Acquisition of Business

6 Months Ended

Jun. 30, 2011

Acquisition of Business

Note 4 – Acquisition of Business

Curamik Electronics GmbH

On January 4, 2011, we acquired Curamik Electronics GmbH (Curamik), a manufacturer of power electronic substrate products headquartered in Eschenbach, Germany.  The aggregate purchase price was $151.1 million, which reflects post closing adjustments.

Curamik, founded in 1983, is the worldwide leader for development and production of direct copper bonded ceramic substrate products which are used primarily in the design of intelligent power management devices, such as insulated gate bipolar transistor (IGBT) modules that enable a wide range of products including highly efficient industrial motor drives, wind and solar energy converters and hybrid electric vehicle drive systems.  Most of Curamik’s products are manufactured using state of the art automated processes in its facility located in Eschenbach, Germany.

The acquisition has been accounted for in accordance with applicable purchase accounting guidance.  The following table represents the preliminary fair market value assigned to the acquired assets and liabilities in the transaction.  As of the filing date of this Form 10-Q, we are still in the process of valuing the net assets of the business, including inventory, fixed assets and intangible assets.

(Dollars in thousands)
Assets:
Cash	$	11,256
Accounts receivable		11,876
Other current assets		1,386
Inventory		12,259
Property, plant & equipment		32,312
Other non-current assets		1,808
Intangible assets		52,820
Goodwill		85,947
Total assets		209,664
Liabilities
Accounts payable		6,042
Other current liabilities		20,284
Deferred tax liability		15,923
Other long-term liabilities		16,334
Total liabilities		58,583
Fair value of net assets acquired	$	151,081

For the three and six months ended June 30, 2011, Curamik realized $34.6 million in sales and operating profits of $2.9 million and $67.5 million in sales and $3.2 million in operating profits, respectively.  It is impracticable to disclose comparable prior period amounts on a consistent basis as reported in this Form 10-Q, as the business acquired in the transaction was not consolidated as a reporting unit for the prior periods.

Total costs incurred related to the acquisition were approximately $3.4 million, of which $1.3 million were incurred in the first quarter of 2011 and are included in “Selling and administrative expenses” on our condensed consolidated statement of operations.

SK Utis Co., Ltd.

On March 23, 2010, we entered into an acquisition agreement with SK Utis Co., Ltd. (Utis) and its parent, SK Chemical Co., Ltd. (SK Chemical), both Korean companies, to purchase the common stock of Utis and certain intellectual property owned by SK Chemical related to the Utis business, for an aggregate purchase price of $29.1 million.  The agreement called for an initial payment of $26.0 million, which was made on March 31, 2010, when the transaction closed, which gave us a 90% interest in the outstanding stock of Utis and full ownership of the intellectual property.  SK Chemical will retain a 10% interest in Utis for a two year period, at which point we will purchase the remaining 10% share for a fixed price of $3.1 million.

Utis, established in 2005, is a high-quality supplier of polyurethane foam material solutions for portable communications, entertainment, and industrial applications to leading Korean-based original equipment manufacturers (OEMs).  We believe that this acquisition will expand our presence as a polyurethane foam material solutions provider in several key markets that we have targeted for continued growth, including mobile internet devices, high definition television, and other markets requiring high reliability, high performance materials.  We also believe this acquisition will strengthen our relationships with some of the fastest growing makers of these products and extend our worldwide presence into the Korean marketplace.  We have integrated this business into our High Performance Foams operating segment.

The acquisition has been accounted for in accordance with applicable purchase accounting guidance.  The following table represents the fair market value assigned to the acquired assets and liabilities in the transaction.

(Dollars in thousands)
Assets:
Accounts receivable	$	2,725
Inventory		1,890
Other current assets		685
Property, plant & equipment		1,978
Intangible assets		9,250
Goodwill		15,574
Total assets		32,102
Liabilities
Accounts payable		1,328
Other current liabilities		492
Other long-term liabilities		1,517
Total liabilities		3,337
Fair value of net assets acquired	$	28,765

Total costs incurred related to the acquisition were approximately $0.9 million in the first quarter of 2010 and are included in “Selling and administrative expenses” on the condensed consolidated statement of operations.

As of the date of the acquisition, we acquired 90% of the equity of Utis and SK Chemical retained a 10% interest.  However, SK Chemical, as part of the acquisition agreement, effectively waived all future economic rights to the activities of the business (i.e. dividends, share of profits and losses).  SK Chemical only has the right to the $3.1 million deferred purchase price that will be paid by us to acquire the remaining 10% of Utis in two years.  Therefore, we have consolidated 100% of the activities of Utis in accordance with applicable accounting guidance.  Operational results were included beginning in the second quarter of 2010.  The deferred purchase price at the date of purchase was recorded at its present value (approximately $2.9 million).  This is classified as a short-term liability on our condensed consolidated statement of financial position.