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Acquisitions
 6 Months Ended
Jun. 30, 2011
Acquisitions  
Acquisitions
6. ACQUISITIONS

On April 29, 2011, we completed the formation of a second joint venture with Carrier Corporation ("Carrier") to distribute Carrier, Bryant and Payne branded residential, light-commercial and applied-commercial HVAC products and related parts and supplies in the northeast United States. Carrier contributed 28 of its company-operated northeastern locations to the newly formed joint venture, Carrier Enterprise Northeast, LLC ("Carrier Enterprise Northeast"), and we contributed 14 of our northeast locations. We purchased a 60% controlling interest in the joint venture for a fair value of $49,229. Total consideration paid by us for our 60% controlling interest in Carrier Enterprise Northeast was composed of cash consideration of $35,700 and our contribution of 14 northeastern locations valued at $14,769. The final purchase price is subject to net working capital adjustments of approximately $1,240 pursuant to the Purchase and Contribution Agreement, dated March 18, 2011, and is included in accounts receivable in the condensed consolidated balance sheet.

Based on our preliminary valuation, the purchase price is anticipated to result in the recognition of $32,957 in goodwill and intangibles. The fair value of the identified intangible assets was $20,600 and consisted of $13,400 in trade names and distribution rights and $7,200 in customer relationships to be amortized over a 12 year period. The tax basis of the acquired goodwill recognized will be deductible for income tax purposes over 15 years.

The preliminary purchase price allocation is based upon a purchase price of $49,229, which represents the fair value of our 60% controlling interest in Carrier Enterprise Northeast. The table below presents the allocation of the total consideration to tangible and intangible assets acquired, liabilities assumed and the noncontrolling interest from the acquisition of our 60% controlling interest in Carrier Enterprise Northeast based on the respective fair values as of April 29, 2011:

 

         

Cash

    $ 5   

Accounts receivable

      24,300   

Inventories

      39,003   

Other current assets

      773   

Property and equipment

      4,402   

Goodwill

      12,357   

Intangibles

      20,600   

Other assets

      202   

Accounts payable

      (17,474 ) 

Accrued expenses

      (5,420 ) 

Noncontrolling interest

      (29,519 ) 
          

Total preliminary purchase price

    $ 49,229   
          

 

The fair value of the noncontrolling interest was determined by applying a pro-rata value of the total invested capital adjusted for a discount for lack of control that market participants would consider when estimating the fair value of the noncontrolling interest. As a result of our contribution of 14 locations to the joint venture, $7,708 representing 40% of the carrying value of the contributed locations was attributed to the noncontrolling interest and $7,061, representing 40% of the difference between the fair value and carrying value of the contributed locations, was recognized as an increase to paid-in capital.

The unaudited pro forma financial information combining our results of operations with the operations of Carrier Enterprise Northeast as if the joint venture had been consummated on January 1, 2010 is as follows:

 

                                 
     Quarters Ended
June 30, 		     Six Months Ended
June 30, 		 
     2011      2010      2011      2010  

Revenues

    $ 898,593       $ 925,708       $ 1,470,275       $ 1,469,566   

Net income

      52,436         51,135         62,848         55,790   

Less: net income attributable to noncontrolling interest

      16,423         15,016         19,909         16,368   
                                     

Net income attributable to Watsco, Inc.

    $ 36,013       $ 36,119       $ 42,939       $ 39,422   
                                     

Diluted earnings per share for Common and Class B common stock

    $ 1.09       $ 1.11       $ 1.31       $ 1.21   
                                     

This unaudited pro forma financial information is presented for informational purposes only. The unaudited pro forma financial information from the beginning of the periods presented until the acquisition date includes adjustments to record income taxes related to our portion of Carrier Enterprise Northeast's income and amortization related to identified intangible assets with finite lives. The unaudited pro forma financial information does not include adjustments to remove certain corporate expenses of Carrier Enterprise Northeast, which may not be incurred in future periods, adjustments for depreciation or synergies (primarily related to improved gross profit and lower general and administrative expenses) that may be realized subsequent to the acquisition date. The unaudited pro forma financial information may not necessarily reflect our future results of operations or what the results of operations would have been had we acquired our 60% controlling interest in and operated Carrier Enterprise Northeast as of the beginning of the periods presented.

In April 2010, one of our wholly-owned subsidiaries acquired certain assets and assumed certain liabilities of a wholesale distributor of air conditioning and heating products operating from two locations in Tennessee for cash consideration of $2,406.

The results of operations of these acquired locations have been included in the condensed consolidated unaudited financial statements from the date of acquisition. The pro forma effect of the acquisitions was not deemed significant to the condensed consolidated unaudited financial statements.