NOTE N – Acquisitions

TWB Company, LLC

On July 31, 2013, we purchased an additional 10% interest in our laser welded blanks 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 the nine months ended February 28, 2014. The acquired net 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)						Useful Life
Category		Amount				(Years)
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 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 $213,252,000 and earnings before income taxes of $14,488,000 have been included in the Company’s consolidated statement of earnings from the acquisition date through the period ended February 28, 2014.

 

Proforma net sales of the combined entity had the acquisition occurred at the beginning of fiscal 2013 were $2,289,424,000 and $2,161,147,000 for the nine months ended February 28, 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

Aritas Basincli Kaplar Sanayi A.S.

On January 24, 2014, we acquired a 75% interest in Worthington Aritas, one of Europe’s leading LNG (liquefied natural gas) and cryogenic technology companies. The remaining 25% stake was retained by the prior owners. The total purchase price, after an adjustment for estimated final working capital, was $35,231,000. The purchase price also includes contingent consideration with an estimated fair value of $310,000. The acquired net assets became part of our Pressure Cylinders operating segment upon closing. While the Company does not anticipate any changes to the initial accounting for this transaction, the allocation of the purchase price is not yet finalized and is subject to adjustment as we complete the valuation analysis.

The contingent consideration arrangement requires the Company to pay $2,000,000 of additional consideration to the former owners if earnings before interest, taxes, depreciation and amortization (“EBITDA”) exceed $5,000,000 during any 12 consecutive months during the first 14 month period following the closing date. We determined the acquisition date fair value of the contingent consideration obligation using a Monte Carlo simulation model based on management’s projections of future EBITDA levels. Refer to “Note P – Fair Value” for additional information regarding the fair value measurement of the contingent consideration obligation.

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. Based on the preliminary valuation analysis, we identified and valued the following identifiable intangible assets:

 

(in thousands)						Useful Life
Category		Amount				(Years)
Customer relationships		$	8,400				20
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 estimated fair value assigned to the assets acquired and liabilities assumed at the acquisition date:

 

(in thousands)
Cash and cash equivalents		$	1,037
Accounts receivable			3,326
Inventories			10,678
Prepaid expenses and other current assets			1,317
Intangible assets			16,800
Other noncurrent assets			1,099
Property, plant and equipment			5,467
Total identifiable assets			39,724
Accounts payable			(5,587	)
Short-term borrowings			(251	)
Accrued liabilities			(2,756	)
Other liabilities			(4,954	)
Deferred taxes			(2,787	)
Net identifiable assets			23,389
Goodwill			23,586
Net assets			46,975
Noncontrolling interest			(11,744	)
Total consideration		$	35,231

Operating results of Worthington Aritas have been included in our consolidated statements of earnings from the acquisition date, forward. Pro forma results, including the acquired business since the beginning of fiscal 2013, would not be materially different than reported results.