Business Combinations

9 Months Ended

Apr. 30, 2013

Business Combinations

3. Business Combinations

Ultrasonix Medical Corporation

On March 1, 2013, we completed our acquisition of all of the outstanding equity securities of Ultrasonix Medical Corporation, a Nevada Corporation, whose principal assets included customer lists and intangibles related solely to sales destined to the U.S. On March 2, 2013, we completed our acquisition of all the outstanding equity securities of Ultrasonix Medical Corporation, a Canadian Corporation, pursuant to a “plan of arrangement” under Canadian law. Ultrasonix is a supplier of advanced ultrasound systems for point-of-care and general imaging applications. The acquisition was undertaken by us in order to accelerate our expansion into the point-of-care ultrasound market. The estimated purchase price, net of cash acquired, is $79,932, which consists of cash of approximately $79,273 paid at closing and an estimate of $659 remaining to be paid to former shareholders of Ultrasonix, primarily due to the sale of U.S. assets to us. The net purchase price has not been finalized and is subject to a final working capital adjustment as provided in the purchase agreement. The acquisition was funded from our existing cash on hand and has been accounted for as an acquisition of a business.

The purchase price has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the acquisition date. As of the date of filing this Quarterly Report on Form 10-Q, the purchase accounting has not been finalized mainly due to the fact that (i) the working capital adjustments under the purchase agreement are in process of being negotiated with the sellers and (ii) the evaluation of the utilization of certain foreign tax losses and credits have not been completed. The following table summarizes the preliminary purchase price allocation that includes the estimated fair values of the separately identifiable assets acquired and liabilities assumed as of March 2, 2013:

Cash		$	366
Accounts receivable (A)			6,485
Inventory (B)			9,361
Prepaids and other assets			2,861
Property, plant, and equipment			311
Goodwill			48,380
Intangible assets:
Developed technology (estimate useful life of 10 years)	5,900
Customer relationships (weighted-average useful life of 10.6 years)	18,700
Tradename (estimate useful life of 2 years)	900
Total intangible assets			25,500
Other assets			72
Total assets acquired			93,336
Accounts payable and accrued expenses			(5,377	)
Deferred revenue (B)			(813	)
Accrued warranty			(1,169	)
Debt			(784	)
Deferred taxes			(4,895	)
Total liabilities assumed			(13,038	)
Total purchase price		$	80,298

(A) The gross amount due is $8,720, of which $2,235 is expected to be uncollectible. We did not acquire any other class of receivables other than trade receivables as a result of the acquisition of Ultrasonix.

(B) The inventory fair value and deferred revenue adjustments will be amortized over 5 months and 4.5 years, respectively.

In determining the purchase price allocation, we considered, among other factors, market participants’ intentions to use the acquired assets and the historical and estimated future demand for Ultrasonix products and services. The fair value of developed technology and trade name intangible assets were based upon the relief from royalty approach while the customer relationships intangible asset was based upon the excess earnings income approach. The rate used to discount the estimated future net cash flows to their present values for each intangible asset was based upon a weighted average cost of capital calculation. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired from Ultrasonix.

The total weighted average amortization period for the intangible assets is approximately 10 years. The intangible assets are being amortized on an economic consumption basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition was primarily attributable to the opportunities from the addition of Ultrasonix’s product portfolio which complements our direct Ultrasound business suite of products. The goodwill attributable to the U.S. will be deductible for tax purposes over the statutory 15 year period. The goodwill attributable to non-U.S. jurisdictions is not deductible for tax purposes.

During the three and nine months ended April 30, 2013, we incurred $548 and $1,210 of acquisition-related costs, respectively, primarily relating to legal fees and due diligence related expenses. These expenses are included in general and administrative expenses in our unaudited condensed consolidated statement of operations.

Our unaudited consolidated financial statements include the results of Ultrasonix, which is included in our Ultrasound segment results, from the date of acquisition. For the period of March 2, 2013 to April 30, 2013, Ultrasonix contributed revenues of approximately $3,432 and a net loss of ($2,658). The following unaudited pro forma information for the three and nine months ended April 30, 2013 and 2012 presents consolidated information as if the business combination had occurred on August 1, 2011, which is the first day of our fiscal year 2012:

	Three Months Ended April  30, 2013		Three Months Ended April  30, 2012
Net revenue	$	128,865	$	128,934
Net income		5,045		6,622
Net income per share, basic		0.41		0.54
Net income per share, diluted		0.40		0.53
	Nine Months Ended April 30, 2013		Nine Months Ended April 30, 2012
Net revenue	$	407,575	$	392,987
Net income		20,011		26,918
Net income per share, basic		1.63		2.16
Net income per share, diluted		1.59		2.13

The pro forma results above have been calculated after adjusting the results of Ultrasonix to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from August 1, 2011 with the consequential tax effects. The pro forma results for the three months ended April 30, 2013 and 2012 include $1,210 and $1,190 of expenses related to the amortization of the trade name, developed technology, customer relationships and inventory fair value and deferred revenue adjustments from the purchase accounting, respectively. The three months ended April 30, 2013 were adjusted to exclude acquisition-related expenses of $548. The nine months ended April 30, 2013 were adjusted to exclude the acquisition-related expenses of $1,210 and the nine months ended April 30, 2012 were adjusted to include the acquisition related expenses of $1,210. The pro forma results for the nine months ended April 30, 2013 and 2012 also includes $3,602 and $6,632, respectively, of expenses related to the amortization of the trade name, developed technology, customer relationships and inventory fair value and deferred revenue adjustments from the purchase accounting, respectively.