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Acquisitions
9 Months Ended
Sep. 30, 2011
Acquisitions [Abstract] 
Acquisitions
7. ACQUISITIONS

On April 29, 2011, we completed the formation of a second joint venture with 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 was subject to $1,240 of net working capital adjustments pursuant to the related purchase and contribution agreement.

 

The purchase price resulted 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 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 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:

 

     Quarter Ended
September 30,		      Nine Months Ended
September 30,		  
     2011      2010      2011      2010  

Revenues

    $ 914,039       $ 874,899       $ 2,384,314       $ 2,344,465   

Net income

      51,818         46,182         114,702         101,972   

Less: net income attributable to noncontrolling interest

      18,271         13,958         38,180         30,326   
  

 

 

     

 

 

     

 

 

     

 

 

  

Net income attributable to Watsco, Inc.

    $ 33,547       $ 32,224       $ 76,522       $ 71,646   
  

 

 

     

 

 

     

 

 

     

 

 

  

Diluted earnings per share for Common and Class B common stock

    $ 1.02       $ 0.99       $ 2.32       $ 2.21   
  

 

 

     

 

 

     

 

 

     

 

 

  

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.

On July 29, 2011, we acquired a 60% controlling interest in Carrier's HVAC/R distribution operations in Mexico ("Carrier Enterprise Mexico") for cash consideration of $9,000. Carrier's company-operated Mexico distribution network had revenues of approximately $75,000 in 2010 and operates from seven locations with 90 employees servicing its customer base. Products sold include Carrier's complete product line of HVAC equipment and commercial refrigeration products and supplies servicing both the residential and applied commercial markets.

 

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 July 2011 and April 2010 acquisitions were not deemed significant to the condensed consolidated unaudited financial statements.