Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions [Abstract]

Acquisitions

Note 2 — Acquisitions

On January 5, 2010, the Company completed the acquisition of Lightning Pipeline, Great Plains, Brainard and collectively with Lightning Pipeline, Great Plains and Brainard, the “Ohio Companies” and each an “Ohio Company”. Lightning Pipeline is the parent company of Orwell and Great Plains is the parent company of NEO. Orwell, NEO and Brainard are natural gas distribution companies that serve approximately 24,000 customers in Northeastern Ohio and Western Pennsylvania. The acquisition increased the Company’s customers by more than 50%.

Merger Consideration-Issuance of Shares

The final aggregate purchase price for the Ohio Companies was $37.9 million, which consisted of approximately $20.8 million in debt of the Ohio Companies with the remainder of the purchase price paid in unregistered shares of common stock of the Company. In accordance with the Merger Agreements, on January 5, 2010, the shares of common stock of Lightning Pipeline, Great Plains and Brainard were converted into the right to receive unregistered shares of common stock of the Company (the “Shares”) in accordance with the following calculation:

The total number of Shares the Shareholders received equaled the total of $34,304,000 plus $3,565,339, which was the number of additional active customers of the Ohio Companies in excess of 20,900 at closing (23,131 — 20,900 = 2,231 multiplied by $1,598.09), less $20,796,254 (which was the debt of the Ohio Companies at closing), divided by $10.

Based on this calculation, the Company issued 1,707,308 Shares in the aggregate. The Company issued Richard M. Osborne (“Mr. Osborne”), as trustee, 1,565,701 Shares, Thomas J. Smith (“Mr. Smith”) 73,244 Shares and Rebecca Howell (“Ms. Howell”) 19,532 Shares. Mr. Osborne is chairman of the board and chief executive officer, Mr. Smith is a director and the chief financial officer, and Ms. Howell is the corporate secretary of the Company. After the closing of the Merger Transaction on January 5, 2010, Mr. Osborne owned 2,487,972 Shares, or 41.0% of the Company, Mr. Smith owned 86,744 Shares, or 1.4% of the Company and Ms. Howell owned 19,532 Shares, or less than 1% of the Company.

The acquisition of the Ohio Companies was accounted for under the purchase method of accounting. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. The estimated fair value of the assets acquired and liabilities assumed is reflected in the following table at the date of acquisition.

	Total
	Ohio				Lightning
	Companies		Great Plains		Pipeline		Brainard
Current assets	$	11,475,898	$	7,343,434	$	4,012,842	$	119,625
Property and equipment		29,530,634		18,290,609		10,818,924		421,101
Deferred Tax Assets		76,772		—		11,535		65,237
Other Noncurrent assets		152,585		1,000		140,002		11,583
Customer Relationships		685,000		640,000		45,000		—
Goodwill		13,551,181		9,112,901		4,312,007		126,273
Total assets acquired		55,472,070		35,387,944		19,340,310		743,819
Current liabilities		13,836,120		7,589,554		5,842,518		404,051
Asset Retirement Obligation		487,447		—		477,939		9,508
Deferred Tax Liability		3,279,164		1,483,525		1,651,769		143,870
Total liabilities assumed		17,602,731		9,073,079		7,972,226		557,429
Net assets acquired	$	37,869,339	$	26,314,865	$	11,368,084	$	186,390

Approximately $13.6 million of the total purchase price was allocated to goodwill. None of the goodwill is expected to be deductible for tax purposes. Transaction costs related to the mergers totaled $10,978 and $136,346 for the three and six months ended June 30, 2010, respectively, and are recorded in the accompanying statements of income within the other income (expense).

The results of operations for the Ohio Companies for the period from January 1, 2010 to January 4, 2010 were not material.

Acquisition of Spelman Pipeline

On April 8, 2011 the Company’s indirect subsidiary, Spelman Pipeline Holdings, LLC (“Spelman”), a subsidiary of Lightning Pipeline, completed the acquisition of dormant refined products pipeline assets from Marathon Petroleum Company LP. The cash purchase price for the assets was $3.34 million.

The acquired assets include pipelines and rights-of-way located in Ohio and Kentucky. In Ohio, the assets include more than 140 miles of pipeline spanning almost a third of the state from Marion to Youngstown. Other Ohio assets are located in metropolitan and south suburban Cleveland. The Kentucky assets include more than 60 miles of right-of-way in the area surrounding and to the south of Louisville.

Spelman intends to recondition and convert the Ohio pipelines to transport natural gas to new markets where natural gas service is currently not available, as well as to connect to markets served by the Ohio Companies. The Company expects to fund $2.4 million of capital expenditures in 2011 to convert the existing facilities to natural gas. The expenditures include reestablishment and clearing of rights-of-way, “pigging” and pressure test of the line, replacement of some existing pipe, connect to supply sources and establishment of interconnections to customers. The current assets are cathodically protected and reside in a protective nitrogen bath.

Spelman expects to file an application known as a “First Filing” to establish intrastate transportation rates with the PUCO. Should the Commission find that the rates proposed by the Company are not unjust and unreasonable, it may approve the rates without a hearing. Spelman expects to begin delivering gas during the fourth quarter of 2011.

Future plans include extending the lines to participate in the transportation of Utica and Marcellus Shale production. The Company does not currently have definitive plans for the Kentucky assets.