Business Acquisitions, Goodwill and Acquired Intangible Assets

12 Months Ended

Dec. 30, 2012

Business Combinations and Investments, Goodwill and Acquired Intangible Assets [Abstract]

Business Acquisitions, Goodwill and Acquired Intangible Assets

Business Acquisitions, Goodwill and Acquired Intangible Assets

The Company spent $389.2 million, $366.7 million and $67.9 million on acquisitions in 2012, 2011 and 2010, respectively.

On August 3, 2012, Teledyne acquired LeCroy Corporation (“LeCroy”) for $301.3 million, net of cash acquired. LeCroy, headquartered in Chestnut Ridge, New York is a leading supplier of oscilloscopes, protocol analyzers and signal integrity test solutions. LeCroy had sales of $178.1 million for its fiscal year ended June 30, 2011 and is part of the Instrumentation segment.

In addition to the acquisition of LeCroy in 2012, the Company completed the acquisition of four other businesses in 2012 for $87.9 million in cash, net of cash acquired. The additional businesses acquired expanded our portfolio of rugged interconnect solutions, increased our instrumentation content on AUVs and ROVs used in oil and gas and marine survey applications, added 3D imaging capability to our portfolio of visible, X-ray and ultraviolet sensors, cameras, added bathymetric LIDAR systems used for coastal mapping and shallow water profiling and expanded our line of harsh environmental marine connectors. The aggregate annual sales of the five businesses acquired at the time of their respective acquisitions, in each case based on the acquired company's revenues for its last completed fiscal year prior to the acquisition, were approximately $98.7 million.

On February 12, 2011, the Company acquired the stock of DALSA Corporation (“DALSA”) for an aggregate purchase price of $339.5 million. DALSA designs and manufactures digital image capture products, primarily consisting of high performance sensors, cameras and software for use in industrial, scientific, medical and professional applications products, as well as specialty semiconductors and micro electro mechanical systems (“MEMS”). DALSA had sales of CAD $212.3 million for its fiscal year ended December 2010 and operates within the Digital Imaging segment.

In addition to the acquisition of DALSA in 2011, the Company spent $27.2 million on three acquisitions and the purchase of the remaining minority interest in Energy Systems. The acquisitions provided the Company with compact short-wave and mid-wave infrared cameras and laser-based survey and digital imaging.

In 2010, Teledyne acquired Intelek plc (“Intelek”) for $43.5 million. Intelek primarily designs and manufactures electronic systems for satellite and microwave communications and aerospace manufacturing. In 2010, Teledyne also acquired two other companies which included a designer and manufacturer of custom optics and optomechanical assemblies and a designer and manufacturer of the Gavia^tm autonomous underwater vehicle.

The results of these acquisitions have been included in Teledyne's results since the dates of their respective acquisition.

The primary reasons for the above acquisitions were to strengthen and expand our core businesses through adding complementary product and service offerings, allowing greater integrated products and services, enhancing our technical capabilities or increasing our addressable markets. The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based on cash flow and return on capital projections assuming integration with our businesses and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for recognition. Teledyne funded the purchases primarily from borrowings under its credit facility and cash on hand.

The unaudited pro forma financial information below assumes that DALSA had been acquired at the beginning of the 2011 and 2010 fiscal years and includes the effect of estimated amortization of acquired identifiable intangible assets and increased interest expense on net acquisition debt, as well as the impact of purchase accounting adjustments for certain liabilities and inventory valuation adjustments. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the period presented. In addition, the unaudited pro forma financial results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

	Fiscal Year
(unaudited, in millions, except per-share amounts)	2011		2010
Net sales	$	1,966.0	$	1,850.2
Net income from continuing operations	$	133.5	$	113.6
Net income attributable to Teledyne	$	246.6	$	114.2
Basic earnings per common share – continuing operations	$	3.65	$	3.14
Basic earnings per common share – attributable to Teledyne	$	6.74	$	3.15
Diluted earnings per common share – continuing operations	$	3.58	$	3.08
Diluted earnings per common share – attributable to Teledyne	$	6.61	$	3.09

(a) The above unaudited proforma information is presented for the DALSA acquisition as it is considered a material acquisition.

Teledyne’s goodwill was $990.2 million at December 30, 2012 and $717.8 million at January 1, 2012. The increase in the balance of goodwill in 2012 resulted from current year acquisitions and the impact of foreign currency exchange rate changes. Teledyne’s net acquired intangible assets were $265.7 million at December 30, 2012 and $181.4 million at January 1, 2012. The increase in the balance of acquired intangible assets in 2012 resulted from current year acquisitions and the impact of exchange rate changes, partially offset by amortization. The Company’s cost to acquire LeCroy, PDM Neptec, BlueView, VariSystems and Optech has been allocated to the assets acquired and liabilities assumed based upon their respective fair values as of the date of the completion of the acquisition. The differences between the fair value of the consideration paid and the estimated fair value of the assets and liabilities acquired has been recorded as goodwill. The Company has completed the process of specifically identifying the amounts assigned to assets and liabilities and acquired intangible assets and the related impact on goodwill for the 2012 acquisitions.

The following tables show the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for the acquisitions made in fiscal 2012 and 2011 (in millions):

	Fiscal year 2012
Name	Acquisition Date	Purchase  Price(a)		Goodwill  Acquired		Acquired Intangible  Assets
LeCroy	August 3, 2012	$	301.3	$	174.4	$	67.6
PDM Neptec	August 3, 2012	7.4		3.3		1.3
Blue View	July 2, 2012	16.3		10.8		4.8
Optech	April 2, 2012	27.9		62.4		23.4
VariSystems	February 25, 2012	36.3		14.2		11.9
		$	389.2	$	265.1	$	109.0

	Fiscal year 2011
Name	Acquisition Date	Purchase  Price(a)		Goodwill  Acquired		Acquired  Intangible  Assets
DALSA	February 11, 2011	$	339.5	$	166.9	$	91.5
Nova Sensors	March 17, 2011	5.1		8.3		2.0
		$	344.6	$	175.2	$	93.5

a) Includes transaction costs that were expensed.

The following is a summary at the acquisition date of the estimated fair values allocated to the assets acquired and liabilities assumed for the acquisitions made in 2012 and 2011 (in millions):

	2012			2011
Current assets, excluding cash acquired	$	116.2		$	98.7
Property, plant and equipment	79.1			53.3
Goodwill	265.1			175.2
Other acquired intangible assets	109.0			93.5
Other long-term assets	5.3			—
Total assets acquired	574.7			420.7
Current liabilities	(61.8		)	(37.7		)
Long-term liabilities	(123.7		)	(38.4		)
Total liabilities assumed	(185.5		)	(76.1		)
Purchase price, net of cash acquired	$	389.2		$	344.6

The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the acquisitions made in 2012 and 2011 (dollars in millions):

	2012			2011
Intangibles subject to amortization:	Intangible Assets		Weighted average useful life in years	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	50.4	9.5	$	46.0	9.0
Customer list/relationships	21.4		10.2	24.6		10.0
Backlog	1.1		0.4	3.4		1.6
Trademarks	0.1		1.0	—		—
Total intangibles subject to amortization	73.0		9.5	74.0		9.5
Intangibles not subject to amortization:
Trademarks	36.0		n/a	19.5		n/a
Total intangibles not subject to amortization	36.0		n/a	19.5		n/a
Total acquired intangible assets	$	109.0	n/a	$	93.5	n/a
Goodwill	$	265.1	n/a	$	175.2	n/a

Goodwill resulting from the acquisitions made in fiscal 2012 and 2011 will not be deductible for tax purposes.

The following table summarizes the changes in the carrying value of goodwill (in millions):

	Instrumentation			Digital Imaging			Aerospace and Defense Electronics		Engineered Systems		Total
Balance at January 2, 2011	$	271.6		$	89.9		$	161.1	$	23.7	$	546.3
Current year acquisitions	—			175.2			—		—		175.2
Impact of foreign currency changes	(0.1		)	(3.9		)	0.3		—		(3.7		)
Balance at January 1, 2012	271.5			261.2			161.4		23.7		717.8
Current year acquisitions	188.5			62.4			14.2		—		265.1
Impact of foreign currency changes	2.6			3.5			0.8		0.4		7.3
Balance at December 30, 2012	$	462.6		$	327.1		$	176.4	$	24.1	$	990.2

 The following table summarizes the carrying value of other acquired intangible assets (in millions):

	2012						2011
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Other acquired intangible assets:
Proprietary technology	$	176.3	$	63.9	$	112.4	$	124.2	$	47.0	$	77.2
Customer list/relationships	91.1		33.9		57.2		68.5		25.3		43.2
Patents	0.7		0.6		0.1		0.7		0.5		0.2
Non-compete agreements	0.9		0.9		—		0.9		0.9		—
Trademarks	3.3		1.4		1.9		3.2		1.2		2.0
Backlog	12.3		12.2		0.1		11.1		9.6		1.5
Other acquired intangible assets subject to amortization	$	284.6	$	112.9	$	171.7	$	208.6	$	84.5	$	124.1
Other acquired intangible assets not subject to amortization
Trademarks	94.0		—		94.0		57.3		—		57.3
Total other acquired intangible assets:	$	378.6	$	112.9	$	265.7	$	265.9	$	84.5	$	181.4

Amortizable other intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from one to 15 years. Consistent with Teledyne's growth strategy, we seek to acquire companies in markets characterized by high barriers to entry and that include specialized products not likely to be commoditized.  Given our markets and highly engineered nature of our products, the rates of new technology development and customer acquisition and/or attrition are often not volatile.  As such, we believe the value of acquired intangible assets decline in a linear, as opposed to an accelerated fashion, and we believe amortization on a straight-line basis is appropriate.

The Company recorded $29.4 million and $24.6 million in amortization expense in 2012 and 2011, respectively, for other acquired intangible assets. The expected future amortization expense for the next five years is as follows (in millions): 2013 - $27.5; 2014 - $27.3; 2015 - $25.8; 2016 - $23.1; 2017 - $21.4.

The estimated remaining useful lives by asset category as of December 30, 2012, are as follows:

Intangibles subject to amortization	Weighted average remaining useful life in years
Proprietary technology	6.4
Customer list/relationships	6.5
Patents	6.9
Backlog	1.0
Trademarks	9.9
Total intangibles subject to amortization	6.5