NOTE B – ACQUISITIONS

U.S. United Ocean Services, LLC Acquisition

On November 30, 2012, (“the acquisition date”) we acquired 100% of the membership interest of UOS. The total consideration of approximately $114.7 million consisted of a $112.2 million cash payment and a post-closing settlement of payment of approximately $2.5 million, which was made in the first quarter of 2013. In the fourth quarter of 2012, we incurred acquisition expenses of approximately $1.8 million related to legal, consulting, and valuation fees. The fees expensed have been included under the caption “Administrative and General Expenses” in our Consolidated Statement of Income.

Founded in 1959, UOS provides marine transportation services for dry bulk commodities in the United States. UOS operates the largest U.S. Flag Jones Act dry bulk fleet today (131,000 dead weight tons), which consists of two Handysize Bulkers and four Tug/Barge units. The majority of the fleets operations are under contracts with TEC and Mosaic, both of whom have maintained longstanding relationships with UOS that have spanned several decades.

The transaction was accounted for as a business combination using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. While most assets and liabilities were measured at fair value, a single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. Our judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

The following is a tabular summary of the amounts recognized for assets acquired and liabilities assumed as of the acquisition date:



		Amount Recognized as of Acquisition Date
Description		(All Amounts in Thousands)
Working Capital including Cash Acquired	$	8,511
Inventory		6,510
Property, Plant, and Equipment		60,037
Identifiable Intangible Assets		45,131
Total Assets Acquired		120,189
Misc. Payables and Accrued Expenses		(5,434)
Other Long Term Liability		(1,945)
Total Liabilities Assumed		(7,379)
Net Assets Acquired		112,810
Total Consideration Transferred		(114,717)
Goodwill*	$	1,907

* Goodwill represents the fair value of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Our above-described goodwill is not amortized nor do we expect it to be deductible for tax purposes. Specifically, the goodwill recorded as part of the acquisition of UOS includes the following:

the expected synergies and other benefits that we believe will result from combining the operations of UOS with our existing Jones Act operations,

any intangible assets that do not qualify for separate recognition, including an assembled workforce of the acquired companies, and

the anticipated higher rate of return of UOS’s existing businesses as going concerns compared to the anticipated rate of return if we had acquired all of the net assets separately.

Based on our quantitative assessment as of December 1, 2014, we believe it is not more likely than not that the fair value of the reporting unit (UOS) is higher than the carrying amount.

The following unaudited pro forma results present consolidated information as if the UOS acquisition had been completed as of January 1, 2012. The pro forma results include the amortization associated with the acquired intangible assets, interest expense associated with the debt used to fund a portion of the acquisition, and the impact of fair value adjustments such as depreciation adjustments related to adjustments to property, plant and equipment. The pro forma results should not be considered indicative of the results of operations or financial position of the combined companies had the acquisition been consummated as of January 1, 2012, and are not necessarily indicative of results of future operations of the company.

The pro forma combined financial statements do not include the realization of any cost savings from anticipated operating efficiencies, synergies, or other restructuring activities which might result from the acquisition. The following table sets forth the pro forma revenues, net earnings attributable to ISH, basic net earnings per share and fully diluted net earnings per share attributable to ISH common stockholders for the year ended December 31, 2012, (unaudited and in thousands, except share amounts):



		2012 Pro
		Forma
Revenues	$	329,079
Net earnings attributable to ISH	$	30,765
Net earnings per share attributable to ISH common stockholders:
Basic	$	4.28
Diluted	$	4.27

Frascati Shops, Inc. and Tower, LLC Acquisition

On August 6, 2012, (“the acquisition date”) we acquired the common stock and membership interest of Frascati Shops, Inc. (“FSI”) and Tower LLC, (“Tower”), respectively. FSI and Tower (collectively, the “Acquired Companies”) own and operate a certified rail-car repair facility near the port of Mobile, Alabama. Both will continue to be used to service and repair rail-cars from third party customers as well as rail-cars that are transported via our Rail-Ferry vessels. Our acquisition of the Acquired Companies enables us to (i) lower our Rail-Ferry maintenance and operating costs, (ii) increase the revenues of our Rail Services operations and (iii) deepen our existing customer relationships.

The total consideration of approximately $4.5 million consisted of a $0.6 million cash payment, the assumption of $3.5 million in debt, and $0.4 million in miscellaneous payables. As of September 30, 2012, we discharged all debt and substantially all known accounts payable assumed in the acquisition. Acquisition expenses of approximately $40,000 related to legal fees incurred in due diligence have been included under the caption “Administrative and General Expenses” in our Consolidated Statement of Income.

The following is a tabular summary of the amounts recognized for assets acquired and liabilities assumed as of the acquisition date:



		Amount Recognized as of Acquisition Date
Description		(All Amounts in Thousands)
Working Capital including Cash Acquired	$	18
Inventory		231
Property, Plant, and Equipment		3,411
Identifiable Intangible Assets		490
Total Assets Acquired		4,150
Misc. Payables and Accrued Expenses		(412)
Long Term Debt		(3,490)
Deferred Tax Liability		(453)
Total Liabilities Assumed		(4,355)
Net Liabilities Assumed		(205)
Total Consideration Transferred		(623)
Goodwill*	$	828

* Goodwill represents the sum of the consideration transferred and the net liabilities assumed and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Our above-described goodwill is not amortized nor do we expect it to be deductible for tax purposes. Specifically, the goodwill recorded as part of the acquisition of the Acquired Companies includes the following:

the expected synergies and other benefits that we believe will result from combining the operations of the Acquired Companies with our existing Rail-Ferry operations,

any intangible assets that do not qualify for separate recognition, including an assembled workforce of the acquired companies, and

the anticipated higher rate of return of the Acquired Companies existing businesses as going concerns compared to the anticipated rate of return if we had acquired all of the net assets separately.

Based on our qualitative assessment as of December 1, 2014, we believe that the fair value of the reporting unit (FSI and Tower) is higher than the carrying amount.