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Acquisition Of On-X Life Technologies | 9 Months Ended
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Sep. 30, 2017
Acquisition Of On-X Life Technologies [Abstract] |
Acquisition Of On-X Life Technologies | 4. Acquisition of On-X Life Technologies ﻿ Overview ﻿ On December 22, 2015 we entered into an agreement and plan of merger to acquire On-X Life Technologies Holdings, Inc. (“On-X”), an Austin, Texas-based, privately held mechanical heart valve company, for approximately $130.0 million, subject to certain adjustments. The transaction closed on January 20, 2016, and On-X is being operated as a wholly owned subsidiary of CryoLife. ﻿ The On-X catalogue of products includes the On-X prosthetic aortic and mitral heart valves and the On-X ascending aortic prosthesis. On-X also distributes CarbonAid CO2 diffusion catheters and manufactures Chord-X ePTFE sutures for mitral chordal replacement. On-X also generates revenue from pyrolytic carbon coating products produced for other medical device manufacturers. We believe that the On-X products fit well into our product portfolio of medical devices for cardiac surgery and that we are capitalizing on the significant opportunity for CryoLife’s sales team to leverage their strong relationships with cardiac surgeons to introduce and to expand utilization of the On-X valves in the U.S. and internationally. ﻿ Accounting for the Transaction ﻿ The purchase price of the On-X transaction totaled $128.2 million, consisting of cash of $93.6 million and 3,703,699 shares of CryoLife common stock, with a value of $34.6 million as determined on the date of the closing. We recorded an allocation of the $128.2 million purchase price to On-X’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values as of January 20, 2016. Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and is not deductible for tax purposes. Goodwill from this transaction has been allocated to our Medical Devices segment. ﻿ The purchase price allocation is as follows (in thousands): ﻿ ﻿
﻿ |  |
﻿ | Opening
﻿ | Balance Sheet
﻿Cash and cash equivalents | $ | 2,472
﻿Receivables |  | 6,826
﻿Inventories |  | 12,889
﻿Intangible assets |  | 53,950
﻿Goodwill |  | 68,229
﻿Other assets |  | 6,891
﻿Liabilities assumed |  | (23,040)
﻿Total purchase price | $ | 128,217
﻿ We incurred transaction and integration costs of $7.4 million for the year ended December 31, 2016 related to the acquisition, which include, among other costs, expenses related to the termination of international and domestic distribution agreements. These costs were expensed as incurred and were primarily recorded as general, administrative, and marketing expenses on our Summary Consolidated Statements of Operations and Comprehensive Income. ﻿ We paid approximately $10 million of the purchase price into an escrow account upon closing of the On-X transaction. We are currently in litigation with the representative of the former On-X shareholders concerning the resolution of these escrow funds. We believe that we are entitled to recover the escrow funds and additional damages, but the outcome of litigation is inherently uncertain, and we may not recover any of the escrow funds. ﻿ Pro Forma Results On-X revenues were $34.2 million from the date of acquisition through December 31, 2016. Our pro forma results of operations for the years ended December 31, 2016 and 2015, assuming the On-X acquisition had occurred as of January 1, 2015, are presented for comparative purposes below. These amounts are based on available information of the results of operations of On-X prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the acquisition been completed on January 1, 2015. This unaudited pro forma information does not project operating results post acquisition. ﻿ This pro forma information is as follows (in thousands, except per share amounts): ﻿ ﻿
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﻿ | Twelve Months Ended
﻿ | December 31,
﻿ | 2016 |  | 2015
﻿Total revenues | $ | 182,007 |  | $ | 179,266
﻿Net income (loss) |  | 17,692 |  |  | (4,787)
﻿ |  |  |  |  |
﻿Pro forma income (loss) per common share - basic | $ | 0.54 |  | $ | (0.15)
﻿Pro forma income (loss) per common share - diluted | $ | 0.53 |  | $ | (0.15)
﻿ Pro forma net income (loss) was calculated using a normalized tax rate of approximately 38%.

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