ACQUISITIONS

Reznor Acquisition

On April 30, 2014, the Company completed the acquisition of the heating, ventilation and air conditioning business of Thomas & Betts Corporation ("Reznor") for approximately $260.0 million in cash, plus additional payments of approximately $2.6 million for working capital and other post-closing adjustments, of which approximately $1.9 million was paid in the second quarter of 2014 and approximately $0.7 million was paid during the fourth quarter of 2014. The acquisition was financed with a combination of cash on hand and a portion of the borrowings under a new $350.0 million senior secured term loan facility (see Note 4, "Notes, Mortgage Notes and Obligations Payable").

Reznor manufactures industrial and commercial HVAC products, including an extended range of gas fired air heaters, air handling units, condensing units and rooftop units. The results of Reznor have been included in the Company's results of operations since the date of acquisition and have been included in the Company's Residential and Commercial HVAC ("RCH") segment.

The following is a summary of the accounting for the fair value of the assets acquired and liabilities assumed (dollar amounts in millions):




Current assets (1)	$	47.3
Property and equipment	17.0
Goodwill	103.7
Intangible assets	124.3
Other assets	0.4
Current liabilities (2)	(18.8		)
Deferred income taxes	(9.7		)
Other long-term liabilities	(1.6		)
	$	262.6

(1)

Includes cash of approximately $7.0 million, accounts receivable of approximately $17.5 million, inventories of approximately $20.5 million, prepaid and other current assets of approximately $1.4 million, and current deferred taxes of approximately $0.9 million. Inventories include a fair value adjustment to the historical carrying value of approximately $1.8 million, which increased cost of products sold for 2014.


(2)	Includes accounts payable of approximately $12.3 million and accrued expenses and taxes of approximately $6.5 million.

The excess of the purchase price paid over the fair value of Reznor's net assets is recorded as goodwill, which is primarily attributable to the Company's belief that the acquisition of Reznor positions Nortek to service a broader portion of the HVAC market. Approximately $76.1 million of goodwill associated with the acquisition will be deductible for income tax purposes.

The Company has made estimates of the fair value of the assets and liabilities of Reznor, including inventory, property and equipment, and intangible assets utilizing information available at the time that the Company's consolidated financial statements were prepared. These non-recurring fair value measurements are primarily determined using unobservable inputs. Accordingly, these fair value measurements are classified within Level 3 of the fair value hierarchy. The Company is in the process of gathering information to finalize the appraisal of certain assets and the related deferred tax consequences, which will be completed in the first quarter of 2015.

The total fair value of intangible assets was approximately $124.3 million. 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 (dollar amounts in millions):



	Fair Value		Weighted Average Useful Lives
Customer relationships	$	64.2	11.1
Completed Technology	20.4		5.0
Trademarks	39.7		20.0
	$	124.3	12.9

Total intangible asset amortization for 2014 relating to Reznor was approximately $8.1 million. The estimated future intangible asset amortization expense related to these acquired intangible assets is expected to aggregate approximately $116.2 million as follows:



Year Ended December 31,	Annual Amortization Expense
	(Dollar amounts in millions)

2015	$	12.1
2016	12.1
2017	12.1
2018	12.1
2019	9.4
2020 and thereafter	58.4

In connection with the acquisition of Reznor, the Company also incurred approximately $6.8 million of fees and expenses, which have been recorded in selling, general and administrative expense, net ("SG&A") in the accompanying consolidated statement of operations for 2014.

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



	Year Ended
	2014			2013
	(Dollar amounts in millions, except per share data)
Net sales	$	2,598.2		$	2,447.1
Operating earnings	55.7			98.8
Net loss	(37.6		)	(6.0		)
Basic loss per share	(2.40		)	(0.39		)
Diluted loss per share	(2.40		)	(0.39		)
Depreciation & amortization expense	108.9			112.8

These amounts were determined assuming that the acquisition of Reznor had occurred on January 1, 2013 and include pro forma adjustments to reflect (i) additional depreciation and amortization expense related to the estimates of the fair values of acquired tangible and intangible assets, (ii) changes in interest expense related to financing transactions due, in part, to funding the acquisition, and (iii) other pro forma adjustments that the Company considered appropriate related to the acquisition of Reznor. The transaction costs of approximately $6.8 million related to the acquisition of Reznor for 2014 have been excluded from the unaudited pro forma operating earnings, net loss, and basic and diluted loss per share. These pro forma amounts are not necessarily indicative of the amounts that would have been achieved had the acquisition taken place as of January 1, 2013, nor are they necessarily indicative of the results for future periods.

The acquisition of Reznor contributed approximately $117.0 million to net sales for 2014 and approximately $7.7 million (which includes depreciation and amortization expense of approximately $12.3 million, including approximately $1.8 million of increased cost of goods sold due to the recognition of inventory at its acquisition date fair value) to operating earnings for 2014.

Phoenix Acquisition

On October 8, 2014, one of the Company's subsidiaries in the RCH segment completed the acquisition of substantially all of the assets of the HVAC distribution business of privately owned Phoenix Wholesale, Inc. ("Phoenix"). This acquisition advances the Company's strategy of expanding the RHC segment’s distribution footprint in regions where the Company had minimal market penetration. As a result of the acquisition of Phoenix, the Company now has 12 Company-owned distribution locations.

The Company acquired this business for an aggregate purchase price of approximately $13.9 million, all of which was paid in cash. Approximately $1.6 million of the purchase price was retained by the Company as deferred acquisition consideration to be paid upon finalization of certain working capital and other purchase price adjustments and is included in accrued expenses and taxes, net in the Company’s consolidated balance sheet as of December 31, 2014. These working capital and other purchase price adjustments were finalized and paid in February 2015. In addition, approximately $1.0 million of the purchase price is held in escrow to cover general business representations and warranties. This amount will be paid 18 months after the closing date. This acquisition did not have any earn-outs or other contingent purchase price consideration arrangements.

Based on the Company’s evaluation of the assets and liabilities acquired, the Company determined that the fair value of tangible net assets acquired was approximately $8.2 million, including a fair value adjustment related to inventory acquired of approximately $0.4 million which was recognized in cost of products sold during the three month period ended December 31, 2014. In addition, the Company recognized approximately $0.3 million of other assets related to a transition services agreement entered into in connection with the acquisition, which fair value is being expensed over the applicable one year service period. In addition, approximately $3.9 million was recognized for definite-lived intangible assets, including customer relationships, trade names, non-compete arrangements and a favorable lease arrangement, with a weighted average useful life of approximately 7.8 years. Approximately $1.5 million was recorded to goodwill. The Company is in the process of gathering information to complete its valuation of certain assets and liabilities in order to complete its accounting for the acquisition.

The factors contributing to the recognition of goodwill were based upon the Company’s determination that several strategic and synergistic benefits are expected to be realized from the combination. Substantially all of the goodwill is expected to be deductible for tax purposes.

The acquisition of Phoenix contributed approximately $4.0 million to net sales for 2014 and an operating loss of approximately $1.6 million (which includes depreciation and amortization expense of approximately $0.6 million, including approximately $0.4 million of increased cost of goods sold due to the recognition of inventory at its acquisition date fair value) to operating earnings for 2014.

The results of Phoenix have been included in the Company’s consolidated financial statements since the date of acquisition within the RCH segment. Pro forma results related to the acquisition of Phoenix have not been presented, as the effect is not significant to the Company's consolidated operating results.

2GIG Acquisition

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 SCS segment. During 2013, the operations of 2GIG were integrated into the Company's existing security and access control products business, as such, net sales and operating earnings for 2014 for 2GIG have not been presented separately.

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 2013 were as follows (dollar amounts in millions):



Net sales	$	2,319.9
Operating earnings	99.5
Net loss	(1.5		)
Basic loss per share	(0.10		)
Diluted loss per share	(0.10		)
Depreciation & amortization expense	94.8

These amounts were determined assuming that the acquisition of 2GIG had occurred on January 1, 2013 and include pro forma adjustments to reflect (i) the elimination of intercompany transactions between the Company and 2GIG, (ii) additional depreciation and amortization expense related to acquired assets, (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 $1.8 million related to the acquisition of 2GIG for 2013 have been excluded from the unaudited pro forma operating earnings, net earnings, and basic and diluted earnings per share. These pro forma amounts are not necessarily indicative of the amounts that would have been achieved had the acquisition taken place as of January 1, 2013, nor are they necessarily indicative of the results for future periods.

Anthro Acquisition

On January 21, 2015, one of the Company’s wholly-owned subsidiaries completed an acquisition of 100% of the stock of Anthro Corporation (“Anthro”), a fully integrated business with in-house capability to design/develop, manufacture and market its technology furniture products. Anthro's key products include charging carts (for electronics, including tablets, laptops and other mobile devices) and height adjustable desks and technology carts. Anthro will be integrated into the Company’s Ergonomic and Productivity Solutions (“ERG”) segment. The Company completed the acquisition of Anthro to expand its technology and product offerings of the ERG segment.

The Company acquired Anthro for an aggregate initial all cash purchase price of approximately $50.0 million, plus an initial payment of approximately $0.8 million for certain net working capital adjustments. Approximately $5.0 million of the cash paid at closing was deposited into an escrow account with a third party escrow agent. The initial payment related to the estimated net working capital acquired is subject to adjustment within 60 days subsequent to the closing. This acquisition did not have any earn-outs or other contingent purchase price consideration arrangements. Although this represented a stock purchase, it will be treated as a purchase of assets for income tax purposes. It is expected that substantially all of the goodwill will be deductible for income tax purposes. Pro forma results related to the acquisition of Anthro have not been presented, as the effect is not significant to the Company's consolidated operating results.

Other Acquisitions

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, and the settlement of a receivable due from Gefen Distribution to the Company as of the acquisition date of approximately $1.8 million. Gefen Distribution is the principal distributor of Gefen products in Europe. Gefen Distribution is included in the Company's AVC segments. 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.

On December 17, 2010, the Company acquired all of the outstanding stock of Ergotron, Inc. (“Ergotron"). Ergotron is a designer, manufacturer and marketer of innovative, ergonomic mounting and mobility products for computer monitors, notebooks and flat panel displays in the United States and other parts of the world. The purchase price was approximately $299.6 million, consisting of cash payments totaling approximately $298.2 million, of which approximately $2.6 million was paid in 2012 primarily related to the reimbursement of federal and state tax refunds for the pre-acquisition period.