3. Business combination

Oncura Partners Diagnostics, LLC, or Oncura

On January 8, 2016, the Company wholly acquired Oncura Partners Diagnostics, LLC, a privately held provider of remote, real-time ultrasound imaging and teleconsulting services currently focused on the veterinary medicine market. Oncura is included within the Ultrasound reportable segment; see Note 16 Segment Information for further details. The preliminary purchase price was $20.2 million, comprised of an upfront cash payment of $8.4 million, post-closing adjustments $0.4 million, the relief of debt owed to Analogic of $1.3 million, and the fair value of contingent consideration of $10.1 million. The acquisition has been accounted for as an acquisition of a business.

The following table summarizes the purchase price allocation based on preliminary estimates of the fair values of the separately identifiable assets acquired and liabilities assumed as of the acquisition date. The fair value measurements of intangibles, property, plant and equipment, deferred revenue, and contingent consideration were based upon significant inputs not observable in the market and therefore represent fair value measurements based on Level 3 inputs, as defined in Note 8, Fair Value Measurements. These are preliminary balances as we continue to obtain information to complete our valuation of these accounts:


(in millions)
Cash				$	0.4
Accounts receivable					0.3
Inventory					0.2
Other assets					0.4
Property, plant, and equipment					0.4
Goodwill					16.4
Intangible assets:
Tradename (estimated useful life of 5 years)	$	1.0
Customer relationships (estimated useful life of 6 years)		3.1

Total intangible assets					4.1

Total assets acquired					22.2
Accounts payable and accrued expenses		(0.9	)
Deferred revenue		(1.1	)

Total liabilities assumed					(2.0	)

Total purchase price				$	20.2

We estimated the fair value of identifiable acquisition-related intangible assets primarily based on discounted cash flow projections that will arise from these assets. We use significant judgment with regard to assumptions used in the determination of fair value such as discount rates, projected cash flows, and the determination of the estimated useful lives of the intangible assets. There could be material changes as we continue to obtain information to complete our valuation of these accounts.

In connection with this acquisition, we recorded an acquisition date fair value contingent consideration obligation of $10.1 million within long-term contingent consideration, in the Consolidated Balance Sheets. This obligation is payable upon the achievement of certain revenue and gross margin targets over a four year period starting on May 1, 2016. There is no limit on the earnout that can be paid out. The $10.1 million fair value was estimated through a Monte Carlo valuation model that incorporates probability adjusted assumptions relating to the achievement of these targets and the likelihood of us making payments. There could be material changes as we continue to obtain information to complete our valuation of these accounts. During the initial post-close period, any changes in the acquisition date fair value will be recorded against goodwill. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 input measurement. Subsequent changes in the fair value of this obligation will be recognized as adjustments to the contingent consideration liability and reflected within our Consolidated Statement of Operations within general and administrative operating expenses. For additional information related to the fair value of this obligation, please refer to Note 8 Fair Value Measurements.

Goodwill associated with the acquisition was primarily attributable to the opportunities of expanding Analogic’s service offerings through the launch of an ultrasound-based telehealth initiative. The goodwill from this acquisition will be deductible for tax purposes over the statutory 15 year period.

During fiscal year 2016, we incurred acquisition costs of $0.4 million, which consisted primarily of legal and due diligence expenses that are included in our general and administrative expenses in our Consolidated Statements of Operations.

The pro forma financial information for fiscal year 2016, including revenue and net income, is immaterial, and has not been separately presented.

Pathfinder Therapeutics, Inc., or Pathfinder

On October 28, 2014, we acquired certain assets and assumed certain liabilities related to the surgical planning and guidance business of Pathfinder for $1.6 million, which was paid in cash at the acquisition date. The acquisition has been accounted for as an acquisition of a business.

The following table summarizes the purchase price allocation based on the fair values of the separately identifiable assets acquired and liabilities assumed as of the acquisition date:


(in millions)
Inventory and receivables				$	0.2
Goodwill					0.4
Intangible assets:
Developed technology (estimated useful life of 10 years)	$	0.7
Customer relationships (estimated useful life of 2 years)		0.3
Trade names (estimated useful life of 5 years)		0.1

Total intangible assets					1.1

Total assets acquired					1.7
Accrued liabilities		(0.1	)

Total liabilities assumed					(0.1	)

Total purchase price				$	1.6

We estimated the fair value of identifiable acquisition-related intangible assets primarily based on discounted cash flows projections that will arise from these assets. We use significant judgment with regard to assumptions used in the determination of fair value such as discount rates and the determination of the estimated useful lives of the intangible assets.

The total weighted average amortization period for the intangible assets is approximately 7.6 years. Goodwill associated with the acquisition was primarily attributable to the opportunities from the addition of Pathfinder’s product portfolio and technology which complement our suite of products. The goodwill from this acquisition will be deductible for tax purposes over the statutory 15 year period.

During fiscal year 2015, we incurred acquisition costs of approximately $0.1 million which consisted primarily of legal and due diligence expenses that are included in our general and administrative expenses in our Consolidated Statements of Operations.

The pro forma financial information for the year ended July 31, 2015, including revenue and net income, is immaterial, and has not been separately presented.

PocketSonics, Inc.

In April 2010, we entered into an agreement with PocketSonics, Inc., or PocketSonics, a privately held ultrasound technology company based in Charlottesville, Virginia, which granted us an exclusive license to certain ultrasound technology owned or controlled by PocketSonics and a ten percent (10%) equity interest in PocketSonics. The equity investment was recorded as in-process research and development, or IPR&D, of $1.9 million. Since that time, we have collaborated with PocketSonics to develop patented ultrasound technology to enable the acceleration of high acuity guided procedures to lower cost point-of-care settings and other technical applications. On September 20, 2013, we acquired all of the remaining stock of PocketSonics. The purchase price includes base consideration of $11.1 million paid in cash at closing, fair value of contingent consideration of $1.9 million, and revaluation of our initial equity investment. We undertook this acquisition to further strengthen our competitive position in procedure guidance for point-of-care and other advanced guidance applications. The acquisition was funded from our existing cash on hand and has been accounted for as an acquisition of a business.

We finalized the purchase accounting for the PocketSonics acquisition during fiscal year 2014. The following table summarizes the fair values of the separately identifiable assets acquired and liabilities assumed as of September 20, 2013:


(in millions)
Cash				$	0.5
Goodwill					6.9
IPR&D					11.5

Total assets acquired					18.9
Accounts payable and accrued expenses	$	(0.3	)
Deferred taxes		(4.1	)

Total liabilities assumed					(4.4	)

Total purchase price				$	14.5

In determining the fair value, we considered, among other factors, market participants’ intentions to use the acquired assets and the historical and estimated future demand for PocketSonics products and services. We recognized an IPR&D asset of $11.5 million. The fair value of the asset was determined by a probability adjusted cash flow analysis. In May 2014, we determined that the IPR&D was completed and performed a qualitative assessment and determined that there was no impairment. Accordingly, the carrying amount of the IPR&D asset was reclassified as developed technology and will be amortized over its estimated useful life of 10 years.

In connection with this acquisition, we recorded a fair value contingent consideration obligation of $1.9 million, with potential exposure of up to $3.0 million payable upon the achievement of certain milestones relating to the PocketSonics technology. The contingent earn-out payments to the sellers of PocketSonics would be payable upon commercial launch and achievement of volume sales target as defined in the asset purchase agreement. The $2.0 million fair value was estimated through a valuation model that incorporates probability adjusted assumptions relating to the achievement of these milestones and the likelihood of us making payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 input measurement. Subsequent changes in the fair value of this obligation will be recognized as adjustments to the contingent consideration liability and reflected within our Consolidated Statements of Operations within selling and marketing expenses. During fiscal year 2015, the estimated fair value of our contingent consideration obligation decreased by $0.1 million. The total fair value of our contingent consideration obligation was $2.0 million as of July 31, 2015 and 2016. For additional information related to the fair value of this obligation, please refer to Note 8. Fair Value Measurements.

We recorded goodwill of $6.9 million related to the PocketSonics acquisition, representing the value of the opportunity of further strengthening our competitive position in procedure guidance for point-of-care and other advanced guidance applications. This goodwill will not be deductible for tax purposes.

Upon the acquisition of PocketSonics, we recognized a loss of $0.5 million related to our 10% pre-acquisition equity interest, which is reflected as a component of other expense, net within our Consolidated Statement of Operations for fiscal year 2014.

During fiscal year 2014, we incurred acquisition costs of $0.1 million consisting primarily of legal and due diligence expenses that are included in our general and administrative expenses in our Consolidated Statement of Operations.