Zurn Elkay's Intellihot Deal Came With $13.4 Million In Warranty Obligations
The acquired claims lifted the water-products maker's warranty reserve to $23.0 million from $9.4 million a quarter earlier.
Zurn Elkay Water Solutions, which makes drinking water stations, valves, drains and flush systems for commercial and institutional buildings, took on $13.4 million of acquired warranty obligations with its purchase of tankless water heater maker Intellihot, its quarterly report filed Tuesday shows. The product warranty reserve stood at $23.0 million at September 30, against $9.4 million in the prior quarter's report.
A reserve that more than doubled
The warranty liability table shows the nine-month balance starting at $6.6 million, then adding the $13.4 million of acquired obligations, $5.0 million charged to operations and subtracting $2.0 million of claims settled, for the $23.0 million total. Of that, $7.2 million is current and $15.8 million is long-term. The long-term piece was $4.5 million in the prior quarter's filing.
In the preliminary price allocation, the warranties offset $55.0 million of goodwill, $44.5 million of other intangibles, an $8.5 million deferred tax asset and $12.7 million of other net assets. The company says the allocation can be adjusted for up to a year after the acquisition date, so the warranty figure may still move.
Price, wording and the target
Zurn Elkay closed the purchase of Intellihot, based in Vernon Hills, Illinois, on July 21. It paid total consideration of $107.3 million, excluding transaction costs and net of $2.1 million of cash acquired. Intellihot serves healthcare, education, hospitality and commercial buyers.
The prior quarterly report put the price at about $108.5 million and said the deal was not expected to have a material impact. The new filing drops that sentence and says pro-forma results were not presented because they are not material.
Intellihot added 2% to third-quarter net sales of $495.1 million, up 9% from a year earlier, with core sales up 7%, according to the earnings release.
Buybacks and dividend alongside the deal
For the nine months, the company spent $107.3 million on the acquisition, $134.7 million on share repurchases and $55.0 million on dividends. It repurchased 732,793 shares for $35.0 million in the third quarter. The board declared a quarterly dividend of $0.13 a share on October 22, payable December 7 to holders of record on November 20.
Cash stood at $307.1 million, and the company reports no borrowings on its $550.0 million revolving credit facility. Its market value was $8.2 billion in Tuesday's report.
The company holds a one-year window from the July 21 closing to adjust the Intellihot allocation, warranty balance included.
