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ACQUISITION OF WALKER GROUP HOLDINGS LLC
 6 Months Ended
Jun. 30, 2012
ACQUISITION OF WALKER GROUP HOLDINGS LLC
2. ACQUISITION OF WALKER GROUP HOLDINGS LLC

 

On May 8, 2012, the Company completed the acquisition (the “Walker Acquisition”) of all the equity interests of Walker Group Holdings LLC (“Walker”) from Walker Group Resources LLC, the parent of Walker (“Seller”), pursuant to the Purchase and Sale Agreement, dated March 26, 2012, by and among the Company, Walker and Seller (the “Purchase and Sale Agreement”). The aggregate consideration paid by the Company for the Walker Acquisition was $375.0 million in cash, subject to post-closing purchase price adjustments related to the acquired working capital. The Company financed the Walker Acquisition and related fees and expenses using the proceeds of the Company’s offering of 3.375% Convertible Senior Notes due 2018 and the Company’s borrowings under the Term Loan Credit Agreement (as described in further detail in Note 4).

 

Walker is a manufacturer of liquid-transportation systems and engineered products based in New Lisbon, Wisconsin. Walker has become part of the Company’s Diversified Products segment. Walker has manufacturing facilities for its liquid-transportation products in New Lisbon, Wisconsin; Fond du Lac, Wisconsin; Kansas City, Missouri; and Queretaro, Mexico with parts and service centers in Houston, Texas; Baton Rouge, Louisiana; Findlay, Ohio; Chicago, Illinois; Mauston, Wisconsin; West Memphis, Arkansas; and Ashland, Kentucky. Manufacturing facilities for Walker’s engineered products are located in New Lisbon, Wisconsin; Elroy, Wisconsin; and Huddersfield, United Kingdom with parts and service centers in Tavares, Florida; Dallas, Texas; and Philadelphia, Pennsylvania.

 

The Company incurred various costs related to the Walker Acquisition including fees paid to an investment banker for acquisition services and the related bridge financing commitment as well as professional fees for diligence, legal and accounting totaling approximately $12.2 million and $13.9 million for the three and six month periods ending June 30, 2012, respectively. These costs have been recorded as Acquisition Expenses in the Condensed Consolidated Statement of Operations.

 

The aggregate purchase price of $375.0 million was allocated to the opening balance sheet of Walker at May 8, 2012, the date of acquisition, which is still preliminary and subject to adjustment as, follows (in thousands):

 

  

Cash   $ 10,982  
Current assets     90,459  
Property, plant and equipment     32,591  
Intangibles     162,100  
Deferred income taxes     42  
Goodwill     151,492  
Total assets   $ 447,666  
         
Current liabilities   $ (72,672 )
Total liabilities   $ (72,672 )
         
    $ 374,994  
         
Acquisition, net of cash acquired   $ 364,012  

 

Intangible assets of $162.1 million were recorded as a result of the acquisition. The intangible assets preliminarily consist of the following (in thousands):

 

    Amount     Useful Life
Backlog   $ 900     Less than 1 year
Tradenames and Trademarks     27,600     20 years
Technology     15,300     12 years
Customer relationships     118,300     10 years
    $ 162,100      

 

Amortization expense, including the intangible assets preliminarily recorded from the Walker Acquisition, is estimated to be approximately $13.6 million for 2012 and approximately $17.5 million per year for the years 2013 through 2016.

 

Goodwill of $151.5 million was recorded as a result of the acquisition. Goodwill is comprised of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter new market sectors with higher margin potential which will enable us to deliver greater value to our customers and shareholders. The Company expects the amount recorded as goodwill for the Walker Acquisition to be fully deductible for tax purposes.

 

Unaudited Pro forma Results

 

The results of Walker are included in the Consolidated Statements of Operations from the date of acquisition, including $44.3 million and $2.9 million of revenue and net income, respectively. The following unaudited pro forma information is shown below as if the acquisition of Walker had been completed as of the beginning of the earliest period presented (in thousands, except per share amounts).

 

    Three Months Ended
June 30,		     Six Months Ended
June 30,		  
    2012     2011     2012     2011  
Sales   $ 401,142     $ 371,936     $ 776,155     $ 676,863  
Operating income   $ 26,372     $ 11,262     $ 47,058     $ 20,956  
Net income   $ 17,442     $ 2,323     $ 29,957     $ 3,794  
Basic net income per share   $ 0.26     $ 0.03     $ 0.44     $ 0.06  
Diluted net income per share   $ 0.25     $ 0.03     $ 0.44     $ 0.06  

 

 

The information presented above is for informational purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of the respective periods, nor is it necessarily indicative of future operating results of the combined companies under the ownership and management of the Company.