interest (72,369 )
Total
consideration $ 90,238
The fair value of our previously held equity interest and the
noncontrolling interest was derived using a market approach, and
included a minority discount of 10% to reflect management’s
estimate of the control premium. Net sales of $319,542,000 and earnings before income taxes of
$22,991,000 were included in the Company’s consolidated
statement of earnings for fiscal 2014. Proforma net sales of the combined entity had the acquisition
occurred at the beginning of fiscal 2013 were $3,180,428,000 and
$2,956,309,000 for the fiscal years ended May 31, 2014 and
2013, respectively. Pro forma earnings would not be materially
different than reported results due to our 45% noncontrolling
interest in TWB prior to the acquisition date. |
