Business Combinations

3 Months Ended

Apr. 03, 2015

Business Combinations [Abstract]

Business Combinations

2. Business Combinations

On February 19, 2015, the Company acquired 100% of the outstanding stock of Applimotion Inc. (“Applimotion”), a Loomis, California based provider of advanced precision motor and motion control technology to OEM customers in the advanced industrial and medical markets, for a total purchase price of $14.8 million, subject to customary working capital adjustments. The purchase price includes $13.9 million in cash paid upon closing of the acquisition and $0.9 million estimated fair value of future contingent consideration payable upon the achievement of certain revenue targets for fiscal years 2015 to 2017. The undiscounted range of possible contingent consideration is zero to $4.0 million. The Company expects that the addition of Applimotion will enable the Company to offer a broader range of motion control technologies and integrated solutions. The Company recognized acquisition costs of $0.2 million during the three months ended April 3, 2015 related to the acquisition. Acquisition-related costs are included in restructuring, acquisition and divestiture related costs in the consolidated statements of operations.

The acquisition of Applimotion has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets and liabilities acquired. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Applimotion and the Company. The process for estimating the fair values of identifiable intangible assets and the contingent consideration liability requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date. The purchase price allocation is preliminary and the primary areas of the purchase price allocation that are not yet finalized relate to the final settlement of working capital, valuation of intangible assets and contingent consideration, income taxes, and the amount of the residual goodwill.

Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):

	PurchasePrice
	Allocation
Cash	$	317
Accounts receivable		1,821
Inventory		2,041
Prepaid expenses and other current assets		89
Property and equipment		308
Intangible assets		6,071
Goodwill		7,553
Total assets acquired		18,200
Accounts payable		964
Other liabilities		717
Deferred tax liabilities		2,248
Total liabilities assumed		3,929
Total assets acquired and liabilities assumed		14,271
Less: cash acquired		317
Plus: working capital adjustment		863
Total purchase price, net of cash acquired		14,817
Less: contingent consideration		965
Net cash used for acquisition of business	$	13,852

As of April 3, 2015, the working capital adjustments had not been finalized and were estimated to be an additional cash receipt of $0.9 million which has been included in prepaid expenses and other current assets in the balance sheet.

The preliminary fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technology	$	2,684	10 years
Customer relationships		2,066	10 years
Non-compete covenant		684	4 years
Backlog		637	1 year
Total	$	6,071

The purchase price allocation resulted in $7.6 million of goodwill and $6.1 million of identifiable intangible assets, none of which is expected to be deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) Applimotion’s ability to grow their business with existing and new customers, (ii) the potential to realize cost improvements due to scale and more efficient operations, (iii) the opportunity to serve customers with integrated assemblies that feature products from both Applimotion and the Company and (iv) the potential to sell the Company’s products into Applimotion’s customer base.

The results of the Applimotion acquisition were included in the Company’s results of operations beginning on February 19, 2015. The pro forma financial information reflecting the operating results of Applimotion, had it been acquired as of January 1, 2014, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2014. Applimotion is included in the Company’s Precision Motion reportable segment.