3. ACQUISITIONS

The Corporation continually evaluates potential acquisitions that either strategically fit within the Corporation’s existing portfolio or expand the Corporation’s portfolio into new product lines or adjacent markets. The Corporation has completed a number of acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Corporation's financial statements. This goodwill arises because the purchase prices for these businesses reflect the future earnings and cash flow potential in excess of the earnings and cash flows attributable to the current product and customer set at the time of acquisition. Thus, goodwill inherently includes the know-how of the assembled workforce, the ability of the workforce to further improve the technology and product offerings, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations.

The Corporation allocates the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, as the Corporation obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and as the Corporation learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Corporation will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

In 2014, the Corporation acquired three businesses for an aggregate purchase price of $34.4 million, net of cash acquired, all of which are described in more detail below. In 2013, the Corporation acquired five businesses for an aggregate purchase price of $236.1 million, net of cash acquired, all of which are described in more detail below. In 2012, the Corporation acquired eight businesses for an aggregate purchase price of $462.4 million, net of cash acquired.

The Corporation’s Consolidated Statement of Earnings include $19.1 million of net sales and $0.2 million of net earnings from the Corporation’s 2014 acquisitions.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during 2014, 2013, and 2012:



(In thousands)	2014			2013			2012
Accounts receivable	$	2,991		$	25,972		$	53,753
Inventory	304			30,930			52,225
Property, plant, and equipment	2,802			18,066			40,915
Other current assets	81			3,229			7,244
Intangible assets	13,501			102,265			182,681
Current and non-current liabilities	(1,754		)	(18,959		)	(44,617		)
Pension and postretirement benefits	—			(6,472		)	(8,144		)
Deferred income taxes	(2,199		)	(19,682		)	(50,367		)
Debt assumed	—			—			(13,819		)
Due to seller	—			(3,361		)	(240		)
Net tangible and intangible assets	15,726			131,988			219,631
(Gain on Bargain Purchase)	—			—			(910		)
Purchase price	34,364			236,135			462,416
Goodwill	$	18,638		$	104,147		$	243,695

Supplemental Pro Forma Statements of Operations Data (Unaudited)

The assets, liabilities, and results of operations of the businesses acquired in 2014 were not material to the Corporation’s consolidated financial position or results of operations and therefore pro forma financial information for the acquisitions are not presented.

The following table presents unaudited consolidated pro forma financial information for the combined results of the Corporation and its completed business acquisitions during the year ended December 31, 2013 and 2012 as if the 2013 acquisitions had occurred on January 1, 2012. Pro forma results were previously disclosed for the 2012 acquisitions as if the 2012 acquisitions had occurred on January 1, 2011.



(In thousands, except per share data)	2013		2012
Net sales	$	2,184,715	$	2,157,815
Net earnings from continuing operations	143,960		116,768
Diluted earnings per share from continuing operations	3.04		2.46

The unaudited pro forma consolidated results were prepared using the acquisition method of accounting and are based on the historical financial information for a 12 month period. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisitions on January 1, 2012. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition. The unaudited pro forma consolidated results reflect primarily the following pro forma pre-tax adjustments:


•	Elimination of historical intangible asset amortization expense (approximately $0.7 million and $1.8 million in 2013 and 2012, respectively).


•	Additional amortization expense (approximately $3.6 million and $18.5 million in 2013 and 2012, respectively) related to the fair value of identifiable intangible assets acquired.


•	Additional depreciation expense (approximately $1.2 million and $1.6 million in 2013 and 2012, respectively) related to the fair value adjustment to property, plant, and equipment acquired.


•	Elimination of the fair value adjustments to acquisition-date inventory that has been sold in 2013 of $3.7 million, and recognition in 2012 of the full value of the fair value adjustment to acquisition date inventory.


•	Reclassification of $2.1 million of the Corporation’s 2013 acquisition costs directly attributable to the acquisition into 2012. Included in these costs are advisory, investment banking, and legal and regulatory costs incurred by the Corporation. The Corporation records acquisition costs in General and administrative expenses.


•	Elimination of historical interest expense (approximately $0.6 million and $5.3 million in 2013 and 2012, respectively).


•	Additional interest expense (approximately $4.2 million and $16.5 million in 2013 and 2012, respectively) associated with the incremental borrowings that would have been incurred to acquire these companies as of January 1, 2012.

2014 Acquisitions

COMMERCIAL/INDUSTRIAL

Component Coating and Repair Services Limited

On January 10, 2014, the Corporation acquired 100% of the issued and outstanding capital stock of Component Coating and Repair Services Limited (CCRS) for approximately £15 million ($25 million) in cash, net of cash acquired. The Share Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited into escrow as security for potential indemnification claims against the sellers. CCRS operates out of two locations in Glasgow and Alfreton in the United Kingdom and will operate within the Corporation's Commercial/Industrial segment. CCRS is a provider of corrosion resistant coatings and precision airfoil repair services for aerospace and industrial turbine applications. Revenues were approximately £6.4 million in the latest fiscal year ended May 31, 2013.

ENERGY

Nuclear Power Services Inc.

On February 18, 2014, the Corporation acquired certain assets and assumed certain liabilities of Nuclear Power Services Inc. (NPSI) for approximately CAD 9 million (approximately $8.0 million) in cash. The Asset Purchase Agreement contains representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. NPSI is based in Ontario, Canada and will operate within the Corporation's Energy segment. NPSI provides qualified nuclear component sourcing, Equipment Qualification, Commercial Grade Dedication (CGD) services, and Instrumentation & Control component manufacturing primarily to the Canadian and International CANDU nuclear industry. NPSI generated revenues of approximately CAD 5 million for the year ended December 31, 2013.

Engemasa Pressure Relief Valves

On June 4, 2014, the Corporation acquired the valve division of Engemasa Engenharia E Materiais LTDA of Sao Carlos, Brazil

for approximately $1.8 million in cash. The division will operate within the Corporation's Energy segment.

The purchase price of the 2014 acquisitions have been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values. The following table summarizes the purchase price allocations for CCRS and NPSI.



(In thousands)	CCRS			NPSI
Accounts receivable	$	2,984		$	7
Inventory	64			112
Property, plant, and equipment	1,987			790
Other current assets	71			10
Intangible assets	9,560			3,406
Current and non-current liabilities	(1,754		)	—
Deferred income taxes	(2,041		)	—
Net tangible and intangible assets	10,871			4,325
Purchase price	24,645			7,965
Goodwill	$	13,774		$	3,640

Amount of tax deductible goodwill	$	—		$	3,640

2013 Acquisitions

COMMERCIAL/INDUSTRIAL

Phönix Group

On February 28, 2013, the Corporation acquired all the outstanding shares of Phönix Holding GmbH for $97.9 million, net of cash acquired. The Share Purchase and Transfer Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited into escrow as security for potential indemnification claims against the seller. Management funded the purchase from the Corporation’s revolving credit facility and excess cash at foreign locations.

Phönix, headquartered in Germany, is a designer and manufacturer of valves, valve systems, and related support services to the global chemical, petrochemical, and power (both conventional and nuclear) markets. Phönix has 282 employees and operates Phönix Valves in Volkmarsen, Germany; Strack, located in Barleben, Germany; and Daume Control Valves, located in Hanover, Germany. Phönix also owns sales subsidiaries with warehouses in Texas and France. Revenues of the acquired business were approximately $60 million for the year ended 2012.

Arens Controls

On October 4, 2013, the Corporation acquired 100% of the membership interests of Arens Controls, LLC (Arens) for $95.6 million in cash, net of purchase price adjustments and cash acquired. The Purchase Agreement contains customary representations and warranties, including a portion of the purchase price deposited into escrow as security for potential indemnification claims against the seller. Management funded the purchase from the Corporation’s revolving credit facility.

Arens is a designer and manufacturer of highly-engineered, precision operator interface controls and power management systems for commercial and off-road industrial vehicles. Arens has approximately 120 employees and is headquartered in Arlington Heights, Illinois. Revenues of the acquired business were approximately $57 million for the year ended 2012.

DEFENSE

Parvus

On October 1, 2013, the Corporation acquired 100% of the share capital of Parvus Corporation (Parvus) for $37.1 million in cash, net of cash acquired. The Stock Purchase Agreement contains customary representations and warranties, including a portion of the purchase price deposited into escrow as security for potential indemnification claims against the seller. Management funded the purchase from the Corporation’s revolving credit facility.

Parvus is a designer and manufacturer of rugged small form factor computers and communications subsystems for the aerospace, defense, homeland security, and industrial markets. Parvus has approximately 50 employees and is headquartered in Salt Lake City, Utah. Revenues of the acquired business were approximately $20 million for the year ended 2012.

ENERGY

Other

During 2013, the Corporation acquired the assets of Ovalpath, Inc and Gulff33 Valve Pros, LLC through two separate transactions for a purchase price of $2.3 million and $3.3 million respectively. The Asset Purchase Agreements contain representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. Ovalpath has developed a proprietary software platform utilizing mobile technology to enable applications that provide significant efficiencies within a nuclear plant. Gulf33 provides valve repair and maintenance services to the offshore oil and gas market.

The purchase price of the 2013 acquisitions have been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values. Immaterial purchase price adjustments were made during 2014 to certain of the 2013 acquisitions and are included in the asset allocation herein:



(In thousands)	Phönix			Arens			Parvus			Other			Total
Accounts receivable	$	12,226		$	9,441		$	3,639		$	666		$	25,972
Inventory	20,358			5,349			5,122			101			30,930
Property, plant, and equipment	12,575			4,787			435			269			18,066
Other current assets	2,153			972			104			—			3,229
Intangible assets	42,305			43,100			15,000			1,860			102,265
Current and non-current liabilities	(7,497		)	(7,991		)	(3,854		)	383			(18,959		)
Pension and postretirement benefits	(6,472		)	—			—			—			(6,472		)
Deferred income taxes	(14,258		)	94			(5,518		)	—			(19,682		)
Due to seller	(119		)	—			(230		)	(3,012		)	(3,361		)
Net tangible and intangible assets	61,271			55,752			14,698			267			131,988
Purchase price	97,886			95,612			37,059			5,578			236,135
Goodwill	$	36,615		$	39,860		$	22,361		$	5,311		$	104,147

Amount of tax deductible goodwill	$	—		$	39,860		$	—		$	5,311		$	45,171