Business Combinations, Goodwill and Acquired Intangible Assets

Acquisition of e2v

On March 28, 2017, Teledyne completed the acquisition of all of the outstanding common stock of e2v technologies plc (“e2v”) for $770.7 million, including stock options and assumed debt, net of $24.4 million of cash acquired. Most of e2v’s operations will be included in the Digital Imaging and Aerospace and Defense Electronics segments. However, the Instrumentation segment will also include a small portion of e2v’s operations. Principally located in Chelmsford, United Kingdom and Grenoble, France, e2v had sales of approximately £236 million for its fiscal year ended March 31, 2016. e2v’s results have been included since the date of the acquisition and include $7.5 million in net sales and an operating loss of $1.2 million, which included $2.5 million in acquisition-related costs.

The first quarter of 2017 includes pretax charges of $21.2 million related to the acquisition of e2v, of which, $1.4 million was recorded to cost of sales, $11.5 million was recorded to selling, general and administrative expenses, $2.3 million was recorded to interest expense and $6.0 million was recorded as other expense. Of these amounts, $2.5 million impacted segment operating income.

e2v provides high performance image sensors and custom camera solutions and application specific standard products for the machine vision market. 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 communications applications. Teledyne funded the acquisition of e2v with borrowings under its credit facility and cash on hand as well as $100.0 million in a newly issued term loan.

The unaudited proforma information below, as required by GAAP, assumes that e2v had been acquired at the beginning of the 2017 and 2016 respective fiscal years and includes the effect of increased interest expense on net acquisition debt and the amortization of acquired intangible assets. The 2017 and 2016 proforma amounts also include $12.3 million in transaction costs, including legal and other consulting fees, $11.5 million in expense related to a foreign currency option contract to hedge the e2v purchase price, $2.8 million in bridge financing costs and $1.4 million in inventory fair value step-up amortization expense. These amounts totaling $28.0 million should be considered non-recurring costs that were necessary to complete the acquisition and are not indicative of the ongoing operations of the combined company.

This unaudited proforma 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 periods presented. In addition, the unaudited proforma 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.

The following table presents proforma net sales, net income and earnings per share data assuming e2v was acquired at the beginning of each respective period:



	First Quarter (a)
(unaudited - in millions, except per share amounts)	2017		2016
Net sales	$	659.1	$	637.4
Net income	$	13.1	$	34.0
Basic earnings per common share	$	0.37	$	0.99
Diluted earnings per common share	$	0.36	$	0.97

a) The above unaudited proforma information is presented for the e2v acquisition as it is considered a material acquisition.



Fair values allocated to the assets acquired and liabilities assumed (in millions):(a)
Current assets, excluding cash acquired	$	149.8
Property, plant and equipment	104.9
Goodwill	472.9
Acquired intangible assets	175.8
Other long-term assets	11.2
Total assets acquired	914.6
Current liabilities	(78.5		)
Long-term liabilities	(95.5		)
Total liabilities assumed	(174.0		)
Cash paid, net of cash acquired	$	740.6

(a) The amounts recorded as of April 2, 2017 are preliminary since there was insufficient time between the acquisition date of March 28, 2017 and the end of the period to finalize the analysis.

The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the e2v acquisition made in 2017 (dollars in millions):




Intangibles subject to amortization:(a)	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	104.8	10.0
Customer list/relationships	22.2		10.0
Backlog	2.8		0.8
Total intangibles subject to amortization	129.8		10.0
Intangibles not subject to amortization:(a)
Trademarks	46.0
Total acquired intangible assets	$	175.8

(a) The amounts recorded as of April 2, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

Other Acquisitions

Teledyne spent $93.4 million on acquisitions and other investments in 2016. On December 6, 2016, Teledyne Instruments, Inc. acquired Hanson Research Corporation (“Hanson Research”) which specializes in analytical instrumentation for the pharmaceutical industry, for $25.0 million in cash. On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, Inc. (“IN USA”) which manufactures a range of ozone generators, ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based technologies, for $10.2 million in cash. On May 3, 2016, Teledyne DALSA, Inc., a Canadian-based subsidiary, acquired the assets and business of CARIS, Inc. (“CARIS”) a leading developer of geospatial software designed for the hydrographic and marine community, for an initial cash payment of $26.2 million, net of cash acquired. On April 15, 2016, Teledyne LeCroy, Inc., a U.S.-based subsidiary, acquired assets of Quantum Data, Inc. (“Quantum Data”) which provides electronic test and measurement instrumentation and is a market leader in video protocol analysis test tools for $17.3 million in cash. On April 6, 2016, Teledyne LeCroy, Inc. also acquired Frontline Test Equipment, Inc. (“Frontline”) which provides electronic test and measurement instrumentation and is a market leader in wireless protocol analysis test tools, for $13.7 million in cash. Each of the 2016 acquisitions are part of the Instrumentation segment except for CARIS which is part of the Digital Imaging segment.

Teledyne funded the 2016 acquisitions from borrowings under its credit facility and cash on hand. The results of all the acquisitions have been included in Teledyne’s results since the dates of the respective acquisition. The primary reasons for the 2017 and 2016 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.

For a further description of the Company’s acquisition activity for fiscal year 2016, please refer to Note 3 of our 2016 Form 10-K.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was $1,671.0 million at April 2, 2017 and $1,193.5 million at January 1, 2017. The increase in the balance of goodwill in 2017 primarily included $472.9 million in goodwill from e2v acquisition. Goodwill from the e2v acquisition will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were $402.7 million at April 2, 2017 and $234.6 million at January 1, 2017. The increase in the balance of acquired intangible assets in 2017 reflected $175.8 million in intangible assets from the e2v acquisition, partially offset by $7.2 million of amortization. The Company is 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 e2v acquisition, including the allocation by segment. The amounts recorded as of April 2, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis. In addition, 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 made in the fourth quarter of 2016. The amounts recorded as of April 2, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.