Acquisitions

On April 1, 2013, the Company acquired all of the outstanding common stock of 2GIG Technologies, Inc. (“2GIG”) from APX Group, Inc. The purchase price was approximately $164.2 million, which consisted of a cash payment at the date of acquisition of approximately $135.0 million, working capital adjustments of approximately $13.9 million (of which approximately $12.3 million and $1.6 million were paid during the second and third quarter of 2013, respectively) and the settlement of a receivable due from 2GIG to the Company as of the acquisition date of approximately $15.3 million.

2GIG is a designer and supplier of residential security and home automation systems. Developed with the assistance of Nortek's Linear® business, 2GIG's Go!Control® touch-screen panel is a self-contained, all-in-one home security and automation control panel. 2GIG also provides wireless interactive home security services and a wide range of peripheral hardware devices and system components for home security and automation solutions. The results of 2GIG have been included in the Company's results of operations since the date of acquisition and have been included in the Company's Technology Solutions ("TECH") segment.

The following is a summary of the preliminary estimates of the assets acquired and liabilities assumed (amounts in millions):




Current assets (1)	$	60.4
Property and equipment, net	2.6
Goodwill	68.5
Intangible assets	84.0
Other assets	0.1
Accounts payable and accrued expenses	(20.1		)
Deferred income taxes	(31.3		)
Purchase price	$	164.2


(1)	Includes cash of approximately $3.4 million, accounts receivable of approximately $42.6 million, inventories of approximately $14.3 million, and other current assets of approximately $0.1 million. Inventories include a fair value adjustment to the historical carrying value of approximately $3.1 million, which was fully amortized in the second quarter of 2013.

The excess of the purchase price paid over the fair value of 2GIG's net assets is recorded as goodwill, which is primarily attributable to opportunities for growth and profitability, as well as better positioning the Company in the growing residential security and home automation markets. The goodwill was recorded in the TECH reporting unit and the Company does not believe that any of the goodwill will be deductible for tax purposes.

The Company has made preliminary estimates of the fair value of the assets and liabilities of 2GIG, including inventory, intangible assets, and prepaid and deferred taxes, utilizing information available at the time that the Company's unaudited condensed consolidated financial statements were prepared and these estimates are subject to refinement until all pertinent information has been obtained.

The Company will complete the following procedures, among others, prior to finalizing the acquisition method of accounting for 2GIG:


•	Finalize the appraisals of intangible assets.


•	Finalize the deferred tax analysis for prepaid and deferred income taxes, including determining the deferred tax consequences for any changes in the fair value adjustments discussed above.

The total preliminary fair value of intangible assets was approximately $84.0 million and the Company has determined that all of the intangible assets are subject to amortization and that they will have no residual value at the end of the amortization periods. The following is a summary of the estimated fair values and weighted average useful lives by intangible asset class (amounts in millions, except for weighted average useful lives):



	Fair Value		Weighted Average Useful Lives
Customer relationships	$	73.1	10.0
Completed technology	6.1		7.0
Trademarks	4.8		10.0
	$	84.0	9.7

Total intangible asset amortization for the second and third quarter of 2013 relating to 2GIG was approximately $4.3 million. Based upon current fair value estimates, annual amortization related to these acquired intangible assets is expected to be approximately $8.7 million.

In connection with the acquisition of 2GIG, during the nine months of 2013, the Company also incurred approximately $1.7 million of acquisition fees and expenses, which have been recorded in selling, general and administrative expense, net ("SG&A") in the accompanying unaudited condensed consolidated statement of operations.

The unaudited pro forma net sales, operating earnings, net earnings, basic and diluted earnings per share, and depreciation and amortization expense for the Company as a result of the acquisition of 2GIG for the periods presented were as follows:



	Year Ended		Nine months of
	Dec. 31, 2012		2013		2012
	(Dollar amounts in millions)
Net sales	$	2,247.3	$	1,771.0	$	1,735.7
Operating earnings	122.9		89.1		109.7
Net earnings	5.3		7.4		19.4
Basic earnings per share	0.35		0.48		1.28
Diluted earnings per share	0.34		0.47		1.25
Depreciation & amortization expense	96.0		69.4		72.6

These amounts were determined assuming that the acquisition of 2GIG had occurred on January 1, 2012 and include preliminary pro forma adjustments to reflect (i) the elimination of intercompany transactions between the Company and 2GIG, (ii) additional depreciation and amortization expense related to the preliminary allocation of the purchase price, which is subject to change as the Company completes its review and appraisal work, (iii) increased interest expense related to the amounts borrowed to fund the acquisition and (iv) other pro forma adjustments that the Company considered appropriate related to the acquisition of 2GIG. The transaction costs of approximately $1.7 million related to the acquisition of 2GIG for the nine months of 2013 have been excluded from the unaudited pro forma operating earnings, net earnings, and basic and diluted earnings per share. These preliminary pro forma amounts are not necessarily indicative of the amounts that would have been achieved had the acquisition taken place as of January 1, 2012, nor are they necessarily indicative of the results for future periods. These preliminary pro forma financial statements are subject to change as additional information becomes available.

On February 22, 2013, the Company, through an indirect wholly-owned foreign subsidiary, acquired certain assets and assumed certain liabilities of Gefen Distribution Verwaltungs GmbH ("Gefen Distribution") for total consideration of approximately $2.9 million, consisting of cash payments of approximately $0.9 million, a holdback amount of approximately $0.2 million to be paid 18 months subsequent to the closing of the acquisition, and the settlement of a receivable due from Gefen Distribution to the Company as of the acquisition date of approximately $1.8 million. In connection with the acquisition of Gefen Distribution, during the second quarter of 2013, the Company also incurred approximately $0.3 million of acquisition fees and expenses, which have been recorded in SG&A in the accompanying unaudited condensed consolidated statement of operations. Gefen Distribution is the principal distributor of Gefen products in Europe and the acquisition expands the Company's European distribution of the Company's products. Gefen Distribution is included in the Company's TECH segment. The Company has made preliminary estimates of the purchase price and the fair value of the acquired assets and liabilities utilizing information available at the time that the Company's consolidated financial statements were prepared. These estimates are subject to refinement until all pertinent information has been obtained. Pro forma results related to the acquisition of Gefen Distribution have not been presented, as the effect is not significant to the Company's consolidated operating results.

The incremental impact of the acquisition of 2GIG and Gefen Distribution contributed approximately $12.8 million to net sales and approximately $5.6 million (which includes depreciation and amortization expense of approximately $2.3 million) to operating earnings for the third quarter of 2013. The incremental impact of the acquisition of 2GIG and Gefen Distribution contributed approximately $71.4 million to net sales and approximately $11.7 million (which includes depreciation and amortization expense of approximately $8.0 million, including approximately $3.1 million relating to the amortization of fair value allocated to inventory) to operating earnings for the nine months of 2013.