4. Acquisitions

2014 Acquisition of Mission Critical Energy Services Business – On October 14, 2014, we acquired the mission critical energy services business and certain related assets of Power Design, Inc., a Florida corporation (“PDI”), pursuant to an Asset Purchase and Sale Agreement (the “Purchase Agreement”), between PDI, as seller, and PowerSecure, Inc., as purchaser. The purchase price paid for the acquired business and assets was $13.0 million in cash and $0.1 million cash for a working capital adjustment plus a potential additional contingent cash payment in the amount of $1.0 million if PowerSecure, Inc. obtains firm backlog after the closing in the amount of at least $5.0 million from the acquired business, or in the amount of $2.0 million if the firm backlog amount obtained after closing is at least $15.0 million. We owe $1.0 million of that contingent consideration as of March 4, 2015, based on the new backlog we have obtained from the Mission Critical Energy Services business since the closing, and we believe that we will pay the remainder of the contingent consideration in the future as the result of additional backlog that business is expected to generate.

The acquired business provides full turnkey electrical infrastructure design, implementation and commissioning services to data center owners. We had previously provided our data center solutions as a supplier to PDI. We anticipate that the acquisition will provide us with a direct customer channel and capabilities to accelerate our access to key data center decision makers who are designing and evaluating backup power and control systems for their facilities.

The Purchase Agreement contains representations and warranties as well as indemnification obligations by PDI and PowerSecure, Inc. to each other, subject to a $3.0 million indemnification cap. In addition, the Purchase Agreement contains a five year covenant not to compete by PDI against PowerSecure, Inc. and its affiliates with respect to the key customers in the acquired business, and related customary restrictive covenants relating to non-solicitation and confidentiality.

Total revenues and pre-tax loss from the Mission Critical Energy Services business since the date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2014 were $2.7 million and $(0.4) million, respectively. In addition, acquisition related costs incurred by us in the amount of $0.1 million were recognized as an expense during the year ended December 31, 2014, and are included in general and administrative expense in the accompanying consolidated statements of operations.

The following table summarizes the fair value of the consideration paid and the allocation of the fair value of the assets acquired:



Consideration paid to Seller:
Cash	$	13,000
Working capital adjustment		70
Contingent consideration		1,872
Total consideration paid	$	14,942

Net working capital	$	68
Property, plant and equipment, net		95
Identifiable intangible assets:
Customer relationships		4,900
Noncompetition agreements		350
Technology and know how		100
Backlog		50
Total identifiable net assets		5,563
Goodwill		9,379
	$	14,942

We determined the fair value of the contingent consideration payable on the date of acquisition based upon the probability-weighted present values of expected cash payments due to PDI for each possible backlog outcome. We accrued an additional expense in the amount of $0.1 million at December 31, 2014 for the estimated fair value of additional contingent consideration we expect to pay in 2015 upon settlement of the obligation. As part of the purchase price allocation, we determined that the separately identifiable intangible assets acquired consisted of customer relationships, noncompetition agreements, technology and know-how, and backlog which were valued using the income approach. This approach calculates the fair value by discounting the forecasted after-tax cash flows for each intangible asset back to a present value at an appropriate risk-adjusted rate of return. The data for these analyses was the cash flow estimates used to price the transaction. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

In estimating the useful lives of the acquired assets, we considered ASC 350-30-35, General Intangibles Other Than Goodwill, and reviewed the following factors: the expected use of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We amortize these intangible assets over their estimated useful lives on a straight-line basis.

The goodwill of $9.4 million arising from the acquisition consists largely of the assembled salesforce and the synergies and economies of scale expected from combining the operations of our Distributed Generation segment and the Mission Critical Energy Services business acquired. All of the goodwill has been assigned to our Distributed Generation segment. We expect that all of the acquired goodwill will be deductible for tax purposes.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2013, is as follows:


	PowerSecure International, Inc.
	Mission Critical Business
	Pro Forma Results of Operations
	For the Years Ended December 31,
	2014		2013

Revenues	$	268,127	$	281,000

Net income (loss) attributable to PowerSecure International, Inc.	$	(5,674)	$	5,889

Earnings (loss) per share attributable to PowerSecure International, Inc.:
Basic	$	(0.25)	$	0.30
Diluted	$	(0.25)	$	0.29

The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized had the acquisition occurred on January 1, 2013. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs. In addition, the pro forma results for the year ended December 31, 2014 were adjusted to exclude aggregate acquisition-related cost of $0.1 million incurred by us in 2014.

2014 Acquisition of Electrical Contracting Business – On September 2, 2014, we acquired the electrical contracting business of Apex Controls, Inc., a Georgia corporation (“Apex”). The acquired business provides retrofit and electrical contracting services to major retailers, in most cases through general contractors. This acquisition is part of our strategy to expand our Energy Efficiency services directly to retailers. Apex is a company primarily owned and managed by Jonathan Hinton, the son of Sidney Hinton, our President and Chief Executive Officer. The transaction was evaluated and approved by the Audit Committee of our Board of Directors.

The purchase price for the acquisition was $0.8 million in cash, plus potential additional contingent consideration of up to $0.5 million in cash if the gross profits generated from the acquired business in 2015 and 2016 exceeds certain targeted thresholds. Total revenues and pre-tax loss from the Apex electrical contracting business since the date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2014 were $0.4 million and $(33) thousand, respectively. Acquisition related costs incurred by us were not material.

The following table summarizes the fair value of the consideration paid to the Apex stockholders and the allocation of the purchase price:



Consideration paid to Seller:
Cash	$	750
Contingent consideration		340
Total consideration paid	$	1,090

Property, plant and equipment, net	$	155
Identifiable intangible assets:
Customer relationships		330
Total identifiable net assets		485
Goodwill		605
	$	1,090

We determined the fair value of the contingent consideration by discounting the payments due based on forecasted gross profit from the acquired business in 2015 and 2016 in excess of targeted thresholds back to present values at a risk-adjusted rate of return. As part of the purchase price allocation, we determined that the separately identifiable intangible assets acquired consisted of customer relationships which were valued using the income approach. This approach calculates the fair value by discounting the forecasted after-tax cash flows for each intangible asset back to a present value at an appropriate risk-adjusted rate of return. The data for this analysis was the cash flow estimates used to price the transaction. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

In estimating the useful lives of the acquired assets, we considered ASC 350-30-35, General Intangibles Other Than Goodwill, and reviewed the following factors: the expected use of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We amortize intangible assets over their estimated useful lives on a straight-line basis.

The goodwill of $0.6 million arising from the acquisition consists largely of the assembled workforce and the synergies and economies of scale expected from combining the operations of our Energy Efficiency segment and the Apex electrical contracting business. All of the goodwill was assigned to our Energy Efficiency segment. We expect that all of the acquired goodwill will be deductible for tax purposes.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2013, is as follows:


	PowerSecure International, Inc.
	Electrical Contracting Business
	Pro Forma Results of Operations
	For the Year Ended December 31,
	2014		2013

Revenues	$	258,400	$	274,647

Net income (loss) attributable to PowerSecure International, Inc.	$	(6,876)	$	4,992

Earnings (loss) per share attributable to PowerSecure International, Inc.:
Basic	$	(0.31)	$	0.25
Diluted	$	(0.31)	$	0.25

2013 Acquisition of Encari – On October 8, 2013, we acquired substantially all of the assets and business of Encari, LLC, an Illinois limited liability company (“Encari”), which is engaged in the business of providing cyber security consulting and compliance services to the utility industry. Encari helps large investor-owned utilities, municipalities and cooperative utilities assess, improve and maintain their compliance with the North American Electric Reliability Corporation’s (NERC) Critical Infrastructure Protection (CIP) Reliability Standards. The acquisition of Encari provides us with new service offerings to our existing utility customers as well as an opportunity to sell PowerSecure services to existing Encari utility customers.

The purchase price for this acquisition was $4.8 million in cash, plus potential additional earn-out consideration which was dependent upon the pre-tax net income of the acquired Encari business exceeding certain thresholds over the 12 month period ending December 31, 2013. Based on the actual results of the acquired Encari business for the 12 month period ending December 31, 2013, no earn-out consideration was paid or payable.

Total revenues and pre-tax income from the Encari business since the date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2013 were $0.7 million and $0.2 million, respectively. In addition, acquisition related costs incurred by us in the amount of $0.1 million were recognized as an expense during the year ended December 31, 2013, and are included in general and administrative expense in the accompanying consolidated statements of operations.

The following table summarizes the consideration paid to the Encari Stockholders and the fair value allocation of the purchase price:



Consideration paid to Seller:
Cash	$	4,764

Accounts receivable, net	$	309
Identifiable intangible assets:
Customer relationships		1,900
Backlog		250
Noncompetition agreement		370
Marketing-related assets		20
Accounts payable		(9)
Other current liabilities		(64)
Total identifiable net assets		2,776
Goodwill		1,988
	$	4,764

As part of the purchase price allocation, we determined that the separately identifiable intangible assets acquired consisted of customer relationships, backlog and noncompetition agreements. We used the income approach to value the customer relationships, backlog and noncompetition agreements. This approach calculates the fair value by discounting the forecasted after-tax cash flows for each intangible asset back to a present value at an appropriate risk-adjusted rate of return. The data for these analyses was the cash flow estimates used to price the transaction. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

In estimating the useful lives of the acquired assets, we considered ASC 350-30-35, General Intangibles Other Than Goodwill, and reviewed the following factors: the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We amortize these intangible assets over their estimated useful lives on a straight-line basis.

The goodwill of $2.0 million arising from the acquisition consists largely of the assembled workforce of Encari, and the synergies and economies of scale expected from combining the operations of our PowerSecure subsidiary and Encari. All of the goodwill was assigned to our Utility Infrastructure segment and is expected to be deductible for tax purposes.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2012, is as follows:


	PowerSecure International, Inc.
	Acquisition of Encari, LLC
	Pro Forma Results of Operations
	For the Year Ended December 31,
	2013		2012

Revenues	$	272,077	$	164,455

Earnings Attributable to PowerSecure International, Inc.:
Income from continuing operations	$	4,668	$	3,149
Net income	$	4,668	$	3,227

Diluted earnings per common share:
Income from continuing operations	$	0.23	$	0.17
Net income	$	0.23	$	0.17

The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized had the acquisition occurred on January 1, 2012. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs. In addition, the pro forma results for the year ended December 31, 2013 were adjusted to exclude aggregate acquisition-related cost of $0.1 million incurred by PowerSecure in 2013.

2013 Acquisition of Solais Lighting – On April 12, 2013, we acquired Solais Lighting, Inc., a Delaware corporation ("Solais"). Solais is a Connecticut-based LED lighting company with a proprietary portfolio of LED lamps and fixtures for commercial and industrial applications. Solais' innovative designs, which are covered by a variety of patents and patents pending, provide their products with enhanced light output, thermal management, optics and light quality, and aesthetics.

The acquisition of Solais strengthens and complements our existing LED business through the addition of new product lines and new skill sets around product design, product commercialization, and manufacturing and sourcing capabilities. In addition, Solais adds to our capabilities in marketing LED lighting through distributor channels.

The acquisition was accomplished through a merger of Solais into Brite Idela, Inc., a Delaware corporation and wholly-owned subsidiary we formed to effectuate the merger and renamed "Solais Lighting, Inc." after the merger ("Solais PowerSecure"). As a result of the merger, the assets, properties, business, debts, liabilities and obligations of Solais prior to the merger became those of Solais PowerSecure.

The merger was consummated pursuant to an Agreement and Plan of Merger, dated as of April 12, 2013 (the "Solais Merger Agreement"), by and among Solais, the stockholders of Solais (the "Solais Stockholders"), us and Solais PowerSecure. The merger consideration paid by us to the stockholders of Solais was valued under the Solais Merger Agreement at an aggregate of $15 million, less an adjustment deducting the working capital deficit of approximately $0.2 million, and was subject to a post-closing "true up" adjustment of the final closing working capital balance. As a result, the aggregate merger consideration paid by us consisted of approximately $6.5 million in cash plus 675,160 shares of our common stock. For purposes of the Merger and the merger consideration, the shares of common stock we issued in the acquisition of Solais were valued at $12.22 per share, which was their volume-weighted average closing sale price as reported on the Nasdaq Global Select Market over the five trading days immediately preceding the date the merger was completed. For purposes of applying the purchase accounting provisions of ASC 805, Business Combinations (ASC 805), the shares of common stock we issued in the acquisition were valued at $12.52 per share, which was the closing sale price of our common stock as reported on the Nasdaq Global Select Market on the date of acquisition. All outstanding shares of capital stock of Solais were converted into and exchanged for the merger consideration. The merger became effective on April 12, 2013.

Total revenues and pre-tax loss from the Solais business since the date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2013 were $5.9 million and $(1.6) million, respectively. In addition, acquisition related costs incurred by us in the amount of $0.4 million were recognized as an expense during the year ended December 31, 2013, and are included in general and administrative expense in the accompanying consolidated statements of operations.

The Solais Merger Agreement contains customary representations and warranties as well as indemnification obligations, and limitations thereon, by us and the Solais Stockholders to each other, including a $1.5 million two year escrow out of the cash portion of the merger consideration to support the indemnification obligations of the Solais Stockholders. The following table summarizes the consideration paid to the Solais Stockholders and the fair value allocation of the purchase price:



Consideration paid to Seller:
Cash	$	6,535
Shares of Company common stock		8,453
Total consideration paid	$	14,988

Cash and cash equivalents	$	165
Accounts receivable, net		625
Inventories		194
Other current assets		62
Property, plant and equipment, net		286
Deferred tax asset		769
Identifiable intangible assets:
Customer relationships		1,900
Noncompetition agreement		140
Developed technology		1,200
Accounts payable		(665)
Accrued and other liabilities		(1,011)
Total identifiable net assets		3,665
Goodwill		11,323
	$	14,988

As part of the purchase price allocation, we determined that the separately identifiable intangible assets acquired consisted of customer relationships, developed technology and noncompetition agreements. We used the income approach to value the customer relationships, developed technology and noncompetition agreements. This approach calculates the fair value by discounting the forecasted after-tax cash flows for each intangible asset back to a present value at an appropriate risk-adjusted rate of return. The data for these analyses was the cash flow estimates used to price the transaction. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

In estimating the useful lives of the acquired assets, we considered ASC 350-30-35, General Intangibles Other Than Goodwill, and reviewed the following factors: the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We amortize these intangible assets over their estimated useful lives on a straight-line basis.

The goodwill of $11.3 million arising from the acquisition consists largely of the assembled workforce of Solais, and the synergies and economies of scale expected from combining the operations of our PowerSecure subsidiary and Solais. All of the goodwill was assigned to our Energy Efficiency segment. None of the acquired goodwill is expected to be deductible for tax purposes. As part of the purchase price allocation process, the amount of the purchase price allocated to goodwill was increased by $0.1million and the amount of the purchase price allocated to inventory was decreased by $0.1 million from our initial allocation.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2012, is as follows:


	PowerSecure International, Inc.
	Acquisition of Solais Lighting, Inc.
	Pro Forma Results of Operations
	For the Year Ended December 31,
	2013		2012

Revenues	$	271,944	$	166,441

Earnings Attributable to PowerSecure International, Inc.:
Income from continuing operations	$	4,341	$	1,215
Net income	$	4,341	$	1,293

Diluted earnings per common share:
Income from continuing operations	$	0.21	$	0.06
Net income	$	0.21	$	0.06

The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized had the acquisition occurred on January 1, 2012. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs. In addition, the pro forma results for the year ended December 31, 2013 were adjusted to exclude aggregate acquisition-related cost of $1.2 million incurred by PowerSecure and Solais, collectively, in 2013.

2013 Acquisition of Energy Efficiency Services Business – On February 28, 2013, we acquired certain assets, including contracts with customers relating to energy efficiency projects, of the Energy Efficiency Services business of Lime Energy Services Co. (“LESCO”), a Massachusetts corporation and wholly-owned subsidiary of Lime Energy Co., a Delaware corporation (“Lime”). The acquired Energy Efficiency Services business involves the design, installation and maintenance of energy conservation measures, primarily as a subcontractor to large energy service company providers (“ESCOs”), for the benefit of commercial, industrial and institutional customers as end users. The acquisition expanded our portfolio of energy efficient facility technologies and expertise, which now includes lighting solutions, HVAC system upgrades, building envelope upgrades, transformer efficiency upgrades and water conservation systems. The acquired business serves ESCOs by providing energy efficiency solutions across a range of facilities, including high-rise office buildings, distribution facilities, manufacturing plants, retail sites, mixed use complexes, and large government sites.

The acquisition was consummated pursuant to an Asset Purchase and Sale Agreement, dated as of February 28, 2013 (the “LESCO Purchase Agreement”), by and among LESCO, as the seller, Lime, as the seller’s parent, and PowerSecure, as the purchaser. Pursuant to the LESCO Purchase Agreement, we completed the acquisition of certain assets and working capital liabilities and the assumption of customer contracts of LESCO, for cash. The assigned contracts required the consent of the customers to complete the assignment, so PowerSecure and LESCO entered into a subcontracting arrangement in the interim to facilitate our obtaining the rights and benefits, and taking on the duties and obligations, of LESCO under the assumed contracts after the closing. In connection with the acquisition, we entered into certain indemnifications to the surety on the bonds for certain projects that were bonded prior to the closing by LESCO, and have continued to do so after the closing with respect to the assumed contracts until the projects are completed or until the consents are obtained and the bonding can be completed in our name directly.

The acquisition was effective as of the end of the day on February 28, 2013. Total revenues and pre-tax income from the Energy Efficiency Services business since the date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2013 were $28.3 million and $2.3 million, respectively. In addition, acquisition related costs in the amount of $0.1 million were recognized as an expense during the year ended December 31, 2013, and are included in general and administrative expense in the accompanying consolidated statements of operations.

The LESCO Purchase Agreement contains customary representations and warranties as well as indemnification obligations by LESCO and Lime, on the one hand, and by us, on the other hand, to each other. In addition, the LESCO Purchase Agreement contains a five year covenant not to compete by LESCO and Lime against us and our affiliates in the acquired business, subject to certain exceptions related to their retained businesses, and related customary restrictive covenants. Correspondingly, the LESCO Purchase Agreement contains a five year covenant not to compete by us against LESCO and Lime and their affiliates in their retained business relating to small business direct install programs and related customary restrictive covenants, subject to certain exceptions such as for our current business.

The following table summarizes the consideration paid to LESCO, including amounts paid as part of a post-closing true-up adjustment, for the Energy Efficiency Services business and the components and the fair value allocation of the purchase price.



Consideration paid to Seller:
Cash	$	1,971

Accounts receivable	$	5,735
Inventories		558
Property, plant and equipment, net		135
Identifiable intangible assets:
Customer relationships		1,400
Trademarks		160
Backlog		120
Noncompetition agreement		90
Databases		90
Accounts payable		(1,259)
Accrued and other liabilities		(8,752)
Total identifiable net assets (liabilities)		(1,723)
Goodwill		3,694
	$	1,971

As part of the purchase price allocation, we determined that the separately identifiable intangible assets acquired consisted of customer relationships, trademarks, backlog, noncompetition agreement and a database and software license to use certain proprietary software tools that LESCO had developed, which are used to assist in the preparation of contract pricing.

We used the income approach to value the customer relationships, noncompetition agreements, trademarks, technology-based assets and order backlog. This approach calculates the fair value by discounting the forecasted after-tax cash flows for each intangible asset back to a present value at an appropriate risk-adjusted rate of return. The data for these analyses was the cash flow estimates used to price the transaction. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

In estimating the useful lives of the acquired assets, we considered ASC 350-30-35, General Intangibles Other Than Goodwill, and reviewed the following factors: the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We amortize these intangible assets over their estimated useful lives on a straight-line basis.

The goodwill of $3.7 million arising from the acquisition consists largely of the assembled workforce of the Energy Efficiency Services business, and the synergies and economies of scale expected from combining the operations of our PowerSecure subsidiary and the Energy Efficiency Services business. All of the goodwill was assigned to our Energy Efficiency segment and is expected to be deductible for tax purposes.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2012, is as follows:


	PowerSecure International, Inc.
	Energy Efficiency Services Business
	Pro Forma Results of Operations
	For the Year Ended December 31,
	2013		2012

Revenues	$	272,250	$	198,208

Earnings Attributable to PowerSecure International, Inc.:
Income from continuing operations	$	4,132	$	1,442
Net income	$	4,132	$	1,520

Diluted earnings per common share:
Income from continuing operations	$	0.20	$	0.08
Net income	$	0.20	$	0.08

The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized had the acquisition occurred on January 1, 2012. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs. In addition, the pro forma results for the year ended December 31, 2013 were adjusted to exclude aggregate acquisition-related cost of $0.1 million incurred by PowerSecure in 2013.

2013 Acquisition of PowerLine – On May 20, 2013, we acquired the business and certain assets of Powerline EHV & Safety Training, LLC, a Georgia limited liability company (“PowerLine”). The acquired PowerLine business involves safety training in the electrical utility industry. The acquisition was consummated pursuant to an Asset Purchase Agreement, dated May 20, 2013 (the “PowerLine Purchase Agreement”) between PowerLine, as the seller, and PowerSecure, as the purchaser. Pursuant to the PowerLine Purchase Agreement, we acquired certain training materials and property, plant and equipment for a cash payment of $0.6 million at closing and annual cash installment payments of $0.1 million over the next five years.

We are using the assets and resources of PowerLine to conduct safety training for our Utility Infrastructure personnel. The PowerLine acquisition provides us with dedicated efficient and effective safety resources for our employees, enhancing our overall safety programs. We do not provide safety training services to third-parties. Accordingly, there have been no revenues associated with the PowerLine acquisition since the date of acquisition. Acquisition related costs were not significant.

The following table summarizes the consideration paid to the PowerLine Stockholder and the preliminary fair value allocation of the purchase price.



Consideration paid to Seller:
Cash	$	550
Installment payments payable, discounted value		497
Total consideration paid	$	1,047

Property, plant and equipment, net	$	10
Identifiable intangible assets:
Training materials		200
Noncompetition agreement		500
Total identifiable net assets		710
Goodwill		337
	$	1,047

The goodwill of $0.3 million arising from the acquisition consists largely of the cost efficiencies we expect to derive from a dedicated safety training program. All of the goodwill was assigned to our Utility Infrastructure segment and is expected to be deductible for tax purposes.

The operating costs of the PowerLine resources have been included within our Utility Infrastructure operating segment since the date of acquisition. Pro forma results of operations for the years ended December 31, 2013 and 2012 have not be included herein as the effects of the acquisition were not material to our results of operations.

2012 Acquisition of PowerSecure Solar – On June 5, 2012, we acquired a distributed solar energy business, adding this capability to our distributed generation system platform. Our new capabilities were acquired through the acquisition of the utility, commercial and industrial solar energy business of Southern Energy Management, Inc., a North Carolina corporation (the “Seller”). Our decision to offer solar solutions resulted from an evaluation of the industry and of the improved economics of distributed solar energy systems. We believe the decrease in the cost of solar panels (which we do not produce), and corresponding increases in their energy efficiency, in conjunction with our highly efficient distributed generation systems, provides us with a market opportunity to participate in the downstream segment of the solar business, and bring solar energy projects to our customers and utility partners. We began offering utilities and their large commercial and industrial customers solar energy distributed generation systems immediately after the acquisition, and took over the installation of several significant projects the Seller had in process, including a 4.5 megawatt system.

We consummated the acquisition through the formation of PowerSecure Solar, which entered into, and completed the acquisition contemplated by, an Asset Contribution and Sale Agreement, dated as of June 5, 2012 (the “Contribution Agreement”), with the Seller. Pursuant to the Contribution Agreement, PowerSecure Solar completed the acquisition of substantially all of the assets and assumed certain liabilities of the Seller relating to the business of designing and selling energy efficiency and solar photovoltaic power systems and other solar power technologies for large customers, including utility, commercial and industrial customers (the “Acquired Business”).

The effective date of the acquisition of the Acquired Business was June 2, 2012. Total revenues and pre-tax income from PowerSecure Solar since the effective date of acquisition included in the accompanying consolidated statements of operations for the year ended December 31, 2012 were $8.2 million and $0.1 million, respectively. Acquisition-related costs in the amount of $0.1 million were recognized as an expense during the year ended December 31, 2012, and are included in general and administrative expense in the accompanying consolidated statements of operations.

We acquired 90% of the membership interests in, and control the management of, PowerSecure Solar. The Seller retained a 10% non-controlling interest in PowerSecure Solar and retained its business selling solar photovoltaic power systems and solar thermal energy to residential customers and small merchants and professional service providers. On May 20, 2013, we acquired the 10% non-controlling ownership interest in PowerSecure Solar in exchange for a cash payment of $0.2 million. PowerSecure Solar is now a wholly-owned subsidiary of the Company.

The Contribution Agreement contains customary representations and warranties as well as indemnification obligations by PowerSecure Solar, on the one hand, and by Seller and its two founders and shareholders (the “Seller Principals”), on the other hand, to each other. In addition, the Contribution Agreement contains a covenant not to compete by Seller and Seller Principals against PowerSecure Solar and its affiliates in the acquired business, subject to certain exceptions related to its retained solar business for residential and small commercial customers. Correspondingly, PowerSecure Solar has agreed, on behalf of itself and its affiliates, not to compete against the Seller in its retained business. These non-competition covenants continue for a period of five years after the Seller no longer holds any membership interest in PowerSecure Solar.

The following table summarizes the consideration paid to the Seller for the Acquired Business and the amounts of the assets acquired and the liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest in PowerSecure Solar:



Consideration paid to Seller:
Cash	$	3,523

Accounts receivable	$	1,320
Inventories		3
Property, plant and equipment		156
Identifiable intangible assets		39
Accounts payable		(677)
Accrued and other liabilities		(1,799)
Total identifiable net assets (liabilities)		(958)
Non-controlling interest in PowerSecure Solar		(433)
Goodwill		4,914
	$	3,523

The goodwill of $4.9 million arising from the acquisition consists largely of the assembled workforce of PowerSecure Solar, and the synergies and economies of scale expected from combining the operations of our PowerSecure subsidiary and PowerSecure Solar. All of the goodwill was assigned to our Distributed Generation segment and is expected to be deductible for tax purposes. The non-controlling interest in PowerSecure Solar in the amount of $0.4 million was valued using a combination of an income approach and a market approach using assumptions, including a discount rate and a terminal value, that are not observable in the market.

Supplemental pro forma information, as if the acquisition had occurred on January 1, 2012, is as follows:


	PowerSecure International, Inc.
	Acquisition of PowerSecure Solar
	Pro Forma Results of Operations
	For the Year Ended
	December 31, 2012

Revenues	$	168,575

Earnings Attributable to PowerSecure International, Inc.:
Income from continuing operations	$	2,146
Net income	$	2,224

Diluted earnings per common share:
Income from continuing operations	$	0.11
Net income	$	0.12

The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized had the acquisition occurred on January 1, 2012. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs. In addition, the pro forma results for the year ended December 31, 2012 were adjusted to exclude $0.1 million of acquisition-related costs incurred in 2012.