Business Acquisition

9 Months Ended

Sep. 30, 2012

Business Acquisition [Abstract]

Business Acquisition

Note 11 – Business Acquisition

On July 2, 2012, American Safety Holdings Corp., a wholly-owned subsidiary of the Registrant, acquired the 100% voting equity of Bluestone Agency, Inc., an Arizona corporation, and its wholly-owned subsidiary, Bluestone Surety, Ltd., an exempted company incorporated under the laws of the Cayman Islands. Bluestone Agency and Bluestone Surety are referred to collectively as “Bluestone”. All issued and outstanding capital stock of Bluestone and its subsidiary, Bluestone Surety, Ltd. was purchased from Pearlstein Associates, LLP, a South Carolina limited liability company, for a purchase price of $20.0 million. The purchase price includes an earnout provision consisting of a payout of up to $6.0 million. The cash paid at closing was $14.0 million. The earnout provision is contingent upon the future performance of Bluestone.

Bluestone primarily offers transactional commercial surety products. In 2011, Bluestone wrote approximately $16 million in premium, primarily composed of low limit transactional commercial surety bonds. The purchase was accounted for under the guidance of ASC 805-10 as a business combination under the acquisition method. All identifiable assets and liabilities acquired were recognized using fair value measurement. Pursuant to fair value measurement, the earnout provision was valued at $4.0 million. Under ASC 805-10 utilizing the acquisition method, the purchase price was valued at $18.0 million.

The following table summarizes the Company’s fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at July 2, 2012 (in thousands):

Assets:
Short-term investments, at fair value	$	3,541
Cash and cash equivalents		3,036
Premiums receivable		2,698
Deferred policy acquisition costs		1,186
Goodwill		11,666
Intangibles and other assets		9,784
Total Assets	$	31,911
Liabilities:
Unpaid losses and loss adjustment expenses	$	(2,135	)
Unearned premiums		(2,358	)
Ceded premiums payable		(1,797	)
Funds held		(3,504	)
Other Liablilities		(1,057	)
Deferred income taxes		(3,060	)
Total Liabilities	$	(13,911	)

For the three and nine months ended September 30, 2012, the effects of this acquisition were not material to the Company’s consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.