16.

Acquisitions

Zhongli

On December 15, 2014, the Company acquired 100% of the equity interests of Zhongli for $7.0 million in cash. As additional consideration, the former owners are entitled to earn-out payments based upon a multiple of specified financial results through December 31, 2017. There is no maximum amount of earn-out, under the terms of the Framework Agreement. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $17.1 million. There were no adjustments to fair value of the earn-out at December 31, 2014. The first year of the estimated earn-out payable of $6.1 million is recorded in “Accounts payable and accrued expenses” and the balance of $11.0 million is recorded in “Other liabilities” on the Consolidated Balance Sheets.

Zhongli is a leader in the design and manufacture of power industry damper, diverter and ball mill systems in China, which complements our Energy Segment businesses. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing.


(Table only in thousands)
Current assets (including cash of $1,025)	$	16,223
Property and equipment		1,477
Goodwill		3,757
Intangible – finite life, net		4,262
Intangible – indefinite life		960

Total assets acquired		26,679
Current liabilities assumed		(845	)
Deferred tax liabilities		(1,739	)

Net assets acquired	$	24,095

During 2014, Zhongli accounted for $0.1 million of revenue and zero of net income included in the Company’s results.

Emtrol

On November 3, 2014, the Company acquired 100% of the membership interests of Emtrol. The Company paid cash at closing of $31.9 million, which was financed with additional debt. The Company also issued 453,858 shares of the Company’s common stock with an agreed upon value of $6.0 million computed based on the average closing price of the Company’s common stock for the thirty trading days immediately preceding the acquisition date. The shares of common stock issued to the former members contain restrictions on sale or transfer for periods ranging from one to two years from the acquisition date. Accordingly, the preliminary fair value of the common stock issued has been determined to be $5.8 million, which reflects the estimated fair value of the shares based on the closing price of the Company’s common stock on the acquisition date and a discount related to the sale and transfer restrictions.

Emtrol and its subsidiary are engaged in the business of designing and manufacturing of fluid catalytic cracking and industrial cyclone technology for a variety of industries including the refinery, petrochemical, and chemical sectors, which complements our Air Pollution Control Segment businesses. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing.


(Table only in thousands)
Current assets (including cash of $1,738)	$	11,285
Property and equipment		125
Goodwill		23,635
Intangible – finite life, net		12,890

Total assets acquired		47,935
Current liabilities assumed		(10,173	)

Net assets acquired	$	37,762

During 2014, Emtrol accounted for $9.8 million of revenue and $1.3 million of net income included in the Company’s results.

SAT

On September 26, 2014, the Company acquired 100% of the stock of SAT for $1.4 million in cash. The Company is holding back $0.2 million of this cash until certain working capital requirements are determined to be met, as defined in the agreement. As additional consideration, the former owners are entitled to earn-out payments upon the achievement of specified financial results through September 30, 2017. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $1.0 million, which is the maximum amount of the earnout. There were no adjustments to fair value of the earn-out at December 31, 2014. The first year of the estimated earn-out payable of $0.3 million is recorded in “Accounts payable and accrued expenses” and the balance of $0.7 million is recorded in “Other liabilities” on the Consolidated Balance Sheets.

SAT is a leading provider of volatile organic compounds abatement solutions for the Chinese air pollution control market, which complements our Air Pollution Control Segment businesses. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing.


(Table only in thousands)
Current assets	$	1,831
Property and equipment		10
Goodwill		1,602
Intangible – finite life, net		840
Intangible – indefinite life		260

Total assets acquired		4,543
Current liabilities assumed		(1,868	)
Deferred tax liabilities		(275	)

Net assets acquired	$	2,400

During 2014, SAT accounted for $1.0 million of revenue and zero net income included in the Company’s results.

HEE

On August 13, 2014, the Company acquired certain assets and liabilities of HEE for $7.0 million in cash. The Company also issued 34,626 shares of the Company’s common stock with an agreed upon value of $0.5 million computed based on the average closing price of the Company’s common stock for the thirty trading days immediately preceding the acquisition date. The shares of common stock issued to the former owners contain restrictions on sale or transfer for a period of six months from the acquisition date. Accordingly, the preliminary fair value of the common stock issued has been determined to be $0.5 million, which reflects the estimated fair value of the shares based on the closing price of the Company’s common stock on the acquisition date and a discount related to the sale and transfer restrictions. As additional consideration, the former owners are entitled to earn-out payments upon the achievement of specified financial results through July 31, 2017. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $2.0 million which is the maximum amount of the earnout. There were no adjustments to fair value of the earn-out at December 31, 2014. The first year of the estimated earn-out payable of $0.7 million is recorded in “Accounts payable and accrued expenses” and the balance of $1.3 million is recorded in “Other liabilities” on the Consolidated Balance Sheets.

HEE is a leading North American designer and manufacturer of scrubbers and fans for the air pollution control market, which complements our Air Pollution Control Segment businesses. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing.


(Table only in thousands)
Current assets	$	913
Property and equipment		158
Goodwill		5,644
Intangible – finite life, net		2,690
Intangible – indefinite life		510

Total assets acquired		9,915
Current liabilities assumed		(415	)

Net assets acquired	$	9,500

During 2014, HEE accounted for $2.3 million of revenue and $0.1 million net income included in the Company’s results.

For the acquisitions which occurred during 2014, the approximate fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. The fair value measurement method used to measure the assets acquired and liabilities assumed utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, projections of the acquired businesses future operating results, the implied fair value of assets using an income approach by preparing a discounted cash flow analysis and other subjective assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed, and the related tax balances. Such changes could result in material variances between the Company’s future financial results and the amounts presented in the unaudited pro forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.

Aarding

On February 28, 2013, the Company acquired Aarding. Aarding is a global provider of natural gas turbine exhaust systems and silencer applications and is now part of our Engineered Equipment Technology and Parts Group. The purchase price included cash of $24.4 million and 763,673 shares of restricted common stock. The preliminary fair value of the common stock issued has been determined to be $6.8 million which reflects the closing price of the Company’s common stock on the closing date and a discount related to the sale and transfer restrictions on the shares. The cash paid was funded by the Company’s cash reserves. Of the total consideration paid, €4.0 million ($4.9 million as of December 31, 2014) is contingent upon the future employment by the sellers and, therefore, has been classified as prepaid compensation by the Company. As of December 31, 2014 and 2013, the current portion of the prepaid compensation of $1.0 million and $1.1 million, respectively, is in “Prepaid expenses and other current assets,” while the non-current portion of $2.1 million and $3.5 million, respectively, is in “Deferred charges and other assets” on the Consolidated Balance Sheets. For the twelve months ended December 31, 2014 and 2013, $1.1 million and $0.9 million, respectively, of compensation expense has been recorded in “Amortization and earn out expenses” on the Consolidated Statements of Income. Additionally, the former owners of Aarding are entitled to earn-out payments of up to €5.5 million ($6.7 million as of December 31, 2014) upon the attainment of specified financial targets through December 31, 2017. Such earn out payments are contingent upon the continued employment of the sellers. Accordingly, no value for the potential earnout consideration has been allocated to the purchase price of Aarding as any such payments will be reported as future compensation expense by the Company. For the twelve months ended December 31, 2014 and 2013, $1.5 million and $1.3 million, respectively, of earn-out expense has been recorded in “Amortization and earn out expenses” on the Consolidated Statements of Income. As of December 31, 2014 and 2013, an accrual of $1.1 million and $1.3 million, respectively, relating to the earn-out is included within “Accounts payable and accrued expenses” on the Consolidated Balance Sheets.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing after the Company finalized purchase accounting during 2014.


(Table only in thousands)
Current assets	$	15,062
Property and equipment		959
Goodwill		7,595
Intangible – finite life, net		13,477
Intangible – indefinite life		2,865

Total assets acquired		39,958
Current liabilities assumed		(8,277	)
Deferred income tax liability		(4,086	)

Net assets acquired	$	27,595

Met-Pro

On August 27, 2013, the Company completed its acquisition of Met-Pro. Met-Pro’s shareholders had the option to elect to exchange each share of Met-Pro common stock for either (i) $13.75 in cash, without interest, or (ii) shares of the Company’s common stock valued at $13.75, based on the volume weighted average trading price of the Company’s common stock for the 15-trading day period ending on August 26, 2013, the last trading day before the closing of the merger, subject to a collar so that there was a maximum exchange ratio of 1.3520 shares of the Company’s common stock for each share of Met-Pro common stock and a minimum of 1.0000 share of the Company’s common stock for each share of Met-Pro common stock, subject to certain exceptions and with overall elections subject to proration.

Approximately 51.6% of the shares of Met-Pro common stock converted into the right to receive the $13.75 cash consideration, for an approximate total of $104.4 million. The Company’s common stock trading price for the 15 day period was $12.6814. As a result, each of the remaining shares of Met-Pro common stock converted into the right to receive 1.0843 shares of Company common stock, or an approximate total of 7,726,235 shares of Company common stock in aggregate.

In accordance with the proration and reallocation provisions of the merger agreement, because the $13.75 per share cash consideration was oversubscribed by Met-Pro shareholders prior to the election deadline, (a) each Met-Pro share for which a valid stock election was made or for which no valid cash or stock election was made was automatically cancelled and converted into the right to receive the stock consideration and (b) each Met-Pro shareholder of record that made a valid cash election received (i) the cash consideration for approximately 77.56% of such holder’s Met-Pro shares for which a valid cash election was made and (ii) the stock consideration for approximately 22.44% of such holder’s Met-Pro Shares for which a valid cash election was made. The value of stock recorded was $98.0 million.

In addition, holders of outstanding Met-Pro options and restricted stock units received an aggregate amount of cash equal to approximately $4.9 million as consideration for the cancellation of the options and restricted stock units held by them as of immediately prior to the merger.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing after the Company finalized purchase accounting during 2014.


(Table only in thousands)
Current assets	$	68,766
Property and equipment		15,773
Other assets		1,375
Assets held for sale (a)		10,886
Goodwill		106,726
Intangible – finite life, net		35,810
Intangible – indefinite life		11,910

Total assets acquired		251,246
Current liabilities assumed		(13,638	)
Deferred income tax liability		(28,958	)
Long term liabilities assumed		(6,078	)

Net assets acquired	$	202,572

(a)

The assets held for sale consists of primarily real property, and are valued at the estimated proceeds less cost to sell. The Company has not recorded a gain or loss on the classification of the subject assets to Held for Sale. The Company expects to complete the sale of the subject assets within the next twelve months. Three properties were sold during 2014 for total proceeds of $6.7 million.

Goodwill related to the Aarding, Met-Pro, HEE, and Emtrol acquisitions is not deductible for tax purposes. Goodwill related to the Zhongli and SAT acquisitions is deductible for tax purposes.

The following unaudited pro forma information represents the Company’s results of operations as if the HEE, SAT, Emtrol, and Zhongli acquisitions had occurred as of January 1, 2013, and the Met-Pro and Aarding acquisitions had occurred as of January 1, 2012:


	Year Ended December 31,
(Table only in thousands)	2014		2013		2012
Net sales	$	335,101	$	337,767	$	281,345
Net income	$	16,619	$	15,958	$	12,933
Earnings per share:
Basic	$	0.64	$	0.67	$	0.55
Diluted	$	0.62	$	0.61	$	0.51

The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life, eliminate acquisition related expenses, eliminate intercompany transactions between the Company and Aarding, reflect foregone interest income on cash paid for the acquisitions, reflect additional interest expense on debt used to fund the acquisitions, and to record the income tax consequences of the pro forma adjustments. Shares used to calculate the basic and diluted earnings per share were adjusted to reflect the additional shares of common stock issued to fund a portion of the acquisition price. These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchases been made as of the beginning of the periods presented or of the results of operations that may occur in the future.

Goodwill recognized on all of the above acquisitions represents value the Company expects to be created by combining the various operations of the acquired businesses with the Company’s operations, including the expansion into markets within existing business segments, access to new customers and potential cost savings and synergies.

Acquisition and integration expenses on the Consolidated Statements of Income are related to acquisition activities, which include retention, legal, accounting, banking, and other expenses.