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ACQUISITIONS, DISCONTINUED OPERATIONS AND FORMATION OF SHANGHAI ELECTRIC JV | 9 Months Ended
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Sep. 29, 2012
ACQUISITIONS, DISCONTINUED OPERATIONS AND FORMATION OF SHANGHAI ELECTRIC JV |
ACQUISITIONS, DISCONTINUED OPERATIONS AND FORMATION OF SHANGHAI ELECTRIC JV |
(3) ACQUISITIONS, DISCONTINUED OPERATIONS AND FORMATION OF SHANGHAI ELECTRIC JV Acquisitions On March 21, 2012, in our Flow Technology reportable segment, we completed the acquisition of Seital S.r.l. (“Seital”), a supplier of disk centrifuges (separators and clarifiers) to the global food and beverage, biotechnology, pharmaceutical and chemical industries, for a purchase price of $28.8, net of cash acquired of $2.5 and including debt assumed of $0.8. Seital had revenues of approximately $14.0 in the twelve months prior to the date of acquisition. On December 22, 2011, in our Flow Technology reportable segment, we completed the acquisition of Clyde Union (Holdings) S.A.R.L. (“Clyde Union”), a global supplier of pump technologies utilized in oil and gas processing, power generation and other industrial applications for an initial payment of 500.0 British Pounds (“GBP”), less debt assumed and other adjustments of GBP 11.0. In addition, the purchase price includes a potential earn-out payment (equal to Annual 2012 Group EBITDA (as defined by the related agreement) × 10, less GBP 475.0). In no event shall the earn-out payment be less than zero or more than GBP 250.0. The sellers of Clyde Union also contributed GBP 25.0 of cash to the acquired business at the time of sale. We financed the acquisition with available cash and committed senior secured financing. See Note 10 to the condensed consolidated financial statements for further details on the senior secured financing. The estimated fair value of the contingent consideration (earn-out payment) was less than $1.0 at September 29, 2012 as well as at December 31, 2011. The assets acquired and liabilities assumed were recorded at preliminary estimates of fair values as determined by management, based on information currently available and on current assumptions as to future operations, and are subject to change upon the completion of acquisition accounting, including the finalization of asset valuations. We are continuing to revise and finalize our estimates of fair value for certain assets and liabilities, which resulted in a net increase to goodwill of $57.9 during the nine months ended September 29, 2012. We will finalize our estimates of fair value during the fourth quarter of 2012. The following is a summary of the recorded preliminary fair values of the assets acquired and liabilities assumed for Clyde Union at the date of acquisition, and reflects acquisition accounting adjustments recorded during the first three quarters of 2012:
Assets acquired: |  |  |
Current assets, including cash and equivalents of $44.3 |  | $ | 352.3 |
Property, plant and equipment |  | 76.7 |
Goodwill |  | 372.7 |
Intangible assets |  | 378.8 |
Other assets |  | 25.1 |
Total assets acquired |  | 1,205.6 |
Liabilities assumed: |  |  |
Current liabilities |  | 270.4 |
Other long-term liabilities |  | 166.4 |
Total liabilities assumed |  | 436.8 |
Noncontrolling interests |  | 1.8 |
Net assets acquired |  | $ | 767.0 |
The identifiable intangible assets acquired consist of trademarks, customer lists, customer relationships and technology of $76.8, $7.5, $234.4 and $60.1, respectively, with such amounts based on a preliminary assessment of the related fair values. The customer lists, customer relationships and technology assets are being amortized over 1.5, 30.0 and 27.0 years, respectively. The qualitative factors that comprise the recorded goodwill include expected synergies from combining our existing and Clyde Union’s operations and expected market growth for existing Clyde Union operations, as well as other factors. None of this goodwill is deductible for income tax purposes. The following unaudited pro forma information presents our after-tax results of operations for the three and nine months ended October 1, 2011, as if the acquisition of Clyde Union had taken place on January 1, 2011. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the acquisition been completed as of the date presented, and should not be taken as representative of our future consolidated results of operations. The pro forma results include estimates and assumptions that management believes are reasonable; however, these results do not include any anticipated cost savings or expenses of the planned integration of Clyde Union. These pro forma results of operations have been prepared for comparative purposes only and include the following adjustments to the October 1, 2011 historical results for the periods presented: · Additional depreciation and amortization expense associated with the fair value adjustments to the acquired Clyde Union property, plant and equipment and intangible assets of $1.1 and $3.1 for the three and nine months ended October 1, 2011, respectively. · The elimination of interest expense related to the portion of Clyde Union’s long-term debt that was paid off at the time of the acquisition of $3.2 and $10.0 for the three and nine months ended October 1, 2011, respectively. · The addition of interest expense associated with the term loans that were drawn down in order to finance the Clyde Union acquisition of $5.3 and $15.2 for the three and nine months ended October 1, 2011, respectively. · The elimination of rent expense associated with a facility in Scotland that had been leased by Clyde Union and that we purchased on December 23, 2011 of $0.6 and $1.6 for the three and nine months ended October 1, 2011, respectively. · A reduction in bonding costs for Clyde Union due to more favorable rates under our senior credit facilities of $1.7 and $4.2 for the three and nine months ended October 1, 2011, respectively. · The above modifications were adjusted for the applicable income tax impact.
|  | Three months ended |  | Nine months ended |
|  | October 1, 2011 |  | October 1, 2011 |
Revenues |  | $ | 1,269.8 |  | $ | 3,618.4 |
Income from continuing operations attributable to SPX Corporation common shareholders |  | 42.0 |  | 77.7 |
Net income attributable to SPX Corporation common shareholders |  | 53.5 |  | 103.3 |
Income from continuing operations attributable to SPX Corporation common shareholders: |  |  |  |  |
Basic |  | $ | 0.83 |  | $ | 1.54 |
Diluted |  | $ | 0.83 |  | $ | 1.52 |
Net income attributable to SPX Corporation common shareholders: |  |  |  |  |
Basic |  | $ | 1.06 |  | $ | 2.05 |
Diluted |  | $ | 1.05 |  | $ | 2.02 |
On October 31, 2011, in our Flow Technology reportable segment, we completed the acquisition of e&e Verfahrenstechnik GmbH (“e&e”), a supplier of extraction, evaporation, vacuum and freeze drying technologies to the global food and beverage, pharmaceutical and bioenergy industries for a purchase price of approximately 11.7 Euros, net of cash assumed of 3.8 Euros, with an additional potential earn-out of 3.5 Euros. e&e had revenues of approximately 15.3 Euros in the twelve months prior to the date of acquisition. In March 2011, in our Flow Technology reportable segment, we completed the acquisition of B.W. Murdoch Ltd. (“Murdoch”), an engineering company supplying processing solutions for the food and beverage industry, for a purchase price of $8.1, after payment of a working capital settlement of $0.7 during the third quarter of 2011. Murdoch had revenues of approximately $13.0 in the twelve months prior to the date of acquisition. The pro forma effects of the Seital, e&e and Murdoch acquisitions were not material, individually or in the aggregate, to our results of operations. Discontinued Operations As part of our operating strategy, we regularly review and negotiate potential divestitures, some of which are or may be material. As a result of this continual review, we determined that certain of our businesses would be better strategic fits with other companies or investors. We report businesses or asset groups as discontinued operations when, among other things, we commit to a plan to divest the business or asset group, actively begin marketing the business or asset group, and when the sale of the business or asset group is deemed probable within the next twelve months. On January 23, 2012, we entered into an agreement to sell our Service Solutions business to Robert Bosch GmbH for cash proceeds of $1,150.0. We expect the sale to close during December 2012, resulting in a net gain of approximately $450.0. We have reported, for all periods presented, the financial condition, results of operations, and cash flows of this business as a discontinued operation in our condensed consolidated financial statements. In addition to the business discussed above, we recognized net losses of $0.7 and $1.6 during the three and nine months ended September 29, 2012, respectively, and net gains of $0.4 and $1.2 during the three and nine months ended October 1, 2011, respectively, resulting from adjustments to gains/losses on sales from previously discontinued businesses. Refer to the consolidated financial statements contained in our 2011 Annual Report on Form 10-K/A for the disclosure of all discontinued businesses during the 2009 through 2011 period. The final sales price for certain of the divested businesses is subject to adjustment based on working capital existing at the respective closing dates. The working capital figures are subject to agreement with the buyers or, if we cannot come to agreement, an arbitration or other dispute-resolution process. Final agreement of the working capital figures for certain of these transactions has yet to occur. In addition, changes in estimates associated with liabilities retained in connection with a business divestiture (e.g., income taxes) may occur. It is possible that the sales price and resulting gains/losses on these, and other previous divestitures, may be materially adjusted in subsequent periods. For the three and nine months ended September 29, 2012 and October 1, 2011, income from discontinued operations and the related income taxes are shown below:
|  | Three months ended |  | Nine months ended |
|  | September 29, |  | October 1, |  | September 29, |  | October 1, |
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Income from discontinued operations |  | $ | 8.4 |  | $ | 18.5 |  | $ | 31.8 |  | $ | 34.6 |
Income tax provision |  | (3.1 | ) | (7.0 | ) | (11.9 | ) | (9.0 | )
Income from discontinued operations, net |  | $ | 5.3 |  | $ | 11.5 |  | $ | 19.9 |  | $ | 25.6 |
For the three and nine months ended September 29, 2012 and October 1, 2011, results of operations for our businesses reported as discontinued operations were as follows:
|  | Three months ended |  | Nine months ended |
|  | September 29, |  | October 1, |  | September 29, |  | October 1, |
|  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Revenues |  | $ | 196.9 |  | $ | 221.2 |  | $ | 667.9 |  | $ | 682.5 |
Pre-tax income |  | 9.5 |  | 17.8 |  | 34.6 |  | 36.6 |
The major classes of assets and liabilities, excluding intercompany balances, of the business reported as a discontinued operation included in the accompanying condensed consolidated balance sheets are shown below:
|  | September 29, |  | December 31, |
|  | 2012 |  | 2011 |
Assets: |  |  |  |  |
Accounts receivable, net |  | $ | 180.1 |  | $ | 191.8 |
Inventories |  | 134.9 |  | 127.7 |
Other current assets |  | 15.0 |  | 9.3 |
Property, plant and equipment, net |  | 46.4 |  | 48.7 |
Goodwill and intangibles, net |  | 279.2 |  | 283.9 |
Other assets |  | 51.1 |  | 58.7 |
Assets of discontinued operations |  | $ | 706.7 |  | 720.1 |
Liabilities: |  |  |  |  |
Accounts payable |  | $ | 72.5 |  | $ | 109.3 |
Accrued expenses |  | 106.1 |  | 109.4 |
Income taxes payable |  | 0.7 |  | 1.5 |
Deferred and other income taxes |  | 6.0 |  | 6.6 |
Other liabilities |  | 8.9 |  | 7.6 |
Liabilities of discontinued operations |  | $ | 194.2 |  | $ | 234.4 |
Formation of Shanghai Electric JV On December 30, 2011, we and Shanghai Electric Group Co., Ltd. established the Shanghai Electric JV, a joint venture to supply dry cooling and moisture separator reheater products and services to the power sector in China and other selected regions of the world. We contributed and sold certain assets of our dry cooling products business in China to the joint venture in consideration for a 45% ownership interest in the joint venture and cash payments of RMB 96.7, with RMB 51.5 received on January 18, 2012, RMB 25.8 to be received no later than December 31, 2012, and the remaining RMB payment contingent upon the joint venture achieving defined sales order volumes. In addition, we are licensing our dry cooling and moisture separator reheater technologies to the joint venture, for which we will receive a royalty. We also will continue to manufacture dry cooling components in our China factories and have entered into an exclusive supply agreement with the joint venture for these products. Final approval for the transaction was received January 13, 2012. We accounted for the transaction under the deconsolidation criteria of the Codification and thus recorded a pre-tax gain during the first quarter of 2012 of $20.5 within “Other income (expense), net.” The amount of the pre-tax gain is equal to the difference between (i) the fair value of the consideration received and to be received plus the fair value of our retained non-controlling investment in the dry cooling products business in China and (ii) the carrying value of the assets contributed and sold to the joint venture. We account for our investment in the Shanghai Electric JV under the equity method of accounting, as we exercise significant influence but do not have control over the joint venture. The carrying amount of our investment in the Shanghai Electric JV was $33.2 at September 29, 2012 and is reported in “Other assets” within our condensed consolidated balance sheet.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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