Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2020

Acquisitions

On September 25, 2019, we acquired all of the equity securities of LeanTeq. LeanTeq primarily provides refurbishment services for critical components and assemblies used in state-of-the-art semiconductor equipment. This equipment is used to produce the latest and most technologically advanced microchips for smartphones, autonomous vehicles, high-speed wireless

connectivity, artificial intelligence, and other leading-edge applications. Founded in 2011 and headquartered in Taoyuan City, Taiwan, LeanTeq has two locations in Taiwan and one in the United States (Silicon Valley). LeanTeq is included as part of our Technetics Group within the Sealing Products segment.

On July 2, 2019, we acquired 100% of the stock of The Aseptic Group (comprising Aseptic Process Equipment SAS and Aseptic Services SARL, collectively referred to as “Aseptic”), which distributes, designs and manufactures aseptic fluid transfer products for the pharmaceutical and biopharmaceutical industries. Aseptic, headquartered in Limonest, France, is included as part of our Garlock group of companies within the Sealing Products segment.

The following pro forma condensed consolidated financial results of operations for the quarter and nine months ended September 30, 2019 are presented as if the acquisitions had been completed prior to 2019:


	Quarter Ended September 30, 2019		Nine Months Ended September 30, 2019
	(in millions)
Pro forma net sales	$	305.8	$	948.2
Pro forma income (loss) from continuing operations	$	(5.4)	$	17.0

These amounts have been calculated after applying our accounting policies and adjusting the results of LeanTeq and Aseptic to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied prior to 2019 as well as additional interest expense to reflect financing required, together with the consequential tax effects. These pro forma financial results have been prepared for comparative purposes only and do not reflect the effect of synergies that would have been expected to result from the integration of these acquisitions. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred prior to 2019, or of future results of the consolidated entities.

We received $0.1 million in the first quarter of 2020 as a result of the final working capital adjustment that related to our LeanTeq acquisition.

Since the completion of the acquisition of Taiwan-based LeanTeq in September 2019, we commenced an analysis regarding whether we would permanently retain LeanTeq’s earnings in Taiwan or repatriate them to the United States. During the second quarter of 2020 we finalized our analysis and determined that, given the significance of the incremental tax cash cost to EnPro of repatriating LeanTeq earnings to the United States, we will retain any earnings generated by LeanTeq in Taiwan as long as there was a significant incremental tax cash cost of repatriating amounts to the United States.

As a result of the decision to retain earnings in Taiwan, the income tax rate utilized in establishing deferred tax liabilities in the acquisition date balance sheet of LeanTeq was increased from 20% to 23.6%, reflecting a local tax of approximately 3.6% on undistributed earnings. The increase in the income tax rate results in an increase in goodwill and deferred tax liabilities in the acquisition date balance sheet of $7.2 million, which was initially reflected in the consolidated balance sheet as of June 30, 2020. The decision on our retention of LeanTeq’s earnings in Taiwan was our final required purchase accounting determination. Management concluded that the purchase accounting for the LeanTeq acquisition was finalized at June 30, 2020.

Divestitures

In August of 2020, subsequent to announcing the exit of our Motor Wheel® brake drum and Crewson® brake adjuster brands in the second quarter of 2020, we identified a buyer and entered into a definitive agreement to sell the assets related to the businesses. On September 2, 2020, we completed the sale for $8.9 million, net of transaction fees.

This transaction resulted in a $3.7 million reversal of previously accrued restructuring charges consisting of severance, contract cancellation costs, and other costs recorded in other operating expense on our consolidated statements of operations. In the third quarter of 2020, we also recorded a $3.6 million loss on sale of the business in other non-operating expense on our consolidated statements of operations.

On August 3, 2020 we announced that we entered into a definitive agreement to sell the Air Springs portion of our heavy-duty trucking business for $32.0 million in cash and a long-term promissory note with a face value of $7.5 million that will be stated at fair value. Subsequent to the announcement, we agreed with the purchaser to retain the outstanding accounts receivable in the United States, which aggregated $7.2 million at September 30, 2020. The purchase price is subject to adjustment based on the amount of cash and working capital on the closing date. We expect a negative net working capital adjustment on the closing date that approximates the net book value of the accounts receivable retained as a result of our agreement to retain the

accounts receivable. The sale is expected to close in the fourth quarter of 2020 and is subject to antitrust approvals and typical closing conditions. We expect the gain or loss to be at approximately breakeven.

As a result of this definitive agreement, we classified the Air Springs business as held for sale and reclassified all assets and liabilities of the business to be sold as current assets and current liabilities held for sale on our consolidated balance sheet as of September 30, 2020.

On June 18, 2020, we communicated our intent to exit the bushing block business of the Engineered Products segment principally located in Dieuze, France. Because the restructuring charges associated with that planned exit were not estimable, we did not record any restructuring charges related to this plan in the second quarter. During the third quarter, we continued to explore the possible sale of the business as we proceeded with plans to exit the business through a shutdown and identified a buyer to purchase the business operated at the Dieuze facility. We have classified the assets and liabilities of the business as held for sale on our consolidated balance sheet at September 30, 2020 and we have entered into a binding put option agreement with such buyer, which provides GGB France the right to sell the business to such buyer pending conclusion of a review process by the Works Councils representing the employees at the Dieuze facility. We recorded an impairment of the business, which includes non-cash impairments of long-lived assets and cash payable to the buyer upon closing.

For a further discussion of the impairment charges recorded in connection with the sale of the Dieuze Facility, see Note 4, "Restructuring and Impairment ".

In the second quarter of 2020 we entered into an agreement to sell the Lunar® air disc brake business and subsequently classified the business as held for sale. An impairment charge of $2.1 million was recognized in the second quarter. A subsequent increase in the fair value of the business in the third quarter resulted in a partial reversal of the second quarter impairment charge of $0.2 million. The sale of the U.S. assets of the business closed in the third quarter of 2020 for $0.3 million, resulting in a gain of $0.2 million. The sale of the Lunar® manufacturing facility located in Shanghai, China is expected to close in the fourth quarter of 2020 and its related assets and liabilities have been classified as current assets and liabilities held for sale on our consolidated balance sheet since June 30, 2020. We estimate the closing to result in an approximately breakeven pretax gain or loss.

Current assets and liabilities held for sale as of September 30, 2020 are comprised of the following items:


($ in millions)
Assets
Accounts receivable	$	3.1
Inventory	12.6

Property, plant and equipment, net	12.6
Other assets	12.9
Current assets held for sale	$	41.2

Liabilities
Accounts payable	$	6.9
Accrued expenses	5.2
Other liabilities	4.0
Current liabilities held for sale	$	16.1