Note 2 - Acquisitions and Dispositions
 12 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
Note
2
.
Acquisitions
and Dispositions
 
Acquisitions
 
For the year ended
March 31, 2017,
our acquisitions of businesses (net of cash acquired) totaled
$8,622,000,
of which
none
were individually material in nature (see Item
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
).
 
For the year ended
March 31, 2016,
our acquisitions of businesses (net of cash acquired) totaled
$33,382,000,
which consisted primarily of the following material acquisitions:
 
Infitrak
 
On
July 6, 2015,
we completed a business combination (the “Infitrak Acquisition”) whereby we acquired all of the common stock of
2396081
Ontario Inc. and its wholly owned operating subsidiary, Infitrak Inc. (collectively “Infitrak”), a company whose business provides consulting, packaging and measuring solutions for cold chain applications. The stock purchase agreement (the “Infitrak Agreement”) includes provisions for both contingent consideration based upon the
two
- year growth in gross profit (as defined in the Earn-Out Agreement) of the packaging component of our cold chain business subsequent to the acquisition and for a holdback payment (subject to a post-closing adjustment), payable at the
one
year anniversary of the closing date.
 
Under the terms of the Infitrak Agreement, we were required to pay contingent consideration if the gross profit (as defined in the Infitrak Earn-Out Agreement) for our cold chain packaging business for the
two
years subsequent to the acquisition met certain levels. The potential undiscounted consideration payable ranged from
$0
to
$15,000,000
CDN and was based upon a sliding scale of growth in gross profit (as defined in the Infitrak Earn-Out Agreement) for year
one
and year
two
of
30
to
70
percent and
15
to
75
percent, respectively. Based upon both historical and projected growth rates, we recorded
$9,271,000
of contingent consideration payable which represented our best estimate of the then current fair value of the amount that would ultimately be paid. Any changes to the contingent consideration ultimately paid would have resulted in additional income or expense in our consolidated statements of income.
 
In
July 2016,
we made the
first
Earn-Out payment in the amount of
$6,000,000
CDN (
$4,594,000
). In
March 2017,
we agreed to settle the remaining earn-out obligation (which was originally due in the
second
quarter of our year ending
March 31, 2018)
early by making a payment of
$6,000,000
CDN (
$4,558,000
).
 
We expected to achieve savings and generate growth as we integrated the Infitrak operations and sales and marketing functions. These factors, among others, contributed to a purchase price in excess of the estimated fair value of the net identifiable assets acquired and, as a result, we recorded goodwill in connection with this transaction. The goodwill is
not
deductible for tax purposes and it was assigned to our Cold Chain Packaging segment.
 
The Infitrak Acquisition constituted the acquisition of a business and was recognized at fair value. We determined the estimated fair values using discounted cash flow analyses and estimates made by management. The following reflected our allocation of the consideration, subject to customary purchase price adjustments in accordance with the Infitrak Agreement (in thousands):
 
Cash consideration
   $
8,747
  
Holdback payment liability
    
637
  
Contingent consideration liability
    
9,271
  
Aggregate consideration
   $
18,655
  
         
Accounts receivable
   $
925
 
Inventories
    
310
  
Property, plant and equipment
    
530
  
Intangibles
    
5,869
  
Goodwill
    
13,833
  
Accounts payable
    
(470
 )
Accrued liabilities
    
(767
 )
Deferred income taxes
    
(1,575
 )
Total purchase price allocation
   $
18,655
  
 
The accompanying consolidated statements of income include the results of the Infitrak Acquisition from the acquisition date of
July 6, 2015.
The pro forma effects of the acquisition on the results of operations as if the acquisition had been completed on
April 1, 2015
and
2014,
are as follows (in thousands, except per share data):
 
 
 
Year
Ended
March
31,
 
 
 
201
6
 
 
201
5
 
Revenues
   $
86,499
     $
74,379
  
Net income
    
11,471
      
9,944
  
Net Income per common share:
                
Basic
   $
3.18
     $
2.82
  
Diluted
    
3.05
      
2.72
  
 
North Bay
 
On
August 6, 2015,
we completed a business combination (the “North Bay Acquisition”) whereby we acquired substantially all of the assets (other than certain fixed assets) and certain liabilities of the dental sterilizer testing business of North Bay Bioscience, LLC (“North Bay”). The asset purchase agreement (the “North Bay Agreement”) included a provision for a holdback payment (subject to a post-closing adjustment), payable at the
one
year anniversary of the closing date.
 
We expected to achieve savings and generate growth as we integrated the North Bay operations and sales and marketing functions. These factors, among others, contributed to a purchase price in excess of the estimated fair value of the net identifiable assets acquired and, as a result, we recorded goodwill in connection with this transaction. The goodwill is deductible for tax purposes and it was assigned to our Biological Indicators segment.
 
The North Bay Acquisition constituted the acquisition of a business and was recognized at fair value. We determined the estimated fair values using discounted cash flow analyses and estimates made by management. The following reflected our allocation of the consideration, subject to customary purchase price adjustments in accordance with the North Bay Agreement (in thousands):
 
Cash consideration
   $
10,322
  
Holdback payment liability
    
1,000
  
Aggregate consideration
   $
11,322
  
         
Cash
   $
20
 
Accounts receivable
    
285
  
Inventories
    
85
  
Property, plant and equipment
    
229
  
Intangibles
    
4,454
  
Goodwill
    
7,962
  
Accrued liabilities
    
(100
 )
Unearned revenues
    
(1,613
 )
Total purchase price allocation
   $
11,322
  
 
The accompanying consolidated statements of income include the results of the North Bay Acquisition from the acquisition date of
August 6, 2015.
The pro forma effects of the acquisition on the results of operations as if the acquisition had been completed on
April 1, 2015
and
2014,
are as follows (in thousands, except per share data):
 
 
 
Year
Ended
March
31,
 
 
 
201
6
 
 
201
5
 
Revenues
   $
86,053
     $
75,649
  
Net income
    
11,463
      
10,182
  
Net Income per common share:
                
Basic
   $
3.18
     $
2.89
  
Diluted
    
3.05
      
2.79
  
 
For the year ended
March 31, 2015,
our acquisitions of businesses (net of cash acquired) totaled
$20,955,000,
which consisted primarily of the following material acquisitions:
 
PCD
 
On
October 15, 2014,
we completed a business combination (the “PCD Acquisition”) with PCD-Process Challenge Devices, LLC (“PCD”) whereby we acquired substantially all the assets (other than cash and accounts receivable) and certain liabilities of PCD’s process challenge device business segment. The asset acquisition agreement (the “PCD Agreement”) includes provisions for both contingent consideration based upon the cumulative
three
year revenues of our process challenge device business subsequent to the acquisition and for a holdback payment (subject to a post-closing adjustment), payable at the
one
year anniversary of the closing date.
 
 
Under the terms of the PCD Agreement, we are required to pay contingent consideration if the cumulative revenues for our process challenge device business for the
three
years subsequent to the acquisition meet certain levels. The potential consideration payable ranges from
$0
to
$1,500,000
and is based upon a sliding scale of
three
-year cumulative revenues between
$9,900,000
and
$12,600,000.
Based upon both historical and projected growth rates, we initially recorded
$300,000
of contingent consideration payable which represented our best estimate of the amount that would ultimately be paid. We paid
$150,000
of the contingent consideration during the year ended
March 31, 2016 (
based upon the then current run rate projected over the entire
three
-year contingent consideration period). Since the initial payment, the revenues have significantly increased and as a result, during the year ended
March 31, 2017
we recorded an additional
$450,000
accrual (which is included in other expense, net in our consolidated statements of income for the year ended
March 31, 2017).
We paid an additional
$450,000
of the contingent consideration in our
third
quarter ended
December 31, 2016.
The remaining contingent consideration amount is also subject to modification at the end of the
third
year of the earn-out period based upon the actual revenues earned over the contingent consideration period. Any changes to the contingent consideration ultimately paid will result in additional income or expense in our consolidated statements of income. We will continue to monitor the results of our process challenge device business and we will adjust the contingent liability on a go forward basis, based on then current information.
 
We expected to achieve savings and generate growth as we integrated the PCD operations and sales and marketing functions. These factors, among others, contributed to a purchase price in excess of the estimated fair value of the net identifiable assets acquired and, as a result, we recorded goodwill in connection with this transaction. The goodwill is deductible for tax purposes and it was assigned to our Biological Indicators segment.
 
The PCD Acquisition constituted the acquisition of a business and was recognized at fair value. We determined the estimated fair values using discounted cash flow analyses and estimates made by management. The following reflected our allocation of the consideration, subject to customary purchase price adjustments in accordance with the PCD Agreement (in thousands):
 
Cash consideration
   $
5,000
  
Holdback payment liability
    
250
  
Contingent consideration liability
    
300
  
Aggregate consideration
   $
5,550
  
         
Inventories
   $
137
 
Property, plant and equipment
    
7
  
Intangibles
    
3,678
  
Goodwill
    
1,743
  
Accrued expenses
    
(15
)
Total purchase price allocation
   $
5,550
  
 
The accompanying consolidated statements of income include the results of the PCD Acquisition from the acquisition date of
October 15, 2014.
The pro forma effects of the acquisition on the results of operations as if the acquisition had been completed on
April 1, 2014
and
2013,
are as follows (in thousands, except per share data):
 
 
 
Year E
nded March 31,
 
 
 
2015
 
 
2014
 
Revenues
   $
73,068
     $
56,541
  
Net income
    
9,673
      
9,512
  
Net income per common share:
                
Basic
   $
2.75
    $
2.76
 
Diluted
    
2.65
      
2.63
  
 
BGI
 
On
April 15, 2014,
we completed a business combination (the “BGI Acquisition”) whereby we acquired substantially all of the assets (other than cash and accounts receivable) and certain liabilities of BGI, Incorporated and BGI Instruments, Inc. (collectively “BGI”), a business focused on the sale of equipment primarily used for particulate air sampling. The purchase price for the acquired assets was
$10,268,000.
 
We expected to achieve savings and generate growth as we integrated the BGI operations and sales and marketing functions. These factors, among others, contributed to a purchase price in excess of the estimated fair value of the net identifiable assets acquired and, as a result, we recorded goodwill in connection with this transaction. The goodwill is deductible for tax purposes and it was assigned to our Instruments segment.
 
The BGI Acquisition constituted the acquisition of a business and was recognized at fair value. We determined the estimated fair values using discounted cash flow analyses and estimates made by management. The following reflected our allocation of the consideration, subject to customary purchase price adjustments in accordance with the BGI Agreement (in thousands):
 
Inventories
   $
1,268
  
Property, plant and equipment
    
47
  
Intangibles
    
5,711
  
Goodwill
    
3,295
  
Accrued expenses
    
(53
 )
Total purchase price allocation
   $
10,268
  
 
The accompanying consolidated statements of income include the results of the BGI Acquisition from the acquisition date of
April 15, 2014.
The pro forma effects of the acquisition on the results of operations as if the acquisition had been completed on
April 1, 2014
and
2013,
are as follows (in thousands, except per share data):
 
 
 
Year E
nded March 31,
 
 
 
2015
 
 
2014
 
Revenues
   $
71,648
     $
60,388
  
Net income
    
9,661
      
11,141
  
Net income per common share:
                
Basic
   $
2.74
    $
3.23
 
Diluted
    
2.65
      
3.09