NOTE N – Acquisitions

dHybrid Systems, LLC

On October 20, 2014, we acquired a 79.59% ownership interest in dHybrid, a leader in compressed natural gas (“CNG”) systems for large trucks. The remaining 20.41% was retained by a founding member. The total purchase price was $15,918,000, which includes contingent consideration with an estimated fair value of $3,979,000. 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 P – 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 net assets of dHybrid, we identified and valued the following identifiable intangible assets:


(in thousands)			Useful Life
Category	Amount		(Years)
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	$	795
Accounts receivable		1,459
Inventories		3,300
Prepaid expenses and other current assets		38
Intangible assets		3,788
Property, plant and equipment		396

Total identifiable assets		9,776
Accounts payable		(1,163	)
Accrued liabilities		(160	)
Long-term debt		(5,000	)

Net identifiable assets		3,453
Goodwill		16,547

Net assets		20,000
Noncontrolling interest		(4,082	)

Total consideration	$	15,918

Operating results of the acquired business have been included in our consolidated statements of earnings for the three and six months ended November 30, 2014 from the acquisition date, forward. Pro forma results, 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 net assets of Midstream Equipment Fabrication LLC (“MEF”) for cash consideration of $35,232,000 and the assumption of certain liabilities. MEF manufactures patented horizontal heated and high pressure separators used to separate oilfield fluids and gas for customers drilling in the Eagle Ford Shale and is well-situated to serve customers in the Permian Basin. 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 the net assets of MEF, we identified and valued the following identifiable intangible assets:


(in thousands)			Useful Life
Category	Amount		(Years)
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 following table summarizes the consideration transferred for the net 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		23,202

Purchase price		38,392
Less: estimated excess working capital		3,160

Cash paid at closing	$	35,232

During the second quarter of fiscal 2015, the Company paid $3,399,000 to settle the final working capital. The Company incurred $273,000 of acquisition-related costs that were expensed within SG&A expense during the six months ended November 30, 2014. Operating results of the acquired business have been included in our consolidated statements of earnings for the three and six months ended November 30, 2014 from the acquisition date, forward. Pro forma results, 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 net assets of James Russell Engineering Works, Inc. (“JRE”) for cash consideration of $1,571,000. JRE manufactures aluminum and stainless steel cryogenic transport trailers used for hauling liquid oxygen, nitrogen, argon, hydrogen and liquefied natural gas (“LNG”) for producers and distributors of industrial gases and LNG. 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. 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 net 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