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BUSINESS COMBINATIONS
 12 Months Ended
Jan. 31, 2012
Business Combination Disclosure [Text Block]

 

 

3.

BUSINESS COMBINATIONS

 

 

 

On November 1, 2011, the Company acquired an additional 50% of the outstanding membership units of NuGen. This acquisition resulted in the Company owning approximately 98% of the outstanding membership units in NuGen and also resulted in the Company obtaining a controlling financial interest in NuGen. This has been accounted for as a business combination achieved in stages. NuGen operates an ethanol production facility in Marion, South Dakota that has an annual nameplate capacity of 100 million gallons of ethanol.

 

 

 

The results of NuGen’s operations have been included in the consolidated financial statements subsequent to the acquisition date and are included in the Company’s alternative energy segment. Subsequent to the acquisition date, the Company has included approximately $84.1 million of net sales and revenue and approximately $4.0 million of net income from NuGen in its Consolidated Statement of Operations for fiscal year 2011. The Company paid approximately $10.4 million of cash and the fair value of the Company’s previously held equity interest in NuGen was approximately $18.6 million.

 

 

 

The acquisition was recorded by allocating the total purchase price to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (amounts in thousands):


 

 

 

 

 

Cash

 

$

24,971

 

Accounts receivable

 

 

7,381

 

Inventory

 

 

8,491

 

Prepaid expenses and other current assets

 

 

711

 

Property, plant and equipment

 

 

78,618

 

Other

 

 

2,995

 

 

 

 

Total assets acquired

 

 

123,167

 

Current liabilities

 

 

(19,167

)

Long term debt

 

 

(65,000

)

Noncontrolling interest

 

 

(955

)

Gain on acquisition

 

 

(8,990

)

 

 

 

Cash paid

 

$

10,413

 

 

 

 

Fair value of 48% equity method investment

 

$

18,642

 

 

 

 


 

 

 

Prior to this acquisition, the Company owned 48% of NuGen. In accordance with ASC 805, the Company accounted for this transaction as a step acquisition, remeasured its previously held investment to fair value and recorded the approximately $5.4 million difference between fair value and its carrying value as equity method remeasurement loss. The acquisition date fair value of the Company’s 48% interest in NuGen was approximately $18.6 million, and the carrying value was approximately $24.0 million. This fair value was determined using a market and income approach, both of which contain significant unobservable inputs.

 

 

 

ASC 805 requires that when the fair value of the net assets acquired exceeds the purchase price, resulting in a bargain purchase gain, the acquirer must reassess the reasonableness of the values assigned to all of the net assets acquired, liabilities assumed and consideration transferred. The Company has performed such a reassessment and has concluded that the values assigned to the NuGen acquisition are reasonable. The net assets acquired less liabilities assumed exceeded the purchase price by approximately $8.9 million which was recorded as bargain purchase gain. The fair value of the net assets acquired was determined using a market and income approach, both of which contain significant unobservable inputs.

 

 

 

The bargain purchase gain of approximately $8.9 million, combined with the loss related to the equity method remeasurement of approximately $5.4 million is recorded as “Bargain Purchase Gain, Net” on the accompanying Consolidated Statement of Operations.

 

 

 

The Company believes this transaction resulted in a bargain purchase because the previous owners of NuGen acquired the plant out of bankruptcy during fiscal year 2009 at a relatively low purchase price. Therefore, the purchase price the Company paid for NuGen provided an adequate rate of return to the previous owners. In addition, the preexisting relationship the Company had with the previous owners, by way of its initial 48% equity method investment and option to purchase up to 51% of NuGen, limited the ability of the previous owners to market the plant for sale.

 

 

 

The unaudited financial information in the table below summarizes the combined results of operations of the Company and NuGen, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal year 2010 (in thousands, except per share amounts):


 

 

 

 

 

 

 

 

 

 

Year Ended
January 31, 2012

 

Year Ended
January 31, 2011

 

 

 

 

 

 

 

Net sales and revenue

 

$

684,615

 

$

561,748

 

Net income

 

$

34,939

 

$

9,271

 

Basic net income per share

 

$

3.83

 

$

0.96

 

Diluted net income per share

 

$

3.80

 

$

0.94

 


 

 

 

Transaction costs related to the acquisition of NuGen were insignificant.