Note 13 - Acquisition

3 Months Ended

Mar. 31, 2012

Business Combination Disclosure [Text Block]

NOTE 13 – ACQUISITION

On March 19, 2012, the Company completed the acquisition of all issued and outstanding capital stock of Virticus Corporation, a privately owned company based in Beaverton, Oregon.  This new 100% owned subsidiary operates under the name of LSI Virticus Inc.  Consideration for the stock purchase consisted of $3,150,000 in cash and a five year contingent earn-out payment opportunity of $5.0 million, approximately 76% of which will be recorded as compensation expense over the earn-out period and 24% of which will be considered as part of the purchase price.  The purchase price, which includes the $3,150,000 initial cash payment plus the $857,000 (recorded on the Company’s balance sheet as an Other Long-Term Liability) preliminary acquisition date fair value of the contingent earn-out, exceeded the fair value of the net assets being acquired, and therefore estimated goodwill in the amount of $3,110,000 was recorded with this acquisition.  The valuation work on this acquisition is preliminary and when completed in the fourth quarter, it is likely that certain intangible assets will be reclassified out of the estimated goodwill.  LSI did not assume any long-term debt with the purchase of Virticus Corporation.  Acquisition transaction deal costs of $434,000 and related expenses of $150,000 are included in the financial results for the quarter ended March 31, 2012 in selling and administrative expenses.  The operations of LSI Virticus are included in the Company’s operating results beginning March 20, 2012, and are reported in the Electronic Components Segment.

The preliminary allocation of purchase price to the fair value of identifiable assets acquired and liabilities assumed with the acquisition of Virticus Corporation was as follows:

(In thousands)
Financial assets	$	943
Inventory		210
Property, plant and equipment		1
Identifiable intangible assets		--
Financial liabilities		(257	)
Total identifiable net assets		897
Goodwill		3,110
Total purchase consideration	$	4,007

The above estimated fair values of the assets acquired and liabilities assumed are preliminary and are based on the information that was available to estimate the fair value of the assets acquired and liabilities assumed.  The Company believes that information provides a reasonable basis for estimating the fair values of the assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values.  Thus, the preliminary measurements of fair value set forth above are subject to change.  Such changes could be significant.  The Company expects to finalize the valuation and complete the purchase price allocation in the fourth quarter, but no later than one year from the acquisition date.

The Company recorded a deferred tax asset of $619,000 in the opening balance sheet related primarily to the net operating loss carryover of the acquired company.  To the extent of any change to the preliminary fair values of intangible assets or other items, the related deferred tax assets and liabilities recorded at the acquisition date will also be adjusted.

LSI Virticus Inc. designs, engineers, and manufactures automated secured network control systems and software for the management of indoor and outdoor lighting and lighting systems, including the control of solid-state LED lighting.  With the acquisition of Virticus, we expect to complement and further expand the Company’s capabilities in providing our customers with sophisticated lighting and energy management control solutions.  Coupled with our industry-leading LED lighting products, our customers will have complete solid-state solutions to their lighting needs.  The management team and substantially all employees remain with LSI Virticus.

The results of LSI Virticus included in the third quarter of fiscal 2012 consolidated results of the Company are net sales of zero and a net operating loss of $(221,000), which includes $150,000 of acquisition related expenses.

Due to the start-up nature of Virticus and with calendar 2011 net sales less than $400,000, the Company has elected to omit consolidated proforma results.