Quarterly report pursuant to Section 13 or 15(d)

Acquisition

v2.4.0.8
Acquisition
6 Months Ended
Dec. 31, 2013
Acquisition

B. Acquisition

On July 22, 2013, the Company’s R&D Systems subsidiary acquired for cash all of the outstanding shares of Bionostics Holdings, Ltd. (Bionostics) and its U.S. operating subsidiary, Bionostics, Inc. Bionostics is a global leader in the development, manufacture and distribution of control solutions that verify the proper operation of in-vitro diagnostic devices primarily utilized in point of care blood glucose and blood gas testing. Bionostics is included in the Company’s Clinical Controls segment.

In connection with the Bionostics acquisition, the Company recorded $14.4 million of developed technology intangible assets that have an estimated useful life of 9 years, $2.7 million of trade name intangible assets that have an estimated useful life of 5 years, $2.4 million related to non-compete agreements that have an estimated useful life of 3 years, and $41.0 million related to customer relationships that have an estimated useful life of 14 years. The intangible asset amortization is not deductible for income tax purposes.

The goodwill recorded as a result of the Bionostics acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration from future products and customers. The goodwill is not deductible for income tax purposes.

Transaction costs of $532,000 and $607,000 were included in the Company’s selling, general and administrative costs during the quarters ended September 30, 2013 and June 30, 2013, respectively.

The aggregate purchase price of the acquisition was allocated to the assets acquired and liabilities assumed based on their preliminarily estimated fair values at the date of acquisition. The preliminary estimate of the excess of purchase price over the fair value of net tangible assets acquired was allocated to identifiable intangible assets and goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the Bionostics acquisition (in thousands):

 

Current assets

   $ 9,605   

Intangible Assets

     60,500   

Goodwill

     56,349   

Equipment

     2,180   
  

 

 

 

Total assets acquired

     128,634   

Liabilities

     3,007   

Deferred income taxes

     22,478   
  

 

 

 

Net assets acquired

   $ 103,149   
  

 

 

 

Cash paid, net of cash acquired

   $ 103,149   
  

 

 

 

Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management’s assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer relationships was based on management’s forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. Amortization expense related to trade names, the non-compete agreement and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The deferred income tax liability represents the estimated future impact of adjustments for the cost to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes.

The Company’s condensed consolidated financial statements for the quarter and six months ended December 31, 2013, include Bionostics net sales of $8.0 million and $14.2 million, respectively, and net income of $292,000 and $276,000, respectively. Included in Bionostics results for the quarter and six months ended December 31, 2013 were amortization of intangibles of $1.5 million and $2.6 million, respectively and costs recognized on the sales of acquired inventory of $458,000 and $1.1 million, respectively.