Note 4 - Business Combinations

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

4 –

Business Combinations

On October 1, 2015, the Company acquired certain assets, including shares of select subsidiaries, of Alphaform AG (Alphaform) through insolvency proceedings administered through the Insolvency Court of Munich, Germany. Included in the acquisition were select assets of Alphaform AG and Alphaform Claho GmbH and shares of Alphaform RPI Oy and Alphaform Ltd., for $5.0 million net cash consideration, which was funded with cash available in the United States and Europe. The operations of Alphaform will be integrated into the operations of the Company.

Alphaform is a leading service bureau headquartered in Feldkirchen (Munich), Germany and also has locations in Eschenlohe, Germany; Rusko, Finland and Reading, UK. Alphaform produces high-quality parts using stereolithography (SL), selective laser sintering (SLS) and direct metal laser sintering (DMLS) technologies as well as injection molding capabilities and other production processes. The revenue associated with these processes will be reported under the 3D Printing, Injection Molding and Other product lines.

The results of Alphaform since the date of acquisition and pro forma disclosures of the consolidated results of the Company with the full year effects of Alphaform have not been separately presented since the impact to the Company's results of operations was not material.

The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805. Because Alphaform was insolvent, the fair value of the assets purchased and liabilities assumed exceeded the fair value of consideration paid, which resulted in a bargain purchase gain of $0.3 million. The bargain purchase gain has been recorded in Other Income, Net in the Consolidated Statement of Comprehensive Income for the year ended December 31, 2015. As of December 31, 2015, this allocation for Alphaform is final as it relates to the valuation of certain working capital accounts, intangible assets and taxes. The final allocation of the purchase price to assets acquired and liabilities assumed is as follows:

(in thousands)
Assets acquired:
Current assets	$	2,766
Other long-term assets		3,876
Total assets acquired		6,642
Liabilities assumed:
Current liabilities		1,266
Total liabilities assumed		1,266
Net assets acquired	$	5,376
Cash paid	$	5,570
Cash acquired		(538	)
Total purchase consideration	$	5,032
Gain recognized on bargain purchase	$	344

On April 23, 2014, the Company acquired 100% of the outstanding shares of FineLine Prototyping, Inc. (FineLine) for $33.9 million net cash consideration, which was funded with cash available in the United States and the sale of $15.5 million of held-to-maturity securities. The shares of FineLine acquired through the Stock Purchase Agreement (the Agreement) were purchased in a private transaction exempt from registration under the Securities Act of 1933 and the operations of FineLine will be integrated into the operations of the Company. Under the terms of the Agreement, the Company is obligated to make additional cash payments totaling up to $3.0 million, contingent upon both the achievement of 2014 revenue goals and certain milestones relating to the integration of FineLine’s operations with the Company. As of December 31, 2015, the Company had made payments of $2.6 million related to the attainment of milestones and as of December 31, 2015, the contingent consideration balance totaled $0.4 million, which is classified under Accrued Liabilities and Other on the Consolidated Balance Sheet.

FineLine is based in Raleigh, North Carolina and is a leading producer of parts using additive manufacturing technologies, often times referred to as 3D printing. FineLine produces high-quality parts using stereolithography (SLA), selective laser sintering (SLS) and direct metal laser sintering (DMLS) technologies to customers in a wide variety of industries, including medical, aerospace, computer/electronics, consumer products and industrial machinery, among others. 

Consistent with the provisions of ASC 805,

Business Combinations

(ASC 805), the Company accrued the contingent payment on the date of acquisition after determining its fair value of $3.0 million in arriving at $36.9 million of total consideration, net of cash acquired. The fair value of the contingent consideration was determined by using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. The contingent payment continues to be remeasured to fair value at each reporting period with changes in fair value reflected in the Consolidated Statements of Comprehensive Income.

The fair value of the consideration paid for this acquisition was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date, with any excess recorded as goodwill. The goodwill associated with the acquisition is deductible for tax purposes and represents the strategic and growth opportunities from strengthening the Company’s portfolio of rapid prototyping product offerings. The addition of additive manufacturing expands Proto Labs’ products to address a wider spectrum of needs for the product developer and engineer. From concept models, to form and fit testing, to functional testing and short-run production, the acquisition of FineLine allows the Company to offer a broader range of quick-turn, on-demand custom parts with speed, reliability and consistency.

The FineLine acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805. The final allocation of the purchase price to assets acquired and liabilities assumed is as follows:

(in thousands)
Assets acquired:
Current assets	$	1,248
Intangible assets		4,580
Goodwill		28,916
Other long-term assets		3,849
Total assets acquired		38,593
Liabilities assumed:
Current liabilities		1,729
Total liabilities assumed		1,729
Net assets acquired		36,864
Cash paid		34,468
Cash acquired		(604	)
Net cash consideration		33,864
Contingent consideration		3,000
Total purchase consideration	$	36,864