Note 4 — Acquisition

In April 2011, we completed the acquisition of the drilling fluids and engineering services business from Rheochem PLC, a publicly-traded Australian-based oil and gas company. The acquired business provides drilling fluids and related engineering services to the oil and gas exploration and geothermal industries with operations in Australia, New Zealand and India. Total cash paid was AUD$27.2 million ($28.8 million), including third quarter payments of AUD$0.8 million ($0.8 million) based on a true-up of the final working capital conveyed at closing and AUD$2.0 million ($2.1 million) related to a six month earn-out provision in the agreement. Additional consideration may also be payable based on financial results of the acquired business over a one year earn-out period, up to a maximum additional consideration of AUD$19.3 million (approximately $18.8 million at the current exchange rate).

The transaction has been accounted for using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The excess of the total consideration, including projected additional consideration, was recorded as goodwill and includes the value of the access to markets in Asia Pacific and an assembled workforce. While the preliminary purchase price allocation has been completed, the allocation of the purchase price is subject to change for a period of one year following the acquisition. Through the on-going evaluation of the preliminary purchase price allocation during the third quarter of 2011, we identified a $2.0 million increase in identifiable intangible assets acquired and a $1.3 million increase in liabilities assumed, which resulted in a corresponding $0.7 million decrease in goodwill arising from the transaction.

The following table summarizes the amounts recognized for assets acquired and liabilities assumed, as of the April 2011 acquisition date.


(In thousands)

Cash and cash equivalents	$	315
Receivables		3,316
Inventories		7,166
Prepaid expenses and other current assets		773
Property, plant and equipment, net		9,465
Goodwill		12,976
Customer relationships (11 year life)		10,492
Tradename (5 year life)		700
Other assets		510

Total assets acquired	$	45,713


Accounts payable	$	717
Accrued liabilities		15,377
Deferred tax liability		3,432
Other noncurrent liabilities		271

Total liabilities assumed	$	19,797


Total cash conveyed at closing	$	25,916

The accrued liabilities at the date of acquisition in the table above, includes $13.8 million reflecting anticipated post-closing payments to the seller under the terms of the agreement, of which $2.9 million was paid during the third quarter of 2011.

Our operating results include $1.0 million of acquisition-related costs in the first nine months of 2011, substantially all of which were incurred prior to the third quarter. Proforma results of operation for the acquired business have not been presented as the effect of this acquisition is not material to our consolidated financial statements.