Business Combinations

Acquisitions in fiscal year 2017

Acquisition of EUROIMMUN Medizinische Labordiagnostika AG. During fiscal year 2017, the Company completed the acquisition of 99.98% of the outstanding stock of EUROIMMUN Medizinische Labordiagnostika AG (“EUROIMMUN”) for aggregate consideration of €1.2 billion (equivalent to $1.4 billion at December 19, 2017, the time of closing). The purchase price was funded by borrowings from the Company's senior unsecured revolving credit facility and senior unsecured term loan credit facility of $710.0 million and $200.0 million, respectively, and available cash on hand of $503.8 million. EUROIMMUN is based in Lübeck, Germany, has approximately 2,400 employees, and is recognized as a global leader in autoimmune testing and an emerging force in infectious disease and allergy testing. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired. As a result of the acquisition, the Company recorded goodwill of $614.8 million, which is not tax deductible, and intangible assets of $897.4 million. The Company has reported the operations for this acquisition within the results of the Company's Diagnostics segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of this acquisition had a weighted average amortization period of 16.1 years.

Other acquisitions in 2017. During fiscal year 2017, the Company also completed the acquisition of two other businesses for aggregate consideration of $142.1 million. The acquired businesses were Tulip Diagnostics Private Limited (“Tulip”), which was acquired for total consideration of $127.3 million in cash and one other business acquired for total consideration of $14.8 million in cash. The Company has a potential obligation to pay the former shareholders of Tulip up to INR1.6 billion in additional consideration over a two year period, which is currently equivalent to $25.2 million, and is accounted for as compensation expense in the Company's financial statements over a two year period and is excluded from the purchase price allocation shown below. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations of Tulip within the results of the Company's Diagnostics segment and the other acquired business within the results of the Company's Discovery & Analytical Solutions segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.8 years.

The total purchase price for the acquisitions in fiscal year 2017 have been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:



	EUROIMMUN			2017 Other
	(In thousands)
Fair value of business combination:
Cash payments	$	1,413,780		$	140,861
Other liability	—			1,273
Less: cash acquired	(25,018		)	(2,439		)
Total	$	1,388,762		$	139,695
Identifiable assets acquired and liabilities assumed:
Current assets	$	121,174		$	16,268
Property, plant and equipment	129,964			11,356
Other assets	49,944			1,691
Identifiable intangible assets:
Core technology	160,000			12,400
Trade names	36,000			3,000
Customer relationships	700,000			43,700
In-process research and development ("IPR&D")	1,400			—
Goodwill	614,759			75,453
Deferred taxes	(275,491		)	(15,414		)
Liabilities assumed	(87,631		)	(8,759		)
Debt assumed	(61,357		)	—
Total	$	1,388,762		$	139,695

EUROIMMUN's revenue and net loss for the period from the acquisition date to December 31, 2017 were $13.5 million and $1.0 million, respectively. The following unaudited pro forma information presents the combined financial results for the Company and EUROIMMUN as if the acquisition of EUROIMMUN had been completed at the beginning of fiscal year 2016:



	December 31, 2017		January 1, 2017
	(In thousands, except per share data)
Pro Forma Statement of Operations Information (Unaudited):
Revenue	$	2,562,580	$	2,379,176
Income from continuing operations	143,459		156,210
Basic earnings per share:
Income from continuing operations	$	1.31	$	1.43
Diluted earnings per share:
Income from continuing operations	$	1.29	$	1.42

The unaudited pro forma information for fiscal years 2017 and 2016 have been calculated after applying the Company's accounting policies and the impact of acquisition date fair value adjustments. The fiscal year 2017 unaudited pro forma income from continuing operations was adjusted to exclude approximately $9.8 million of acquisition-related transaction costs. The fiscal year 2016 pro forma income from continuing operations was adjusted to include these acquisition-related transaction costs and the nonrecurring expenses related to the fair value adjustments. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as fair value adjustment to inventory, increased interest expense on debt obtained to finance the transaction, and increased amortization for the fair value of acquired intangible assets.

The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

Acquisitions in fiscal year 2016

During fiscal year 2016, the Company completed the acquisition of two businesses for total consideration of $72.3 million in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of $63.5 million in cash and one other business acquired for total consideration of $8.8 million in cash. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired. As a result of the acquisitions, the Company recorded goodwill of $43.1 million, which is not tax deductible, and intangible assets of $22.1 million. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 9.4 years.

The total purchase price for the acquisitions in fiscal year 2016 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:



	2016 Acquisitions
	(In thousands)
Fair value of business combination:
Cash payments	$	72,497
Working capital and other adjustments	(261		)
Less: cash acquired	(2,152		)
Total	$	70,084
Identifiable assets acquired and liabilities assumed:
Current assets	$	7,153
Property, plant and equipment	7,542
Identifiable intangible assets:
Core technology	6,600
Trade names	570
Customer relationships	14,900
Goodwill	43,072
Deferred taxes	(7,768		)
Liabilities assumed	(1,985		)
Total	$	70,084

Acquisitions in fiscal year 2015

During fiscal year 2015, the Company completed the acquisition of five businesses for total consideration of $77.1 million in cash. The acquired businesses included Vanadis Diagnostics AB (“Vanadis”), which was acquired for total consideration of $35.1 million in cash, as further described in Note 21 below, and other acquisitions for aggregate consideration of $42.0 million in cash. At the time of closing, the Company had a potential obligation to pay the shareholders of Vanadis additional contingent consideration of up to $93.0 million, with an estimated fair value of $56.9 million. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, of which $9.2 million is tax deductible. The Company has reported the operations for all of these acquisitions within the results of the Company’s Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology and trade names, acquired as part of these acquisitions had a weighted average amortization period of 9 years.

The total purchase price for the acquisitions in fiscal year 2015 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:



	2015 Acquisitions
	(In thousands)
Fair value of business combination:
Cash payments	$	75,285
Contingent consideration	56,878
Working capital and other adjustments	1,832
Less: cash acquired	(3,864		)
Total	$	130,131
Identifiable assets acquired and liabilities assumed:
Current assets	$	2,551
Property, plant and equipment	998
Identifiable intangible assets:
Core technology	15,759
Trade names	200
Licenses	116
Customer relationships	3,073
IPR&D	75,700
Goodwill	53,112
Deferred taxes	(18,528		)
Liabilities assumed	(2,850		)
Total	$	130,131

The Company does not consider the acquisitions completed during fiscal years 2017, 2016 and 2015, with the exception of the EUROIMMUN acquisition, to be material to its consolidated results of operations; therefore, the Company is only presenting pro forma financial information of operations for the EUROIMMUN acquisition. The aggregate revenue for the acquisitions, with the exception of EUROIMMUN, completed during fiscal year 2017 for the period from their acquisition dates to December 31, 2017 was $38.5 million and the results of operations were not material. The aggregate revenue and results of operations for the acquisitions completed during fiscal years 2016 and 2015 for the period from their respective acquisition dates to December 31, 2017 and January 1, 2017 were minimal. The Company has also determined that the presentation of the results of operations for each of those acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.

As of December 31, 2017, the allocations of purchase prices for acquisitions completed in fiscal years 2016 and 2015 were final. The preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2017 were based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

During fiscal year 2017, the Company obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted its purchase price allocations. Based on this information, for the Bioo acquisition, the Company recognized an increase in intangible assets of $2.2 million, a decrease in deferred tax liabilities of $0.5 million, a decrease in current assets of $0.1 million, and a decrease in goodwill of $2.6 million, and for the Tulip acquisition, the Company recognized an increase in property and equipment of $1.7 million, with a corresponding decrease in goodwill.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.

As of December 31, 2017, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $83.0 million. As of December 31, 2017, the Company has recorded contingent consideration obligations of $65.3 million, of which $52.2 million was recorded in accrued expenses and other current liabilities, and $13.1 million was recorded in long-term liabilities. As of January 1, 2017, the Company has recorded contingent consideration obligations of $63.2 million, of which $15.4 million was recorded in accrued expenses and other current liabilities, and $47.8 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 1.75 years from the respective acquisition dates, and the remaining weighted average expected earnout period at December 31, 2017 was 11 months. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.

In connection with the purchase price allocations for acquisitions, the Company estimates the fair value of deferred revenue assumed with its acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. The Company does not include any costs associated with selling effort, research and development, or the related margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that the Company would be required to pay a third-party to assume the obligation.

Total transaction costs related to acquisition and divestiture activities for fiscal years 2017, 2016 and 2015 were $10.8 million, $1.2 million and $0.7 million, respectively. These transaction costs were expensed as incurred and recorded in selling, general and administrative expenses in the Company's consolidated statements of operations.