6. Acquisitions

On May 12, 2011, we acquired as part of our Water Group the Clean Process Technologies (“CPT”) division of privately held Norit Holding B.V. for $715.3 million (€502.7 million translated at the May 12, 2011 exchange rate). CPT’s results of operations have been included in our consolidated financial statements since the date of acquisition. CPT is a global leader in membrane solutions and clean process technologies and significantly expands our position in the high growth water and beverage filtration and separation segments. CPT provides sustainable purification systems and solutions for desalination, water reuse, industrial applications and beverage segments that effectively address the increasing challenges of clean water scarcity, rising energy costs and pollution. CPT’s product offerings include innovative ultrafiltration and nanofiltration membrane technologies, aseptic valves, CO₂ recovery and control systems and specialty pumping equipment. Based in the Netherlands, CPT has broad sales diversity with the majority of 2010 revenues generated in European Union countries and Asia-Pacific

The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $451.8 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition were $197.2 million, including definite-lived intangibles, such as customer relationships, proprietary technology and trade names with a weighted average amortization period of approximately 10 years.

The CPT business records certain long term contracts under the percentage-of-completion method of accounting. Under this method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. We record costs and earnings in excess of billings on uncompleted contracts within Prepaid expenses and other current assets and billings in excess of costs and earnings on uncompleted contracts within Other current liabilities in the Condensed Consolidated Balance Sheets. Amounts included in Prepaid expenses and other current assets related to these contracts were $40.4 million at July 2, 2011. Amounts included in Other current liabilities related to these contracts were $11.3 million at July 2, 2011.

The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:


(in thousands)
Accounts and notes receivable	$	70,038
Inventories		60,382
Deferred tax assets		4,926
Prepaid expenses and other current assets		40,252
Property, plant and equipment		69,010
Goodwill		451,809
Intangibles		197,231
Accounts payable		(41,061	)
Income taxes		(3,937	)
Other current liabilities		(59,229	)
Long-term debt		(17,041	)
Deferred tax liabilities		(57,069	)

Purchase Price	$	715,311

The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above had been completed at the beginning of each period presented:


	Three months ended				Six months ended
In thousands, except share and per-share data	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010
Pro forma net sales from continuing operations	$	953,375	$	866,193	$	1,822,224	$	1,646,945
Pro forma income from continuing operations	$	66,075	$	59,536		115,517		92,977
Income (loss) from discontinued operations, net of tax		—		593		—		1,117
Pro forma net income from continuing operations attributable to Pentair, Inc.		64,650		58,412		112,599		90,621
Pro forma earnings per common share - continuing operations
Basic	$	0.66	$	0.59	$	1.15	$	0.92
Diluted	$	0.65	$	0.59	$	1.13	$	0.91
Weighted average common shares outstanding
Basic		98,333		98,208		98,190		98,081
Diluted		100,065		99,638		99,825		99,435

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

On January 31, 2011 we acquired as part of our Water Group all of the outstanding shares of capital stock of Hidro Filtros do Brasil (“Hidro Filtros”) for cash of $14.9 million and a note payable of $2.1 million. The Hidro Filtros results of operations have been included in our consolidated financial statements since the date of acquisition. Hidro Filtros is a leading manufacturer of water filters and filtering elements for residential and industrial applications operating in Brazil and neighboring countries. Goodwill recorded as part of the purchase price allocation was $10.1 million, none of which is tax deductible. Identified intangible assets acquired as part of the acquisition were $6.3 million including definite-lived intangibles, primarily customer relationships, of $5.5 million with an estimated life of 13 years. The proforma impact of this acquisition was deemed to be not material.

Additionally, during the first six months of 2011, we completed other small acquisitions with purchase prices totaling $4.6 million, consisting of $2.9 million in cash and $1.7 million as a note payable, adding to our Water Group. Total goodwill recorded as part of the purchase price allocation was $4.3 million, none of which is tax deductible. The proforma impact of these acquisitions was deemed to be not material.

Total transaction costs related to acquisition activities for the six months ended July 2, 2011 were $7.8 million, which were expensed as incurred and recorded in Selling, general and administrative in our Condensed Consolidated Statements of Income.