16.

Acquisitions

PMFG

On September 3, 2015, the Company completed its 100% acquisition of PMFG’s outstanding common stock for a purchase price of 136.7 million. PMFG’s shareholders had the option to elect to exchange each share of PMFG common stock for either (i) $6.85 in cash, without interest, or (ii) shares of the Company’s common stock valued at $6.85, based on the volume weighted average trading price of the Company’s common stock for the 15-trading day period ending on September 2, 2015, the last trading day before the closing of the acquisition, subject to a collar so that there was a maximum exchange ratio of 0.6456 shares of the Company’s common stock for each share of PMFG common stock and a minimum exchange ratio of 0.5282 shares of the Company’s common stock for each share of PMFG common stock, subject to certain exceptions and with overall elections subject to proration.

Approximately 44.5% of the shares of PMFG common stock converted into the right to receive the $6.85 cash consideration, for an approximate total of $64.6 million. The Company’s common stock trading price for the 15 day period was $9.6655. As a result, each of the remaining shares of PMFG common stock converted into the right to receive 0.6456 shares of Company common stock, or an approximate total of 7,602,166 shares of Company common stock in aggregate.

In accordance with the proration and reallocation provisions of the merger agreement, because the $6.85 per share cash consideration was oversubscribed by PMFG shareholders prior to the election deadline, (a) each PMFG 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 PMFG shareholder of record that made a valid cash election by the deadline received (i) the cash consideration for approximately 58.05% of such holder’s PMFG shares for which a valid cash election was made and (ii) the stock consideration for approximately 41.95% of such holder’s PMFG Shares for which a valid cash election was made. The value of stock recorded for purchase accounting was $72.1 million, which equates to approximately $9.49 per share.

PMFG is a global provider of engineered equipment for the abatement of air pollution, the separation and filtration of contaminants from gases and liquids, and industrial noise control equipment, 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 $27,450)	$	93,342
Property and equipment		31,129
Other assets		984
Assets held for sale (a)		950
Deferred income tax asset		1,865
Goodwill		63,270
Intangible – finite life, net		34,900
Intangible – indefinite life		10,750

Total assets acquired		237,190
Current liabilities assumed		(73,447	)
Deferred income tax liability		(18,195	)
Long term liabilities assumed		(2,822	)
Noncontrolling interest		(6,000	)

Net assets acquired	$	136,726

(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.

For the nine months ended September 30, 2015, PMFG accounted for $12.6 million of revenue and $0.9 million of net income included in the Company’s results.

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 purchase agreement. Based on projections at the acquisition date, the Company originally estimated the fair value of the earn-out to be $17.1 million. During the nine months ended September 30, 2015, the Company increased the earn-out by $9.1 million based on the estimated fair value at that date, for a total earn-out payable of $26.2 million at September 30, 2015. The earn-out adjustment is recorded as expense in “Amortization and earn-out expenses” on the Condensed Consolidated Statements of Income. The first year of the estimated earn-out payable of $11.6 million is recorded in “Accounts payable and accrued expenses” and the balance of $14.6 million is recorded in “Other liabilities” on the Condensed 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		4,752
Intangible – finite life, net		4,262
Intangible – indefinite life		960

Total assets acquired		27,674
Current liabilities assumed		(1,840	)
Deferred tax liabilities		(1,739	)

Net assets acquired	$	24,095

For the nine months ended September 30, 2015, Zhongli accounted for $24.3 million of revenue and $6.8 million of net loss (inclusive of the earnout adjustment noted above) 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 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 Environmental 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	$	9,922
Property and equipment		125
Goodwill		24,998
Intangible – finite life, net		12,890

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

Net assets acquired	$	37,762

For the nine months ended September 30, 2015, Emtrol accounted for $27.4 million of revenue and $2.9 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 September 30, 2015 or 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 Environmental 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	$	1,679
Property and equipment		10
Goodwill		1,733
Intangible – finite life, net		840
Intangible – indefinite life		260

Total assets acquired		4,522
Current liabilities assumed		(1,847	)
Deferred tax liabilities		(275	)

Net assets acquired	$	2,400

For the nine months ended September 30, 2015, SAT accounted for $2.0 million of revenue and $0.5 of million net loss 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 nine months from the acquisition date. Accordingly, the 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 September 30, 2015 or 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 Environmental 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

For the nine months ended September 30, 2015 and 2014, HEE accounted for $9.2 million and $0.4 million of revenue, respectively, and $1.1 million of net income and zero net income, respectively, included in the Company’s results.

The approximate fair values of the assets acquired and liabilities assumed related to the PMFG, Zhongli, and Emtrol acquisitions are based on preliminary estimates and assumptions. In particular, the PMFG acquisition was significant to the Company, and because it closed near the end of the third quarter, there was limited time to fully work through the purchase accounting. 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. Such changes could result in material variances between the Company’s future financial results, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.

Goodwill related to the HEE, and Emtrol acquisitions is not deductible for tax purposes. Goodwill related to the Zhongli and SAT acquisitions is deductible for tax purposes. It is undetermined at this time if goodwill related to the PMFG acquisition will be deductible or not.

The following unaudited pro forma information represents the Company’s results of operations as if the PMFG acquisition had occurred as of January 1, 2014, and the HEE, SAT, Emtrol, and Zhongli acquisitions had occurred as of January 1, 2013:


(Table only in thousands, except per share data)	Three Months Ended September 30,					Nine Months Ended September 30,
(Table only in thousands, except per share data)	2015			2014		2015			2014

Net sales	$	119,070		$	125,693	$	359,480		$	364,271
Net income (loss)		(18,707	)		4,519		(28,394	)		(22,762	)
Earnings per share:
Basic	$	(0.55	)	$	0.13	$	(0.82	)	$	(0.68	)
Diluted	$	(0.55	)	$	0.13	$	(0.82	)	$	(0.68	)

The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life, 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. Included in the pro forma results are acquisition related expenses of $16.8 million and $0.3 million, and certain nonrecurring expenses, such as goodwill impairment, of $0.4 million and $26.6 million, for the nine months ended 2015 and 2014, respectively. 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.

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