ACQUISITION OF ALBION INTERNATIONAL, INC

9 Months Ended

Sep. 30, 2016

ACQUISITION OF ALBION INTERNATIONAL, INC [Abstract]

ACQUISITION OF ALBION INTERNATIONAL, INC

NOTE 2—ACQUISITION OF ALBION INTERNATIONAL, INC.

On February 1, 2016, the Company acquired 100 percent of the outstanding common shares of Albion International, Inc. (“Albion” or the “Acquisition”), a privately held manufacturer of mineral amino acid chelates, specialized mineral salts and mineral complexes, headquartered in Clearfield, Utah.  The Company made payments of approximately $116.4 million on the acquisition date, amounting to approximately $110.6 million to the former shareholders, adjustments for working capital acquired of $4.9 million, and approximately $0.9 million to Albion’s lenders to pay off all Albion bank debt.  Albion has been a world leader and innovator in the manufacture of superior organic mineral compounds for sixty years and leverages scientific expertise in the areas of human and micronutrient agricultural nutrition.  Albion’s products are renowned in the supplement industry for technologically advanced, unparalleled bioavailability.  The acquisition of Albion continues to expand the Company’s science based human health and wellness solutions and will immediately increase our product offerings in the nutritional ingredient market.  Additionally, the Company will also benefit from a broader geographic footprint and a stronger position as a technological leader in spray-drying and ingredient delivery solutions.  Albion’s human nutrition business has become a part of the Human Nutrition & Health reportable segment and the micronutrient agricultural business has become a part of the Specialty Products reportable segment.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed.

Cash and cash equivalents	$	4,949
Accounts receivable		7,671
Inventories		15,989
Property, plant and equipment		7,217
Customer relationships		18,443
Developed technology		9,060
Trade name		7,224
Licensing agreements		6,658
Other assets		1,200
Trade accounts payable		(1,104	)
Accrued expenses		(2,788	)
Bank debt		(884	)
Deferred income taxes		(18,262	)
Goodwill		60,177
Amount paid to shareholders		115,550
Albion bank debt paid on purchase date		884
Total amount paid on acquisition date	$	116,434

The preliminary goodwill of $60,177 arising from the Acquisition consists largely of expected synergies, including the combined entities’ experience and technical problem solving capabilities, and acquired workforce. Goodwill of $43,180 and $16,997 is assigned to the Human Nutrition & Health and Specialty Products segments, respectively, and approximately $1,600 is tax deductible for income tax purposes.

The estimated valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions that are subject to change. In preparing our preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor. The purchase price and related allocation to assets acquired and liabilities assumed is preliminary pending finalizing actual working capital acquired as of the Acquisition date. Additionally, certain intangible assets are not tax deductible and the related deferred tax liabilities are preliminary pending management’s final review.

Customer relationships are amortized over a 10-year period utilizing an accelerated method based on the estimated average customer attrition rate. Trade name, licensing agreements, and developed technology are amortized over 17 years, 8 years, and 5 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

The Company is indemnified for tax liabilities prior to the Acquisition date. Indemnified tax liabilities will create an indemnification asset (receivable). At this time, an indemnification asset (receivable) balance has not been established.

Transaction and integration related costs included in selling, and general and administrative expenses for the nine months ended September 30, 2016 are $1,484.

The following unaudited pro forma information has been prepared as if the Acquisition had occurred on January 1, 2015.

	Three Months Ended September 30,				Nine Months Ended September 30,
	Net Sales		Net Earnings		Net Sales		Net Earnings
2016 Albion actual results included in the Company’s consolidated income statement from February 1, 2016 through September 30, 2016	$	11,816	$	639	$	37,915	$	801
2016 Supplemental pro forma combined financial information	$	138,509	$	14,276	$	417,024	$	44,911
Basic earnings per share			$	0.45			$	1.43
Diluted earnings per share			$	0.45			$	1.41
2015 Albion actual results included in the Company’s consolidated income statement	$	-	$	-	$	-	$	-
2015 Supplemental pro forma combined financial information	$	152,969	$	13,129	$	462,942	$	44,089
Basic earnings per share			$	0.42			$	1.41
Diluted earnings per share			$	0.41			$	1.38

2016 supplemental pro forma earnings for the nine months ended September 30, 2016 exclude $26,203 of acquisition-related costs incurred and $5,363 of non-recurring expenses related to the fair value adjustment to acquisition-date inventory. The pro forma information presented does not purport to be indicative of the results that actually would have been attained if the Albion acquisition had occurred at the beginning of the periods presented and is not intended to be a projection of future results.