Business Acquisition (Notes)

6 Months Ended

Jun. 30, 2015

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

12. BUSINESS ACQUISITION

On January 15, 2015, we completed the acquisition of all of the outstanding capital stock of Blue Ortho SAS, a France-based company. Blue Ortho is the computer-assisted surgical technology development and manufacturing firm that partnered with the Company to develop the ExactechGPS^® Guided Personalized Surgery system. We acquired Blue Ortho to further the partnership between us and the team at Blue Ortho and expand the development of ExactechGPS to other segments of our portfolio.

The aggregate purchase price for Blue Ortho is a maximum of €10.0 million, of which €2.0 million, or $2.3 million at a 1.16 USD exchange rate at closing, was paid to the Blue Ortho shareholders in cash at the closing of the acquisition, and the remainder will be paid to such shareholders contingent on the achievement of certain future surgical case milestones. During the second quarter ended June 30, 2015, we revised our preliminary valuation of the contingent consideration, and reduced the fair value of the consideration by approximately $1.1 million. The estimated fair value of the contingent consideration was determined using the following assumptions: discount rates of 4.5-6.5%, probability levels of milestone range of outcomes, and expected timing of achievement of contingent consideration earn-out amounts. We expect the contingent consideration to be paid over the next five to ten years. We financed the acquisition from our operating cash flows.

Upon completion of the acquisition, we effectively settled a pre-existing development agreement for the development of the ExactechGPS. Blue Ortho's results of operations for the fiscal year ending December 31, 2014 and through January 15, 2015, were finalized during the second quarter ended June 30, 2015, which resulted in an increase in our net assets acquired, compared to our previous estimation. Preliminary valuation assessment of the acquired assets, including valuation and useful lives of the acquired identifiable intangible assets was revised during the second quarter of 2015, and we recognized an adjustment to the identifiable intangible assets acquired. The accounting for our acquisition of Blue Ortho is preliminary, pending final valuation and deferred tax liability determination. The preliminary goodwill is determined as the excess of the consideration over the fair value of the net assets acquired, and allocated to the knee, extremity and hip segments based on the valuation. Pro forma revenue and earnings for the business combination have not been presented because the effects, both individually and in the aggregate, were not material to our results of operations.

The following table summarizes the preliminary purchase price allocation and determination of goodwill, which is not deductible for tax purposes, as of January 2015 (in thousands):

	Amounts at Acquisition			Measurement Period Adjustment			Amounts at Acquisition (as adjusted)
Consideration:
Cash	$	2,329					$	2,329
Fair value of contingent consideration	8,243			(1,095		)	7,148
Total Purchase Price	10,572			(1,095		)	9,477
Settlement of pre-existing agreement	3,080						3,080
	13,652			(1,095		)	12,557
Acquisition related expenses - incurred as of June 30, 2015							$	278
Preliminary identifiable assets acquired and liabilities assumed:
Current assets acquired	1,024			291			1,316
Property and equipment	127			37			164
Current liabilities assumed	(389		)	(27		)	(417		)
Deferred tax liability assumed	(2,400		)	(86		)	(2,486		)
Identifiable intangible assets	7,201			259			7,460
	5,563			474			6,037
Goodwill	8,089			(1,569		)	6,520
Net assets acquired	$	13,652		$	(1,095	)	$	12,557

During February 2015, we paid contingent consideration payments of €0.5 million, or $0.6 million at a rate of 1.12 USD per EUR. As of June 30, 2015 we had $1.5 million of the contingent consideration classified in other current liabilities on our condensed consolidated balance sheets, due to our expected timing of earn-out payments. The remaining $4.9 million contingent consideration is classified as other non-current liabilities. The change in the contingent consideration during the six months ended June 30, 2015, included a period change of approximately $89,000 to the valuation, which was recognized as interest expense in the unaudited condensed consolidated statements of income. The remaining change in the contingent consideration balance was due to the impacted of foreign currency fluctuations.