Business acquisition |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition |
On September 14, 2016, the Company acquired 100% shareholding in Exception EMS, a privately-held group located in Wiltshire, United Kingdom, for cash consideration of approximately $13.0 million, net of $0.5 million cash acquired. Exception EMS provides contract electronics manufacturing services to the global electronics industry with innovative solutions, adding value to the design, manufacture and testing of printed circuit board assemblies. Pursuant to the acquisition agreement, the Company has placed $3.1 million of cash, net of foreign currency translation adjustment, for deferred consideration in an escrow account which is under the Company’s control. However, the Company has contractually agreed to remit this deferred consideration to the sellers of Exception EMS, subject to the resolution of claims that the Company may make against the funds with respect to indemnification and other claims within 24 months from the closing date of the transaction. The Company has accounted for this acquisition under the provisions of business combinations accounting, in accordance with Accounting Standards Codification Topic 805 – Business Combinations. Accordingly, the estimated fair value of the acquisition consideration was allocated to the assets acquired and the liabilities assumed based on their respective fair values on the acquisition date. The Company has made certain estimates and assumptions in determining the allocation of the acquisition consideration.
The total consideration and the allocation of consideration to the individual Exception EMS net assets is preliminary, as there are remaining uncertainties to be resolved, including the settlement of the final net working capital adjustment and the finalization of the estimated fair value attributable to the acquired intangible assets. As the functional currency of Exception EMS is pound sterling (“GBP”), for the six months ended December 30, 2016, the Company recognized a $1.2 million loss from foreign currency translation adjustment in its unaudited condensed consolidated statements of operations and comprehensive income. During the second quarter of fiscal year 2017, the Company recorded an adjustment to its initial preliminary purchase price allocation with respect to the assets acquired and liabilities assumed. This resulted in a change in goodwill which was previously reported at acquisition date of $3.0 million to $2.7 million. The Company’s preliminary allocation of the total purchase price for the acquisition is summarized below:
In connection with the Company’s acquisition of Exception EMS, the Company assumed lease agreements for certain machine and equipment, which are accounted for as capital leases. As of December 30, 2016, the Company included approximately $1.9 million of capital lease assets and $1.5 million of capital lease liability in the unaudited condensed consolidated balance sheets associated with these acquired lease agreements. During the six months ended December 30, 2016, the Company incurred approximately $1.5 million in transaction costs related to the acquisition, which primarily consisted of legal, accounting and valuation-related expenses. These expenses were recorded in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive income. Pro forma results of operations for the acquisition have not been presented as they were not material to the Company’s results of operations. Identifiable intangibles The acquired intangible assets include customer relationships and backlog. The fair value of the identified intangible assets was determined based on the multi-period excess earnings method. Customer relationships represent the fair value of future projected revenues that was derived from the sale of products to existing customers of the acquired company. The fair value of $4.4 million will be amortized over the respective estimated remaining useful life of ten years.
Backlog represents the fair value of sales orders backlog as of the valuation date. The fair value of $0.1 million will be amortized over the respective estimated remaining useful life of three years. Goodwill Goodwill arising from the acquisition is primarily attributable to the ability to expand future products and services and the assembled workforce. Goodwill is not deductible for tax purposes. |
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