Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v2.4.0.8
Business Combinations
3 Months Ended
Mar. 31, 2014
Business Combinations [Abstract]  
Business Combinations

2 - Business Combinations

Grass Technologies

On February 2, 2013, we completed an asset purchase of the Grass Technologies Product Group (“Grass”) from Astro-Med Inc. for a total cash consideration of $21.0 million pursuant to purchase agreement. Included in the total cash consideration is an adjustment of $2.4 million made in the first quarter of 2014 for inventory purchase committments. Grass manufactures and sells clinically differentiated neurodiagnostic and monitoring products, including a portfolio of electroencephalography (EEG) and polysomnography (PSG) systems for both clinical and research use and related accessories and proprietary electrodes. The acquisition strengthened the Company’s existing neurology portfolio and provided new product categories. A total of $624,000 of direct costs associated with the acquisition was expensed as incurred and reported as a component of general and administrative expenses.

The Company has accounted for the acquisition as a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Grass are recorded in the consolidated financial statements at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. Grass’s results of operations are included in our consolidated financial statements as of February 2, 2013, the date of the acquisition.

Valuing certain components of the acquisition required us to make significant estimates. In the first quarter of 2014, the remaining information was obtained requiring adjustments to these estimates. The final adjustments in the first quarter of 2014 resulted in an adjustment to the preliminary purchase price allocation, with an offsetting adjustment to goodwill. These adjustments were deemed immaterial and as a result our financial statements were not adjusted retrospectively.

Approximately $7.0 million has been allocated to goodwill. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed and represent primarily the expected synergies of combining the operations of the Company and the Grass business. None of the goodwill is expected to be deductible for tax purposes. In accordance with ASC 350-20, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present).

Pro forma financial information                                                                                      

The following unaudited pro forma information combining results of operations of the Company for the three months ended March 31, 2014 and 2013 are presented as if the acquisition of Grass had occurred on January 1, 2013:

 

 

Unaudited Pro forma Financial Information

(in thousands)

 

 

Three Months Ended March 31, 2013

Revenue

$86,839

 

Income from operations

$5,239

 

 

 

 

 

 

The unaudited pro forma financial information is provided for comparative purposes only and is not necessarily indicative of what actual results would have been had the acquisitions occurred on the dates indicated, nor does it give effect to synergies, cost savings, and other changes expected to result from the acquisitions. Accordingly, the pro forma financial results do not purport to be indicative of results of operations as of the date hereof, for any period ended on the date hereof, or for any other future date or period.

For purposes of preparing the unaudited pro forma financial information for the period January 1, 2013 through March 31, 2013, Grass’ statement of operations for the period from January 1, 2013 to February 1, 2013 was combined with our consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2013.

The unaudited pro forma consolidated results for the three month period ended March 31, 2013 reflect the historical information of Natus and Grass, adjusted for the following pre-tax amounts:

  •                                     Additional amortization expense of $59,300 related to the fair value of identifiable intangible assets acquired;
  •                                     Decrease of depreciation expense of $14,800 related to the fair value adjustment to property and equipment acquired;
  •                                     Decrease in general and administrative expense of $624,000 related to the direct acquisition costs that were recorded in the unaudited pro forma financial information in the three months ended March 31, 2013.

Hearing Screening as a Service

In the first quarter of 2014, the company entered into two asset purchase agreements for companies in the newborn hearing screening services market for a total consideration of $3.6 million.  The first, Tender Touch Infant Hearing (“Tender Touch”), was acquired on January 16, 2014, and the second, Hearing Health Consultants LLC (“HHC”), was acquired on March 10, 2014.  Both acquisitions support the Company’s objective to enter this market that complements our hearing business.