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Cincinnati Sub-Zero Acquisition | 12 Months Ended
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Dec. 31, 2017
Cincinnati Sub-Zero Products, LLC |
Acquisition | Note 17 — 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 $51,540 in product revenues and a net loss of $1,092 for the nine month period ended December 31, 2016. Note 17 – Cincinnati Sub-Zero Acquisition – (Continued) Purchase Price Allocation The purchase price of $73,593, net of cash acquired of $985, has been allocated to the values of assets acquired and liabilities assumed as of April 1, 2016. An appraisal by an independent third party valuation firm was completed to assist management in determining the fair value of acquired assets and assumed liabilities, including identifiable intangible assets. The fair values of acquired assets and assumed liabilities were determined using the cost approach that relied primarily internal sources of data to make assumptions that are not observable in the market (Level 3 inputs). The purchase price allocation was finalized during the fourth quarter of 2016. The allocation as of April 1, 2016 was as follows:
Accounts receivable |  | $ | 10,790 |
Inventory |  |  | 16,284 |
Prepaid expenses and other assets |  |  | 1,143 |
Property and equipment |  |  | 12,919 |
Customer relationships |  |  | 11,700 |
Technology |  |  | 3,200 |
Trade name |  |  | 6,370 |
Goodwill |  |  | 24,622 | a
Assumed liabilities |  |  | (13,435 | )
Net assets acquired |  |  | 73,593 |
Cash acquired |  |  | 985 |
Purchase price |  | $ | 74,578 |
| (a) | The amount of recorded goodwill includes $2,000 of 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 sales during the three month period ended June 30, 2016. 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 statements of income had the acquisition date been January 1, 2016 or January 1, 2015 are as follows:
|  | Three Months Ended December 31, |  |  | Twelve Months Ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2015 |
Product revenues |  | $ | 232,324 |  |  | $ | 933,505 |  |  | $ | 919,651 |
Net income |  | $ | 27,272 |  |  | $ | 74,485 |  |  | $ | 94,833 |
Basic earnings per share |  | $ | 0.75 |  |  | $ | 2.04 |  |  | $ | 2.63 |
Diluted earnings per share |  | $ | 0.75 |  |  | $ | 2.04 |  |  | $ | 2.60 |
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. Note 17 – Cincinnati Sub-Zero Acquisition – (Continued) Goodwill We recorded goodwill of approximately $24,622 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 $21,270 were recorded. The Company’s estimate of the fair value of these assets at the time of the acquisition was 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:
|  | December 31, 2016
|  | Gross Value |  |  | Accumulated Amortization |  |  | Net Value |  |  | Useful Life
Customer relationships |  | $ | 11,700 |  |  | $ | 585 |  |  | $ | 11,115 |  |  | 15 yrs
Technology |  |  | 3,200 |  |  |  | 390 |  |  |  | 2,810 |  |  | 5 -7 yrs
Trade name |  |  | 6,370 |  |  |  | — |  |  |  | 6,370 |  |  | Indefinite
Total |  | $ | 21,270 |  |  | $ | 975 |  |  | $ | 20,295 |  |  |
Amortization expense of $325 and $975 for the three and twelve months ended December 31, 2016 was recorded as follows:
|  | Three Months Ended December 31, 2016 |  | Twelve Months Ended December 31, 2016 |
Product revenues |  | $ | 195 |  | $ | 585 |
Research and development expenses |  |  | 130 |  |  | 390 |
Amortization expense for the prospective five years is as follows:
2017 |  | $ | 1,300 |
2018 |  | $ | 1,300 |
2019 |  | $ | 1,300 |
2020 |  | $ | 1,300 |
2021 |  | $ | 1,135 |
Property, Plant & Equipment Property and equipment consist of the following:
Asset category |  | Useful life |  | Amount |
Land |  | Indefinite |  | $ | 1,630 |
Buildings |  | 20 yrs |  |  | 6,024 |
Machinery and equipment |  | 5-7 yrs |  |  | 3,718 |
Computer hardware and software |  | 3-5 yrs |  |  | 586 |
Assets under construction |  |  |  |  | 961 |
|  |  |  | $ | 12,919 |

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- 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 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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