Business Acquisitions, Goodwill and Acquired Intangible Assets

The Company spent $93.4 million, $66.7 million and $195.8 million on acquisitions and other investments in 2016, 2015 and 2014, respectively.

On December 6, 2016, Teledyne Instruments, Inc. acquired Hanson Research Corporation (“Hanson Research”) for $25.0 million in cash. Hanson Research, headquartered in Chatsworth, California, specializes in analytical instrumentation for the pharmaceutical industry.

On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, Inc. (“IN USA”) for $10.2 million in cash. IN USA, headquartered in Norwood, Massachusetts, manufactures a range of ozone generators, ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based technologies. Teledyne intends to relocate and consolidate manufacturing into the new, owned facility of Teledyne Advanced Pollution Instrumentation in San Diego, California.

On May 3, 2016, Teledyne DALSA, Inc., a Canadian-based subsidiary, acquired the assets and business of CARIS, Inc. (“CARIS”) for an initial cash payment of $26.2 million, net of cash acquired. Based in Fredericton, New Brunswick, Canada, CARIS is a leading developer of geospatial software designed for the hydrographic and marine community.

On April 15, 2016, Teledyne LeCroy, Inc., a U.S.-based subsidiary, acquired assets of Quantum Data, Inc. (“Quantum Data”) for $17.3 million in cash. Based in Elgin, Illinois, Quantum Data provides electronic test and measurement instrumentation and is a market leader in video protocol analysis test tools. On April 6, 2016, Teledyne LeCroy, Inc. also acquired Frontline Test Equipment, Inc. (“Frontline”) for $13.7 million in cash. Based in Charlottesville, Virginia, Frontline provides electronic test and measurement instrumentation and is a market leader in wireless protocol analysis test tools. Each of the 2016 acquisitions are part of the Instrumentation segment except for CARIS which is part of the Digital Imaging segment.

On June 5, 2015, Teledyne DALSA BV, a Netherlands-based subsidiary, acquired ICM for $21.8 million, net of cash acquired. In December 2016, an additional $2.5 million was paid by Teledyne related to an indemnification holdback. Based in Liège, Belgium, ICM is a supplier of portable X-ray generators for non-destructive testing applications, as well as complete X-ray imaging systems for on-site security screening and is part of the Digital Imaging segment.

On April 29, 2015, Teledyne DALSA, Inc. acquired the remaining 49% noncontrolling interest in the parent company of Optech for $22.0 million in cash. As a result of the purchase, the difference between the cash paid and the balance of noncontrolling interest was recorded to additional paid in capital. The balance of the noncontrolling interest of $41.2 million at December 28, 2014 decreased by $0.3 million for the net loss and $1.3 million in translation adjustments prior to the purchase which eliminated the remaining balance. The balance of the noncontrolling interest of $47.0 million at December 29, 2013 decreased by $2.1 million for the net loss and $3.7 million in translation adjustments, resulting in a balance of $41.2 million at December 28, 2014. Teledyne no longer has any noncontrolling interests. Optech is part of the Digital Imaging segment.

On February 2, 2015, Teledyne acquired Bowtech through a U.K.-based subsidiary for $18.9 million in cash, net of cash acquired and including an estimated working capital adjustment. Based in Aberdeen, Scotland, Bowtech designs and manufactures harsh underwater environment vision systems and is part of the Instrumentation segment. Also in 2015, Teledyne made an additional investment in Ocean Aero.

Teledyne funded the purchases from borrowings under its credit facility and cash on hand. The ICM, Bowtech and Optech acquisitions were funded with cash held by foreign subsidiaries. The results of the acquisitions have been included in Teledyne’s results since the dates of the respective acquisition.

During 2014, Teledyne made four acquisitions, the largest of which was Bolt in November 2014.

On November 18, 2014, Teledyne acquired all of the outstanding common shares of Bolt for $22.00 per share payable in cash. The aggregate value for the transaction was $171.0 million, excluding transaction costs and taking into account Bolt’s stock options, other liabilities and net cash on hand. Bolt is a developer and manufacturer of marine seismic data acquisition equipment used for offshore oil and natural gas exploration. Bolt is also a developer and manufacturer of remotely operated robotic vehicles systems used for a variety of underwater tasks. Bolt had sales of $67.5 million for its fiscal year ended June 30, 2014. In addition to the acquisition of Bolt in 2014, the Company completed the acquisition of three businesses and invested in Ocean Aero for a total of $24.8 million.

All of the 2014 acquisitions are part of the Instrumentation segment.

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.

On December 12, 2016, Teledyne and e2v technologies plc (“e2v”) reached agreement on the terms of a recommended cash acquisition to be made by Teledyne for the ordinary share capital of e2v by means of a Scheme of Arrangement (the “Offer”). Under the terms of the Offer, e2v’s ordinary shareholders will receive 275 pence in cash for each e2v share valuing the entire issued and to be issued ordinary share capital of e2v at approximately £619.6 million on a fully diluted basis. It is expected that, subject to the satisfaction or waiver of all relevant conditions, the acquisition will be completed in the first half of calendar 2017.

For the machine vision market, e2v provides high performance image sensors and custom camera solutions and application specific standard products. In addition, e2v provides high performance space qualified imaging sensors and arrays for space science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency power generation for healthcare, industrial and defense applications. Finally, the company provides high reliability semiconductors and board-level solutions for use in aerospace, space and radio frequency communications applications. At announcement, the aggregate enterprise value for the transaction is expected be approximately £627.1 million (or approximately $788.9 million) taking into account e2v stock options and net debt. For the year ended March 31, 2016, e2v had sales of approximately £236.4 million.

Teledyne’s Offer will be made in accordance with the relevant requirements of the UK City Code on Takeovers and Mergers (“Takeover Code”) (including customary closing conditions) and be governed by English law. Teledyne expects to fund the acquisition from cash on hand and its credit facility.

Teledyne’s goodwill was $1,193.5 million at January 1, 2017, and $1,140.2 million at January 3, 2016. The increase in the balance of goodwill in 2016 resulted from the goodwill from current year acquisitions, partially offset by the impact of exchange rate changes. Teledyne’s net acquired intangible assets were $234.6 million at January 1, 2017, and $243.3 million at January 3, 2016. The decrease in the balance of acquired intangible assets in 2016 primarily resulted from amortization, partially offset by acquired intangible assets from current year acquisitions. The Company’s cost to acquire the 2016 acquisitions 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 is still in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the IN USA and Hanson Research acquisitions. The Company made preliminary estimates as of January 1, 2017, since there was insufficient time between the acquisition date and the end of the period to finalize the analysis. The Company has completed the allocation of all other 2016 acquisitions.

The following tables show the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for the acquisitions made in 2016 and 2015 (in millions):



	2016
Acquisition	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
Frontline	April 6, 2016	$	13.7	$	11.3	$	2.3
Quantum Data	April 15, 2016	17.3		10.7		5.4
CARIS	May 3, 2016	26.2		22.2		3.6
IN USA	November 2, 2016	10.2		6.3		3.0
Hanson Research	December 6, 2016	25.0		13.5		8.4
Other Investments		1.0		—		—
		$	93.4	$	64.0	$	22.7
(a) net of any cash acquired.



	2015
Acquisition	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
Bowtech	February 2, 2015	$	18.9	$	7.0	$	4.3
ICM	June 5, 2015	21.8		19.2		5.8
Purchase of remaining interest of Optech	April 29, 2015	22.0		—		—
Other investments		4.0		1.4		0.9
		$	66.7	$	27.6	$	11.0
(a) net of any cash acquired.



Fair values allocated to the assets acquired and liabilities assumed (in millions):	2016			2015
Current assets, excluding cash acquired	$	11.9		$	8.5
Property, plant and equipment	3.9			9.8
Goodwill	64.0			27.6
Acquired intangible assets	22.7			11.0
Other long-term assets	1.2			1.9
Total assets acquired	103.7			58.8
Current liabilities	(9.9		)	(5.1		)
Long-term liabilities	(0.4		)	(9.0		)
Total liabilities assumed	(10.3		)	(14.1		)
Noncontrolling interests (a)	—			22.0
Cash paid, net of cash acquired	$	93.4		$	66.7
(a) relates to the purchase of the remaining interest in Optech.

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 2016 and 2015 (dollars in millions):



	2016			2015
Intangibles subject to amortization:	Intangible Assets		Weighted average useful life in years	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	10.4	9.4	$	5.7	9.9
Customer list/relationships	8.9		13.2	3.0		8.3
Backlog	0.3		0.3	—		n/a
Trademarks	0.5		3.0	—		—
Total intangibles subject to amortization	20.1		10.8	8.7		9.4

Intangibles not subject to amortization:
Trademarks	2.6		n/a	2.3		n/a

Total acquired intangible assets	$	22.7	n/a	$	11.0	n/a

Goodwill	$	64.0	n/a	$	27.6	n/a

Goodwill resulting from the acquisitions of Frontline, Quantum Data, IN USA and CARIS made in 2016 will be deductible for tax purposes. Goodwill resulting from the 2016 acquisition of Hanson Research and the 2015 acquisitions of Bowtech and ICM will not be deductible for tax purposes.



Goodwill (in millions):	Instrumentation			Digital Imaging			Aerospace and Defense Electronics			Engineered Systems			Total
Balance at December 28, 2014	$	680.1		$	302.2		$	144.5		$	23.8		$	1,150.6
Current and prior year acquisitions (a)	11.8			19.2			—			—			31.0
Foreign currency changes	(11.1		)	(28.9		)	(1.0		)	(0.4		)	(41.4		)
Balance at January 3, 2016	$	680.8		$	292.5		$	143.5		$	23.4		$	1,140.2
Current year acquisitions	41.8			22.2			—			—			64.0
Foreign currency changes	(9.3		)	2.7			(4.1		)	—			(10.7		)
Balance at January 1, 2017	$	713.3		$	317.4		$	139.4		$	23.4		$	1,193.5

(a) Includes $3.4 million related to the completion of the Bolt purchase price allocation in 2015.



	2016						2015
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Other acquired intangible assets (in millions):
Proprietary technology	$	207.2	$	130.1	$	77.1	$	198.6	$	114.2	$	84.4
Customer list/relationships	121.9		68.3		53.6		114.3		58.8		55.5
Patents	0.7		0.6		0.1		0.7		0.6		0.1
Non-compete agreements	0.9		0.9		—		0.9		0.9		—
Trademarks	3.8		2.4		1.4		3.4		2.1		1.3
Backlog	12.7		12.6		0.1		12.5		12.5		—
Other acquired intangible assets subject to amortization	347.2		214.9		132.3		330.4		189.1		141.3
Other acquired intangible assets not subject to amortization:
Trademarks	102.3		—		102.3		102.0		—		102.0
Total other acquired intangible assets	$	449.5	$	214.9	$	234.6	$	432.4	$	189.1	$	243.3

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 $28.3 million, $30.6 million and $32.0 million in amortization expense in 2016, 2015 and 2014, respectively, for other acquired intangible assets. The expected future amortization expense for the next five years is as follows (in millions): 2017 - $27.3; 2018 - $24.2; 2019 - $17.1; 2020 - $15.2; 2021 - $14.3.

The estimated remaining useful lives by asset category as of January 1, 2017, are as follows:



Intangibles subject to amortization		Weighted average remaining useful life in years
Proprietary technology		4.6
Customer list/relationships		5.3
Patents		4.3
Backlog		0.3
Trademarks		4.9
Total intangibles subject to amortization		4.8