Business Combinations | 9 Months Ended |
Sep. 30, 2013 |
Business Combinations [Abstract] | ' |
Business Combinations | ' |
2 - Business Combinations |
Grass Technologies |
On February 2, 2013, we completed an asset purchase of the Grass Technologies Product Group (“Grass”) from Astro-Med Inc. for a cash consideration of $18.6 million pursuant to purchase agreement. Grass manufactures and sells clinically differentiated neurodiagnostic and monitoring products, including a portfolio of electroencephalography (EEG) and polysomnography (PSG) systems for both clinical and research use and related accessories and proprietary electrodes. The acquisition strengthened the Company’s existing neurology portfolio and provided new product categories. A total of $624,000 of direct costs associated with the acquisition was expensed as incurred and reported as a component of general and administrative expenses. |
The Company has accounted for the acquisition as a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Grass are recorded in the consolidated financial statements at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. Grass’s results of operations are included in our consolidated financial statements since February 2, 2013, the date of the acquisition. |
Valuing certain components of the acquisition, primarily accounts receivable required us to make significant estimates that may be adjusted in the future; consequently, the purchase price allocation is considered preliminary. Final determination of these estimates could result in an adjustment to the preliminary purchase price allocation, with an offsetting adjustment to goodwill. As of September 30, 2013, there have been no adjustments to the preliminary purchase price. |
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Approximately $5.2 million has been allocated to goodwill. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the provisional values assigned to the assets acquired and liabilities assumed and represent primarily the expected synergies of combining the operations of the Company and the Grass business. None of the goodwill is expected to be deductible for tax purposes. In accordance with ASC 350-20, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). As of September 30, 2013, we have not yet tested the Grass goodwill for impairment. In the event that management determines that the value of goodwill has become impaired, we will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made. |
Grass’s revenue of $3.8 million and $9.7 million and income from operations of $1.1 and $2.1 million are included in our condensed consolidated statements of operations and comprehensive income (loss) for the period from July 1, 2013 to September 30, 2013 and February 2, 2013 (acquisition date) to September 30, 2013, respectively. |
Nicolet |
We acquired the Nicolet neurodiagnostic business (“Nicolet”) from CareFusion on July 2, 2012 pursuant to a Share and Acquisition Purchase Agreement. The Nicolet business develops clinically differentiated neurodiagnostic and monitoring products, including a portfolio of electroencephalography (EEG) and electromyography (EMG) systems and related accessories, as well as vascular and obstetric Doppler sensors and connectivity products. The acquisition strengthened the Company’s existing neurology portfolio and provided new product categories. The acquisition also better positions the Company in international markets, as over 50 percent of the Nicolet business is in markets outside of the United States. |
We acquired all of the outstanding common shares of CareFusion subsidiaries comprising the Nicolet business in the United States, Ireland, and the United Kingdom, and certain assets and liabilities of Nicolet sales divisions principally in China, Brazil, Germany, Italy, the Netherlands, and Spain for $55.5 million. A total of $3.3 million of direct costs associated with the acquisition were expensed as incurred and reported as a component of general and administrative expenses. |
The Nicolet acquisition has been accounted for as a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Nicolet are recorded in the consolidated financial statements at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. Nicolet’s results of operations are included in the consolidated financial statements since July 2, 2012, the date of the acquisition. |
During the nine months ending September 30, 2013, we recorded adjustments to the preliminary purchase price allocation for deferred taxes that resulted in a net increase to goodwill of $256,000. |
Pro forma financial information |
The following unaudited pro forma information combining results of operations of the Company for the nine months ended September 30, 2013 and 2012 are presented as if the acquisitions of Grass and Nicolet had occurred on January 1, 2012: |
Unaudited Pro forma Financial Information |
(in thousands) |
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| | Nine Months Ended | |
September 30, |
| | 2013 | | | 2012 | |
Revenue | | $ | 254,480 | | | $ | 264,781 | |
Income (loss) from operations | | $ | 21,603 | | | $ | (1,298 | ) |
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The unaudited pro forma financial information is provided for comparative purposes only and is not necessarily indicative of what actual results would have been had the acquisitions occurred on the dates indicated, nor does it give effect to synergies, cost savings, and other changes expected to result from the acquisitions. Accordingly, the pro forma financial results do not purport to be indicative of results of operations as of the date hereof, for any period ended on the date hereof, or for any other future date or period. |
For purposes of preparing the unaudited pro forma financial information for the period January 1, 2013 through September 30, 2013, Grass’s statement of operations for the period from January 1, 2013 to February 1, 2013 was combined with our consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2013. |
For purposes of preparing the unaudited pro forma financial information for the period January 1, 2012 through June 30, 2012, Grass’s statement of operations and Nicolet’s consolidated statement of revenue and direct expenses for the nine months ended September 30, 2012 were combined with our consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2012. |
The unaudited pro forma consolidated results for the nine month period ended September 30, 2013 reflect the historical information of Natus and Grass, adjusted for the following pre-tax amounts: |
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| • | | Additional amortization expense of $59,300 related to the fair value of identifiable intangible assets acquired; | | | | | |
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| • | | Decrease of depreciation expense of $14,800 related to the fair value adjustment to property and equipment acquired; | | | | | |
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| • | | Decrease in general and administrative expense of $624,000 related to the direct acquisition costs that were recorded in the unaudited pro forma financial information in the nine months ended September 30, 2012. | | | | | |
The unaudited pro forma consolidated results for the nine month period ended September 30, 2012 reflect the historical information of Natus, Grass and Nicolet, adjusted for the following pre-tax amounts: |
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| • | | Elimination of Nicolet’s historical intangible asset amortization expense of approximately $423,000; | | | | | |
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| • | | Additional amortization expense related to Grass of $535,000 and Nicolet of $564,636 related to the fair value of identifiable intangible assets acquired; | | | | | |
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| • | | Decrease of Grass’s depreciation expense of approximately $134,000 and Nicolet’s depreciation expense of approximately $782,000 related to the fair value adjustment to property and equipment acquired; | | | | | |
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| • | | Increase in general and administrative expense relating to Grass’s direct acquisition costs of approximately $624,000 and Nicolet’s direct acquisition costs of $3.3 million; | | | | | |
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| • | | Increase in cost of goods sold relating to Nicolet’s fair value inventory adjustments of $571,000. | | | | | |