Business Combinations

6 Months Ended

Jun. 27, 2014

Business Combinations

3. Business Combinations

On March 14, 2014, we completed the acquisition of JADAK LLC, JADAK Technologies, Inc. and Advanced Data Capture Corporation (together, “JADAK”), a North Syracuse, New York-based provider of optical data collection and machine vision technologies to OEM medical device manufacturers, for $93.7 million in cash, net of final working capital adjustments. The Company expects the addition of JADAK will enable the Company to offer a broader range of highly engineered enabling technologies to leading medical equipment manufacturers. Acquisition-related costs are included in restructuring and acquisition related costs in the consolidated statements of operations. Acquisition related costs are as follows (in thousands):

	Three Months Ended		Six Months Ended		Cumulative Costs
	June 27, 2014		June 27, 2014		June 27, 2014
Acquisition-related costs	$	18	$	668	$	975

The acquisition of JADAK has been accounted for as a business combination. The allocation of the purchase price is preliminary and 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 JADAK and the Company. 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) for changes in 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 inventory valuation, intangible assets, income taxes, and the amount of residual goodwill.

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

	Purchase Price Allocation
Cash	$	1,140
Accounts receivable		7,907
Inventory		7,526
Property and equipment		904
Intangible assets		40,250
Other assets		1,979
Goodwill		44,428
Total assets acquired		104,134
Accounts payable		3,057
Other liabilities		1,944
Deferred tax liabilities		4,337
Total liabilities assumed		9,338
Total purchase price		94,796
Less cash acquired		(1,140	)
Total purchase price, net of cash acquired	$	93,656

During the second quarter of 2014, the Company made adjustments to the preliminary purchase price allocation related to the finalization of working capital and adjustments to certain tangible and intangible assets, resulting in an increase to goodwill of $0.4 million. The fair value of intangible assets is comprised of the following dollar amounts (in thousands):

	Estimated Fair Value		Weighted Average Amortization Period
Customer relationships	$	23,570		20 years
Developed technology		10,910		10 years
Trademarks and trade names		2,130		10 years
Backlog		1,810		1 year
Non-compete covenant		1,830		5 years
Total	$	40,250

The purchase price allocation resulted in $44.4 million of goodwill and $40.3 million of identifiable intangible assets, $63.7 million of which are 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) JADAK’s ability to develop and market new products and technologies, (ii) JADAK’s ability to develop relationships with new customers, and (iii) expected sales synergies from cross-selling current and future product offerings of both JADAK and the Company to OEM customers.

The operating results of JADAK have been included in our consolidated statement of operations since the acquisition date. JADAK has contributed sales of $15.5 million and $17.7 million for the three and six months ended June 27, 2014, respectively, and income from continuing operations before income taxes of $1.2 million and $1.1 million for the three and six months ended June 27, 2014, respectively. The pro forma information for all periods presented below includes the effects of business combination accounting resulting from the acquisition of JADAK, including amortization charges from acquired intangible assets, interest expense on borrowings in connection with the acquisition, earn-out expenses, and the related tax effects as though the acquisition had been consummated at the beginning of 2013. These pro forma results exclude the impact of transaction costs and the related tax effects included in the historical results. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place at the beginning of 2013.

	Three Months Ended				Six Months Ended
	June 27, 2014		June 28, 2013		June 27, 2014		June 28, 2013
Sales	$	96,905	$	92,902	$	187,069	$	179,748
Income from continuing operations	$	3,825	$	1,290	$	7,062	$	2,268
Earnings per share - Basic	$	0.11	$	0.03	$	0.20	$	0.06
Earnings per share - Diluted	$	0.11	$	0.03	$	0.20	$	0.06