3. Business Acquisitions

9 Months Ended

Sep. 30, 2011

Business Combination Disclosure [Text Block]

3. Business Acquisitions

On August 19, 2011, we completed the purchase of substantially all of the assets of Printrex, Inc. (“Printrex”) for $4,000,000 in cash and contingent consideration.  Printrex is a leading manufacturer of specialty printers primarily sold into the oil and gas exploration and medical markets.  Printrex serves commercial and industrial customers primarily in the United States, Canada, Europe and Asia. This acquisition was completed primarily to expand our product offerings into the oil and gas exploration and medical markets.  As of September 30, 2011, we have not finalized the assignment of goodwill related to the Printrex acquisition.

As of September 30, 2011, we have not yet finalized all the working capital adjustments with the seller.  As a result, the purchase price allocation may change in future reporting periods, although we do not anticipate that these changes will be significant.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed related to the Printrex acquisition:

	August 19, 2011
(In thousands)	Printrex
Purchase Price Allocation:
Receivables	$	747
Inventories		780
Fixed assets		11
Other current assets		6
Intangible assets		2,280
Goodwill		975
Other assets		22
Liabilities related to contingencies		(680	)
Other liabilities		(141	)
Total purchase price	$	4,000
Intangible Assets:
Customer relationships	$	1,300
Trademark		480
Developed technology		420
Other		80
Total Intangible assets	$	2,280
Intangible Asset Weighted Average Amortization Period:
Customer relationships	6 years
Trademark	10 years
Developed technology	9 years
Other	1.2 years
Total weighted average	7.2 years

The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty method and the multi period excess earnings method.  The valuation of tangible assets was derived using a combination of the income approach, the market approach and the cost approach.

The fair value of trade accounts receivables acquired is $624,000 and other receivables is $123,000.  The gross contractual amount due on these trade accounts receivable is $639,000, of which $15,000 is expected to be uncollectible.

We entered into a contingent liability with Printrex as part of the acquisition for 30% of the gross profit for a three-year period related to new products under development, less certain other adjustments, beginning on the earlier of 1) January 1, 2012 or 2) the date of first commercial introduction of the new products under development.  The undiscounted fair value related to the contingent liability could range from $100,000 to $1,800,000.  The fair value of the contingent consideration arrangement of $680,000 was estimated by applying the income approach.  That measure is based on significant inputs that are not observable in the market, which fair value measurement guidance refers to as Level 3 inputs.

Key assumptions include a discount rate range of 5% to 6% and a probability-adjusted level of gross profit between $1,300,000 and $7,000,000.

The Printrex acquisition resulted in recognition of $975,000 of goodwill, which is deductible for tax purposes.  This goodwill largely consists of expected synergies resulting from the acquisition.  Key areas of potential cost savings include increased purchasing power for raw materials; manufacturing and supply chain work process improvements; and the elimination of redundant manufacturing overhead and operating expenses.  We also anticipate that the transaction will produce growth synergies as a result of applying TransAct’s sales and engineering expertise to Printrex’s products.

The change in carrying value of goodwill for the three months ended September 30, 2011 was as follows (in thousands):

Balance at June 30, 2011	$	1,469
August 2011 Printrex acquisition		975
Balance at September 30, 2011	$	2,444

We incurred acquisition-related costs of $144,000 during the quarter ended September 30, 2011.  These costs included legal, accounting, valuation and other professional services and were included in general and administrative expenses in the Condensed Consolidated Statements of Income.

The Printrex acquisition contributed $521,000 to net sales and ($44,000) to earnings in the third quarter of 2011.  The earnings amount of ($44,000) includes the after-tax impact of $56,000 of amortization expense from the intangible assets acquired from Printrex.  The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the acquisition of Printrex occurred on January 1, 2010.  This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.

	Nine months ended September 30,
(In thousands)	2011		2010
Revenues	$	56,049	$	51,148
Net income	$	4,378	$	2,866