Global Thermoelectric Acquisition

6 Months Ended

Jun. 30, 2014

Global Thermoelectric Acquisition

Note 3 – Global Thermoelectric Acquisition

GTE develops, manufactures and sells thermoelectric and non-thermoelectric systems and related products.  The principal application for these technologies include natural gas well and pipeline protection systems and remote power generation for instrumentation, automation and telecommunication systems.  

Results of operations for GTE are included in the Company’s consolidated condensed financial statements beginning April 1, 2014.  GTE contributed $8,174 in product revenues and an operating loss of $42 for the three and six month periods ended June 30, 2014.  

Purchase Price Allocation

The purchase price of approximately $34,163, net of cash acquired of $3,061, has been allocated to the values of assets acquired and liabilities assumed as of April 1, 2014.  The allocation of the purchase price is preliminary.  The Company is in the process of obtaining additional information required to finalize the valuation.  An appraisal will be completed to assist management in determining the fair value of acquired assets and assumed liabilities, including identifiable intangible assets.  The final purchase price allocation may be materially different than the preliminary allocation recorded.  The purchase price allocation is expected to be finalized by December 31, 2014.  The preliminary allocation as of April 1, 2014 was as follows:

Accounts receivable	$	10,200
Inventory		6,487
Deferred income tax assets, net		3,499
Order backlog		815
Prepaid expenses and other assets		258
Property and equipment		716
Customer relationships		5,524
Technology		2,807
Trade name		725
Goodwill		6,601
Assumed liabilities		(6,530	)
Net assets acquired		31,102
Cash acquired		3,061
Purchase price	$	34,163

The gross contractual amount due of accounts receivable is $10,306 of which $106 is expected to be uncollectible.  

Note 3 – Global Thermoelectric Acquisition – Continued

Supplemental Pro Forma Information

The unaudited pro forma combined historical results for the amounts of GTE’s revenue and earnings that would have been included in the Company’s consolidated condensed statements of income had the acquisition date been January 1, 2014 or January 1, 2013 are as follows:

	Three Months Ended June 30,		Six Months EndedJune 30,
	2013		2014		2013
Product revenues	$	170,846	$	413,131	$	325,084
Net income		4,533		34,880		11,824

The pro forma information includes adjustments for the effect of the amortization of intangible assets recognized in the acquisition.  This pro forma information is not necessarily indicative of future operating results.  

Goodwill

We recorded goodwill of approximately $6,601 arising from the acquisition. It is estimated that none of the goodwill recognized will be deductible for income tax purposes.  

Intangible Assets

In conjunction with the acquisition, intangible assets of $9,871 were recorded. The Company’s estimate of the fair value of these assets at the time of the acquisition is preliminary and will be determined with the assistance of an independent third-party valuation firm. As part of the estimated valuation, an estimated useful life for the assets was determined.

Intangible assets, net consisted of the following (balances are higher as of June 30, 2014 than as of April 1, 2014, the acquisition date, due to fluctuations in foreign currency exchange rates totaling $362):

	June 30, 2014
	Gross Value		AccumulatedAmortization			Net Value		Useful Life
Customer relationships	$	5,727	$	(119	)	$	5,608	12 yrs
Order backlog		845		(422	)		423	0.5 yrs
Technology		2,910		(73	)		2,837	10 yrs
Trade name		751		(54	)		697	3.5 yrs
Total	$	10,233	$	(668	)	$	9,565

Amortization expense of $649 for the three and six months ended June 30, 2014 respectively, was recorded as follows:

	Three and Six Months EndedJune 30, 2014
Product revenues	$	(116	)
Selling, general and administrative expense		533

Note 3 – Global Thermoelectric Acquisition – Continued

Amortization expense for the prospective five years is estimated to be as follows:

July 1, 2014 through December 31, 2014	$	914
2015		983
2016		983
2017		929
2018		768

Property, Plant & Equipment

Property and equipment consist of the following:

Asset category	Useful life	Amount
Land	Indefinite	$	15
Buildings	20 yrs		81
Leasehold improvements	5-7 yrs		28
Machinery and equipment	2-5 yrs		423
Computer hardware and software	3-5 yrs		169
		$	716