Business Acquisitions and Disposition

12 Months Ended

Dec. 31, 2011

Business Acquisitions and Disposition

Business Acquisitions and Disposition

(5) Business Acquisitions and Disposition

Socla

        On April 29, 2011, the Company completed the acquisition of Danfoss Socla S.A.S and the related water controls business of certain other entities controlled by Danfoss A/S, in a share and asset purchase transaction (collectively, "Socla"). The aggregate consideration paid was EUR 120.0 million, less EUR 3.7 million in working capital and related adjustments. The net purchase price of EUR 116.3 million was financed with cash on hand and euro-based borrowings under our Credit Agreement. The net purchase price was equal to approximately $172.4 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 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 product line.

        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 $78.8 million in goodwill and $40.6 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	$	7.4
Accounts receivable		28.2
Inventory		24.6
Fixed assets		46.8
Other assets		6.5
Intangible assets		40.6
Goodwill		78.8
Accounts payable		(8.2	)
Accrued expenses and other		(19.2	)
Deferred tax liability		(22.3	)
Debt		(10.8	)
Purchase price	$	172.4

        The purchase price allocation for the acquisition noted above is preliminary pending the final determinations of fair values of intangible assets and certain assumed assets and liabilities.

        The consolidated statement of operations includes the results of Socla since the acquisition date and includes $94.8 million of revenues and $1.6 million of operating income, which includes acquisition accounting charges of $4.7 million and restructuring charges of $2.7 million.

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:

	Year Ended
Amounts in millions (except per share information)	December 31, 2011		December 31, 2010
Net sales	$	1,484.0	$	1,404.4
Net income from continuing operations	$	70.7	$	67.1
Net income per share:
Basic EPS—continuing operations	$	1.90	$	1.80
Diluted EPS—continuing operations	$	1.89	$	1.79

        Net income from continuing operations for the year ended December 31, 2011 and December 31, 2010 was adjusted to include $0.7 million and $2.1 million, respectively, of net interest expense related to the financing and $0.8 million and $2.3 million, respectively, of net amortization expense resulting from the estimated allocation of purchase price to amortizable tangible and intangible assets. Net income from continuing operations for the year ended December 31, 2011 and December 31, 2010 was also adjusted to exclude $4.3 million and $1.5 million, respectively, of net acquisition-related charges and third-party costs.

Austroflex

        On June 28, 2010, the Company acquired 100% of the outstanding stock of Austroflex for approximately $33.7 million. Austroflex is an Austrian-based manufacturer of pre-insulated flexible pipe systems for district heating, solar applications and under-floor radiant heating systems. The acquisition of Austroflex provides the Company with a full range of pre-insulated PEX tubing, pre-insulated solar tubes, under-floor heating insulation, and distribution capability and positions the Company as a major supplier of pre-insulated pipe systems in Europe. The Company completed a purchase price allocation that resulted in the recognition of $17.2 million of intangible assets and $12.3 million of goodwill. Intangible assets were based on fair value estimates and are comprised primarily of customer relationships with estimated useful lives of 8 years and trade names with indefinite lives. Goodwill is expected to be tax deductible up to a certain limit established under Austrian tax rules. Austroflex had annual sales prior to the acquisition of approximately $23.0 million. In 2011, the Company determined that the prospects for Austroflex, part of the Europe segment, were lower than originally estimated due to current operating profits being below plan and tempered future growth expectations. (See Note 2)

BRAE

        On April 13, 2010, the Company acquired 100% of the outstanding stock of BRAE located in Oakboro, North Carolina for up to $5.3 million, net of cash acquired. Of the total purchase price, $0.5 million was paid at closing and the remaining $4.8 million is contingent upon BRAE achieving a certain performance metric during the year ending December 31, 2014, which, to the extent achieved, is expected to be paid in cash in 2015. The Company recognized a liability of $1.9 million as an estimate of the acquisition date fair value of the contingent consideration, based on the net present value of $3.7 million which is derived from the weighted probability of achievement of the performance metric as of the date of the acquisition. Failure to meet the performance metric would reduce this liability to $0, while complete achievement would increase this liability to the full remaining purchase price of $4.8 million. Any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date is recognized in earnings in the period the estimated fair value changes. The excess fair value of the consideration transferred over the fair value of the net assets acquired of $2.7 million was allocated to goodwill and trade name. None of the goodwill is expected to be tax deductible. BRAE is a provider of engineered rain water harvesting solutions and addresses the commercial, industrial and residential markets. BRAE had annual sales prior to the acquisition of approximately $2.0 million. In 2011, the Company determined that the future prospects for BRAE were lower than originally estimated as future sales growth expectations have been tempered since the acquisition. (See Note 2)

        The results of operations for BRAE are included in the Company's North America segment and the results of operations of Austroflex are included in the Company's Europe segment since their respective acquisition dates and were not material to the Company's consolidated financial statements. The results of Socla are included in all three operating segments since acquisition date, with the majority of its operations recorded in the European segment.

        In March 2010, in connection with the Company's manufacturing footprint consolidation, the Company closed the operations of Tianjin Watts valve Company Ltd. (TWVC) and relocated its manufacturing to other facilities. On April 12, 2010, the Company signed a definitive equity transfer agreement with a third party to sell the Company's equity ownership and remaining assets of TWVC. The sale was finalized in the fourth quarter of 2011. The Company received net proceeds of approximately $6.1 million from the sale. The Company recognized a net pre-tax gain of $7.7 million and an after-tax gain of approximately $11.4 million, or $0.30 per share, relating mainly to the recognition of a cumulative translation adjustment and a tax benefit related to the reversal of a tax clawback in China.