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Note 4 - Acquisitions | 9 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | Note 4 . Acquisitions: We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and the results of operations of each acquired business are included in our Condensed Consolidated Statement of Earnings and Comprehensive Income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred. Quad Technologies On July 2, 2018, the Company acquired QT Holdings Corporation (Quad) for approximately $20.5 million, net of cash acquired, plus contingent consideration of up to $51.0 million, subject to certain product development milestones and revenue thresholds. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportable segment in the first quarter of fiscal year 2019. Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize by the end of the fourth quarter of fiscal year 2019 when we have completed our valuation models for acquired intangible assets, including the determination of related estimated useful lives, and finalized our income tax assessment of acquired net operating losses (NOLs). Amounts for intangible assets and related deferred tax liabilities, acquired NOLs, and goodwill also remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousands):
|  | Preliminary Allocation at Acquisition Date |  |  | Adjustments to Fair Value |  |  | Adjusted Preliminary Allocation at March 31, 201 9 |
Current assets, net of cash |  | $ | 36 |  |  | $ | - |  |  | $ | 36 |
Equipment and other long-term assets |  |  | 284 |  |  |  | - |  |  |  | 284 |
Intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  |  | 20,000 |  |  |  | (7,800 | ) |  |  | 12,200 |
Goodwill |  |  | 9,790 |  |  |  | 3,792 |  |  |  | 13,582 |
Total assets acquired |  |  | 30,110 |  |  |  | (4,008 | ) |  |  | 26,102 |
Liabilities |  |  | 765 |  |  |  | (469 | ) |  |  | 296 |
Deferred income taxes, net |  |  | 3,741 |  |  |  | (3,296 | ) |  |  | 445 |
Net assets acquired |  | $ | 25,604 |  |  | $ | (243 | ) |  | $ | 25,361 |
Cash paid, net of cash acquired |  | $ | 20,404 |  |  | $ | 57 |  |  | $ | 20,461 |
Fair value of contingent consideration |  |  | 5,200 |  |  |  | (300 | ) |  |  | 4,900 |
Net assets acquired |  | $ | 25,604 |  |  | $ | (243 | ) |  | $ | 25,361 |
As summarized in the table, there were adjustments totaling $3.8 million to goodwill during the measurement period. These adjustments primarily relate to refinements made to acquired intangible asset cash flow models, an update in the discount rate used in the contingent consideration calculation based on refinements made in the acquired intangible asset cash flow models, and adjustments to preliminary deferred tax amounts based on updated assessments of the applicability of certain NOLs. Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows using a multi-period excess earnings method to calculate the fair value of assets purchased. The preliminary amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization periods for intangible assets acquired in fiscal 2019 are estimated to be 14 years for developed technology. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the preliminary calculation of acquired NOLs. Exosome Diagnostics On August 1, 2018, the Company acquired Exosome Diagnostics, Inc. (ExosomeDx) for approximately $251.8 million, net of cash acquired, plus contingent consideration of up to $325.0 million as follows:
● | Up to $250 million if calendar year 2020 EBITA is between $45 million and $58 million or greater.
● | Up to $45 million if calendar year 2022 EBITA for a new instrument product is between $54 million and $70 million or greater.
● | Up to $30 million if calendar year 2022 EBITA for the remaining business is between $150 million and $190 million or greater.
The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Diagnostics and Genomics reportable segment in the first quarter of fiscal year 2019. Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize these by the end of fourth quarter of fiscal year 2019 when we have completed our assessment of the working capital adjustment, completed our valuation models for acquired intangible assets, and finalized our income tax assessment of acquired NOLs. Amounts for acquired current assets and liabilities, intangible assets, related deferred tax liabilities, and goodwill also remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousands):
|  | Preliminary Allocation at Acquisition Date |  |  | Adjustments to Fair Value |  |  | Adjusted Preliminary Allocation at March 31, 201 9 |
Current assets, net of cash |  | $ | 5,118 |  |  | $ | (2,554 | ) |  | $ | 2,564 |
Equipment and other long-term assets |  |  | 2,212 |  |  |  | - |  |  |  | 2,212 |
Intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  |  | 180,000 |  |  |  | (75,000 | ) |  |  | 105,000 |
Trade Name |  |  | - |  |  |  | 58,000 |  |  |  | 58,000 |
Customer Relationships |  |  | - |  |  |  | 2,300 |  |  |  | 2,300 |
Goodwill |  |  | 96,592 |  |  |  | 13,474 |  |  |  | 110,066 |
Total assets acquired |  |  | 283,922 |  |  |  | (3,780 | ) |  |  | 280,142 |
Liabilities |  |  | 2,624 |  |  |  | 210 |  |  |  | 2,834 |
Deferred income taxes, net |  |  | 27,673 |  |  |  | (3,990 | ) |  |  | 23,683 |
Net assets acquired |  | $ | 253,625 |  |  | $ | - |  |  | $ | 253,625 |
Cash paid, net of cash acquired |  | $ | 251,825 |  |  | $ | - |  |  | $ | 251,825 |
Fair value of contingent consideration |  |  | 1,800 |  |  |  | - |  |  |  | 1,800 |
Net assets acquired |  | $ | 253,625 |  |  | $ | - |  |  | $ | 253,625 |
As summarized in the table, there were adjustments totaling $13.5 million to goodwill during the measurement period. As previously disclosed, the intangible value associated with the ExosomeDx trade name and determination of the related estimated useful life was under assessment as part of purchase accounting review. During the period, the Company updated our intangible assessment to include a $58.0 million value for the ExosomeDx trade name. Due to our updated assessments and further refinements in our intangible asset cash flow models, the fair value of the developed technology intangible asset decreased by $75.0 million. Additionally, we recorded a Customer Relationships intangible asset of $2.3 million for the established physician network ordering ExosomeDx laboratory services that existed at the acquisition date. Adjustments to the opening balance sheet fair value also included updates to preliminary deferred tax amounts and working capital adjustments, primarily attributable to updates for the net realizable value of certain acquired receivables based on factors existing on the acquisition date. Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology, trade names, and customer relationships was based on management's forecasted cash inflows and outflows and using either a relief-from-royalty or a multi-period excess earnings method to calculate the fair value of assets purchased. The preliminary amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. Preliminary amortization expense related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization periods for intangible assets acquired in fiscal 2019 are 15 years for developed technology and trade names, and 14 years for customer relationships. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the preliminary calculation of acquired NOLs.

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