Cincinnati Sub-Zero Acquisition

9 Months Ended

Sep. 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 $31,925 in product revenues and a net loss of $1,551 for the nine month periods ended September 30, 2016.  

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.  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		1,143
Property and equipment		12,919
Customer relationships		11,700
Technology		3,200
Trade name		6,370
Goodwill		24,422	a
Assumed liabilities		(13,235	)
Net assets acquired		73,593
Cash acquired		985
Purchase price	$	74,578

(a) The preliminary amount recorded to goodwill includes an estimate 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.

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 September 30,		Nine Months EndedSeptember 30,
	2015		2016		2015
Product revenues	$	237,690	$	696,964	$	687,327
Net income	$	25,182	$	50,955	$	65,054
Basic earnings per share	$	0.70	$	1.40	$	1.81
Diluted earnings per share	$	0.69	$	1.39	$	1.79

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 $24,422 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 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:

	September 30, 2016
	Gross Value		AccumulatedAmortization		Net Value		Useful Life
Customer relationships	$	11,700	$	390	$	11,310	15 yrs
Technology		3,200		260		2,940	5 -7 yrs
Trade name		6,370		—		6,370	Indefinite
Total	$	21,270	$	650	$	20,620

Amortization expense of $327 and $650 for the three and nine months ended September 30, 2016 was recorded as follows:

	Three Months EndedSeptember 30, 2016		Nine Months EndedSeptember 30, 2016
Product revenues	$	197	$	390
Selling, general and administrative expense		130		260

Note 3 – Cincinnati Sub-Zero Acquisition – Continued

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

October 1, 2016 through December 31, 2016	$	325
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