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Acquisitions and Dispositions | 12 Months Ended
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Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Dispositions |
2. | Acquisitions and Dispositions
Acquisitions On December 17, 2021, our subsidiary, EnPro Holdings, Inc. ("EnPro Holdings"), completed the acquisition of all issued and outstanding membership interests of TCFII NxEdge LLC (“NxEdge”). Based in Boise, Idaho, NxEdge serves customers across the semiconductor supply chain, including top tier global integrated device manufacturers and original equipment manufacturers from six main facilities located in Idaho and California. With vertically integrated capabilities across the semiconductor value chain, including a robust aftermarket business, NxEdge is a leading supplier offering a set of integrated capabilities with unique processes resulting in a broad range of qualifications at top customers. NxEdge is included in our Advanced Surface Technologies segment. The acquisition was paid for with $856.8 million in cash, net of cash acquired. We funded the payment with available cash on hand, borrowings under our revolving credit facility and borrowings under new term loan facilities. Additionally, there were $15.0 million of acquisition-related costs recorded during the year ended December 31, 2021, which were expensed when incurred and included in selling, general and administrative expense in the accompanying Consolidated Statement of Operations for the year then ended. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the identifiable assets acquired less the liabilities assumed was reflected as goodwill which is attributable primarily to the value of the workforce and ongoing operation of the business. Goodwill recorded as part of the purchase price allocation was $359.5 million, of which $135.3 million is expected to be tax deductible over a period of 15 years. Identifiable intangible assets acquired as part of the acquisition were $413.0 million, including customer relationships, proprietary technology, trade names, and backlog, with a weighted average amortization period of approximately 14 years. Inventory acquired includes an adjustment to fair value of $12.3 million. We continue to evaluate the purchase price allocation of this acquisition, primarily the value of certain tangible and intangible assets and the related tax impacts, and it may be revised in future periods as these estimates are finalized. The following table represents the preliminary purchase price allocation:
| (in millions)
Accounts receivable | $ | 40.9 |
Inventories | 28.5 |
Property, plant and equipment | 72.5 |
Goodwill | 359.5 |
Other intangible assets | 413.0 |
Other assets | 27.2 |
Deferred income taxes | (41.3) |
Liabilities assumed | (43.5) |
| $ | 856.8 |
On October 26, 2020, a subsidiary of EnPro formed for this purpose (the "Alluxa Acquisition Subsidiary") acquired all of the equity securities of Alluxa, Inc. ("Alluxa"), a privately held, California-based company. Alluxa is an industrial technology company that provides specialized optical filters and thin-film coatings for the most challenging applications in the industrial technology, life sciences, and semiconductor markets. Alluxa's products are developed through a proprietary coating process using state-of-the-art advanced equipment. Alluxa is included with the Advanced Surface Technologies segment. Alluxa works in collaboration with customers across major end markets to provide customized, complex precision coating solutions through its specialized technology platform and proprietary processes. Alluxa has cultivated long-standing customer relationships across its diversified customer base. Alluxa’s global distribution capabilities support the company’s international reach, serving customers across the Americas, Europe, and Asia. Founded in 2007, Alluxa has two locations in California and is headquartered in Santa Rosa, California. The acquisition was paid for with $238.4 million, net of cash acquired, plus rollover equity from three Alluxa executives (the “Alluxa Executives”). Additionally, there were $5.0 million of acquisition-related costs recorded during the year ended December 31, 2020 related to this transaction which were expensed during the period and included in selling, general and administrative expense in the accompanying Consolidated Statement of Operations. In connection with the completion of the transaction, we entered into a limited liability operating agreement (the “Alluxa LLC Agreement”) with respect to the “Alluxa Acquisition Subsidiary” in connection with the rollover transaction with the Alluxa Executives receiving approximately 7% of the equity interests of the Alluxa Acquisition Subsidiary in return for their contribution of the rollover shares of Alluxa. Pursuant to the Alluxa LLC Agreement, each Alluxa Executive has the right to sell to us, and we have the right to purchase from each Alluxa Executive (collectively, the “Put and Call Rights”), one-third of the Alluxa Executive equity interests in the Alluxa Acquisition Subsidiary during each of three exercise periods in 2024, 2025 and 2026, with any amount not sold or purchased in a prior exercise period being carried forward to the subsequent exercise periods. The Alluxa LLC Agreement also provides for the purchase by us of all of an Alluxa Executive's equity interests in the Alluxa Acquisition Subsidiary in connection with the termination of employment of the Alluxa Executive under specified circumstances, with payments in certain circumstances to be made in annual installments. In certain cases involving the termination of an Alluxa Executive's employment, the consideration payable to an Alluxa Executive for the purchase of his equity interests is equal to the fixed value set forth in the Alluxa LLC Agreement (an aggregate of $17.85 million for all of the Alluxa Executives). In all other cases, including upon any exercise of the Alluxa Put and Call Rights, the consideration payable under the Alluxa LLC Agreement in connection with any such purchase by us of an Alluxa Executive's equity interests in the Alluxa Acquisition Subsidiary is equal to the greater of the fixed value of the equity interests as set forth in the Alluxa LLC Agreement or a price based upon a multiple of twelve-month adjusted EBITDA based upon certain financial metrics of the Alluxa Acquisition Subsidiary, plus cash and less indebtedness of the Alluxa Acquisition Subsidiary prior to the relevant payment, and subject to certain adjustments dependent upon the circumstances of the purchase and sale. On September 25, 2019, we acquired all of the equity securities of LeanTeq Co., Ltd. and its affiliate LeanTeq LLC (collectively referred to as “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 within the Advanced Surface Technologies segment. The acquisition was paid for with $271.2 million, net of cash acquired, plus rollover equity from two of LeanTeq sellers (the “LeanTeq Executives”) who were executives of the acquired entity. This rollover equity gives the LeanTeq Executives approximately a 10% ownership share (the "Rollover Equity") of Lunar Investment LLC (“Lunar”), EnPro’s subsidiary that purchased LeanTeq. Additionally, there were $6.4 million of acquisition-related costs recorded during the year ended December 31, 2019, which were expensed during the period and included in selling, general and administrative expense in the accompanying Consolidated Statements of Operations. Pursuant to a limited liability company agreement (the "LeanTeq LLC Agreement") entered into with respect to Lunar as part of the LeanTeq acquisition, EnPro has the right to buy from each LeanTeq Executive, (each a LeanTeq "Call Option”), and the right to sell (the "Put Option") such LeanTeq Executive's Rollover Equity as follows: EnPro has the right to buy, and the LeanTeq Executive has the right to sell, such Rollover Equity within 90 days following the third anniversary of the closing and payable in two installments as follows (the "Put/Call Price"): •Half of the price payable for the Rollover Equity is to be equal to a pro rata portion of a multiple of EBITDA (as defined) of Lunar (on a consolidated basis) during the last 12 months (“LTM”) ending on the closest month end prior to the last month end before the purchase or sale (the "First Measurement Date") less Lunar's consolidated net debt in excess of cash as of the First Measurement Date (the "First Exercise Price"). The applicable multiple depends on the future LTM EBITDA margin and revenue growth; •The remaining half of the price payable for the Rollover Equity will be equal to an amount that is the higher of the First Exercise Price and a pro rata portion of a multiple of EBITDA of Lunar (on a consolidated basis) during the LTM prior to the first anniversary of the First Measurement Date (the "Second Measurement Date") less Lunar's consolidated net debt in excess of cash as of the Second Measurement Date. The applicable multiple depends on the future LTM EBITDA margin and revenue growth. 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. The fair value of the Alluxa Executives' equity interests and the LeanTeq Executives' Rollover Equity was estimated as of the closing date of those transactions. Due to the presence of the put arrangements, the Alluxa Executives' equity interests and the LeanTeq Executives' Rollover Equity are presented as redeemable non-controlling interests since redemption is not solely within our control. We initially recognized the amount at fair value, inclusive of the put-call provisions. We adjust the redeemable non-controlling interests when the redemption value exceeds the carrying value with changes recognized as an adjustment to equity. 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”), a privately-held company 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 Technologies segment. The business was acquired for $39.3 million, net of cash acquired. Sales of $8.6 million and a pre-tax loss of $1.9 million for NxEdge are included in our Consolidated Statement of Operations for the year ended December 31, 2021. Sales of $5.7 million and a pre-tax loss of $6.1 million for Alluxa are included in our Consolidated Statement of Operations for the year ended December 31, 2020. Sales of $14.4 million and pre- tax income of $1.5 million for LeanTeq and Aseptic are included in our Consolidated Statement of Operations for the year ended December 31, 2019. The following unaudited pro forma condensed consolidated financial results of operations for the years ended December 31, 2021, 2020, and 2019 are presented as if these acquisitions had been completed on January 1, 2019:
| Years Ended December 31,
| 2021 |  | 2020 |  | 2019
| (in millions)
Pro forma net sales | $ | 1,318.2 |  |  | $ | 1,275.2 |  |  | $ | 1,360.4 |
Pro forma net income (loss) from continuing operations | 202.4 |  |  | (19.5) |  |  | (55.0) |
These amounts have been calculated after applying our accounting policies and adjusting the results of NxEdge, Alluxa, LeanTeq and Aseptic to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to inventory, property, plant and equipment and intangible assets had been applied as of January 1, 2019 as well as additional interest expense to reflect financing required, together with the corresponding tax effects. The supplemental pro forma net income for the year ended December 31, 2021 was adjusted to exclude $15.0 million of pre-tax acquisition-related costs. The supplemental pro forma net income for the year ended December 31, 2020 was adjusted to exclude $5.0 million of pre-tax acquisition-related costs. The supplemental pro forma net income for the year ended December 31, 2019 was adjusted to include $20.0 million of these charges. 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 on January 1, 2019, or of future results of the consolidated entities. Dispositions On December 21, 2021, we completed the sale of specified equity interests and assets of our Compressor Products International business ("CPI Business") included in our Engineered Materials segment. We received $185.7 million, net of transaction fees and cash sold, resulting in a pre-tax book gain of $117.6 million recorded in other income (expense) on our Consolidated Statement of Operations. On September 2, 2021, we sold certain assets and liabilities of our polymer components business unit, which was principally located in Houston, Texas and included in our Sealing Technologies segment. As a result of the sale, we recorded a pre-tax gain of $19.5 million in other income (expense) on our Consolidated Statement of Operations. On December 31, 2020, we sold the shares of Technetics Group UK Limited ("Technetics Group UK") for a nominal cash purchase price. As part of the agreement with the buyer, we delivered to the buyer £148,000 of cash to fund value added tax ("VAT") payments due for VAT liabilities already incurred and £50,000 for working capital. We incurred a loss upon the sale of approximately £976,000 ($1.3 million). Upon the resolution of all remaining open items, we recorded an additional gain of $0.1 million in the first quarter of 2021. On November 30, 2020, we closed on the sale of our bushing block business in our Engineered Materials segment principally located in Dieuze, France. Prior to finalizing the sale of the business, we determined it to be impaired and recorded a $6.2 million impairment charge that consisted of $1.8 million of non-cash impairments of long-lived assets and $4.4 million of cash payments due to the buyer at closing. The impairment charge was recorded in other operating expenses on our Consolidated Statement of Operations. Upon closing of the business, we recorded a $0.1 million gain on the sale of business in other income (expense) on our Consolidated Statement of Operations. Total charges related to the exit of our bushing block business were $6.1 million. On November 20, 2020, we completed the sale of the Air Springs portion of our heavy-duty trucking business for $23.1 million in cash, net of an estimated working capital adjustment and fees, and a long-term promissory note with a fair-value of $6.4 million (face value of $7.5 million). As part of the agreement with the buyer, we retained the U.S. accounts receivable for the business, which created a large working capital adjustment at closing. The amount of retained accounts receivable in the U.S. was approximately $8.6 million. The purchase price was subject to final working capital adjustments. In the fourth quarter of 2020, we recorded a $0.1 million loss on sale of business. Upon the resolution of all remaining open items, we recorded an additional loss of $2.1 million in the first quarter of 2021. 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 $3.1 million loss on sale of the business in other income (expense) on our Consolidated Statement of Operations, comprised of a $3.0 million non-cash loss on the sale of assets and a $0.1 million loss on other expenses. Prior to finding a buyer of the brands, we determined the assets were impaired and recorded restructuring and impairment charges of $7.4 million in other operating (income) expense on our Consolidated Statement of Operations. Total losses on the exit of our Motor Wheel® brake drum and Crewson® brake adjuster brands recorded in 2020 were $10.5 million. In the second quarter of 2020 we entered into an agreement to sell the Lunar® air disc brake business located in both the U.S. and in Shanghai, China. 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 recorded in other income (expense) on our Consolidated Statement of Operations. The sale of the Lunar® manufacturing facility located in Shanghai, China closed in the fourth quarter of 2020 for $0.9 million, resulting in a loss of $0.1 million. Prior to closing on the sale of the business, we determined the assets to be impaired and recorded a $2.1 million impairment charge, of which $1.6 million was related to impairment of long-lived assets and $0.5 million related to the impairment of inventory. The impairment of long-lived assets was recorded in other operating (income) expense and the impairment of inventory was recorded in cost of sales on our Consolidated Statement of Operations. Total net loss related to the exit of the Lunar® air disc brake business was $1.9 million. For a further discussion of the impairment charges recorded in connection with the sale of the facility in Dieuze, Motor Wheel® brake drum and Crewson® brake adjuster brands, and the Lunar® air disc brake business, see Note 3, "Other Income (Expense)". In 2019 we recorded a $16.3 million pre-tax loss related to the sale of certain assets and certain liabilities of our brake products business unit located in Rome, Georgia, which was included in our Sealing Technologies segment. The loss is composed of the loss on the sale of the business, which closed on September 25, 2019, and the loss on the sale of the facility which closed in the first quarter of 2020. As a result of the agreement to sell the related building, we recorded a $0.6 million loss in other expense on our Consolidated Statement of Operations for the year ended December 31, 2019. Upon entering the agreement, we ceased depreciation and adjusted the net book value of the building to the contracted sales price. The sale of the business resulted in a $15.7 million loss that is included in other income (expense) on our Consolidated Statement of Operations for the year ended December 31, 2019. The loss is composed of an $11.3 million non-cash loss on the sale of the business and a $4.4 million loss related to contract cancellation costs, severance, and other expenses. The aggregate sales price for the brake products business totaled $6.8 million, of which we received $3.6 million in September 2019 at the closing of the sale of the business and received $0.1 million in the fourth quarter of 2019 that was applied to the sale of the building, which closed in February 2020. On the closing of the sale of the building, we received $2.9 million. We received the balance of $0.2 million later in 2020, which was net of an adjustment based on final inventory balances. See Note 20, "Discontinued Operations," for information related to the disposition of the Fairbanks Morse division, which comprised the entire Power Systems segment.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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