Acquisitions

3 Months Ended

Aug. 31, 2011

Acquisitions

Acquisitions

2. ACQUISITIONS

On November 3, 2010, we purchased Quest Integrity Group, LLC ("Quest"), a privately held advanced inspection services and engineering assessment company. We effectively purchased 95% of Quest for a total consideration paid to Quest shareholders of $41.7 million, consisting of a cash payment of $39.1 million and the issuance of our restricted common stock with a fair value of $2.6 million (approximately 186,000 shares). Additionally, we also assumed debt, net of cash on hand, with a value of $2.3 million. We repaid the debt upon consummation of the purchase. In connection with this transaction, we borrowed $41.4 million under our banking credit facility (our "Credit Facility") which was used to fund the cash portion of the purchase price, including the retirement of Quest debt. We expect to purchase the remaining 5% in fiscal year 2015 for a purchase consideration based upon the future financial performance of Quest as defined in the purchase agreement. Future consideration would be payable in unregistered shares of our common stock for an aggregate value of no less than $2.4 million, provided the aggregate value of the consideration does not exceed 20% of our outstanding common stock. Our valuation of the remaining 5% equity of Quest at the date of acquisition was $4.9 million, which is reflected in the shareholders' equity section of the Consolidated Balance Sheet as "Non-controlling interest."

Headquartered near Seattle, Washington, Quest has leading technical capabilities related to the measurement and assessment of facility and pipeline mechanical integrity. Quest has developed several proprietary tools for advanced tube and pipeline inspection and measurement. Supporting and augmenting these proprietary inspection tools, Quest has an advanced technical team that provides specialized engineering assessments of facility conditions and serviceability. Quest maintains operations in Seattle, Boulder, and New Zealand, and has service locations in Houston, Calgary, Australia, The Netherlands, and the Middle East. The results of Quest will be reflected in our TCM division.

We obtained independent valuations of the tangible and intangible asset values of Quest, and the resulting residual goodwill. As a result of the independent valuations, a significant portion of the purchase price was determined to be attributable to amortizable intangible assets. Intangible assets are amortized over their useful lives which range from 5 to 20 years. Accordingly, we have included $0.4 million of amortization expense for the three months ended August 31, 2011 in our results of operations to reflect accumulated amortization of intangible assets. Information regarding the allocation of the purchase price is set forth below (in thousands):

Fair value allocation:
Bank debt assumed	$	2,276
Cash paid to Quest shareholders		39,100
Restricted stock issued to Quest shareholders		2,635
Total purchase price		44,011
Fair value of non-controlling interest		4,917
Fair value allocation	$	48,928
Net assets acquired:
Receivables	$	5,687
Prepaid expenses and other current assets		505
Property, plant and equipment		2,966
Other assets		78
Assets acquired		9,236
Accounts payable		1,291
Other accrued liabilities		3,136
Liabilities assumed		4,427
Net assets acquired	$	4,809
Intangible assets:
Customer relationships (6 year life)	$	5,623
Non-compete agreements (5 year life)		394
Trade name (20 year life)		2,962
Technology (10 year life)		5,250
Goodwill		29,890
Intangible assets	$	44,119

Information regarding the change in carrying value of the non-controlling interest is set forth below (in thousands):

Fair value of non-controlling interest at November 3, 2010	$	4,917
Income attributable to non-controlling interest		58
Other comprehensive income attributable to non-controlling interest		32
Fair value of non-controlling interest at August 31, 2011	$	5,007