Note O – Acquisitions

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 $28,874,000, subject to a final working capital adjustment. 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, and complements our existing operations in Ohio and Kansas that manufacture steel and fiberglass storage tanks, gas separators, gas production units and related wellhead equipment for oil and gas exploration in the Marcellus, Utica, Bakken and Mid-Continent regions. The acquired net 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 (Years)
Category	Amount		Useful Life (Years)
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		13,046

Purchase price		28,290
Estimated working capital deficit		584

Total cash paid	$	28,874

Operating results of Steffes 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.

Aritaş Basinçli Kaplar Sanayi

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, including an adjustment for estimated final working capital, was $35,325,000. The purchase price also includes contingent consideration with an estimated fair value of $404,000. The acquired net assets became part of our Pressure Cylinders operating segment upon closing.

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 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 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	Amount		Useful Life (Years)
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 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 Valuation February 28, 2014			Measurement Period Adjustments			Final Valuation May 31, 2014
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 the current period. 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.

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 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)	Amount		Useful Life (Years)
Category	Amount		Useful Life (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 $319,542,000 and earnings before income taxes of $22,991,000 have been included in the Company’s consolidated statement of earnings from the acquisition date through May 31, 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.

Fiscal 2013

Palmer Mfg. & Tank, Inc.

On April 9, 2013, we acquired the net assets of Palmer Mfg. & Tank, Inc. (“Palmer”) for cash consideration of approximately $113,479,000. Palmer manufactures steel and fiberglass tanks and processing equipment for the oil and gas industry, and custom manufactures fiberglass tanks for agricultural, chemical and general industrial applications. The acquired net 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 Palmer, we identified and valued the following identifiable intangible assets:


(in thousands)	Amount		Useful Life (Years)
Category	Amount		Useful Life (Years)
Customer relationships	$	25,730		8
Trade name		8,406		5
Non-compete agreement		5,208		5
Other		150		3

Total acquired identifiable intangible assets	$	39,494

The following table summarizes the consideration transferred for Palmer and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:


(in thousands)
Cash and cash equivalents	$	364
Accounts receivable		9,252
Inventories		17,758
Prepaid expenses and other current assets		9
Intangible assets		39,494
Property, plant and equipment		16,504

Total identifiable assets		83,381
Accounts payable		(2,547	)
Accrued liabilities		(2,175	)

Net identifiable assets		78,659
Goodwill		34,820

Total cash consideration	$	113,479

Operating results of Palmer 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 2012, would not be materially different than reported results.

Westerman, Inc.

On September 17, 2012, we acquired 100% of the outstanding common shares of Westerman, Inc. (“Westerman”) for cash consideration of approximately $62,749,000 and the assumption of approximately $7,251,000 of debt, which was repaid at closing. Westerman is a leading manufacturer of tanks, pressure vessels and other products for the oil and gas and nuclear markets as well as hoists and other products for marine applications. The acquired net 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 Westerman, we identified and valued the following identifiable intangible assets:


(in thousands)	Amount		Useful Life (Years)
Category	Amount		Useful Life (Years)
Customer relationships	$	12,796		10
Trade name		2,986		3-4
Non-compete agreement		1,050		5
Other		1,486		1-3

Total acquired identifiable intangible assets	$	18,318

The following table summarizes the consideration transferred for Westerman and the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:


(in thousands)
Cash and cash equivalents	$	639
Accounts receivable		6,355
Inventories		15,377
Prepaid expenses and other current assets		836
Intangible assets		18,318
Property, plant and equipment		23,503

Total identifiable assets		65,028
Accounts payable		(2,952	)
Accrued liabilities		(2,479	)
Other current liabilities		(765	)
Short-term borrowings		(7,251	)
Deferred income taxes		(11,022	)

Net identifiable assets		40,559
Goodwill		22,190

Total cash consideration	$	62,749

Operating results of Westerman 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 2012, would not be materially different than reported results.