Business Combinations

Acquisitions in fiscal year 2017

During the first six months of fiscal year 2017, the Company completed the acquisition of Tulip Diagnostics Private Limited (“Tulip”), a company based in Goa, India, for a total consideration of $127.3 million. The Company has a potential obligation to pay the shareholders of Tulip up to INR1.6 billion, currently equivalent to $24.9 million, that will be accounted for as compensation expense in the Company's financial statements over a two year period and is excluded from the purchase price allocation shown below. The excess of the purchase price over the fair value of the acquired business' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for this acquisition within the results of the Company's Diagnostics segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of this acquisition had a weighted average amortization period of 11.4 years.

The total purchase price for the acquisition in fiscal year 2017 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:



	2017 Acquisition
	(In thousands)
Fair value of business combination:
Cash payments	$	126,007
Other liability	1,273
Less: cash acquired	(2,429		)
Total	$	124,851
Identifiable assets acquired and liabilities assumed:
Current assets	$	15,825
Property, plant and equipment	9,643
Other assets	1,084
Identifiable intangible assets:
Core technology	3,500
Trade names	3,000
Customer relationships	43,000
Goodwill	72,454
Deferred taxes	(15,414		)
Liabilities assumed	(8,241		)
Total	$	124,851

During the second quarter of fiscal year 2017, the Company entered into a Share Sale and Transfer Agreement with Prof. Dr. Winfried Stöcker (the “Controlling Shareholder”) and his affiliated investment holding company Stöcker Vermögensverwaltungsgesellschaft mbH & Co. KG (“Stöcker KG”), which together hold a majority equity interest in EUROIMMUN Medizinische Labordiagnostika AG (“EUROIMMUN”), pursuant to which the Company or a wholly owned subsidiary of the Company (the “Purchaser”) will acquire up to 100% of the outstanding securities of EUROIMMUN, and EUROIMMUN will become a subsidiary of the Purchaser (the “Acquisition”). In addition to the majority equity interest in EUROIMMUN that the Controlling Shareholder and Stöcker KG will exchange for cash at the closing of the Acquisition, the Controlling Shareholder has undertaken to seek to enter into option agreements with all other shareholders in EUROIMMUN, which would, upon exercise by the Controlling Shareholder at the closing of the Acquisition result in such shareholders receiving the same per share price for their shares as will be received by the Controlling Shareholder and Stöcker KG. If the Acquisition is completed with 100% equity participation, EUROIMMUN’s shareholders will receive an aggregate consideration of €1.2 billion in cash, without interest thereon and subject to any tax withholding. The transaction is subject to customary closing conditions and is currently anticipated to close in the fourth quarter of fiscal year 2017 following the receipt of required standard regulatory approvals. EUROIMMUN is based in Lübeck, Germany, has approximately 2,400 employees, and is widely recognized as a global leader in autoimmune testing and an emerging force in infectious disease and allergy testing.

Acquisitions in fiscal year 2016

During fiscal year 2016, the Company completed the acquisition of two businesses for a total consideration of $72.3 million in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of $63.5 million in cash, and one other business acquired for a total consideration of $8.8 million in cash. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired. As a result of the acquisitions, the Company recorded goodwill of $43.6 million, which is not tax deductible, and intangible assets of $22.1 million. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 9.4 years.

The total purchase price for the acquisitions in fiscal year 2016 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:



	2016 Acquisitions
	(In thousands)
Fair value of business combination:
Cash payments	$	72,497
Working capital and other adjustments	(261		)
Less: cash acquired	(2,152		)
Total	$	70,084
Identifiable assets acquired and liabilities assumed:
Current assets	$	7,153
Property, plant and equipment	7,542
Identifiable intangible assets:
Core technology	6,600
Trade names	570
Customer relationships	14,900
Goodwill	43,588
Deferred taxes	(8,284		)
Liabilities assumed	(1,985		)
Total	$	70,084

The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds, changes in discount rates or product development milestones during the earnout period.

During the second quarter of fiscal year 2017, the Company obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted its purchase price allocation. Based on this information, for the Tulip acquisition, the Company recognized an increase in intangible assets of $4.5 million and deferred tax liabilities of $0.4 million, with a corresponding decrease in goodwill of $4.1 million.

As of July 2, 2017, the Company may have to pay contingent consideration related to an acquisition with an open contingency period of up to $83.0 million. As of July 2, 2017, the Company has recorded contingent consideration obligations with an estimated fair value of $64.1 million, of which $15.3 million was recorded in accrued expenses and other current liabilities, and $48.8 million was recorded in long-term liabilities. As of January 1, 2017, the Company had recorded contingent consideration obligations with an estimated fair value of $63.2 million, of which $15.4 million was recorded in accrued expenses and other current liabilities, and $47.8 million was recorded in long-term liabilities. The expected maximum earnout period for the acquisition with an open contingency period does not exceed 2.3 years from the acquisition date, and the remaining weighted average expected earnout period at July 2, 2017 was 1.5 years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.

Total transaction costs related to acquisition and divestiture activities for the three and six months ended July 2, 2017 were $3.7 million and $6.3 million, respectively. Total transaction costs related to acquisition activities for the three and six months ended July 3, 2016 were $0.2 million and $0.5 million, respectively. These transaction costs were expensed as incurred and recorded in selling, general and administrative expenses in the Company's condensed consolidated statements of operations.