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Cincinnati Sub-Zero Acquisition
 6 Months Ended
Jun. 30, 2016
Business Combinations [Abstract]  
Cincinnati Sub-Zero Acquisition

Note 3 – Cincinnati Sub-Zero Acquisition

CSZ develops, manufactures and sells patient temperature management systems and product testing equipment.  The patient temperature management systems regulate the body temperature of medical patients during and after surgery.  The product testing equipment simulates temperature, humidity, altitude and vibration conditions and is customized for use in a wide variety of industrial manufacturing applications.  

Results of operations for CSZ are included in the Company’s consolidated condensed financial statements beginning April 1, 2016.  CSZ contributed $16,978 in product revenues and a net loss of $1,644 for the three and six month periods ended June 30, 2016.  

Purchase Price Allocation

The purchase price of $73,666, net of cash acquired of $985, has been allocated to the values of assets acquired and liabilities assumed as of April 1, 2016.  The allocation of the purchase price is preliminary.  The Company is in the process of obtaining additional information required to finalize the valuation.  An appraisal is currently underway by an independent third party valuation firm to assist management in determining the fair value of acquired assets and assumed liabilities, including identifiable intangible assets.  The final purchase price allocation may be materially different than the preliminary allocation recorded.  The purchase price allocation is expected to be finalized by December 31, 2016.  The preliminary allocation as of April 1, 2016 was as follows:

 

 

 

 

 

 

 

Accounts receivable

 

$

10,790

 

Inventory

 

 

16,284

 

Prepaid expenses and other assets

 

 

1,144

 

Property and equipment

 

 

12,974

 

Customer relationships

 

 

11,600

 

Technology

 

 

3,200

 

Trade name

 

 

6,370

 

Goodwill

 

 

22,739

a

Assumed liabilities

 

 

(11,435

)

 

 

 

 

 

Net assets acquired

 

 

73,666

 

Cash acquired

 

 

985

 

 

 

 

 

 

Purchase price

 

$

74,651

 

   

 

(a)

The preliminary amount recorded to goodwill is expected to change due to additional consideration owed to the seller for a tax gross up.

The gross contractual amount due of accounts receivable is $11,126 of which $336 is expected to be uncollectible.  

The purchase price allocation includes an approximate $4,000 step-up in the underlying net book value of the inventory to its fair value.  This inventory was sold to customers and expensed to cost of goods sold during the three month period ended June 30, 2016.

Note 3 – Cincinnati Sub-Zero Acquisition – Continued

Supplemental Pro Forma Information

The unaudited pro forma combined historical results including the amounts of CSZ’s revenue and earnings that would have been included in the Company’s consolidated condensed statements of income had the acquisition date been January 1, 2016 or January 1, 2015 are as follows:

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2015

 

 

2016

 

 

2015

 

Product revenues

 

$

221,136

 

 

$

464,339

 

 

$

449,638

 

Net income

 

$

17,456

 

 

$

30,732

 

 

$

37,366

 

Basic earnings per share

 

$

0.48

 

 

$

0.84

 

 

$

1.04

 

Diluted earnings per share

 

$

0.48

 

 

$

0.84

 

 

$

1.03

 

The pro forma information includes adjustments for the effect of the amortization of intangible assets recognized in the acquisition.  This pro forma information is not indicative of future operating results.

Goodwill

We recorded goodwill of approximately $22,739 arising from the acquisition. The acquired goodwill represents intangible assets that do not qualify for separate recognition. It is estimated that all of the goodwill recognized will be deductible for income tax purposes.  

Intangible Assets

In conjunction with the acquisition, intangible assets of $21,170 were recorded. The Company’s estimate of the fair value of these assets at the time of the acquisition is preliminary and will be determined with the assistance of an independent third-party valuation firm. As part of the estimated valuation, an estimated useful life for the assets was determined.

Intangible assets, net consisted of the following:

 

 

 

June 30, 2016

 

  

Gross Value

  

 

Accumulated
Amortization

 

  

Net Value

  

  

Useful Life

Customer relationships

 

$

11,600

 

 

$

193

 

 

$

11,407

 

 

15 yrs

Technology

 

 

3,200

 

 

 

130

 

 

 

3,070

 

 

5 -7 yrs

Trade name

 

 

6,370

 

 

 

—

 

 

 

6,370

 

 

Indefinite

Total

 

$

21,170

 

 

$

323

 

 

$

20,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense of $323 for the three and six months ended June 30, 2016 was recorded as follows:

 

 

 

Three and Six Months Ended
June 30, 2016

 

Product revenues

 

$

193

 

Selling, general and administrative expense

 

 

130

 

Note 3 – Cincinnati Sub-Zero Acquisition – Continued

Amortization expense for the prospective five years is estimated to be as follows:

 

July 1, 2016 through December 31, 2016

 

$

647

 

2017

 

$

1,293

 

2018

 

$

1,293

 

2019

 

$

1,293

 

2020

 

$

1,293

 

2021

 

$

1,293

 

Property, Plant & Equipment

Property and equipment consist of the following:

 

Asset category

 

Useful life

 

Amount

 

Land

 

Indefinite

 

$

1,630

 

Buildings

 

20 yrs

 

 

6,066

 

Machinery and equipment

 

5-7 yrs

 

 

3,867

 

Computer hardware and software

 

3-5 yrs

 

 

450

 

Assets under construction

 

 

 

 

961

 

 

 

 

 

 

 

 

 

 

 

 

$

12,974