Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

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Acquisitions
 9 Months Ended
Oct. 01, 2011
Acquisitions [Abstract]  
Acquisitions
8. ACQUISITIONS

On November 30, 2007, Sun Hydraulics acquired shares of preferred and common stock of HCT, which represented 48% of the outstanding shares at the time of purchase. On September 27, 2011, Sun purchased the remaining preferred and common shares of HCT. HCT designs and produces encapsulated, modular, highly ruggedized digital and analog electronic controller products for the global fluid power and motion control industry. HCT's products complement Sun's electro-hydraulic line of valves providing reliable, easy, simple and accurate control of individual valves, or seamless management of systems and sub-systems.

Goodwill arising from the acquisition was $1,976 consisting of the value of the workforce, synergies and competitive advantages obtained as a result of the acquisition. Identifiable intangible assets arising from the acquisition consist of the HCT Trade Name, Patented Technology, Unpatented Technology, and Customer Relationships. These identifiable intangibles totaled $2,658, and are amortized over ten years with the exception of Customer Relationships, which are amortized over twenty years. These amounts are recorded as other assets on the consolidated balance sheet. Annual amortization expense will be approximately $192.

 

The following table summarizes the consideration paid for HCT and the amounts of the assets acquired and liabilities assumed, recognized at the acquisition date.

 

At September 27, 2011

   

Consideration

   

Cash

    $ 1,894   

Accrual (to be paid in stock)

      12   
  

 

 

  

Fair value of total consideration transferred

    $ 1,906   

Fair value of Sun's equity interest in HCT held before the business combination

      1,472   
  

 

 

  

Total

    $ 3,378   

Acquisition-related costs (included in Selling, engineering, and administrative expenses)

      40   

Recognized amounts of identifiable assets acquired and liabilities assumed

   

Cash

    $ 130   

Accounts receivable

      570   

Inventory

      444   

Property, plant, and equipment

      317   

Identifiable intangible assets

      2,658   

Other assets

      210   

Accounts payable and accrued expenses

      (748 ) 

Notes payable

      (2,123 ) 

Other liabilities

      (56 ) 
  

 

 

  

Total identifiable net assets

    $ 1,402   

Goodwill

      1,976   
  

 

 

  

Total

    $ 3,378   

Approximately half of the acquisition related costs above were incurred in the current period with the remainder expected in the Company's fourth quarter. The amount of notes payable above is primarily made up of amounts due to Sun Hydraulics and eliminate upon consolidation.

Sun Hydraulics' fair value of the equity interest in HCT held before the business combination was $1,472. The fair value of the previously held equity interest was determined based on the current purchase price per the purchase agreement before the deduction for option and warrant proceeds. Sun Hydraulics recognized a gain of $1,244 as a result of remeasuring to fair value, based on the current purchase price, its 38% equity interest in HCT held before the business combination. The equity interest was diluted from the original investment as a result of warrant and option exercises. This gain is included in net miscellaneous income on the Consolidated Statement of Operations for the period ending October 1, 2011.

For the period ending October 1, 2011, the Company accounted for HCT under the equity method. No other amounts of income and expenses are included in the Company's consolidated statement of operations for the period ending October 1, 2011, as the transaction occurred at the end of the reporting period. The revenue and earnings of the combined entity had the acquisition date been January 2, 2011, or January 3, 2010, are:

 

     Revenue      Earnings  
     (Unaudited)      (Unaudited)  

Supplemental pro forma from 1/2/2011 to 10/01/2011

    $ 161,311       $ 31,728   

Supplemental pro forma from 1/3/2010 to 10/02/2010

    $ 111,146       $ 14,868