Acquisitions | 9 Months Ended |
Apr. 30, 2014 |
Acquisitions | ' |
Acquisitions | ' |
Note 3. Acquisitions |
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PuriCore International Limited |
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On June 3, 2014, we entered into a definitive stock purchase agreement to acquire from PuriCore plc, a publicly traded company in the United Kingdom (“UK”), all the issued and outstanding stock of its subsidiary PuriCore, a company located in the UK with pre-acquisition annual revenues (unaudited) of approximately $25,000,000 that sells automated endoscope reprocessors and related equipment and consumables, as well as comprehensive maintenance and validation services, primarily in the UK market (the “PuriCore Business”). The transaction is anticipated to be completed on or about June 30, 2014. The total consideration for the transaction is $26,892,000, subject to adjustment and excluding transaction costs. The PuriCore Business will be included in our Endoscopy segment. |
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The principal reasons for the acquisition are as follows: (i) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (ii) the opportunity to sell our chemistries and other products to PuriCore’s installed base through a direct sales force, (iii) the ability to expand our footprint and infrastructure in Europe and (iv) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond. |
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Sterilator Company, Inc. |
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On January 7, 2014, our Crosstex’ subsidiary acquired all the issued and outstanding stock of Sterilator, a private company based in Cuba, New York that manufactures biological indicators and supplies for sterility assurance products, which are used to accurately monitor the effectiveness of sterilization processes. The total consideration for the transaction was $2,829,000. |
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The purchase price was preliminarily allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: |
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| | Preliminary | |
Net Assets | | Allocation | |
Current assets | | $ | 538,000 | |
Property, plant and equipment | | 535,000 | |
Amortizable intangible assets (9- year weighted average life): | | | |
Customer relationships (11- year life) | | 130,000 | |
Technology (8- year life) | | 510,000 | |
Current liabilities | | (321,000 | ) |
Deferred income tax liabilities | | (260,000 | ) |
Net assets acquired | | $ | 1,132,000 | |
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There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $1,697,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Healthcare Disposables segment. |
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The principal reasons for this vertical acquisition were to (i) add one of our key long-standing suppliers of biological indicators to our portfolio providing a strategic benefit and cost savings to our overall sterility assurance monitoring business and (ii) strengthen our new product development and overall research and development capabilities. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. |
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The Sterilator Business is included in our results of operations for the three months ended April 30, 2014, the portion of the nine months ended April 30, 2014 subsequent to its acquisition date and is not reflected in the three and nine months ended April 30, 2013. This acquisition had an insignificant impact on our results of operations. |
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Jet Prep Ltd. |
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On November 5, 2013, our Medivators B.V. subsidiary acquired all the issued and outstanding capital stock of Jet Prep, a private Israeli company that developed the Jet PrepTM Endoscopic Flushing Device, a novel single-use irrigation and aspiration catheter to improve visualization during colonoscopy procedures. The device has FDA 510(k) and CE Mark clearances and is ready for commercialization by our global endoscopy sales force. Total consideration for the transaction, excluding transaction costs of $200,000, was $5,332,000 plus preliminarily estimated contingent consideration of $4,760,000 based on a percentage of sales above a minimum threshold over a seven year period, as further explained below. The Jet Prep Acquisition is included in our Endoscopy segment. |
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We account for contingent consideration by recording the fair value of contingent consideration as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased contingent consideration and goodwill by $4,760,000 to record our initial preliminary estimated fair value of the contingent consideration that would be earned over the seven year period ending November 4, 2020. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the contingent consideration and recorded the changes in fair value by increasing both contingent consideration and general administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At April 30, 2014, the preliminary estimated fair value was $5,026,000 and was recorded in contingent consideration in the Condensed Consolidated Balance Sheets. |
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In connection with the acquisition, we acquired certain ordinary course business assets and liabilities as well as an obligation to repay the Israeli Government for $810,000 of seed funding that was previously granted to Jet Prep. In accordance with the seed funding agreement, the Israeli Government is entitled to a return on their investment that can range from one to nine times their total grant based upon specific conditions set forth in the seed funding agreement and applicable Israeli law, including the acceleration of payments if we transfer certain operations of the company or intellectual property outside of Israel. We account for this assumed contingent obligation to the Israeli Government by recording the fair value as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased accrued expenses by $58,000, other long-term liabilities by $932,000 and goodwill by $990,000 to record our initial estimated fair value of the assumed contingent obligation to the Israeli Government that would be earned on a percentage of sales over a forecasted period. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the assumed contingent liability and recorded the changes in fair value by increasing both other long-term liabilities and general administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At April 30, 2014, the estimated fair value was $1,045,000, of which $58,000 was recorded in accrued expenses and $987,000 was recorded in other long-term liabilities. |
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Since we will be continually re-measuring the contingent consideration liability and the assumed contingent obligation at each balance sheet date and recording changes in the respective fair values through our Condensed Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the completion of the seven year period with respect to the contingent consideration and until the assumed contingent obligation is satisfied or until sales of the Jet Prep Ltd. products no longer exist. |
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The purchase price was preliminarily allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: |
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| | Preliminary | |
Net Assets | | Allocation | |
Current assets | | $ | 64,000 | |
Property, plant and equipment | | 65,000 | |
Amortizable intangible asset: | | | |
Technology (7- year life) | | 5,050,000 | |
Current liabilities | | (158,000 | ) |
Deferred income tax liabilities | | (345,000 | ) |
Other long-term liabilities | | (932,000 | ) |
Net assets acquired | | $ | 3,744,000 | |
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There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $6,348,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment. |
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The principal reasons for the acquisition were (i) to address a market need for an effective technology that improves colonoscopy visualization through the use of irrigation and suction, (ii) to expand our endoscopy product portfolio further bolstering the Medivators brand in the gastrointestinal suite, (iii) to further expand our research and development capability by adding accomplished engineers to our existing research and development team and (iv) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond. |
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The Jet Prep Business is included in our results of operations for the three months ended April 30, 2014, the portion of the nine months ended April 30, 2014 subsequent to its acquisition date and is not reflected in the three and nine months ended April 30, 2013. Since we are only now beginning the commercialization of the Jet Prep Endoscopic Flushing Device, this acquisition has not yet generated any sales and did not have a significant impact on our results of operations. |
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Siemens’ Hemodialysis Water Business |
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On March 22, 2013, Mar Cor and Siemens entered into an asset purchase agreement under which Mar Cor acquired certain net assets of Siemens’ hemodialysis water business primarily consisting of customer service agreements for over 600 dialysis customers in the United States and Canada. Such service agreements had contributed over $9 million in revenue to Siemens in calendar year 2012 (unaudited) and were assigned from Siemens to Mar Cor on an individual customer by customer basis to ensure a seamless transition. The acquisition date of the Siemens Water Business was July 30, 2013, which is when the majority of the customer service agreements were transferred and therefore control of the business had been achieved. The total consideration for the transaction, excluding transaction costs of $362,000, was $8,300,000, which was paid on March 22, 2013. |
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The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: |
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| | Final | |
Net Assets | | Allocation | |
Current assets | | $ | 728,000 | |
Property, plant and equipment | | 231,000 | |
Amortizable intangible assets: | | | |
Customer relationships (12- year life) | | 4,310,000 | |
Current liabilities | | (415,000 | ) |
Net assets acquired | | $ | 4,854,000 | |
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There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $3,446,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, is included in our Water Purification and Filtration segment. |
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The principal reasons for the acquisition were as follows: (i) the opportunity to increase service revenue and profitability of the Mar Cor service network due to improved operating leverage, (ii) the expansion of Mar Cor’s North American footprint into new geographies, (iii) the opportunity to sell capital equipment and recurring consumables to new customers and (iv) the expectation that the acquisition will be accretive to our earnings per share beyond fiscal 2013. |
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Due to the size of this business in relation to our overall consolidated results of operations, the Siemens Water Acquisition did not have a significant effect on our results of operations for the three and nine months ended April 30, 2014 and is not reflected in our results of operations for the three and nine months ended April 30, 2013. The Siemens Water Business is included in our Water Purification and Filtration segment. |
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Eagle Pure Water Systems, Inc. |
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On December 31, 2012, Mar Cor purchased substantially all of the assets of Eagle Pure Water, a private company with pre-acquisition annual revenues (unaudited) of approximately $500,000 based outside of Philadelphia, Pennsylvania that provides water treatment services for laboratory, industrial and medical customers. The total consideration for the transaction was $870,000. |
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The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: |
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| | Final | |
Net Assets | | Allocation | |
Current assets | | $ | 8,000 | |
Property, plant and equipment | | 70,000 | |
Amortizable intangible assets (3- year weighted average life): | | | |
Customer relationships (3- year life) | | 150,000 | |
Brand names (3- year life) | | 18,000 | |
Non-compete agreement (5- year life) | | 32,000 | |
Current liabilities | | (5,000 | ) |
Net assets acquired | | $ | 273,000 | |
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There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $597,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, is included in our Water Purification and Filtration segment. |
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The principal reasons for the acquisition were the strengthening of our sales and service business by adding Eagle Pure Water’s strategic Philadelphia market presence to enable us to better serve our national customers and to further expand our business into the laboratory and research segments. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. |
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The Eagle Pure Water Business is included in our results of operations for the three and nine months ended April 30, 2014, the three months ended April 30, 2013 and the portion of the nine months ended April 30, 2013 subsequent to its acquisition date. This acquisition had an insignificant impact on our results of operations. |
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Polyp Trap |
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On November 13, 2012, Medivators acquired the intellectual property, inventory, fixed assets and exclusive distribution rights of a polyp trap product line for $486,000. This product line is used principally in the performance of endoscopy procedures for the purpose of safely and efficiently collecting tissue biopsy material. The polyp trap product line is included in our Medivators procedural product portfolio, which is part of the Endoscopy segment. |
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This business is included in our results of operations for the three and nine months ended April 30, 2014, the three months ended April 30, 2013 and the portion of the nine months ended April 30, 2013 subsequent to its acquisition date. This acquisition had an insignificant impact on our results of operations. |
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SPS Medical Supply Corp. |
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On November 1, 2012, Crosstex acquired all the issued and outstanding stock of SPS Medical, a private company based in Rochester, New York with pre-acquisition annual revenues (unaudited) of approximately $17,500,000 that manufactures and provides biological and chemical indicators for sterility assurance monitoring services in the acute-care, alternate-care and dental markets. The SPS Business offers a wide-array of products and services that enable healthcare facilities to safely and accurately monitor and verify their sterilization practices and protocols. Total consideration for the transaction, excluding transaction costs of $157,000, was $32,500,000. In addition, we acquired SPS Medical’s manufacturing, warehouse and office facility in Rochester, New York for approximately $3,500,000 from an affiliate of SPS Medical. The SPS Business is included in our Healthcare Disposables segment. |
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The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: |
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| | Final | |
Net Assets | | Allocation | |
Current assets | | $ | 4,810,000 | |
Property, plant and equipment | | 3,801,000 | |
Amortizable intangible assets (9- year weighted average life): | | | |
Customer relationships (10- year life) | | 8,120,000 | |
Brand names (5- year life) | | 760,000 | |
Technology (4- year life) | | 500,000 | |
Non-compete agreements (6- year life) | | 180,000 | |
Other assets | | 28,000 | |
Current liabilities | | (2,784,000 | ) |
Noncurrent deferred income tax liabilities, net | | (3,659,000 | ) |
Net assets acquired | | $ | 11,756,000 | |
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There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $24,244,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Healthcare Disposables segment. |
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The principal reasons for the acquisition were (i) to expand our sterility assurance monitoring product portfolio, (ii) to expand our market share of the dental mail-in biological monitoring industry when combined with our existing monitoring business, (iii) to expand into the acute-care hospital market and alternate care markets, (iv) to increase the likelihood of cross-selling our existing products, (v) to leverage Crosstex’ sales and marketing infrastructure and (vi) the expectation that the acquisition will be accretive to our earnings per share. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. |
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The SPS Business is included in our results of operations for the three and nine months ended April 30, 2014, the three months ended April 30, 2013 and the portion of the nine months ended April 30, 2013 subsequent to its acquisition date. |
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