ACQUISITIONS | 9 Months Ended |
Sep. 30, 2013 |
ACQUISITIONS | ' |
ACQUISITIONS | ' |
NOTE 3 – ACQUISITIONS |
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Since January 1, 2012, we acquired four businesses, which included three products companies and one industrial gas services company, all based in the U.S. These acquisitions allow us to expand our products and service offerings internationally and in the U.S. A summary of the acquisitions is as follows: |
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Business Acquired | | Date of Closing | | Net Assets | | Segment | | Primary Form of | | | |
Acquired | Consideration | | | |
(in millions) | | | | |
IBI, LLC[1] | | July 9, 2013 | | $ | 18.7 | | Products | | Cash | | | |
Hetsco Holdings, Inc [1] | | April 30, 2013 | | $ | 33.3 | | Services | | Cash | | | |
TOG Holdings Inc. | | September 5, 2012 | | $ | 12.2 | | Products | | Cash | | | |
Koontz Wagner Custom Controls Holdings LLC | | July 30, 2012 | | $ | 32.4 | | Products | | Cash | | | |
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[1] Subject to working capital adjustments |
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Each of the acquired businesses has been included in our results of operations since the date of closing. Due to the timing of each acquisition and related operating results, our 2013 and 2012 operating results are not entirely comparable. |
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On July 9, 2013, we acquired IBI, LLC (“IBI Power”), a leading manufacturer of custom power packaging and integration solutions, including control house systems, generator enclosures and industrial tanks. The aggregate consideration paid consisted of $17.9 million in cash, subject to working capital adjustments which could be significant. IBI Power’s financial results are included in our Products Division as of the acquisition date. |
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On April 30, 2013, we acquired Hetsco Holdings, Inc. and its wholly owned subsidiary Hetsco, Inc. (together “Hetsco”), a global provider of mission critical brazed aluminum heat exchanger repair, maintenance and safety services to the industrial gas, liquefied natural gas and petrochemical industries. The aggregate acquisition price consisted of $33.3 million in cash, subject to final working capital adjustments which could be significant. The financial results of the Hetsco acquisition have been included in our Services Division as of the acquisition date. |
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We funded the purchase of the IBI Power and Hetsco acquisitions (together, the “2013 Acquisitions”) through a combination of cash on hand and draws on our $100 million credit facility (“Revolving Credit Facility”). |
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The following table summarizes the consideration paid for the 2013 Acquisitions and presents the preliminary allocation of these amounts to the net tangible and identifiable intangible assets based on the estimated fair values as of the respective acquisition dates. These allocations require the significant use of estimates and are based on the information that was available to management at the time these consolidated financial statements were prepared. |
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| | 2013 Acquisition Activity | | | |
| | Hetsco Inc. | | IBI Power | | Total | | | |
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Current assets | | $ | 8,755 | | $ | 8,916 | | $ | 17,671 | | | |
Property, plant and equipment | | 867 | | 2,822 | | 3,689 | | | |
Identifiable intangible assets | | 18,600 | | 8,700 | | 27,300 | | | |
Goodwill | | 15,960 | | 4,214 | | 20,174 | | | |
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Total assets acquired | | 44,182 | | 24,652 | | 68,834 | | | |
Current liabilities | | -2,357 | | -5,940 | | -8,297 | | | |
Long-term deferred tax liability | | -7,439 | | — | | -7,439 | | | |
Other long-term liabilities | | -1,088 | | — | | -1,088 | | | |
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Net assets acquired | | $ | 33,298 | | $ | 18,712 | | $ | 52,010 | | | |
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Management determined the purchase price allocations for the 2013 Acquisitions based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed. We utilized recognized valuation techniques, including the income approach and cost approach for the net assets acquired. The fair value of the assets acquired and liabilities assumed are preliminary and remain subject to potential adjustments in areas including but not limited to the final working capital settlement, further assessment of income tax related assets and liabilities and further assessment of the valuation of acquired contracts. |
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Acquired intangible assets in 2013 of $27.3 million consisted of customer relationships, trade names and noncompete agreements. The amortization period for these intangible assets ranges from five to seven years. We recorded $0.6 million and $1.0 million of amortization expense related to these intangible assets during the three and nine months ended September 30, 2013, respectively, covering the period of May 1, 2013 through September 30, 2013. The major classes of intangible assets are as follows: |
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| | Weighted Average | | | | | | | | | |
| | Amortization Years | | Amount | | | | | | | |
Customer Relationships | | 7 | | $ | 16,600 | | | | | | | |
Trade Names | | Indefinite | | 9,000 | | | | | | | |
Noncompetes | | 5 | | 1,700 | | | | | | | |
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| | | | $ | 27,300 | | | | | | | |
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The estimated future aggregate amortization expense of intangible assets from the Hetsco and IBI Power acquisitions as of September 30, 2013 is set forth below: |
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For the Fiscal Year Ending December 31 — | | | | | | | | | | | |
Remainder of 2013 | | $ | 678 | | | | | | | | | |
2014 | | 2,711 | | | | | | | | | |
2015 | | 2,711 | | | | | | | | | |
2016 | | 2,711 | | | | | | | | | |
2017 | | 2,711 | | | | | | | | | |
Thereafter | | 5,818 | | | | | | | | | |
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Total | | $ | 17,340 | | | | | | | | | |
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The goodwill arising from the IBI Power acquisition consists largely of expectations that this acquisition broadens our customer base to switchgear original equipment manufacturers (“OEMs”) and adds backup power and distributed power applications to our product portfolio. Also impacting the IBI goodwill is operational synergies among the IBI Power business and the Koontz Wagner Custom Controls business. The goodwill arising from the Hetsco acquisition consists largely of expectations that this acquisition expands our service offerings to the industrial gas market to customers including original equipment manufacturers and owners of petrochemical and industrial gas plants. The goodwill associated with the IBI Power acquisition is deductible for tax purposes whereas the goodwill associated with the Hetsco acquisition is not deductible for tax purposes. |
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We incurred $2.0 million and $4.2 million of transaction, due diligence and integration costs during the three and nine months ended September 30, 2013 that are reflected in Hetsco’s and IBI Power’s results, respectively. These costs included pre-acquisition due diligence costs, transaction and integration costs. These costs were included in general and administrative expenses in our consolidated statements of operations for the three and nine months ended September 30, 2013. |
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Revenue of approximately $13.1 million and an operating income before income taxes of $0.5 million are included in our consolidated results of operations for the three months ended September 30, 2013 related to the 2013 Acquisitions. Excluding the $2.0 million of acquisition related costs as well as intangible amortization costs of $0.6 million, the 2013 Acquisitions contributed $3.1 million of pre-tax operating income during the three months ended September 30, 2013. |
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Revenue of approximately $16.3 million and an operating loss before income taxes of approximately $1.5 million are included in our consolidated results of operations for the nine months ended September 30, 2013 related to the 2013 Acquisitions. Excluding the $4.2 million of acquisition related costs as well as intangible amortization costs of $1.0 million, the 2013 Acquisitions contributed $6.7 million of pre-tax operating income during the nine months ended September 30, 2013. |
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In the third quarter of 2012, we acquired two businesses (“2012 Acquisitions”) which expanded our products portfolio. The financial results of the 2012 Acquisitions have been included in our Products Division as of their respective acquisition dates as described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2013. Revenue of approximately $14.0 million and an operating income before income taxes of approximately $0.4 million are included in our consolidated results of operations for the three months ended September 30, 2013. Revenue of approximately $33.8 million and an operating income before income taxes of approximately $0.9 million are included in our consolidated results of operations for the nine months ended September 30, 2013. Excluding the intangible amortization costs of $0.6 million and $1.9 million for the three and nine months ended September 30, 2013, respectively, the 2012 Acquisitions contributed $1.0 million and $2.8 million of pre-tax operating income during the three and nine months ended September 30, 2013, respectively. |
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The following unaudited pro forma information have been provided for illustrative purposes only and are not necessarily indicative of results that would have occurred had the 2012 Acquisitions and the 2013 Acquisitions (together, the “2012 and 2013 Acquisitions”) been in effect since January 1, 2012, nor are they necessarily indicative of future results. |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Revenue | | $ | 110,512 | | $ | 128,741 | | $ | 375,958 | | $ | 363,258 |
Income from continuing operations | | 1,318 | | 3,176 | | 2,244 | | 3,727 |
Earnings per share from continuing operations: | | | | | | | | |
Basic | | $ | 0.08 | | $ | 0.19 | | $ | 0.13 | | $ | 0.22 |
Diluted | | $ | 0.08 | | $ | 0.18 | | $ | 0.13 | | $ | 0.22 |
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The unaudited pro forma consolidated results during the three and nine months ended September 30, 2013 and 2012 have been prepared by adjusting our historical results to include the 2013 Acquisitions as if they occurred on January 1, 2012 and the 2012 Acquisitions as if they occurred on January 1, 2011. These unaudited pro forma consolidated historical results were then adjusted for the following: |
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· a net reduction in interest expense during the three and nine months ended September 30, 2013 and 2012 as we did not acquire existing debt from the 2012 and 2013 Acquisitions offset by interest expense on our $30.0 million net borrowings on the Revolving Credit Facility in association with the 2013 Acquisitions, |
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· an increase in amortization expense due to the incremental intangible assets recorded related to the 2012 and 2013 Acquisitions, |
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· a decrease in depreciation expense relating to the net impact of adjusting acquired property and equipment to the acquisition date fair values, |
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· a net increase in stock compensation expense associated with restricted stock granted as part of the Hetsco acquisition offset by a reduction in stock compensation expense resulting from the cancellation of Hetsco’s previous stock grants, |
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· adjustments to reflect the impact of $1.9 million of transaction costs related to the 2012 Acquisitions as of January 1, 2011, |
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· adjustments to reflect the impact of $2.1 million of transaction costs related to the 2013 Acquisitions as of January 1, 2012, and |
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· adjustments to tax effect the pro forma results of the 2012 and 2013 Acquisitions at Global Power’s estimated domestic statutory tax rate of 39% for all periods. |
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The unaudited pro forma results do not include any adjustments to eliminate the impact of cost savings or other synergies that may result from the 2012 and 2013 Acquisitions. As noted above, the unaudited pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. |