Acquisitions and Strategic Transaction Expenses (Notes)

12 Months Ended

Dec. 31, 2016

Acquisitions and Strategic Transaction Expenses [Abstract]

Acquisitions and Strategic Transaction Expenses [Text Block]

Acquisitions and Strategic Transaction Expenses

Acquisition of Hospira Infusion Systems

On October 6, 2016, we entered into a Stock and Asset Purchase Agreement to acquire Pfizer’s HIS business. On January 5, 2017, we amended and restated the original purchase agreement to modify the terms of the agreement as a result of changes in the performance of HIS that affect expectations for the transaction ("the "Purchase Agreement"). The transaction closed on February 3, 2017. Under the terms of the Purchase Agreement, we paid $275 million in cash, which was financed with existing cash balances and a three-year interest-only seller note of $75 million and we delivered 3.2 million shares of our common stock to Pfizer. Additionally, Pfizer also may be entitled up to an additional $225 million in cash based on achievement of performance targets for the combined company for the three years ending December 31, 2019 ("Earnout Periodt"). In the event that the sum of our Adjusted EBITDA (as defined by the Purchase Agreement) for each of the three years in the Earnout Period (the "Cumulative Adjusted EBITDA") is equal to or exceeds approximately $1.0 billion ("the "Earnout Target"), then Pfizer will be entitled to receive the full amount of the earnout. In the event that the Cumulative Adjusted EBITDA is equal to or greater than 85% of the Earnout Target (but less than the Earnout Target), Pfizer will be entitled to receive the corresponding percentage of the earnout. In the event that the Cumulative Adjusted EBITDA is less than 85% of the Earnout Target, then no earnout amount will be earned by Pfizer. The aggregate purchase consideration is subject to certain adjustments, based on working capital, cash and indebtedness of the HIS business at closing.

Due to the close proximity of the acquisition date and the filing of this annual report on Form 10-K for the year ended December 31, 2016, the initial accounting for the business combination is incomplete, and therefore we are unable to fully

disclose the information required by ASC 805, Business Combinations. Such information will be included in our subsequent Form 10-Q (see Note 18: Subsequent Events).

We believe that the acquisition of the HIS business complements our existing business by creating a company that has a complete intravenous therapy product portfolio. We also believe that the acquisition also significantly enhances our global footprint and platform for continued competitiveness and growth.

Other Acquisitions During the Reporting Period

On April 4, 2016, we acquired all of the outstanding shares of Tangent Medical Technologies, Inc. ("Tangent") for $2.6 million in cash. Tangent designs, develops, and commercializes intravenous catheters and associated products for the improvement of infusion therapy. Tangent's products enhance our infusion therapy product offering. For the year ended December 31, 2016, we recognized a $1.5 million bargain purchase gain related to the acquisition, which is separately stated in our consolidated statements of income. The bargain purchase gain represents the excess of the estimated fair market value of the identifiable tangible and intangible assets acquired, liabilities assumed and deferred tax assets over the total purchase consideration. The bargain purchase was driven by our ability to realize acquired deferred tax assets. The purchase price allocation is final.

On October 6, 2015, we acquired 100% of the outstanding shares of EXC, for approximately $59.5 million in cash. Immediately following the completion of the acquisition of EXC, we sold certain assets to Excelsior Medical, LLC for a final purchase price including working capital adjustments of $29.0 million in cash. We retained all of the assets related to the business of manufacturing and selling the needleless connector disinfection cap. The acquisition of EXC's SwabCap business enhances our infusion therapy product offering across our existing direct and original equipment manufacturer ("OEM") business lines. The goodwill recognized for this acquisition is attributable to the benefits expected to be derived from product line expansion, new customers and operational synergies. The goodwill is nondeductible for income tax purposes. The following table summarizes the final purchase price and the allocation of the purchase price related to the assets and liabilities retained (in thousands):

Fair Value of Consideration:
Cash, net of cash acquired	$	56,786
Allocation of the Purchase Price:
Net assets sold to Excelsior Medical, LLC	$	28,970
Prepaid expenses and other current assets	254
Deferred tax asset/liabilities	4,426
Property and equipment	3,982
Identifiable intangible assets(1)	18,076
Goodwill	4,985
Assumed liabilities	(3,907		)
Net Assets Acquired	$	56,786

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⁽¹⁾ Identifiable intangible assets included $7.1 million of non-contractual customer relationships, $3.7 million of developed technology and $7.3 million of trade name. The weighted-average amortization period for the total identifiable intangible assets is approximately fourteen years. The weighted-average amortization period for customer relationships and trade name is fifteen years and the weighted-average amortization period for the developed technology is ten years.

The identifiable intangible assets and other long-lived assets acquired have been valued as Level 3 assets at fair market value by an independent financial valuation and advisory services firm. The estimated fair value of identifiable intangible assets was developed using the income approach and is based on critical estimates, judgments and assumptions derived from: analysis of market conditions; discount rate; discounted cash flows; royalty rates; customer retention rates; and estimated useful lives. The prepaid expenses and other current assets and assumed liabilities were recorded at their carrying values as of the date of the acquisition, as their carrying values approximated their fair values due to their short-term nature.

Strategic Transaction Expenses

In 2016, we incurred $14.3 million in transaction costs related to our pending acquisition of HIS, our acquisition of Tangent and our acquisition of EXC. In 2015, we incurred $1.8 million in charges primarily associated with the acquisition of EXC. In 2014, we incurred $1.6 million in charges associated with strategic transactions that did not go forward. Transaction expenses are presented on a separate line item on our statements of income and are combined with restructuring charges.