3. Business Combinations

Zettlex

On May 1, 2018, the Company acquired 100% of the outstanding stock of Zettlex Holdings Limited (“Zettlex”), a Cambridge, United Kingdom-based provider of inductive encoder products that can provide absolute and accurate positioning, even in extreme operating environments, to OEMs in the medical and advanced industrial markets. The purchase price of £22.7 million ($31.2 million), subject to customary working capital adjustments, was financed with cash on hand and the Company’s revolving credit facility. The addition of Zettlex is expected to broaden the range of components and solutions that the Company can provide to customers by combining its commercial resources and application-specific competencies with Zettlex's technologies and strong team. Zettlex is included in the Company’s Precision Motion reportable segment.

The acquisition of Zettlex has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets acquired and liabilities assumed. 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 Zettlex and the Company. The process for estimating the fair values of identifiable intangible assets 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 as the Company is in the process of collecting additional information for the valuation of property, plant and equipment, intangible assets, other liabilities and unrecognized tax benefits.

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

	Purchase Price
	Allocation
Cash	$	3,776
Accounts receivable		2,237
Inventories		928
Property, plant and equipment		2,590
Intangible assets		14,585
Goodwill		10,844
Other assets		145
Total assets acquired		35,105
Accounts payable		509
Accrued expenses and other liabilities		894
Deferred tax liabilities		2,481
Total liabilities assumed		3,884
Total assets acquired, net of liabilities assumed		31,221
Less: cash acquired		3,776
Total purchase price, net of cash acquired	$	27,445

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

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	3,027	10 years
Customer relationships		9,494	15 years
Trademarks and trade names		550	10 years
Backlog		1,514	1 year
Total	$	14,585

The purchase price allocation resulted in $14.6 million of identifiable intangible assets and $10.8 million of goodwill. As the Zettlex acquisition is an acquisition of outstanding common shares, none of the resulting goodwill is 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 flows potentially attributable to: (i) Zettlex’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; and (ii) cost improvements due to the integration of Zettlex operations into the Company’s existing infrastructure.

The operating results of Zettlex were included in the Company’s results of operations beginning on May 1, 2018. Zettlex contributed revenues of $1.8 million and a loss before income taxes of $0.6 million for the six months ended June 29, 2018. Loss before income taxes for the six months ended June 29, 2018 included amortization of purchased intangible assets of $0.3 million and compensation expense of $1.1 million recognized under earn-out agreements.

The pro forma financial information reflecting the operating results of Zettlex, as if it had been acquired as of January 1, 2017, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2017.

Acquisition Costs

Acquisition-related costs are included in restructuring, acquisition and divestiture related costs in the consolidated statements of operations. Acquisition-related costs for Zettlex were $0.2 million for the six months ended June 29, 2018.