Notes to the Consolidated Financial Statements
Years ended December 31, 2008 and 2007 (In thousands of dollars, except per share amounts)
b) On August 29, 2008, MX acquired an additional 21.9% interest in BOX, giving it a majority ownership interest of 53.3% in, and control of, BOX.
Prior to this transaction, MX held 31.4% of the common shares and did not control BOX. The investment was previously accounted for under the equity method, according to which the initial cost of the investment was adjusted to include MX’s proportionate share of post-acquisition net earnings or losses, less dividends and distributions. The results of operations were included as income from investments in affiliates in the consolidated statement of income.
As a consequence of the additional investment, BOX is now being accounted for under the purchase method. From August 29, 2008, the day on which control was acquired, the results have been fully consolidated within the consolidated statement of income, with an adjustment made for minority interests.
The aggregate estimated purchase price for the 21.9% of the common shares consisted of:
| Cash (US$52,533 at an exchange rate of 1.0626) | $ | 55,821 | ||
| Estimated direct transaction costs | 2,170 | |||
| Aggregrate estimated purchase price | $ | 57,991 | ||
The purchase price and the purchase price allocation are estimated at this time and will be finalized in the upcoming months as the estimates for direct transaction costs become final. The estimated purchase price has been allocated to the respective fair values of the assets acquired and liabilities assumed as follows: |
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| Net assets acquired | ||||
| Cash and cash equivalents | $ | 16,651 | ||
| Other current assets | 6,711 | |||
| Capital assets | 5,284 | |||
| Intangible assets – development costs | 7,205 | |||
| Intangible assets – trading participants | 37,750 | |||
| 100% of the tangible and intangible assets | 73,601 | |||
| Less liabilities: | ||||
| Current liabilities | 2,221 | |||
| Future income tax liability | 15,021 | |||
| 100% of the net tangible and intangible assets | 56,359 | |||
| 21.9% of the net tangible and intangible assets | 12,326 | |||
| acquired | ||||
| Goodwill | 45,665 | |||
| Total net assets acquired | 57,991 | |||
This acquisition was part of a two step acquisition. The first step of the acquisition occurred on May 1, 2008, when the Company acquired 31.4% of BOX at a fair value of $75,895. The second step of the acquisition occurred on August 29, 2008 when the Company acquired an additional 21.9% interest in BOX and acquired control of BOX. As a result of the second step of the acquisition and the acquisition of control, the Company reclassified the goodwill and intangible assets previously recognized within the investment in affiliate on May 1, 2008, when the first step of the acquisition was completed. As a result, an additional $61,010 of goodwill was reflected in the consolidated balance sheet of the Company. The Company recognized $135,514 of goodwill and intangible assets as part of the acquisition. The details of these assets are as follows:
|
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| Amortization | ||||
| Description | Period | Amount | ||
| Goodwill | n/a | $ | 106,675 | |
| Definite life intangible assets: | ||||
| BOX trading participants | 30 years | 21,634 | ||
| Capitalized software | 5 years | 7,205 | ||
| Total goodwill and intangible assets | $ | 135,514 | ||
During 2008, the Company recognized intangible amortization expense of $1,479 (2007 – $Nil) related to this acquisition.
In October 2008, as a result of a buy-back of units by BOX, the Company’s ownership in BOX increased to 53.8%.
The goodwill acquired is not deductible for tax purposes.
c) In March 2007, MX and CME announced the creation of CAREX, a new business venture dedicated to the Canadian energy market. Following the Company’s combination with MX, MX entered into discussions with CME about terminating the business venture. These discussions ultimately resulted in MX acquiring 100% of CAREX on September 26, 2008 for $925.
Prior to this transaction, MX owned 50% of CAREX, a joint venture that was accounted for using proportionate consolidation. As a consequence of the additional investment, CAREX is now being accounted for under the purchase method, and the results of operations have been fully consolidated within the consolidated statement of income from September 26, 2008.
As of May 1, 2008, the Company planned to wind-up the operations of CAREX and to dispose of the net assets of the entity. As a result, the net assets of CAREX were fair valued as part of the acquisition of MX. The fair value of the net assets as of May 1, 2008 was equivalent to the liquidation value of the assets.
