4. Business acquisitions

12 Months Ended

Dec. 31, 2011

Business Combination Disclosure [Text Block]

4. Business acquisitions

On August 19, 2011, we completed the purchase of substantially all of the assets of Printrex for $4,000,000 in cash and potential future contingent consideration further discussed below.  Printrex is a leading manufacturer of specialty printers primarily sold into the oil and gas exploration and medical markets which serve 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.  The Company is in the process of completing its analysis of fair value attributes of the assets acquired related to the Printrex acquisition and anticipates that the final assessment of values will not defer materially from the preliminary assessment.

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

Purchase Price Allocation (In thousands):
Receivables	$	673
Inventories		780
Fixed assets		11
Other current assets		6
Intangible assets		2,280
Goodwill		1,049
Other assets		22
Liability related to potential future contingent consideration		(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 $623,000 and other receivables is $50,000.  The gross contractual amount due on these trade accounts receivable is approximately $638,000, of which $15,000 is expected to be uncollectible.

We entered into a contingent consideration arrangement 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 $1,049,000 of goodwill, which is deductible for tax purposes, and 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.

In January 2012, we determined that we no longer need to maintain the existing Printrex manufacturing facility in San Jose, California, along with certain redundant headcount.  This decision will enable us to utilize the space in our existing facilities while also gaining the efficiencies and operational excellence from our team in Ithaca, NY.  As a result, we plan to transition all San Jose manufacturing operations to our Ithaca, NY facility, and all San Jose service operations to our Las Vegas, NV facility, by the end of August 2012.  As part of this transition, we plan to maintain the San Jose engineering group and relocate them to a new, smaller facility in the San Jose area.

The change in carrying value of goodwill for the year ended December 31, 2011 was as follows (in thousands):

Balance at December 31, 2010	$	1,469
August 2011 Printrex acquisition		1,049
Balance at December 31, 2011	$	2,518

We incurred acquisition-related costs of $159,000 during the year ended December 31, 2011.  These costs included legal, accounting, valuation and other professional services and were included in general and administrative expenses in the Consolidated Statements of Income. In addition, we incurred approximately $78,000 of integration-related expenses in 2011 that were also included in general and administrative expenses in the Consolidated Statements of Income.

The Printrex acquisition contributed $1,892,000 to net sales and reduced net income by $23,000 for the year ended December 31, 2011.  This reduction includes the after-tax impact of $139,000 of amortization expense from the intangible assets acquired from Printrex as well as $78,000 of integration expenses.  The following unaudited pro forma 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.

	Year ended December 31,
(In thousands)	2011		2010
Sales	$	69,694	$	68,617
Net income	$	5,025	$	3,865