15.

Acquisition

On February 28, 2013, the Company acquired Aarding Thermal Acoustics B.V., a Netherlands company (“Aarding”), pursuant to the terms of a Share Purchase Agreement, (the “SPA”) dated February 28, 2013, among the Company, CECO Environmental Netherland B.V., N.F.J.A. Pieterse Beheer B.V., and W.M. Pranger Beheer B.V., and ATA Beheer B.V. Aarding is a global provider of natural gas turbine exhaust systems and silencer applications and is now part of our Engineered Equipment Technology and Parts Group. The purchase price included cash of $24.4 million and 763,673 shares of restricted common stock. The preliminary fair value of the common stock issued has been determined to be $7.4 million which reflects the closing price of the Company’s common stock on the Closing Date and a discount related to the sale and transfer restrictions on the shares. The cash paid was funded by the Company’s cash reserves. Of the total consideration paid, €4 million ($5.2 million as of June 30, 2013) is contingent upon the future employment by the Sellers and, therefore, has been classified as prepaid compensation by the Company. The current portion of the prepaid compensation of $1.0 million is in “Prepaid expenses and other current assets”, while the non-current portion of $3.8 million is in “Deferred Charges and other assets” on the balance sheet. For the three month and six month periods ended June 30, 2013 $0.2 million and $0.3 million, respectively, of compensation expense has been recorded. Additionally, the former owners of Aarding are entitled to earn-out payments of up to €5.5 million ( $7.2 million as of June 30, 2013) upon the attainment of specified financial targets through December 31, 2017. Such earn out payments are contingent upon the continued employment of the Sellers. Accordingly, no value for the potential earn out consideration has been allocated to the purchase price of Aarding as any such payments will be reported as future compensation expense by the Company. For the three and six month periods ended June 30, 2013 $0.4 million and $0.5 million, respectively, of earn-out expense has been recorded. An accrual of $0.5 million relating to the earn-out is included within “Accounts payable and accrued expenses” on the balance sheet.

The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing. The approximate fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. 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, and the related tax balances. Such changes could result in material variances between the Company’s future financial results and the amounts presented in the unaudited pro forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.


$ in thousands
Current assets	$	15,062
Property and equipment		959
Goodwill		8,242
Intangible – finite life, net		13,477
Intangible – indefinite life		2,865

Total assets acquired		40,605
Current liabilities assumed		(8,277	)
Deferred income tax liability		(4,086	)

Net assets acquired	$	28,242

The following unaudited pro forma information represents the Company’s results of operations as if the acquisition had occurred as of January 1, 2012:


	Three Months Ended June 30				Six Months Ended June 30,
$ in thousands, except per share amounts	2013		2012		2013		2012
Net sales	$	44,433	$	42,011	$	84,150	$	82,162
Net income	$	3,043	$	2,504	$	5,347	$	5,225
Earnings per share:
Basic	$	0.17	$	0.16	$	0.30	$	0.34
Diluted	$	0.17	$	0.14	$	0.29	$	0.30

The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life, eliminate acquisition related expenses, eliminate intercompany transactions between the Company and Aarding, to reflect foregone interest income on cash paid for the acquisition and to record the income tax consequences of the pro forma adjustments. These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchase been made as of the beginning of the periods presented or of the results of operations that may occur in the future.

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