Acquisitions and Dispositions

9 Months Ended

Sep. 27, 2014

Acquisitions and Dispositions [Abstract]

Acquisitions and Dispositions

Note 11 – Acquisitions and Dispositions

On October 18, 2013, the Company entered into a definitive agreement with KME Yorkshire Limited (Yorkshire) to acquire certain assets and assume certain liabilities of Yorkshire for purposes of acquiring its copper tube business.  Yorkshire produces European standard copper distribution tubes.  This transaction received regulatory approval in the United Kingdom on February 11, 2014 and closed on February 28, 2014.  The purchase price was approximately $30.1 million, paid in cash.  The acquisition of Yorkshire complements the Company’s existing copper tube businesses in the Plumbing and Refrigeration segment.  In 2012, Yorkshire had annual revenue of approximately $196.1 million.  During the third quarter of 2014, the purchase price allocation, including all fair value measurements, was finalized.  The fair value of the assets acquired totaled $20.7 million, consisting primarily of inventories of $17.6 million, property, plant, and equipment of $2.1 million, and other current assets of $1.0 million.  The fair value of the liabilities assumed totaled $15.6 million, consisting primarily of accounts payable and accrued expenses of $15.2 million and other current liabilities of $0.4 million.  Of the remaining purchase price, $8.1 million was allocated to tax-deductible goodwill and $16.9 million was allocated to other intangible assets such as customer lists of $11.3 million that will be amortized over approximately 19 years, non-compete agreements of $4.5 million that will be amortized over approximately three years, and trade names and licenses of $1.1 million that will be amortized over approximately ten years.  The results of operations for Yorkshire have been included in the accompanying Condensed Consolidated Financial Statements from the acquisition date.

On October 17, 2013, the Company entered into a Stock Purchase Agreement with Commercial Metals Company and Howell Metal Company (Howell) providing for the purchase of all of the outstanding capital stock of Howell for approximately $55.3 million in cash, net of working capital adjustments.  Howell manufactures copper tube and line sets for U.S. distribution.  The acquisition of Howell complements the Company’s copper tube and line sets businesses, both components of the Plumbing and Refrigeration segment.   For the twelve months ended August 31, 2013, Howell’s net sales for copper tube and line sets totaled $156.3 million.  During the first quarter of 2014, the purchase price allocation, including all fair value measurements, was finalized.  The fair value of the assets acquired totaled $63.0 million, consisting primarily of receivables of $14.6 million, inventories of $27.6 million, property, plant, and equipment of $20.3 million, and other current assets of $0.5 million.  The fair value of the liabilities assumed totaled $11.4 million, consisting primarily of accounts payable and accrued expenses of $9.9 million and other current liabilities of $1.5 million.  Of the remaining purchase price, $2.3 million was allocated to other intangible assets and $1.4 million to tax-deductible goodwill.  The results of operations for Howell have been included in the accompanying Condensed Consolidated Financial Statements from the acquisition date of October 17, 2013.

On August 9, 2013, the Company sold certain of its plastic fittings manufacturing assets located in Portage, Michigan and Ft. Pierce, Florida.  Simultaneously, the Company entered into a lease agreement with the purchaser of the assets to continue to manufacture and distribute Schedule 40 plastic fittings utilizing the Ft. Pierce assets for a period of approximately eight to 14 months (Transition Period).  The total sales price was $66.2 million, of which $61.2 million was received on August 9, 2013; the remaining $5.0 million was received during the second quarter of 2014.  This transaction resulted in a pre-tax gain of $39.8 million in the third quarter of 2013, or 81 cents per diluted share after tax.

The net book value of assets disposed in the aforementioned plastic sale transaction was $15.9 million.  For goodwill testing purposes, these assets were part of the SPD reporting unit which is a component of the Company’s Plumbing & Refrigeration operating segment.  Because these assets met the definition of a business in accordance with ASC 805 Business Combinations, $10.5 million of the SPD reporting unit’s goodwill balance was allocated to the disposal group.  The amount of goodwill allocated was based on the relative fair values of the asset group which was disposed and the portion of the SPD reporting unit which was retained.

The Company will continue to manufacture and supply plastic drain, waste, and vent (DWV) fittings.  The Company extended its third party supply agreement to complement its product offering with purchased products the Company does not competitively manufacture with its remaining assets.  This supply agreement was originally entered into after the majority of the Company’s plastic manufacturing assets were destroyed in the 2011 fire at its Wynne, Arkansas facility.  The extended supply agreement has an initial five-year term.

With the decision to cease the Company’s manufacturing operations in Portage, there was an evaluation of the remaining long-lived assets for impairment, and it was determined that the carrying value of the land and building were no longer recoverable.  An impairment charge of $3.2 million was recognized during the third quarter of 2013 to adjust the carrying value of the land and building to their estimated fair value.  The fair value estimate was determined by obtaining and evaluating recent sales data for similar assets (Level 2 hierarchy as defined by ASC 820).