Acquisitions

3 Months Ended

Sep. 30, 2019

On September 16, 2019, we completed the acquisition of a 100 percent equity interest in EMFCO Holdings Incorporated, parent company of Exotic Metals Forming Company LLC ("Exotic") for approximately $1,706 million in cash.

Exotic designs and manufactures innovative and technically demanding, high temperature, high pressure air and exhaust management solutions for aircraft and engines. Exotic had annual sales of approximately $409 million for its fiscal 2019.

For segment reporting purposes, Exotic is included in the Aerospace Systems Segment. We believe Exotic's products and proprietary manufacturing capabilities are complementary to our portfolio of flight control, fuel and inerting, hydraulics, fluid conveyance and engine components.

Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The following presents the preliminary estimated fair values of Exotic's assets acquired and liabilities assumed on the acquisition date. These preliminary estimates are based on available information and will be revised during the measurement period, not to exceed 12 months, as third-party valuations are finalized, additional information becomes available and as additional analysis is performed. Such revisions may have a material impact on our results of operations and financial position.



	Exotic
	September 16, 2019
Assets:
Cash and cash equivalents	$	8,179
Accounts receivable	82,118
Inventories	112,150
Prepaid expenses	1,343
Plant and equipment	156,802
Other assets	108
Intangible assets	977,060
Goodwill	428,488
Total assets acquired	1,766,248
Liabilities:
Accounts payable, trade	25,727
Accrued payrolls and other compensation	8,863
Accrued domestic and foreign taxes	722
Other accrued liabilities	25,370
Total liabilities assumed	60,682
Net assets acquired	$	1,705,566

Goodwill is calculated as the excess of the purchase price over the net assets acquired and is deductible for tax purposes. With respect to the Exotic acquisition, goodwill represents cost synergies and enhancements to our existing technologies. Based upon a preliminary acquisition valuation, we acquired $548,860 of customer-related intangible assets, $337,600 of patents and technology and $90,600 of trademarks, with weighted average estimated useful lives of 19, 20 and 20 years, respectively.

Acquisition-related transaction costs totaled $14,930 for the current-year quarter. These costs are included in selling, general and administrative expenses in the Consolidated Statement of Income.

Subsequent Acquisition of Lord

On October 29, 2019, we completed the acquisition of a 100 percent equity interest in Lord for approximately $3,453 million in cash, including the assumption of debt. Lord is a diversified technology and manufacturing company developing highly reliable adhesives, coatings, and vibration and motion control technologies that significantly reduce risk and improve product performance. Lord’s products are used in mission-critical applications in the aerospace, automotive and industrial markets. Lord had annual sales of approximately $1,025 million for its fiscal 2018. For segment reporting purposes, approximately 95 percent of Lord's sales will be included in the Diversified Industrial Segment, while the remaining five percent will be included in the Aerospace Systems Segment. Lord’s unique and proprietary products, solutions and technologies for mission-critical applications are expected to increase the Company's overall engineered materials product and solutions offerings to enable a stronger value proposition for customers.

Assets acquired and liabilities assumed will be recognized at their respective fair values as of the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. Due to the limited time since the acquisition date, the preliminary acquisition valuation is incomplete at this time. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.

The unaudited pro forma net sales of the combined entity for the three months ended September 30, 2019 and 2018 are $3,581 million and $3,737 million, respectively. The unaudited pro forma net sales of the combined entity are based on the historical financial net sales of Parker and Lord as if the acquisition had been completed as of the beginning of fiscal year 2019.

The unaudited pro forma net sales are not indicative of the results that actually would have been obtained if the acquisition had occurred as of the beginning of fiscal year 2019 or that may be obtained in the future. Because the initial accounting for the acquisition is incomplete at this time, we are unable to provide the pro forma net earnings of the combined entity.