2.	Acquisition

On August 26, 2011, the company acquired 100 percent of the shares of Lochinvar Corporation (Lochinvar), a privately held manufacturer of high-efficiency boilers used in commercial and residential applications located in Lebanon, Tennessee. The addition of Lochinvar expanded the company’s product offerings and gave the company access to proven

high-efficiency boiler technology. Lochinvar is included in the company’s North America segment except for a relatively immaterial amount from a Lochinvar U.K. subsidiary which is included in the company’s Rest of World segment.

The company paid an aggregate cash purchase price, net of $1.5 million of cash acquired, of $421.1 million. In addition, the company incurred acquisition costs of approximately $5.5 million. Under the purchase agreement for the Lochinvar acquisition, the company agreed to make a contingent payment of up to an additional $35.0 million in cash based on the amount by which Lochinvar sales between December 1, 2011 and November 30, 2012 exceed $216.0 million. As of the acquisition date, the fair value of the contingent payment had been estimated at $16.8 million. As of September 30, 2012, the fair value of the contingent payment was estimated at $10.4 million which resulted in a pre-tax gain of $6.4 million being recorded by the company during the three months ended September 30, 2012

The following table summarizes the allocation of fair value of the assets acquired and liabilities assumed at the date of acquisition. Of the $258.3 million of acquired intangible assets, $103.5 million was assigned to trade names that are not subject to amortization and $152.5 million was assigned to customer lists which are being amortized over 19 years, and the remaining $2.3 million was assigned to non-compete agreements and patents which are being amortized over ten years.


August 26, 2011 (dollars in millions)
Current assets, net of cash acquired	$	54.0
Property, plant and equipment		41.9
Intangible assets		258.3
Other assets		0.1
Goodwill		111.4

Total assets acquired		465.7
Current liabilities		24.3
Long-term liabilities		3.5

Total liabilities assumed		27.8

Net assets acquired	$	437.9

For income tax purposes, the transaction has been accounted for as an asset purchase, resulting in the full amount of goodwill and intangible assets, totaling $369.7 million, being deductible for income tax purposes.

Lochinvar’s results of operations have been included in the company’s financial statements from August 26, 2011, the date of acquisition. Revenues and pretax earnings associated with Lochinvar included in the three months ended September 30, 2012 totaled $63.4 million and $15.2 million, respectively. Revenues and pretax earnings associated with Lochinvar included in the nine months ended September 30, 2012 totaled $167.5 million and $35.7 million, respectively. Revenues and pretax net loss associated with Lochinvar included in operations from the acquisition date through September 30, 2011 totaled $20.8 million and $2.0 million, respectively which included $3.0 million of operating earnings less $4.4 million of acquisition costs and $0.6 million of interest expense.

The following table represents the pro forma unaudited results of operations for the company for three and the nine months ended September 30, 2011 assuming consummation of the purchase of Lochinvar as of January 1, 2011:


	(dollars in millions except per share data)
	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011
Net sales	$	441.1	$	1,358.1
Earnings from continuing operations		27.7		92.7
Earnings per common share:
Basic	$	0.60	$	2.01

Diluted	$	0.59	$	1.99

The pro forma results have been prepared for informational purposes only and include adjustments to depreciation expense of acquired plant and equipment, amortization of intangible assets other than goodwill and trade names, increased interest expense on acquisition related debt, and certain other adjustments, together with related income tax effects of such 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 period presented or of the results of operations that may occur in the future.