Acquisition

6 Months Ended

Jul. 03, 2011

Acquisition

Acquisition

12. Acquisition

On April 29, 2011, the Company completed the acquisition of Danfoss Socla S.A.S. (Socla) and the related water controls business of certain other entities controlled by Danfoss A/S, in a share and asset purchase transaction. The aggregate consideration paid was EUR 120.0 million, less EUR 3.4 million in estimated working capital and related adjustments.  The net purchase price of EUR 116.6 million was financed with cash on hand and euro-based borrowings under our Credit Agreement.  The net purchase price, which is subject to final working capital and related adjustments, is equal to approximately $172.8 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 worldwide 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 platform and also adds to its HVAC platform.

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 $69.3 million in goodwill and $46.3 million in intangible assets.  Intangible assets are comprised 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:

Cash	$	10.4
Accounts Receivable	28.2
Inventory	25.3
Fixed Assets	47.1
Other Assets	2.7
Intangible Assets	46.3
Goodwill	69.3
Accounts Payable	(8.2		)
Accrued Expenses	(15.8		)
Deferred Tax Liability	(21.7		)
Debt	(10.8		)
Preliminary Purchase Price	$	172.8

The purchase price allocation for the acquisition noted above is preliminary pending the final valuations of fair values of intangible assets and certain assumed assets and liabilities and the resolution of the final purchase price, including working capital and related adjustments.

The results of operations include the results of Socla since the acquisition date and include $27.7 million of revenues and $3.6 million of operating losses which includes non-recurring acquisition accounting charges of $3.6 million and restructuring charges of $2.7 million.  During the six months ended July 3, 2011, due diligence costs of $1.1 million were included in selling, general and administrative costs.

Supplemental pro-forma information

Had the Company completed the acquisition of Socla at the beginning of 2010, the net sales, net income from continuing operations and earnings per share from continuing operations would have been as follows:

	Second Quarter Ended				Six Months Ended
	July 3, 2011		July 4, 2010		July 3 2011		July 4, 2010
Amounts in millions (except per share information)
Net sales	$	389.7	$	356.7	$	753.0	$	710.1
Net income from continuing operations	$	15.7	$	23.1	$	29.0	$	36.5
Net income per share:
Basic EPS — continuing operations	$	0.42	$	0.62	$	0.77	$	0.98
Diluted EPS — continuing operations	$	0.41	$	0.62	$	0.77	$	0.98

Net income from continuing operations for the quarters ended July 3, 2011 and July 4, 2010 was adjusted to include $0.2 million and $0.5 million, respectively, of net interest expense related to the financing and $0.2 million and $0.6 million, respectively of net amortization expense resulting from the estimated allocation of purchase price to amortizable intangible assets.  Net income from continuing operations for the six months ended July 3, 2011 and July 4, 2010 was adjusted to include $0.7 million and $1.0 million, respectively of net interest expense related to the financing and $0.9 million and $1.3 million, respectively of net amortization expense resulting from the estimated allocation of purchase price to amortizable intangible assets.  Net income from continuing operations for the quarter and six months ended July 3, 2011 was also adjusted to exclude $2.4 million and $3.5 million, respectively of non-recurring acquisition-related charges and third-party costs.