Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2012

Business Combination Disclosure [Text Block]

3.     Acquisitions

On February 9, 2012, the Company acquired the business and assets of Eagle Well Services, Inc., which after the transactions operated as Well Services Ltd. (“Well Services”) for an aggregate purchase price of $48.1 million in cash. Well Services engages in the business of workover rig well servicing, including down hole well maintenance and workover, down hole well repairs, well completions, well recompletions, well drill outs and clean outs, and well reentry. Well Services is included in the Company’s oilfield services reporting segment.

The Company accounted for this acquisition as a business combination and the total cash consideration of $48.1 million has been allocated on a preliminary basis to the net assets acquired based on their respective estimated fair values at February 9, 2012 as follows:

	Amount
	(in thousands)
Property and equipment	$	23,842
Intangible assets		14,300
Accrued expenses		(137	)
Total net identifiable assets		38,005
Goodwill		10,126
Net assets acquired	$	48,131

The intangible assets acquired consist of customer relationships, which are being amortized on an accelerated basis over the estimated useful life of ten years. The $10.1 million goodwill arises from the growth potential the Company sees for Well Services, along with expected synergies with the Company’s current oilfield services businesses, and is expected to be deductible for tax purposes. The acquisition-related costs for the purchase of Well Services included in “Selling, general and administrative” expenses in the Condensed Statement of Income were $0.2 million for the six-month period ended June 30, 2012. The Company is in the process of completing its assessment of the fair value of net assets acquired from the Well Services acquisition. Therefore, the fair values presented are provisional pending completion of the final valuation of the net assets.

On May 31, 2012, the Company completed its acquisition of SWH, Inc. (“SWH”), a subsidiary of BNS Holding, Inc. (“BNS”). SWH’s sole business is Sun Well Service, Inc. (“Sun Well”), which is a provider of premium well services to oil and gas exploration and production companies operating in the Williston Basin in North Dakota and Montana. Sun Well is included in the Company’s oilfield services reporting segment.

Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the capital stock of SWH for an acquisition price aggregating $62.7 million. The aggregate acquisition price consisted of the issuance of 2,027,500 shares of the Company’s common stock (valued at $27 per share, the closing price on May 30, 2012) and cash of $7.9 million. Affiliates of Steel Partners Holdings L.P. (“Steel Partners”) owned approximately 40% of the Company’s outstanding common stock and 85% of BNS on May 31, 2012.

As a result of the acquisition, Steel Partners beneficially owns approximately 51.1% of the Company’s outstanding common stock. The Company and BNS each appointed a special committee of independent directors to consider and negotiate the transaction because of the interest of Steel Partners in each company.

The Company accounted for this acquisition as a business combination and the total acquisition price has been allocated on a preliminary basis to the net assets acquired based on their respective estimated fair values at May 31, 2012 as follows:

	Amount
	(in thousands)
Cash	$	3,561
Accounts receivable		7,233
Prepaid expense and other current assets		782
Property and equipment		29,787
Identifiable intangible assets		27,300
Other long-term assets		714
Accounts payable		(1,036	)
Accrued expenses and other current liabilities		(6,074	)
Long-term debt		(16,000	)
Capital lease obligations		(1,622	)
Deferred tax liabilities		(5,510	)
Total net identifiable assets		39,135
Goodwill		23,529
Net assets acquired	$	62,664

The $27.3 million intangible assets acquired consist of customer relationships and a trade name, which will be amortized on an accelerated basis over their respective estimated useful lives of ten and five years, respectively. The $23.5 million goodwill arises from the growth potential the Company sees for Sun Well, along with expected synergies with the Company’s current oilfield services businesses, and is expected to be non-deductible for tax purposes. The acquisition-related costs for the purchase of SWH included in “Selling, general and administrative” expenses in the Condensed Statements of Income were $1.2 million for six-month period ended June 30, 2012. The Company is in the process of completing its assessment of the fair value of net assets acquired from the SWH acquisition, including but not limited to the identifiable tangible and intangible assets, a phantom stock liability and deferred income taxes. Additionally, due to the relatively low non-affiliate trading volume of the Company’s common stock, the Company is also in the process of evaluating the fair value of the stock issued as consideration in the acquisition. Therefore, the fair values presented are provisional pending completion of the final valuation of the net assets and non-cash consideration.

Additionally, on May 31, 2012, the business of Well Services was combined with Sun Well and both businesses now operate out of Sun Well.

The results of operations for Well Services and SWH are included in the accompanying financial statements since their respective acquisition dates.

Pro Forma Financial Information

The following pro forma financial information presents the combined results of the Company, Rogue Pressure Services, LLC (acquired December 7, 2011), Well Services and SWH, as if the acquisitions had occurred at the beginning of the fiscal year ended December 31, 2011. Such pro forma results are not necessarily indicative of what would have actually occurred had the acquisitions been in effect for the entire period. The pro forma financial information is presented for informational purposes only and does not purport to represent the results of future operations. The pro forma results are as follows:

	Three-month Period Ended:				Six-month Period Ended:
	June 30, 2012		July 1, 2011		June 30, 2012		July 1, 2011
	(in thousands)
Net revenues	$	36,901	$	19,687	$	62,799	$	39,498
Net income attributable to Steel Excel Inc.	$	3,406	$	5,425	$	2,701	$	4,378
Basic net income per share	$	0.29	$	1.81	$	0.24	$	0.40
Diluted net income per share	$	0.29	$	0.50	$	0.24	$	0.40