Acquisition

9 Months Ended

Oct. 02, 2011

Acquisition

Acquisition

12.  Acquisition

On April 29, 2011, the Company completed the acquisition of Danfoss Socla S.A.S. (Socla) and the related water controls business of certain other entities controlled by Danfoss A/S, in a share and asset purchase transaction. The aggregate consideration paid was EUR 120.0 million, less EUR 3.4 million in estimated working capital and related adjustments.  The net purchase price of EUR 116.6 million was financed with cash on hand and euro-based borrowings under our Credit Agreement.  The net purchase price, which is subject to final working capital and related adjustments, is equal to approximately $172.8 million based on the exchange rate of Euro to U.S. dollars as of April 29, 2011.

Socla is a manufacturer of water protection valves and flow control solutions for the water market and the heating, ventilation and air conditioning market.  Its major product lines include backflow preventers, check valves and pressure reducing valves.  Socla is based in France, and its products are distributed worldwide for commercial, residential, municipal and industrial use. Socla’s annual revenue for 2010 was approximately $130.0 million. Socla strengthens the Company’s European plumbing and flow control products and also adds to its HVAC products.

The Company is accounting for the transaction as a business combination.  The Company completed a preliminary purchase price allocation that resulted in the recognition of $74.3 million in goodwill and $41.9 million in intangible assets.  Intangible assets consist primarily of customer relationships with estimated lives of 10 years and trade names with either 20-year lives or indefinite lives.  The goodwill is attributable to the workforce of Socla and the synergies that are expected to arise as a result of the acquisition.  The goodwill is not expected to be deductible for tax purposes.  The following table summarizes the preliminary value of the assets and liabilities acquired (in millions):

Cash	$	10.4
Accounts receivable	28.2
Inventory	25.3
Fixed assets	46.8
Other assets	2.5
Intangible assets	41.9
Goodwill	74.3
Accounts payable	(8.2		)
Accrued expenses and other	(15.5		)
Deferred tax liability	(22.1		)
Debt	(10.8		)
Preliminary purchase price	$	172.8

The purchase price allocation for the acquisition noted above is preliminary pending the final valuations of fair values of intangible assets and certain assumed assets and liabilities and the resolution of the final purchase price, including working capital and related adjustments.

The consolidated statement of operations includes the results of Socla since the acquisition date and includes $63.2 million of revenues and $1.0 million of operating losses, which includes non-recurring acquisition accounting charges of $5.4 million and restructuring charges of $2.8 million.  During the nine months ended October 2, 2011, due diligence costs of $1.1 million were included in selling, general and administrative costs.

Supplemental pro-forma information (unaudited)

Had the Company completed the acquisition of Socla at the beginning of 2010, net sales, net income from continuing operations and earnings per share from continuing operations would have been as follows:

	Third Quarter Ended				Nine Months Ended
Amounts in millions (except per share information)	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
Net sales	$	370.8	$	346.7	$	1,123.8	$	1,056.7
Net income from continuing operations	$	24.8	$	17.9	$	53.9	$	54.4
Net income per share:
Basic EPS — continuing operations	$	0.66	$	0.48	$	1.43	$	1.46
Diluted EPS — continuing operations	$	0.66	$	0.48	$	1.43	$	1.46

Net income from continuing operations for the quarter ended October 3, 2010 was adjusted to include $0.5 million of net interest expense related to the financing and $0.6 million of net amortization expense resulting from the estimated allocation of purchase price to amortizable intangible assets.  Net income from continuing operations for the nine months ended October 2, 2011 and October 3, 2010 was adjusted to include $0.7 million and $1.6 million, respectively, of net interest expense related to the financing and $0.8 million and $1.8 million, respectively, of net amortization expense resulting from the estimated allocation of purchase price to amortizable intangible assets.  Net income from continuing operations for the quarter and nine months ended October 2, 2011 was also adjusted to exclude $1.2 million and $4.7 million, respectively, of net non-recurring acquisition-related charges and third-party costs.