XML 24 R12.htm IDEA: XBRL DOCUMENT
v3.7.0.1

Acquisitions | 3 Months Ended
--- | ---
Mar. 31, 2017
Business Combinations [Abstract] |
Acquisitions | . On January 31, 2017, we signed a purchase agreement with Argon Medical Devices, Inc. ("Argon") to acquire Argon’s critical care business including a manufacturing facility in Yishun, Singapore, the related commercial operations in Europe and Japan, and certain inventories and intellectual property rights within the United States. We made an initial payment of approximately $10.9 million which is subject to a working capital adjustment. We accounted for the acquisition as a business combination. Acquisition-related costs associated with the Argon acquisition during the three-month period ended March 31, 2017, which are included in selling, general, and administrative expenses in the accompanying consolidated statements of income, were approximately $1.1 million. The results of operations related to this acquisition have been included in our cardiovascular segment since the acquisition date. During the three-month period ended March 31, 2017, our net sales of Argon products were approximately $7.2 million. It is not practical to separately report the earnings related to the Argon acquisition, as we cannot split out sales costs related solely to the products we acquired from Argon, principally because our sales representatives sell multiple products (including the products we acquired from Argon) in our cardiovascular business segment. The assets and liabilities in the initial purchase price allocation for the Argon acquisition are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The following table summarizes the preliminary purchase price allocated to the net tangible and intangible assets acquired and liabilities assumed (in thousands):
Assets Acquired |
Cash and cash equivalents | $ | 1,436 |
Trade receivables | 8,351 |
Inventories | 12,217 |
Prepaid expenses | 1,275 |
Property and equipment | 2,667 |
Deferred tax assets | 184 |
Intangibles |
Developed technology | 2,600 |
Customer lists | 1,300 |
Trademarks | 1,500 |
Total assets acquired | 31,530 |
Liabilities Assumed |
Trade payables | (2,306 | )
Accrued expenses | (5,083 | )
Income taxes payable | (2 | )
Deferred income tax liabilities | (999 | )
Total liabilities assumed | (8,390 | )
Total net assets acquired | 23,140 |
Gain on bargain purchase | (12,243 | )
Total purchase price | $ | 10,897 |
With respect to the Argon assets, we are amortizing developed technology over seven years and customer lists on an accelerated basis over five years. While U.S. trademarks can be renewed indefinitely, we currently estimate that we will generate cash flow from the acquired trademarks for a period of five years from the acquisition date. The total weighted-average amortization period for these acquired intangible assets is 6.0 years. The total fair value of the net assets acquired from Argon, including identifiable intangible assets, exceeded the purchase price resulting in a gain on bargain purchase which was recorded within other income (expense) in our consolidated statements of income for the three-month period ended March 31, 2017. We believe the reason for the provisional gain on bargain purchase was a result of the divestiture of a non-strategic, slow growth critical care business for Argon. It is our understanding that the divestiture allows Argon to focus on its higher growth interventional portfolio. Given the circumstances of this acquisition, which closed during the first quarter, as well as the complexity of the transaction, the entire purchase price allocation disclosed herein (as well as the gain on bargain purchase) is considered provisional at this time and subject to adjustment to reflect information obtained about factors and circumstances that existed as of the acquisition date that if known would have affected the measurement of the amounts recognized as of that date. We are currently reassessing whether we have correctly identified all the assets acquired and the liabilities assumed, and the measurement period remains open. On January 31, 2017, we acquired substantially all the assets, including intellectual property covered by approximately 40 patents and pending applications, and assumed certain liabilities, of Catheter Connections, Inc. (“Catheter Connections”), in exchange for payment of $38 million, which is subject to a working capital adjustment. Catheter Connections, which is based in Salt Lake City, Utah, developed and marketed the DualCap® System, an innovative family of disinfecting products designed to protect patients from intravenous infections resulting from infusion therapy. We accounted for this acquisition as a business combination. Acquisition-related costs associated with the Catheter Connections acquisition, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income, were not material. The results of operations related to this acquisition have been included in our cardiovascular segment since the acquisition date. During the three-month period ended March 31, 2017, our net sales of the products acquired from Catheter Connections were approximately $1.8 million. It is not practical to separately report the earnings related to the products acquired from Catheter Connections, as we cannot split out sales costs related solely to those products, principally because our sales representatives sell multiple products (including the DualCap System) in the cardiovascular business segment. The purchase price was preliminarily allocated as follows (in thousands):
Assets Acquired |
Trade receivables | $ | 952 |
Inventories | 2,244 |
Prepaid expenses and other current assets | 181 |
Property and equipment | 1,472 |
Intangibles |
Developed technology | 22,900 |
Customer lists | 100 |
Trademarks | 2,900 |
Goodwill | 7,612 |
Total assets acquired | 38,361 |
Liabilities Assumed |
Trade payables | (338 | )
Accrued expenses | (23 | )
Total liabilities assumed | (361 | )
Net assets acquired | $ | 38,000 |
We are amortizing the developed technology asset over 12 years, the related trademarks over 10 years, and the associated customer list over eight years. We have estimated the weighted average life of the intangible Catheter Connections assets acquired to be approximately 11.8 years. On July 6, 2016, we acquired all the issued and outstanding shares of DFINE Inc. ("DFINE"). The DFINE acquisition added a line of vertebral augmentation products for the treatment of vertebral compression fractures ("VCF") as well as medical devices used to treat metastatic spine tumors. We made an initial payment of $97.5 million to certain DFINE stockholders on July 6, 2016 and paid approximately $578,000 related to a net working capital adjustment subject to review by Merit and the preferred stockholders of DFINE. We accounted for the acquisition as a business combination. In the three-month period ended December 31, 2016, we negotiated the final net working capital adjustment resulting in a reduction to the purchase price of approximately $1.1 million. As a result, we recorded measurement period adjustments to reduce inventories by approximately $89,000, reduce property and equipment by approximately $109,000, reduce goodwill by approximately $1.2 million, reduce accrued expenses by approximately $407,000 and increase the associated deferred tax liabilities by approximately $113,000. Under GAAP, measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments. Acquisition-related costs associated with the DFINE acquisition during the year ended December 31, 2016, which were included in selling, general, and administrative expenses in the consolidated statements of income included in the 2016 Form 10-K, were approximately $1.6 million. The results of operations related to this acquisition have been included in our cardiovascular segment since the acquisition date. During the year ended December 31, 2016, our net sales of DFINE products were approximately $13.5 million. It is not practical to separately report the earnings related to the DFINE acquisition, as we cannot split out sales costs related solely to the DFINE products, principally because our sales representatives sell multiple products (including DFINE products) in the cardiovascular business segment. The purchase price was allocated to the net tangible and intangible assets acquired and liabilities assumed, based on estimated fair values, as follows (in thousands):
Assets Acquired |
Trade receivables | $ | 4,054 |
Other receivables | 6 |
Inventories | 8,585 |
Prepaid expenses | 630 |
Property and equipment | 1,630 |
Other long-term assets | 145 |
Intangibles |
Developed technology | 67,600 |
Customer lists | 2,400 |
Trademarks | 4,400 |
Goodwill | 24,818 |
Total assets acquired | 114,268 |
Liabilities Assumed |
Trade payables | (1,790 | )
Accrued expenses | (5,298 | )
Deferred income tax liabilities - current | (701 | )
Deferred income tax liabilities - noncurrent | (10,844 | )
Total liabilities assumed | (18,633 | )
Net assets acquired, net of cash received of $1,327 | $ | 95,635 |
The gross amount of trade receivables we acquired in the DFINE acquisition was approximately $4.3 million, of which approximately $224,000 was expected to be uncollectible or returned. With respect to the DFINE assets, we are amortizing developed technology over fifteen years and customer lists on an accelerated basis over nine years. While U.S. trademarks can be renewed indefinitely, we currently estimate that we will generate cash flow from the acquired trademarks for a period of fifteen years from the acquisition date. The total weighted-average amortization period for these acquired intangible assets is 14.8 years. On February 4, 2016, we purchased the HeRO® Graft device and other related assets from CryoLife, Inc., a developer of medical devices based in Kennesaw, Georgia ("CryoLife"). The HeRO Graft is a fully subcutaneous vascular access system intended for use in maintaining long-term vascular access for chronic hemodialysis patients who have failing fistulas, grafts or are catheter dependent due to a central venous blockage. The purchase price was $18.5 million, which was paid in full during 2016. We accounted for this acquisition as a business combination. The purchase price was allocated as follows (in thousands):
Assets Acquired |
Inventories | $ | 2,455 |
Property and equipment | 290 |
Intangibles |
Developed technology | 12,100 |
Trademarks | 700 |
Customers Lists | 400 |
Goodwill | 2,555 |
Total assets acquired | $ | 18,500 |
We are amortizing the developed HeRO Graft technology asset over ten years, the related trademarks over 5.5 years, and the associated customer lists over 12 years. We have estimated the weighted average life of the intangible HeRO Graft assets acquired to be approximately 9.82 years. Acquisition-related costs related to the HeRO Graft device and other related assets during the year ended December 31, 2016, which were included in selling, general and administrative expenses in the consolidated statements of income included in the 2016 Form 10-K, were not material. The results of operations related to this acquisition have been included in our cardiovascular segment since the acquisition date. During the year ended December 31, 2016, our net sales of the products acquired from CryoLife were approximately $7.1 million. It is not practical to separately report the earnings related to the products acquired from CryoLife, as we cannot split out sales costs related solely to those products, principally because our sales representatives sell multiple products (including the HeRO Graft device) in the cardiovascular business segment. The following table summarizes our consolidated results of operations for the three-month periods ended March 31, 2017 and 2016, as well as unaudited pro forma consolidated results of operations as though the DFINE acquisition had occurred on January 1, 2015 and the acquisition of the Argon critical care business had occurred on January 1, 2016 (in thousands, except per share amounts):
| Three Months Ended |  | Three Months Ended
| March 31, 2017 |  | March 31, 2016
| As Reported |  | Pro Forma |  | As Reported |  | Pro Forma
Net Sales | $ | 171,069 |  |  | $ | 173,829 |  |  | $ | 138,077 |  |  | $ | 156,390 |
Net Income | 14,803 |  |  | 1,725 |  |  | 4,351 |  |  | 12,281 |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 0.33 |  |  | $ | 0.04 |  |  | $ | 0.10 |  |  | $ | 0.28 |
Diluted | $ | 0.32 |  |  | $ | 0.04 |  |  | $ | 0.10 |  |  | $ | 0.28 |
The unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up of acquired inventories, amortization expense of acquired intangible assets, interest expense on long-term debt and changes in the timing of the recognition of the gain on bargain purchase. The pro forma information should not be considered indicative of actual results that would have been achieved if the DFINE acquisition had occurred on January 1, 2015 and the acquisition of the Argon critical care business had occurred on January 1, 2016, or results that may be obtained in any future period. The pro forma consolidated results of operations do not include the Catheter Connections or HeRO Graft acquisitions as we do not deem the pro forma effect of these transactions to be material.

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1524-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4922-128472 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4934-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4926-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=73530397&loc=SL65897772-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration