Amended Current Report Filing (8-k/a)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 3, 2014

 

 

CECO Environmental Corp.

(Exact Name of registrant as specified in its charter)

 

 

 

Delaware		000-7099		13-2566064
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

4625 Red Bank Road, Cincinnati, OH		45227
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 513-458-2600

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)

 

 

 

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EXPLANATORY NOTE

CECO Environmental Corp. (the “Company”) filed a current report on Form 8-K on November 6, 2014 (the “Original 8-K”) to report, among other things, the completion of its acquisition of Emtrol LLC (“Emtrol”). This Current Report on Form 8-K/A amends and restates in its entirety Item 9.01 of the Original Form 8-K to include the required financial statements and to present certain unaudited pro forma financial information in connection with the acquisition, which are filed as exhibits 99.1 and 99.2 hereto, respectively. The information previously reported in the Original 8-K is not hereby amended and is hereby incorporated by reference into this Form 8-K/A.

 

Item 9.01

Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated financial statements of Emtrol as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 are being filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma condensed combined financial information relating to the Company’s acquisition of Emtrol is filed as Exhibit 99.2 to this Current Report on Form 8-K/A and is incorporated herein by reference.

(d) Exhibits.

 

Exhibit No.		Description
23.1		Consent of Kutz & Company, Inc., Independent Certified Public Accountants.
99.1		Audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated financial statements of Emtrol as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013.
99.2		Unaudited Pro Forma Condensed Combined Financial Information.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: January 16, 2015				CECO Environmental Corp.
				By:		/s/ Edward J. Prajzner
						Edward J. Prajzner
						Chief Financial Officer and Secretary

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EXHIBIT INDEX

 

Exhibit No.		Description
23.1		Consent of Kutz & Company, Inc., Independent Certified Public Accountants.
99.1		Audited consolidated financial statements of Emtrol as of and for the years ended December 31, 2013 and 2012 and the unaudited condensed consolidated financial statements of Emtrol as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013.
99.2		Unaudited Pro Forma Condensed Combined Financial Information.

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 12, 2014, with respect to the consolidated financial statements of Emtrol LLC and its subsidiary for the years ended December 31, 2013 and 2012 included in the Current Report of CECO Environmental Corp. on Form 8-K/A. We hereby consent to the incorporation by reference of the aforementioned report in the Registration Statements of CECO Environmental Corp. on Forms S-3 (File No. 333-130294 and File No. 333-183275) and on Forms S-8 (File No. 333-33270, File No. 333-143527, File No. 333-159948 and File No. 333-200000).

/s/ Kutz & Company, Inc.

Great Neck, New York

January 16, 2015

Exhibit 99.1

FINANCIAL STATEMENTS

EMTROL LLC AND SUBSIDIARY

DECEMBER 31, 2013

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C O N T E N T S

 

		Page
ACCOUNTANT’S LETTER		3-4
CONSOLIDATED BALANCE SHEET		5
CONSOLIDATED STATEMENT OF INCOME AND MEMBERS’ EQUITY		6
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY		7
CONSOLIDATED STATEMENT OF CASH FLOWS		8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		9-14

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KUTZ & COMPANY, INC.

CERTIFIED PUBLIC ACCOUNTANTS

								185 Great Neck Rd. - Suite 450 Great Neck, NY 11021 Telephone [phone] Fax [phone]

ANDREW B. KUTZ

PAUL J. KUTZ

Managing Member

Emtrol LLC and Subsidiary

Islandia, New York 11749

We have audited the accompanying consolidated financial statements of Emtrol LLC and its subsidiary, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in members’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United State of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Emtrol LLC and its subsidiary as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United State of America.

/s/ Kutz & Company, Inc.

Great Neck, New York

February 12, 2014

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EMTROL LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

DECEMBER 31st

ASSETS

 

		2013				2012
CURRENT ASSETS
Cash including temporary investments		$	8,680,589			$	8,252,768
Accounts receivable, less allowance for doubtful accounts of $0			9,051,107				8,131,878
Costs incurred on uncompleted projects (Note B-4)			0				0
Inventories (Note B-6)			8,673				16,255
Other current assets			153,349				128,721
TOTAL CURRENT ASSETS			17,893,718				16,529,622
FIXTURES AND EQUIPMENT (NET) (Note C)			119,303				82,776
GOODWILL (NET) (Note A)			2,992,430				2,992,430
		$	21,005,451			$	19,604,828
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	9,145,658			$	7,943,626
Accrued expenses			479,291				670,737
Customer deposits (Note B-5)			277,328				159,917
Income taxes payable (Note E)			184,192				156,334
Due to member - Emtrol Corp.			0				239,730
TOTAL CURRENT LIABILITIES			10,086,469				9,170,344
OTHER LIABILITIES
Long Term Debt (Note J)			15,663				0
TOTAL LIABILITIES			10,102,132				9,170,344
MEMBERS’ EQUITY
Equity adjustment resulting from foreign currency conversion (Note G)			500,550				520,877
Members’ equity			10,402,769				9,913,607
TOTAL MEMBERS’ EQUITY			10,903,319				10,434,484
TOTAL LIABILITIES & MEMBERS’ EQUITY		$	21,005,451			$	19,604,828

See accountant’s audit report.

 

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EMTROL LLC AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME AND MEMBERS’ EQUITY FOR

THE YEAR ENDED DECEMBER 31, 2013

 

		2013				2012
REVENUES		$	33,371,470			$	35,453,505
COSTS AND EXPENSES
Cost of goods sold			27,207,964				29,451,741
Selling expenses			2,117,220				2,159,088
General and administrative expenses			1,543,231				1,477,322
Administrators’ salaries			219,154				220,846
Pension plan expense			305,577				257,569
TOTAL COSTS & EXPENSES			31,393,146				33,566,566
NET OPERATING EARNINGS (LOSS)			1,978,324				1,886,939
OTHER INCOME AND (EXPENSES)
Interest and dividend income			6,895				8,248
Gain (loss) on foreign currency transactions (Note G)			119,141				(82,531	)
Miscellaneous Income			0				74,045
OTHER INCOME AND (EXPENSES)			126,036				(238	)
EARNINGS (LOSS) BEFORE INCOME TAXES			2,104,360				1,886,701
INCOME TAX PROVISION (Note E)			178,927				146,195
NET EARNINGS (LOSS)			1,925,433				1,740,506
MEMBERS’ EQUITY JANUARY 1ST			9,913,607				9,303,581
SUBTOTAL			11,839,040				11,044,087
LESS: DISTRIBUTION TO MEMBERS			(1,436,271	)			(1,130,480	)
MEMBERS’ EQUITY DECEMBER 31ST		$	10,402,769			$	9,913,607

See accountant’s audit report.

 

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EMTROL LLC AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY

YEAR ENDED DECEMBER 31, 2013

 

		Totals				Managing Member				Non-managing Members
BEGINNING MEMBERS
EQUITY - January 1, 2012		$	9,303,581			$	9,303,581			$	0
Net Income (Loss) for the year - 2012		$	1,740,506				1,740,506				0
Add: Guaranteed Payments to non-managing members deducted to arrive at Net Income (Loss) for the year 2012		$	2,099,208				0				2,099,208
Subtotal		$	13,143,295			$	11,044,087			$	2,099,208
DISTRIBUTIONS TO MEMBERS
Non-managing Members			(2,099,208	)			0				(2,099,208	)
Managing Member			(1,130,480	)			(1,130,480	)			0
Total Distributions			(3,229,688	)			(1,130,480	)			(2,099,208	)
ENDING MEMBERS’ EQUITY
December 31, 2012		$	9,913,607			$	9,913,607			$	0
Net Income (Loss) - 2013			1,925,433				1,925,433				0
Add: Guaranteed Payments to non-managing members deducted to arrive at Net Income (Loss) for 2013			2,273,595				0				2,273,595
Subtotal		$	14,112,635			$	11,839,040			$	2,273,595
DISTRIBUTIONS TO MEMBERS
Non Managing Members			(2,273,595	)			0				(2,273,595	)
Managing Member			(1,436,271	)			(1,436,271	)			0
Total Distributions			(3,709,866	)			(1,436,271	)			(2,273,595	)
ENDING MEMBER’S EQUITY
December 31, 2013		$	10,402,769			$	10,402,769			$	0

See accountant’s audit report.

 

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EMTROL LLC AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013

 

		2013				2012
CASH FLOW FROM OPERATING ACTIVITIES
Net income		$	1,925,433			$	1,740,506
Adjustment to reconcile cash flow: Depreciation and amortization			37,908				34,170
Equity adjustment resulting from foreign currency conversion			(20,327	)			42,707
Decrease (increase) in current assets
Accounts receivable			(919,229	)			6,361,190
Costs incurred on incomplete contracts			0				16,509
Inventories			7,582				359
Other current assets and prepayments			(24,628	)			1,970
Increase (decrease) in current liabilities:
Accounts payable			1,202,032				(6,724,612	)
Accrued expenses			(191,446	)			(65,912	)
Customer deposits			117,411				(183,204	)
Income taxes payable			27,858				(97,461	)
TOTAL ADJUSTMENTS			237,161				(614,284	)
Cash provided (used) by operations			2,162,594				1,126,222
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of fixed assets (net of removals)			(74,435	)			(67,899	)
Cash provided (used) by investing			(74,435	)			(67,899	)
CASH FLOW FROM FINANCING ACTIVITIES
Long Term Debt Incurred			15,663				0
Advance from Member - Emtrol Corp.			(239,730	)			341,677
(Distributions) to Managing Member			(1,436,271	)			(1,130,480	)
Cash provided (used) by financing			(1,660,338	)			(788,803	)
Net increase (decrease) in cash			427,821				269,520
Cash at beginning of year			8,252,768				7,983,248
Cash at end of year		$	8,680,589			$	8,252,768

See accountant’s audit report

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

NOTE A - ORGANIZATION

Emtrol Corporation was incorporated May 23, 1973, under the law of the State of Delaware, and is engaged in the design and sale of pollution control equipment. The equipment is fabricated by various subcontractors in accordance with customer contracts and specifications. The equipment is used primarily by companies engaged in the petroleum, chemical, mining, and other heavy industries.

As of January 1, 1999, Emtrol Corporation transferred substantially all of its assets subject to liabilities, to Emtrol LLC, (a New York Limited Liability Company) in exchange for a 100% interest in newly formed Emtrol LLC, which continues to operate the business. Certain key employees of the corporation have been granted minority member interests in the new LLC, which will entitle them to participate in any increase in the equity of the business, after certain priority distributions, as well as participate in the proceeds of any sale of the business.

NOTE B - PRINCIPLES OF ACCOUNTING

(1) CONSOLIDATION

The consolidated financial statements include the operations and changes in financial position of Emtrol LLC (both United States and United Kingdom divisions), as well as those of its Canadian subsidiary Emtrol, Ltd. All significant intercompany balances and transactions have been eliminated.

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

NOTE B - PRINCIPLES OF ACCOUNTING  (CONTINUED)

 

(2) REVENUE RECOGNITION

These financial statements have been prepared on the accrual basis of accounting. Expenses are recognized when incurred. Revenue is recognized on the percentage of completion basis on the sale of pollution control equipment, which comprises the vast majority of the company’s revenue. Revenue is recognized in proportion to the ratio that costs expended on current contracts bears to the total estimated cost of such contracts.

(3) DEPRECIATION

Depreciation is computed at the maximum allowable amounts for both financial reporting and income tax purposes, in accordance with regulations established by the Internal Revenue Service in the United States, and the Inland Revenue of the United Kingdom.

(4) COSTS INCURRED ON UNCOMPLETED CONTRACTS

Costs Incurred on Uncompleted Contracts represents charges from subcontractors who fabricate pollution control equipment for Emtrol’s customers, in excess of customer billings on these contracts.

(5) CUSTOMER DEPOSITS

Customer deposits represent advance payments to Emtrol LLC by its customers on incomplete contracts. These deposits are recognized as revenue as the contracts progress.

(6) INVENTORIES

Inventories consist of spare parts and supplies, and are valued at a lower of cost or market value, applied on a first in, first out (FIFO) basis. Inventories are not a material income producing factor.

(7) RESEARCH AND DEVELOPMENT

The company expenses currently all research and development costs for financial reporting purposes, and for income tax purposes pursuant to Section 174 of the Internal Revenue Code. Such costs amounted to $9,576 in 2013 and $30,397 in 2012.

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

NOTE B - PRINCIPLES OF ACCOUNTING  (CONTINUED)

 

(8) GUARANTEED PAYMENTS TO MEMBERS

Guaranteed payments to the non managing members that are intended as compensation for services rendered are accounted for as expenses of the LLC rather than as allocations of LLC net income. Guaranteed payments to the managing members that are intended as payments for capital contributed are not accounted for as expenses of the LLC, but rather, as part of the allocation of net income.

NOTE C - FIXTURES AND EQUIPMENT

Fixtures and equipment consisted of the following at December 31st:

 

		2013				2012
Furniture, office equipment, and computers		$	420,506			$	344,649
Vehicles			0				0
			420,506				344,649
Less: Accumulated Depreciation			(301,203	)			(261,873	)
		$	119,303			$	82,776

Fixtures and equipment, which are recorded at cost, are being depreciated using the double declining and straight-line methods over useful lives ranging from 5 to 7 years. Depreciation and amortization expense was $37,908 in 2013 and $34,170 in 2012.

Obsolete and fully depreciated equipment in the amount of $649,058 was written off in 2012.

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

 

NOTE D - BUSINESS SEGMENTS INFORMATION

The following is a breakdown, by geographical area, of certain key amounts included in these consolidated financial statements, shown in thousands of dollars:

 

		2013
		TOTAL				UNITED STATES				UNITED KINGDOM				CANADA
Total Assets		$	21,005				15,904				4,132				969
Liabilities			10,102				6,285				3,078				739
Revenues			33,371				23,718				8,075				1,578
Net Income (Loss)			1,925				1,310				550				65

NOTE E - INCOME TAXES

The company is not a taxpaying entity for federal income tax purposes, and thus, no federal income tax expense has been recorded in the financial statements. The income of the company is taxed directly to the members, on their respective tax returns.

New York State, in which the Company is organized, has similar provisions that recognize an LLC as a non taxpaying entity. Consequently, no New York State income taxes have been provided for in the financial statements. The Company is subject to a small per-member filing fee imposed annually by the State of New York.

Provisions have been made in these financial statements for United Kingdom and Canadian income taxes, where applicable.

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

 

NOTE F - PENSION AND PROFIT SHARING PLANS

The Company has established a defined contribution pension plan covering all eligible employees. Employees are eligible to participate in the plan after completing one year of service and attaining age 21. Employer profit sharing contributions are allocated on a pro rata formula based on compensation. Participants in the plan become vested on a graduated basis, with 100% vesting after six years of service. Normal retirement age under the plan is 65. The Company has amended and restated the existing profit sharing plan of Emtrol Corporation, effective January 1, 1995 to Emtrol LLC as of January 1, 1999. The contributions to the plan were $305,577 for 2013 and $257,569 for 2012.

NOTE G - FOREIGN CURRENCY TRANSLATION

The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 52, covering the currency translation of financial statements of multinational operations. Accordingly, foreign statements of operations for the years ended December 31, 2013 and 2012 were translated into U.S. dollars using average currency exchange rates in effect during the period, and financial position balances were translated at exchange rates in effect at year end. Currency effect changes resulting from the differences in translation rates used to translate such financial statements into U.S. dollars are included as a component of the stockholder’s equity section of the consolidated balance sheets at December 31, 2013 and 2012. Transactional gains and losses resulting from currency exchange fluctuations are included in the consolidated statement of operations. Currency effect changes resulted in a loss of $(20,327) for 2013 and a gain of $42,707 for 2012, while transactional currency fluctuations resulted in a gain of $119,141 for 2013 and a loss of $(82,531) for 2012.

NOTE H - COMMITMENT AND CONTINGENCIES

LETTERS OF CREDIT

The company has a credit facility with M&T Bank, whereby the bank will provide letters of credit up to $10,000,000, plus a line of credit for operations of up to $1,000,000.

At December 31, 2013, the Company has 17 outstanding letters of credit totaling $5,802,735. The letters of credit serve as guarantees of customer advanced payments for contract performance and equipment warranty to Emtrol LLC’s customers. To date, no losses have been incurred under this letter of credit arrangement.

 

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

 

NOTE I - LEASES

The Company leases its main facility at 1440 Veteran’s Memorial Highway, Islandia, New York from a partnership which is owned by several of the beneficial owners of Emtrol LLC. The current lease runs September 1, 2013 through August 31, 2014. The rent payable under the lease is $13,835 per month. Rent expense under this lease was $163,191 for 2013 and $158,093 for 2012.

The Company also leases space in the United Kingdom, from an unrelated party, at the rate of $24,912 per annum.

The Company also leases several automobiles and pieces of office equipment under operating lease agreements.

NOTE J - LONG TERM DEBT

The Company purchased a piece of office equipment under a capitalized lease arrangement in 2013. The lease calls for monthly payments of $347 including interest at 12.78% through February of 2019. The breakdown of the current and non-current portion of the long term debt is as follows:

 

		2013
Current portion of long term debt		$	2,287
Non-current portion			13,376
Total Long Term Debt		$	15,663

 

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CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

EMTROL LLC AND SUBSIDIARY

SEPTEMBER 30, 2014

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CONTENTS

 

		PAGE
CONDENSED CONSOLIDATED BALANCE SHEETS		3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS’ EQUITY		4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		6

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EMTROL LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED

BALANCE SHEETS

September 30, 2014 and December 31, 2013

(unaudited)

ASSETS

 

		2014				2013
CURRENT ASSETS
Cash and cash equivalents		$	8,947,373			$	8,680,589
Accounts receivable, less allowance for doubtful accounts			8,382,960				2,081,007
Costs and estimated earnings in excess of billings on uncompleted contracts			4,803,573				6,970,100
Inventories			7,895				8,673
Other current assets			341,652				153,349
TOTAL CURRENT ASSETS			22,483,453				17,893,718
FIXTURES AND EQUIPMENT (NET)			125,838				119,303
GOODWILL (NET)			2,992,430				2,992,430
TOTAL ASSETS		$	25,601,721			$	21,005,451
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	9,974,987			$	9,145,658
Accrued expenses			2,213,397				479,291
Customer deposits			2,299,364				277,328
Income taxes payable			236,929				184,192
TOTAL CURRENT LIABILITIES		$	14,724,677			$	10,086,469
LONG TERM DEBT			18,909				15,663
TOTAL LIABILITIES			14,743,586				10,102,132
MEMBERS’ EQUITY
Equity adjustment resulting from foreign currency conversion			415,651				500,550
Members’ equity			10,442,484				10,402,769
TOTAL MEMBERS’ EQUITY			10,858,135				10,903,319
TOTAL LIABILITIES & MEMBERS’ EQUITY		$	25,601,721			$	21,005,451

 

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EMTROL LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 and 2013

(unaudited)

 

		2014				2013
REVENUES		$	29,836,617			$	25,839,879
COSTS AND EXPENSES
Cost of goods sold		$	24,731,055			$	21,012,430
Selling expenses			1,693,559				1,405,527
General and administrative expenses			1,377,134				1,102,647
Administrators’ salaries			159,901				165,000
Pension plan expense			304,676				26,243
TOTAL COSTS & EXPENSES		$	28,266,325			$	23,711,847
NET OPERATING EARNINGS			1,570,292				2,128,032
OTHER INCOME AND (EXPENSES)
Interest income			2,792				5,279
Gain on foreign currency transactions			90,122				71,577
OTHER INCOME AND (EXPENSES)			92,914				76,856
EARNINGS BEFORE INCOME TAXES			1,663,206				2,204,888
INCOME TAX PROVISION			240,492				77,432
NET EARNINGS			1,422,714				2,127,456
MEMBERS’ EQUITY JANUARY 1st			10,402,769				9,913,607
SUBTOTAL			11,825,483				12,041,063
LESS: DISTRIBUTIONS TO MEMBERS			(1,382,999	)			(1,082,271	)
MEMBERS’ EQUITY SEPTEMBER 30th		$	10,442,484			$	10,958,792

 

 

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EMTROL LLC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF

CASH FLOWS FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2014 and 2013

(unaudited)

 

		2014				2013
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings		$	1,422,714			$	2,127,456
Adjustment to reconcile cash flow
Depreciation and amortization			31,780				26,560
Equity adjustment resulting from foreign currency conversion			(84,899	)			(21,065	)
Decrease (increase) in current assets
Accounts receivable			(4,135,426	)			(4,477,077	)
Costs incurred on incomplete contracts			0				0
Inventories			778				7,402
Other current assets and prepayments			(188,303	)			(42,134	)
Increase (decrease) in current liabilities
Accounts payable			829,329				2,632,308
Accrued expenses			1,734,106				(63,676	)
Customer deposits			2,022,036				1,050,133
Income taxes payable			52,737				(72,964	)
TOTAL ADJUSTMENTS		$	262,138			$	(960,513	)
Cash provided by operations		$	1,684,852			$	1,166,943
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of fixed assets			(38,314	)			(51,211	)
Cash provided (used) by investing			(38,314	)			(51,211	)
CASH FLOW FROM FINANCING ACTIVITIES
Long term debt incurred (paid)			3,245				0
Advance from Member repaid - Emtrol Corp.			0				(239,730	)
Distributions to Member			(1,382,999	)			(1,082,271	)
Cash used by financing			(1,379,754	)			(1,322,001	)
Net increase (decrease) in cash			266,784				(206,269	)
Cash at beginning of period ( January 1st)			8,680,589				8,252,768
Cash at end of period (September 30th)		$	8,947,373			$	8,046,499

 

-5-

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(unaudited)

NOTE A - ORGANIZATION

Emtrol Corporation was incorporated May 23, 1973, under the law of the State of Delaware, and is engaged in the design and sale of pollution control equipment. The equipment is fabricated by various subcontractors in accordance with customer contracts and specifications. The equipment is used primarily by companies engaged in the petroleum, chemical, mining, and other heavy industries.

As of January 1, 1999, Emtrol Corporation transferred substantially all of its assets subject to liabilities, to Emtrol LLC, (a New York Limited Liability Company) in exchange for a 100% interest in newly formed Emtrol LLC, which continues to operate the business. Certain key employees of the corporation have been granted minority member interests in the new LLC, which will entitle them to participate in any increase in the equity of the business, after certain priority distributions, as well as participate in the proceeds of any sale of the business.

NOTE B - PRINCIPLES OF ACCOUNTING

(1) CONSOLIDATION

These condensed consolidated financial statements have been prepared for the nine month periods ended September 30, 2014 and 2013. Certain footnote disclosures normally included in the financial statements and prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.

The condensed consolidated financial statements include the operations and changes in financial position of Emtrol LLC (both United States and United Kingdom divisions), as well as those of its Canadian subsidiary Emtrol, Ltd. All significant intercompany balances and transactions have been eliminated.

 

-6-

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(unaudited)

NOTE B - PRINCIPLES OF ACCOUNTING

 

(2) REVENUE RECOGNITION

These financial statements have been prepared on the accrual basis of accounting. Expenses are recognized when incurred. Revenue is recognized on the percentage of completion basis on the sale of pollution control equipment, which comprises the vast majority of the company’s revenue. Revenue is recognized in proportion to the ratio that costs expended on current contracts bears to the total estimated cost of such contracts.

(3) DEPRECIATION

Depreciation is computed at the maximum allowable amounts for both financial reporting and income tax purposes, in accordance with regulations established by the Internal Revenue Service in the United States, and the Inland Revenue of the United Kingdom.

(4) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts represents charges from subcontractors who fabricate pollution control equipment for Emtrol’s customers plus the estimated earnings on those costs in excess of customer billings on these contracts.

(5) CUSTOMER DEPOSITS

Customer deposits represent advance payments to Emtrol LLC by its customers on incomplete contracts. These deposits are recognized as revenue as the contracts progress.

(6) INVENTORIES

Inventories consist of spare parts and supplies, and are valued at a lower of cost or market value, applied on a first in, first out (FIFO) basis. Inventories are not a material income producing factor.

(7) RESEARCH AND DEVELOPMENT

The company expenses currently all research and development costs for financial reporting purposes, and for income tax purposes pursuant to Section 174 of the Internal Revenue Code.

 

-7-

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(unaudited)

NOTE B - PRINCIPLES OF ACCOUNTING

 

(8) GUARANTEED PAYMENTS TO MEMBERS

Guaranteed payments to the non managing members that are intended as compensation for services rendered are accounted for as expenses of the LLC rather than as allocations of LLC net income. Guaranteed payments to the managing members that are intended as payments for capital contributed are not accounted for as expenses of the LLC, but rather, as part of the allocation of net income.

NOTE C - FIXTURES AND EQUIPMENT

Fixtures and equipment, which are recorded at cost, are being depreciated using the double declining and straight-line methods over useful lives ranging from 5 to 7 years.

NOTE D - INCOME TAXES

The company is not a taxpaying entity for federal income tax purposes, and thus, no federal income tax expense has been recorded in the financial statements. The income of the company is taxed directly to the members, on their respective tax returns.

New York State, in which the Company is organized, has similar provisions that recognize an LLC as a non taxpaying entity. Consequently, no New York State income taxes have been provided for in the financial statements. The Company is subject to a small per-member filing fee imposed annually by the State of New York.

Provisions have been made in these financial statements for United Kingdom and Canadian income taxes, where applicable.

NOTE E - PENSION AND PROFIT SHARING PLANS

The Company has established a defined contribution pension plan covering all eligible employees. Employees are eligible to participate in the plan after completing one year of service and attaining age 21. Employer profit sharing contributions are allocated on a pro rata formula based on compensation. Participants in the plan become vested on a graduated basis, with 100% vesting after six years of service. Normal retirement age under the plan is 65. The Company has amended and restated the existing profit sharing plan of Emtrol Corporation, effective January 1, 1995 to Emtrol LLC as of January 1, 1999.

NOTE F - FOREIGN CURRENCY TRANSLATION

The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 52, covering the currency translation of financial statements of multinational operations. Accordingly, foreign statements of operations for the periods ended September 30, 2014 and 2013 were translated into U.S. dollars using average currency exchange rates in effect during the period, and financial position balances were translated at exchange rates in effect at year end. Currency effect changes resulting from the differences in translation rates used to translate such financial statements into U.S. dollars are included as a component of the members’ equity section of the condensed consolidated balance sheets. Transactional gains and losses resulting from currency exchange fluctuations are included in the condensed consolidated statement of operations.

 

-8-

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EMTROL LLC AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

(unaudited)

 

NOTE G - COMMITMENT AND CONTINGENCIES

LETTERS OF CREDIT

The company has a credit facility with M&T Bank, whereby the bank will provide letters of credit up to $10,000,000, plus a line of credit for operations of up to $1,000,000. At September 30, 2014, the Company has 22 outstanding letters of credit totaling $7,185,880. The letters of credit serve as guarantees of customer advanced payments for contract performance and equipment warranty to Emtrol LLC’s customers. To date, no losses have been incurred under this letter of credit arrangement.

NOTE H - LEASES

The Company leases its main facility at 1440 Veteran’s Memorial Highway, Islandia, New York from a partnership which is owned by several of the beneficial owners of Emtrol LLC.

The Company also leases space in the United Kingdom, from an unrelated party.

The Company also leases several automobiles and pieces of office equipment under operating lease agreements.

NOTE I - LONG TERM DEBT

The Company purchased a piece of office equipment under a capitalized lease arrangement in 2013. The lease calls for monthly payments of $347 including interest at 12.78% through February of 2019. The entire obligation is classified as long term debt on the condensed consolidated balance sheet.

 

-9-

Exhibit 99.2

CECO Environmental Corp. and Subsidiaries

Unaudited Pro Forma Condensed Combined Financial Information

In thousands, except share data

On November 3, 2014 (the “Closing Date”), CECO Environmental Corp., through its subsidiary Fisher-Klosterman, Inc. (collectively, the “Company” or “CECO”), acquired 100% of the membership interests of Emtrol LLC (“Emtrol”), a New York limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement (“MIPA”) among CECO and each of the members of Emtrol (the “Sellers”). Emtrol and its subsidiary are engaged in the business of designing and manufacturing of fluid catalytic cracking (“FCC”) and industrial cyclone technology for a variety of industries including the refinery, petrochemical, and chemical sectors.

The Company paid cash at closing of $32,000, 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 $6,000 computed based on the average closing price of the Company’s common stock for the thirty trading days immediately preceding the Closing Date. The shares of common stock issued to the Sellers contain restrictions on sale or transfer for periods ranging from one to two years from the Closing Date. Accordingly, the preliminary fair value of the common stock issued has been determined to be $5,435, which reflects the estimated fair value of the shares based on the closing price of the Company’s common stock on the Closing Date and a discount related to the sale and transfer restrictions.

The unaudited pro forma condensed combined balance sheet as of September 30, 2014 is presented as if the acquisition of Emtrol had occurred on that date. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2013 and nine months ended September 30, 2014 are presented as if the Emtrol acquisition had occurred on January 1, 2013.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or results of operations that would have actually been reported had the acquisition occurred as of the dates indicated, nor is it necessarily indicative of future consolidated financial position or results of operations. The unaudited pro forma condensed combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the costs necessary to achieve these cost savings, or synergies, and such differences may be material.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the audited financial statements of CECO and Emtrol as of and for the year ended December 31, 2013, and interim financial results of CECO and Emtrol as of September 30, 2014 and for the nine months then ended. The estimated 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.

The unaudited pro forma condensed combined financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and with Emtrol’s historical consolidated financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this document is filed as an exhibit.

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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2014

 

(in thousands, except share and per share amounts)		Historical CECO				Historical Emtrol				Notes				Pro Forma Adjustments				Pro Forma Condensed Combined
Current Assets:
Cash and cash equivalents		$	18,039			$	8,947							$	—			$	26,986
Accounts receivable, net		$	47,639			$	4,804							$	—			$	52,443
Costs and estimated earnings in excess of billings on uncompleted contracts		$	13,999			$	8,383							$	—			$	22,382
Inventories, net		$	26,541			$	8							$	—			$	26,549
Prepaid expenses and other current assets		$	6,594			$	342							$	—			$	6,936
Prepaid income taxes		$	8,471				—							$	—			$	8,471
Assets held for sale		$	4,210				—							$	—			$	4,210
TOTAL CURRENT ASSETS		$	125,493			$	22,484							$	—			$	147,977
Property, plant and equipment, net		$	18,173			$	126							$	—			$	18,299
Goodwill		$	144,267			$	2,992				C			$	10,827			$	158,086
Intangible assets — finite life, net		$	40,399			$	—				D			$	15,750			$	56,149
Intangible assets — indefinite life		$	18,169			$	—							$	—			$	18,169
Deferred charges and other assets		$	4,051			$	—				F			$	70			$	4,121
TOTAL ASSETS		$	350,552			$	25,602							$	26,647			$	402,801
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of debt		$	8,236			$	—				A			$	529			$	8,765
Accounts payable and accrued expenses		$	33,565			$	14,488				F			$	370				48,766
											G			$	343
Billings in excess of costs and estimated earnings on uncompleted contracts		$	12,812			$	—							$	—			$	12,812
Income taxes payable		$	1,131			$	237							$	—			$	1,368
TOTAL CURRENT LIABILITIES		$	55,744			$	14,725							$	1,242			$	71,711
Other liabilities		$	11,180			$	—							$	—			$	11,180
Debt, less current portion		$	76,074			$	19				A			$	31,471			$	107,264
											F			$	(300	)
Deferred income tax liability, net		$	29,690			$	—							$	—			$	29,690
TOTAL LIABILITIES		$	172,688			$	14,744							$	32,413			$	219,845
COMMITMENTS AND CONTINGENCIES
Shareholders’ equity:
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued		$	—			$	—							$	—			$	—
Common stock, $0.01 par value; 100,000,000 shares authorized, 25,865,569 and 26,319,427 shares issued as of September 30, 2014 and pro forma, respectively		$	259			$	—				B			$	5			$	264
Capital in excess of par value		$	161,360			$	—				B			$	5,430			$	166,790
Accumulated earnings		$	18,754			$	10,442				E			$	(10,442	)		$	18,411
											G			$	( 343	)
Accumulated other comprehensive loss		$	(2,153	)		$	416				E			$	(416	)		$	(2,153	)
		$	178,220			$	10,858							$	(5,766	)		$	183,312
Less treasury stock, at cost, 137,920 shares as of September 30, 2014 and pro forma		$	(356	)		$	—							$	—			$	(356	)
TOTAL SHAREHOLDERS’ EQUITY		$	177,864			$	10,858							$	(5,766	)		$	182,956
		$	350,552			$	25,602							$	26,647			$	402,801

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements

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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013

(amounts in thousands, except share and per share amounts)

 

		Historical CECO				Historical Emtrol								Pro Forma Adjustments				Pro Forma Condensed Combined
Net sales		$	197,317			$	33,371							$	—			$	230,688
Cost of sales		$	135,762			$	27,208							$	—			$	162,970
GROSS PROFIT		$	61,555			$	6,163							$	—			$	67,718
Selling and administrative expenses		$	37,098			$	4,185							$	—			$	41,283
Acquisition and integration expenses		$	7,224			$	—							$	—			$	7,224
Amortization and earnout expenses		$	6,761			$	—				D			$	2,310			$	9,071
Legal reserves		$	3,500			$	—							$	—			$	3,500
INCOME FROM OPERATIONS		$	6,972			$	1,978							$	(2,310	)		$	6,640
Other (expense) income, net		$	982			$	126							$	—			$	1,108
Interest expense		$	(1,499	)		$	—				F			$	(72	)		$	(2,285	)
											H			$	(714	)
INCOME BEFORE TAXES		$	6,455			$	2,104							$	(3,096	)		$	5,463
Income tax (benefit) expense		$	(102	)		$	179				I			$	(1,053	)		$	(481	)
											J				495
NET INCOME		$	6,557			$	1,925							$	(2,538	)		$	5,944
Per share data:
Basic net income per share		$	0.33															$	0.29
Diluted net income per share		$	0.32															$	0.28
Weighted average number of common shares outstanding:
Basic			20,116,991								B				453,858				20,570,849
Diluted			20,719,951								B				453,858				21,173,809

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements

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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(amounts in thousands, except share and per share amounts)

 

		Historical CECO				Historical Emtrol								Pro Forma Adjustments				Pro Forma Condensed Combined
Net sales		$	187,111			$	29,837							$	—			$	216,948
Cost of sales		$	124,875			$	24,731							$	—			$	149,606
GROSS PROFIT		$	62,236			$	5,106							$	—			$	67,342
Selling and administrative expenses		$	36,402			$	3,536							$	—			$	39,938
Acquisition and integration expenses		$	321			$	—							$	—			$	321
Amortization and earnout expenses		$	7,288			$	—				D			$	1,733			$	9,021
Legal reserves		$	300			$	—							$	—			$	300
INCOME FROM OPERATIONS		$	17,925			$	1,570							$	(1,733	)		$	17,762
Other (expense) income, net		$	(1,686	)		$	93							$	—			$	(1,593	)
Interest expense		$	(2,255	)		$	—				F			$	(54	)		$	(2,844	)
											H			$	(535	)
INCOME BEFORE TAXES		$	13,984			$	1,663							$	(2,322	)		$	13,325
Income tax expense		$	2,767			$	240				I			$	(789	)		$	2,462
											J				244
NET INCOME		$	11,217			$	1,423							$	(1,777	)		$	10,863
Per share data:
Basic net income per share		$	0.44															$	0.42
Diluted net income per share		$	0.43															$	0.41
Weighted average number of common shares outstanding:
Basic			25,647,561								B				453,858				26,101,419
Diluted			26,105,415								B				453,858				26,559,273

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements

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Notes to Unaudited Pro Forma Condensed Combined Financial Information

(amounts in thousands, except share data)

1. Description of Transaction

On November 3, 2014 (the “Closing Date”), CECO Environmental Corp., through its subsidiary Fisher-Klosterman, Inc. (collectively, the “Company” or “CECO”), acquired 100% of the membership interests of Emtrol LLC (“Emtrol”), a New York limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement (“MIPA”) among CECO and each of the members of Emtrol (the “Sellers”). Emtrol and its subsidiary are engaged in the business of designing and manufacturing of fluid catalytic cracking (“FCC”) and industrial cyclone technology for a variety of industries including the refinery, petrochemical, and chemical sectors.

The Company paid cash at closing of $32,000, 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 $6,000 computed based on the average closing price of the Company’s common stock for the thirty trading days immediately preceding the Closing Date. The shares of common stock issued to the Sellers contain restrictions on sale or transfer for periods ranging from one to two years from the Closing Date. Accordingly, the preliminary fair value of the common stock issued has been determined to be $5,435, which reflects the estimated fair value of the shares based on the closing price of the Company’s common stock on the Closing Date and a discount related to the sale and transfer restrictions.

2. Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the audited financial statements of CECO and Emtrol as of and for the year ended December 31, 2013, and interim financial results of CECO and Emtrol as of September 30, 2014 and for the nine months then ended. Certain reclassifications were made to the overall presentation of the historical Emtrol consolidated financial statements to conform to CECO’s presentation. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2013 and nine months ended September 30, 2014 are presented as if the Emtrol acquisition had occurred on January 1, 2013.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or results of operations that would have actually been reported had the acquisition occurred as of January 1, 2013 or September 30, 2014, nor is it necessarily indicative of future consolidated financial position or results of operations. The unaudited pro forma condensed combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the costs necessary to achieve these cost savings, or synergies, and such differences may be material.

The estimated 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.

The unaudited pro forma condensed combined financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and with Emtrol’s historical consolidated financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this document is filed as an exhibit.

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Acquisition-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. The unaudited pro forma condensed combined statements of income do not include Emtrol acquisition-related transaction costs.

3. Assets Acquired and Liabilities Assumed

A summary of the total purchase price consideration to be allocated by CECO in the acquisition of Emtrol is provided below.

 

Cash payments at Closing		$	32,000
Value of common stock transferred			5,435
Total purchase price consideration to be allocated		$	37,435

The preliminary estimated assets acquired and liabilities assumed by CECO in the acquisition of Emtrol, reconciled to the consideration transferred, are provided below and are presented as if the acquisition had occurred on September 30, 2014.

 

Book value of net assets acquired		$	10,858
Adjustment for elimination of historical goodwill			(2,992	)
Adjusted book value of net tangible assets acquired			7,866
Adjustments to:
Goodwill			13,819
Intangible assets—finite life			15,750
Total purchase price consideration to be allocated		$	37,435

4. Pro Forma Adjustments

This note should be read in conjunction with Note 1. Description of Transaction; Note 2 Basis of Presentation; and Note 3. Assets Acquired and Liabilities Assumed.

Adjustments under the heading “Pro Forma Adjustments” represent the following:

 

A.	To record the cash consideration paid at closing of $32,000 consisting of current debt of $529 and long-term debt of $31,471.

 

B.	To record the issuance of 453,858 shares of CECO common stock with an estimated value of $5,435.

 

C.	To record the preliminary estimated residual goodwill of $13,819 and eliminate the Emtrol historical goodwill of $2,992.

 

D.	To record the preliminary estimated fair value of intangible assets acquired from Emtrol. CECO engaged a third party valuation specialist to assist management. Based on the preliminary assessment, the acquired intangible asset categories, fair value and average amortization periods are as follows:

 

		Fair Value				Average Amortization Method/Period		Estimated Annual Amortization Expense
Intangible assets—finite life Customer relationships		$	13,000			Cash flow		$	1,950
Intangible assets—finite life Tradename		$	1,900			10 years		$	190
Intangible assets—finite life Non-compete agreements		$	850			5 years		$	170
Total		$	15,750					$	2,310

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The preliminary estimated fair value of customer relationships and non-compete agreements are based upon pro forma cash flows using historical and market participant data. The preliminary estimated fair value of the tradename is based on the “relief from royalty” method.

 

E.	To eliminate shareholders’ equity of Emtrol as of the date of the acquisition.

 

F.	To record approximately $370 of deferred charges related to debt issuance costs associated with the debt facilities and record the expense of $72 annually, or $54 for the nine-month period.

 

G.

To record the accrual and offsetting charge to retained earnings for the estimated acquisition related expenses totaling approximately $343 that will be incurred and paid in 2014. No adjustment has been made to the unaudited pro forma condensed combined statement of income for these costs as they are non-recurring.

 

H.	To record interest on the term loan facility in connection with the Emtrol acquisition at Eurocurrency (as defined in the credit agreement) rate plus 200 basis points (2.25%, which is the market rate as of the date of this filing).

 

I.

To record the recognition of the income tax consequences of the pro forma adjustments herein. The adjustments have been tax effected at estimated statutory rates. Emtrol LCC is a single member LLC, therefore, for federal tax purposes, this acquisition is treated as an asset acquisition. As such, book and tax basis of assets and liabilities acquired will equal resulting in no additional deferred tax assets or liabilities.

 

J.	To record US Federal and New York State taxes of Emtrol LLC at a combined rate of 36%, as the US entity is now taxed as a C-Corporation.