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. 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.

Most of e2v’s operations are included in the Digital Imaging and Aerospace and Defense Electronics segments. The Instrumentation segment includes 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 $181.7 million in net sales and operating income of $19.1 million, which included $9.4 million in acquisition-related costs and $7.7 million in additional intangible asset amortization expense.

The first nine months of 2017 includes pretax charges of $28.1 million related to the acquisition of e2v, which included $13.0 million in transaction costs, including stamp duty, advisory, legal and other consulting fees and other costs recorded to selling, general and administrative expenses, $6.8 million in inventory fair value step-up amortization expense recorded to cost of sales, $2.3 million in bank bridge facility commitment expense recorded to interest expense and $6.0 million related to a foreign currency option contract expense to hedge the e2v purchase price recorded as other expense. Of these amounts, $9.4 million impacted segment operating income.

The unaudited proforma information below, as required by GAAP, assumes that e2v had been acquired at the beginning of the 2016 fiscal year and includes the effect of increased interest expense on net acquisition debt and the amortization of acquired intangible assets. The 2016 first nine months proforma amounts also include $14.9 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 $6.8 million in inventory fair value step-up amortization expense. These amounts totaling $36.0 million (which includes $2.9 million for the third quarter) 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 the 2016 fiscal year:



	Third Quarter (a)				Nine Months (a)
(unaudited - in millions, except per share amounts)	2017		2016		2017		2016
Net sales	$	662.2	$	614.6	$	1,992.4	$	1,853.0
Net income	$	69.0	$	55.5	$	142.2	$	126.3
Basic earnings per common share	$	1.95	$	1.60	$	4.04	$	3.66
Diluted earnings per common share	$	1.90	$	1.56	$	3.93	$	3.57

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 - e2v (in millions): (a)
Current assets, excluding cash acquired	$	152.3
Property, plant and equipment	104.7
Goodwill	471.1
Acquired intangible assets	173.4
Other long-term assets	8.9
Total assets acquired	910.4
Current liabilities	(78.7		)
Long-term liabilities	(89.3		)
Total liabilities assumed	(168.0		)
Consideration transferred, net of cash acquired (b)	$	742.4


(a)	The amounts recorded as of October 1, 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.


(b)	Consideration transferred includes a $2.0 million liability for the payment to former e2v share option holders paid prior to the end of fiscal year 2017.

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	$	97.5	11.8
Customer list/relationships	26.3		13.0
Backlog	2.8		0.8
Total intangibles subject to amortization	126.6		11.8
Intangibles not subject to amortization:(a)
Trademarks	46.8
Total acquired intangible assets	$	173.4


(a)	The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

Other Acquisitions

On July 20, 2017, a subsidiary of Teledyne acquired assets of Scientific Systems, Inc. (“SSI”) for $31.0 million in cash. Headquartered in State College, PA, SSI manufactures precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation, such as High Performance Liquid Chromatography systems and specific medical devices and is part of the Instrumentation segment.

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 a 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 SSI acquisition and 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 the Notes to Consolidated Financial Statements included in our 2016 Form 10-K.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was $1,748.9 million at October 1, 2017 and $1,193.5 million at January 1, 2017. The increase in the balance of goodwill in 2017 primarily included $471.1 million in goodwill from e2v acquisition, as well as the impact of exchange rate changes. Goodwill from the e2v acquisition will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were $408.2 million at October 1, 2017 and $234.6 million at January 1, 2017. The increase in the balance of acquired intangible assets in 2017 reflected $173.4 million in intangible assets from the e2v acquisition, partially offset by $29.2 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 October 1, 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 SSI acquisition made in July 2017 and the IN USA and Hanson Research acquisitions made in the fourth quarter of 2016. The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.