BUSINESS ACQUISITIONS | BUSINESS ACQUISITIONS Oncotest On November 18, 2015, the Company acquired Oncotest, a German CRO providing discovery services for oncology, one of the largest therapeutic areas for biopharmaceutical research and development spending. With this acquisition, the Company has expanded its oncology services capabilities, enabling it to provide clients with access to a more comprehensive portfolio of technologies, including patient-derived xenograft (PDX) and syngeneic models. The purchase price for Oncotest was approximately $ 36.0 million , including $ 0.3 million in contingent consideration. The acquisition was funded by borrowings on the Company's revolving credit facility. The business is reported in the Company’s DSA reportable segment. The contingent consideration is a one-time payment that could become payable based on the achievement of a revenue target for the fiscal year 2016. If achieved, the payment will become due in the first quarter of fiscal year 2017. The aggregate, undiscounted amount of contingent consideration that the Company may pay is €2.0 million ( $2.2 million as of December 26, 2015). The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The preliminary purchase price allocation of $35.4 million , net of $ 0.6 million of cash acquired, was as follows: November 18, 2015 (in thousands) Trade receivables (contractual amount of $3,546) $ 3,520 Inventories 129 Other current assets (excluding cash) 706 Property, plant and equipment 2,528 Definite-lived intangible assets 13,330 Goodwill 22,894 Other long-term assets 250 Current liabilities (3,456 ) Long-term liabilities (4,470 ) Total purchase price allocation $ 35,431 The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition. The breakout of definite-lived intangible assets acquired was as follows: Definite-Lived Intangible Assets Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 7,146 19 Developed technology 5,960 19 Other intangible assets 224 3 Total definite-lived intangible assets $ 13,330 The goodwill resulting from the transaction is primarily attributed to the potential growth in the Company's DSA businesses from customers and technology introduced through Oncotest, the assembled workforce of the acquired business and expected cost synergies. The goodwill attributable to Oncotest is not deductible for tax purposes. The Company incurred transaction and integration costs in connection with the acquisition of $ 2.1 million during the fiscal year 2015 , which were included in selling, general and administrative expenses. Celsis On July 24, 2015, the Company acquired Celsis Group Limited (Celsis), a leading provider of rapid testing systems for non-sterile bacterial contamination for the biopharmaceutical and consumer products industries. The purpose of this acquisition was to enhance the Company’s portfolio of rapid microbial detection products and services with the addition of a rapid bioburden testing product. The purchase price for Celsis was $214.5 million , including assumed debt and certain liabilities of $10.3 million . The acquisition was funded by cash on hand and borrowings on the Company’s revolving credit facility. The business is reported in the Company’s Manufacturing reportable segment. The preliminary purchase price allocation of $ 212.2 million , net of $ 2.3 million of cash acquired, was as follows: July 24, 2015 (in thousands) Trade receivables (contractual amount of $5,410) $ 5,288 Inventories 10,103 Other current assets (excluding cash) 13,432 Property, plant and equipment 4,639 Definite-lived intangible assets 118,140 Goodwill 105,380 Other long-term assets 614 Short-term debt (9,766 ) Other current liabilities (7,448 ) Long-term liabilities (28,146 ) Total purchase price allocation $ 212,236 The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. During the fiscal year 2015, the Company recorded measurement-period adjustments related to the Celsis acquisition that resulted in an immaterial change to the purchase price allocation. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition. The breakout of definite-lived intangible assets acquired was as follows: Definite-Lived Intangible Assets Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 71,000 16 Developed technology 39,140 14 Trademark and trade names 5,200 14 Non-compete 2,800 5 Total definite-lived intangible assets $ 118,140 The goodwill resulting from the transaction is primarily attributed to the potential growth of the Company’s Manufacturing business from clients introduced through Celsis, the assembled workforce of the acquired business and expected cost synergies. The goodwill attributable to Celsis is not deductible for tax purposes. The Company incurred transaction and integration costs in connection with the acquisition of $ 8.8 million during the fiscal year 2015 , which were included in selling, general and administrative expenses. Celsis revenue and operating loss for the fiscal year 2015 were $ 11.1 million and $ 6.1 million , respectively. Beginning on July 24, 2015, Celsis has been included in the operating results of the Company. The following selected unaudited pro forma consolidated results of operations are presented as if the Celsis acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain nonrecurring costs and other adjustments, resulting in a reversal of $ 0.6 million and additional expenses of $ 13.1 million for the fiscal years 2015 and 2014 , respectively, related to depreciation and amortization of property, plant and equipment, inventory fair value adjustments and intangible assets. Fiscal Year 2015 2014 (in thousands, except per share amounts) (unaudited) Revenue $ 1,380,493 $ 1,329,025 Net income attributable to common shareholders 162,672 110,387 Earnings per common share Basic $ 3.50 $ 2.37 Diluted $ 3.42 $ 2.32 These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future. No effect has been given for synergies, if any, that may have been realized through the acquisition. Sunrise On May 5, 2015, the Company acquired Sunrise Farms, Inc. (Sunrise), a producer of specific-pathogen-free fertile chicken eggs and chickens used in the manufacture of live viruses. The purpose of this business acquisition was to expand the capabilities of the Company’s existing Avian Vaccine Services business. The purchase price of the acquisition was $ 9.6 million and was funded by cash on hand and borrowings on the Company’s revolving credit facility. The business is reported in the Company’s Manufacturing reportable segment. The Company recorded a bargain purchase gain of $ 9.8 million , which represents the excess of the estimated fair value of the net assets acquired over the preliminary purchase price. The bargain purchase gain was recorded in other income (expense), net in the Company’s consolidated statement of income and was not recognized for tax purposes. The Company believes there were several factors that contributed to this transaction resulting in a bargain purchase gain, including the highly specialized nature of Sunrise’s business falling outside of the seller’s core activities and a limited pool of potential buyers. Before recognizing the gain from the bargain purchase, the Company reassessed its initial identification and valuation of assets acquired and liabilities assumed to validate that all assets and liabilities that the Company was able to identify at the acquisition date were properly recognized. The preliminary purchase price allocation of $ 9.6 million , net of less than $ 0.1 million of cash acquired, was as follows: May 5, 2015 (in thousands) Trade receivables (contractual amount of $995) $ 981 Inventories 1,518 Other current assets (excluding cash) 973 Property, plant and equipment 13,698 Definite-lived intangible assets 3,400 Current liabilities (925 ) Long-term liabilities (250 ) Fair value of net assets acquired 19,395 Bargain purchase gain (9,837 ) Total purchase price allocation $ 9,558 The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. During the fiscal year 2015 , the Company recorded measurement-period adjustments related to the Sunrise acquisition that resulted in an immaterial change to the purchase price allocation and bargain purchase gain. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition. The identifiable definite-lived intangible assets acquired represent the client relationships intangible, which is being amortized over the estimated useful life of approximately 15 years. The Company incurred transaction and integration costs in connection with the acquisition of $ 1.5 million during the fiscal year 2015 , which were included in selling, general and administrative expenses. ChanTest On October 29, 2014, the Company acquired ChanTest, a leading provider of ion channel testing services to the biopharmaceutical industry. The acquisition augments the Company’s early discovery capabilities and enhances the Company’s ability to support clients’ target discovery and lead optimization efforts. The purchase price of the acquisition was $ 59.2 million , including $ 0.3 million in contingent consideration. The business is reported in the Company’s DSA reportable segment. The contingent consideration earn-out period ended in the fourth quarter of 2015. As a result, the related contingent consideration liability was reversed and a gain of $0.3 million was recorded in selling, general and administrative expenses, as no payments are expected to be made. The aggregate, undiscounted amount of contingent consideration that could have become payable was $ 2.0 million . The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The purchase price allocation of $ 52.0 million , net of $ 7.2 million in cash acquired, is as follows: October 29, 2014 (in thousands) Current assets (excluding cash) $ 4,669 Property, plant and equipment 1,637 Definite-lived intangible assets 23,920 Goodwill 34,775 Current liabilities (3,486 ) Long-term liabilities (9,486 ) Total purchase price allocation $ 52,029 The breakout of definite-lived intangible assets acquired is as follows: October 29, 2014 Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 19,000 13 Other intangible assets 4,920 9 Total definite-lived intangible assets $ 23,920 The definite-lived intangibles are largely attributed to the expected cash flows related to client relationships existing at the acquisition closing date. The goodwill resulting from the transaction is primarily attributed to the potential growth of the business and is not deductible for tax purposes. The Company incurred insignificant transaction and integration costs in connection with the acquisition during the fiscal year 2015 and costs of $1.1 million during the fiscal year 2014 , which were included in selling, general and administrative expenses. VivoPath On June 16, 2014, the Company acquired substantially all of the assets of VivoPath LLC (VivoPath), a discovery services company specializing in the rapid, in vivo compound evaluation of molecules in the therapeutic areas of metabolism, inflammation and oncology. The purchase price was $ 2.3 million , including $ 1.6 million in contingent consideration, and was allocated primarily to the intangible assets acquired. The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The undiscounted total amount of contingent consideration was a maximum of $ 2.4 million , payable over three years based on the achievement of revenue growth targets and other contractual requirements. During the fiscal year 2015 , the Company paid the first year tranche of the contingent consideration of $ 0.6 million and recorded a gain of $ 0.8 million , primarily due to a decrease in the expected future contingent consideration payments. As of December 26, 2015 , the remaining contingent consideration payable is a maximum of $ 0.4 million . The business is reported in the Company’s DSA reportable segment. Argenta and BioFocus On April 1, 2014, the Company acquired (1) 100% of the shares of the United Kingdom (U.K.) based entities Argenta and BioFocus, and (2) certain Dutch assets. These businesses have formed the core of the Company’s Early Discovery business. With this acquisition, the Company has enhanced its position as a full service, early-stage CRO, with integrated in vitro and in vivo capabilities from target discovery through preclinical development. The purchase price of the acquisition was $191.8 million , including $0.9 million in contingent consideration. The acquisition was funded by cash on hand and borrowings on the Company’s revolving credit facility. The businesses are reported in the Company’s DSA reportable segment. The contingent consideration earn-out period ended on April 1, 2015. As a result, the related contingent consideration liability, as adjusted for subsequent changes in fair value, was reversed and a gain of $0.8 million was recorded in selling, general and administrative expenses during the fiscal year 2015 , as no payments are expected to be made. The contingent consideration was a one-time payment that could have become payable in the second quarter of 2015 based on the achievement of a certain revenue target for the twelve-month period following the acquisition. The aggregate, undiscounted amount of contingent consideration that the Company could have paid was € 5.0 million ( $5.5 million as of December 26, 2015 ). The Company estimated the fair value of this contingent consideration based on a probability-weighted set of outcomes. The purchase price allocation of $183.6 million , net of $8.2 million of cash acquired, was as follows: April 1, 2014 (in thousands) Current assets (excluding cash) $ 31,682 Property, plant and equipment 21,008 Other long-term assets 11,140 Definite-lived intangible assets 104,470 Goodwill 65,235 Current liabilities (13,139 ) Long-term liabilities (36,802 ) Total purchase price allocation $ 183,594 The breakout of definite-lived intangible assets acquired was as follows: April 1, 2014 Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 94,000 18 Backlog 5,900 1 Trademark and trade names 1,170 3 Leasehold interests 1,000 13 Other intangible assets 2,400 19 Total definite-lived intangible assets $ 104,470 The goodwill resulting from the transaction is primarily attributed to the potential growth of the Company’s DSA businesses from clients introduced through Argenta and BioFocus, the assembled workforce of the acquired businesses and expected cost synergies. The goodwill attributable to Argenta and BioFocus is not deductible for tax purposes. The Company incurred insignificant transaction and integration costs in connection with the acquisition during the fiscal year 2015 and costs of $5.3 million during the fiscal year 2014 , which were included in selling, general and administrative expenses. Argenta and BioFocus revenue and operating income for the fiscal year 2014 were $71.4 million and $1.8 million , respectively. Beginning on April 1, 2014, Argenta and BioFocus have been included in the operating results of the Company. The following selected unaudited pro forma consolidated results of operations are presented as if the Argenta and BioFocus acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition after giving effect to certain adjustments, including amortization of intangible assets and depreciation of fixed assets of $ 3.7 million and other nonrecurring costs. Fiscal Year 2014 2013 (in thousands, except per share amounts) (unaudited) Revenue $ 1,322,771 $ 1,249,649 Net income attributable to common shareholders 128,195 98,508 Earnings per common share: Basic $ 2.75 $ 2.06 Diluted $ 2.70 $ 2.03 These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future. No effect has been given for synergies, if any, that may have been realized through the acquisition. Microbial Solutions Singapore (formerly EMD Singapore) In October 2013, the Company acquired 100% of an Microbial Solutions products and service provider located in Singapore for $4.9 million in cash. The financial results of the acquired entity are included in the Manufacturing reportable segment. The purchase price allocation was as follows: October 4, 2013 (in thousands) Current assets (excluding cash) $ 300 Property, plant and equipment 154 Definite-lived intangible assets 1,885 Goodwill 2,659 Current liabilities (64 ) Total purchase price allocation $ 4,934 The breakout of definite-lived intangible assets acquired was as follows: October 4, 2013 Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 1,870 8 Other intangible assets 15 2 Total definite-lived intangible assets $ 1,885 The goodwill resulting from the transaction is primarily attributed to the potential growth of the business in Southeast Asia and is not deductible for tax purposes. Vital River In January 2013, the Company acquired a 75% ownership interest of Vital River, a commercial provider of research models and related services in China, for $24.2 million , net of $2.7 million of cash acquired. Vital River’s financial results are included in the RMS reportable segment. The purchase price allocation was as follows: January 4, 2013 (in thousands) Current assets (excluding cash) $ 3,092 Property, plant and equipment 10,468 Other long-term assets 2,242 Definite-lived intangible assets 16,954 Goodwill 16,989 Current liabilities (11,303 ) Long-term liabilities (5,260 ) Redeemable noncontrolling interest (8,963 ) Total purchase price allocation $ 24,219 The breakout of definite-lived intangible assets acquired was as follows: January 4, 2013 Weighted Average Amortization Life (in thousands) (in years) Client relationships $ 14,741 12 Reacquired rights 2,053 1 Other intangible assets 160 3 Total definite-lived intangible assets $ 16,954 The goodwill resulting from the transaction is primarily attributed to the potential growth of the business in China and is not deductible for tax purposes. Concurrent with the acquisition, the Company entered into a joint venture agreement with the noncontrolling interest holders that provide the Company with the right to purchase the remaining 25% of the entity for cash at its then appraised value beginning in January 2016. Additionally, the noncontrolling interest holders were granted the right to require the Company to purchase the remaining 25% of the entity at its then appraised value beginning in January 2016 for cash. These rights are accelerated in certain events. As the noncontrolling interest holders can require the Company purchase the remaining 25% interest, the noncontrolling interest is classified in the mezzanine section of the consolidated balance sheet, which is above the equity section and below liabilities. The acquisition-date fair value of the noncontrolling interest was determined based on the fair value of the consideration exchanged for the 75% of Vital River. Subsequent to the acquisition, the noncontrolling interest carrying amount is adjusted to the fair value each quarter using an income approach. The income approach uses estimated future cash flows based on projected financial data discounted by a rate which considers the Company’s weighted average cost of capital and the specific risks of achieving these cash flows. Adjustments to fair value are recorded through additional paid-in capital. |