Acquisitions and Dispositions

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.

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 assets acquired and liabilities assumed (dollar amounts in millions):



Current assets (1)	$	46.9
Property and equipment	17.0
Goodwill	103.8
Intangible assets	125.0
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 $1.0 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.


(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 net assets acquired 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 completed its valuation process and the related accounting for this acquisition in the first quarter of 2015. There were no material changes to its provisional acquisition accounting.

The total fair value of intangible assets was approximately $125.0 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	$	64.8	11.1
Completed Technology	20.4		5.0
Trademarks	39.7		20.0
Other	0.1		3.8
	$	125.0	12.9

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 first half of 2014 were as follows (dollar amounts in millions):



Net sales	$	1,318.5
Operating loss	(9.9		)
Net loss	(49.1		)
Basic loss per share	(3.16		)
Diluted loss per share	(3.16		)
Depreciation & amortization expense	56.3

These amounts were determined assuming that the acquisition of Reznor had occurred on January 1, 2014 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 incurred in the first half of 2014 of approximately $5.7 million related to the acquisition of Reznor 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, 2014, nor are they necessarily indicative of the results for future periods.

The acquisition of Reznor contributed approximately $10.8 million to net sales for the second quarter of 2015 and operating earnings of approximately $0.6 million (which includes depreciation and amortization expense of approximately $1.1 million) to the operating results for the second quarter of 2015. The acquisition of Reznor contributed approximately $54.0 million to net sales for the first half of 2015 and operating earnings of approximately $5.9 million (which includes depreciation and amortization expense of approximately $4.9 million) to the operating results for the first half of 2015.

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").

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 was 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.

The Company completed its valuation process and the related accounting for this acquisition in the first quarter of 2015. There were no material changes to its provisional acquisition accounting.

The acquisition of Phoenix contributed approximately $5.9 million to net sales for the second quarter of 2015 and an operating loss of approximately $1.1 million (which includes depreciation and amortization expense of approximately $0.2 million) to the operating results for the second quarter of 2015. The acquisition of Phoenix contributed approximately $9.7 million to net sales for the first half of 2015 and an operating loss of approximately $2.5 million (which includes depreciation and amortization expense of approximately $0.5 million) to the operating results for the first half of 2015.

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.

Anthro Acquisition

On January 21, 2015, one of the Company's subsidiaries in the Ergonomic and Productivity Solutions ("ERG") segment completed the acquisition of all of the outstanding 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 ERG segment. The Company completed the acquisition of Anthro to expand its technology and product offerings of the ERG segment.

The Company acquired this business for an initial aggregate purchase price of approximately $51.0 million, of which approximately $50.8 million was paid in cash and an additional $0.2 million related to the amount of consideration being paid in excess of the fair value of certain services provided by the former stockholders of Anthro. Approximately $5.0 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. The Company is in the process of finalizing certain working capital and other purchase price adjustments and has recorded a receivable included in other current assets at June 27, 2015 of approximately $1.1 million related to the anticipated amounts owed to the Company from escrow related to these adjustments, resulting in an adjusted purchase price of $49.9 million. The Company anticipates that the working capital and other purchase price adjustments will be finalized in the third quarter of 2015. Acquisition-related costs were expensed as incurred within SG&A in the Company’s consolidated statement of operations and were not material.

The Company has made preliminary estimates of the fair value of the assets and liabilities of Anthro, including certain tangible and intangible assets and liabilities, 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. 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 will complete the following procedures, among others, prior to finalizing the acquisition method of accounting for Anthro:


•	Make a final determination of the purchase price based on the final working capital adjustments


•	Finalize the appraisals of intangible assets


•	Finalize the analysis of certain acquired liabilities and assets based on gathering additional information from the time of the acquisition

Based on the Company’s preliminary evaluation of the assets and liabilities acquired, the Company determined that the fair value of tangible net assets acquired was approximately $5.2 million, including cash of approximately $0.6 million and a fair value adjustment related to inventory acquired of approximately $0.5 million which was recognized in cost of products sold during the first quarter of 2015. In addition, approximately $19.6 million was recognized for definite-lived intangible assets, and approximately $25.1 million was recorded to goodwill.

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
Developed technology	$	13.3	4.0
Customer relationships	2.2		4.5
Trade names	3.9		5.0
Favorable lease arrangements	0.2		3.0
	$	19.6	4.3

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. Although this transaction was the acquisition of stock, the parties agreed that pursuant to the applicable tax regulations that the purchase and sale of shares in connection with the acquisition will be treated for U.S. federal and applicable state and local income tax purposes as a transfer of assets. Therefore, substantially all of the goodwill is expected to be deductible for tax purposes.

The acquisition of Anthro contributed approximately $10.6 million to net sales for the second quarter of 2015 and operating earnings of approximately $0.9 million (which includes depreciation and amortization expense of approximately $1.2 million) to the operating results for the first half of 2015. The acquisition of Anthro contributed approximately $16.7 million to net sales for the first half of 2015 and an operating loss of approximately $0.1 million (which includes depreciation and amortization expense of approximately $2.2 million and approximately $0.5 million of increased cost of goods sold due to the recognition of inventory at its acquisition date fair value) to the operating results for the first half of 2015.

The results of Anthro have been included in the Company’s consolidated financial statements since the date of acquisition within the ERG segment. 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.

Numera Acquisition

On June 30, 2015, one of the Company’s wholly-owned subsidiaries completed the acquisition of certain assets and liabilities related to the mobile personal emergency response system and telehealth business of Numera, Inc. (“Numera”), a privately held company. The Company has concluded that the acquisition of certain and assets and liabilities met the definition of a business under ASC 805, "Business Combinations" ("ASC 805") and therefore, will be accounted for as a business combination in the third quarter of 2015. The acquired operations will be integrated into the Company’s Security and Controls Solutions (“SCS”) segment. The Company completed the acquisition to expand its technology and product offerings of the SCS segment.

The Company acquired certain assets and liabilities of Numera for an aggregate initial all cash purchase price of approximately $12.0 million, of which approximately $1.5 million was deposited into an escrow account with a third party escrow agent. In addition to the initial purchase price consideration, the Company could be required to pay an additional purchase price of up to $28.0 million, which is based on future sales, as defined under the purchase agreement, during the period from March 29, 2015 through March 26, 2016. The Company is currently evaluating the fair value of the contingent consideration payment and this initial fair value will be recorded as a component of purchase price in accordance with ASC 805. It is expected that substantially all of the goodwill will be deductible for income tax purposes. Pro forma results related to this acquisition have not been presented, as the effect is not significant to the Company's consolidated operating results.

Sale of TV One Business

In July 2015, the Company received an unsolicited inquiry regarding the purchase of its TV One businesses ("TV One") that were part of the audio, video and control ("AVC") business and the Company commenced an evaluation of the potential sale of TV One. On July 28, 2015, the Company’s Board of Directors approved the plan to sell TV One and the Company completed the sale of the stock of TV One to a consortium of TV One's management on July 31, 2015. Under the terms of the agreement, the Company has no ongoing involvement or obligations with respect to TV One and there were no indemnifications provided by the Company in connection with this transaction. There was no substantial cash consideration received in connection with the transaction and the Company expects to record a loss on sale of approximately $3.0 million to $4.0 million in the third quarter of 2015. The Company has concluded that the sale of TV One does not meet the criteria to be reported as a discontinued operations under ASC 205-20, "Discontinued Operations", due to the fact that it does not represent a strategic shift that has (or will have) a major effect on the Company's operations and financial results.