Acquisitions of and Investments in Businesses and Technologies

9 Months Ended

Oct. 31, 2016

Business Combinations [Abstract]

Acquisitions of and Investments in Businesses and Technologies

ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

Ag-Eagle Aerial Systems, Inc.

In February 2016, the Applied Technology Division acquired an interest of approximately 5% in AgEagle Aerial Systems, Inc. (AgEagle). AgEagle is a privately held company that is a leading provider of unmanned aerial systems (UAS) used for agricultural applications. Contemporaneously with the execution of this agreement, AgEagle and the Company entered into a distribution agreement whereby the Company was appointed as the sole and exclusive distributor worldwide of the existing AgEagle system as it pertains to the agriculture market. This investment and distribution agreement will allow the Company to expand into the UAS market for agriculture, enhancing its existing product offerings to provide actionable data that customers can use to make important input decisions.

AgEagle is considered a variable interest entity (VIE) and the Company’s equity ownership interest in AgEagle is considered a variable interest. The Company accounts for its investment in AgEagle under the equity method of accounting as the Company has the ability to exercise significant influence over the operating policies of AgEagle through the Company's representation on AgEagle's Board of Directors and the distribution agreement. However, the Company is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the entity.

At the acquisition date, the Company determined that the exclusivity of the distribution agreement resulted in an intangible asset. The purchase price was allocated between the equity ownership interest and this intangible asset which will be amortized on a straight-line basis over the four-year life of the distribution agreement.

Acquisition-related Contingent Consideration

The Company has contingent liabilities related to prior year acquisitions of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG) in May 2014 and Vista Research, Inc. (Vista) in January 2012. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuations techniques include one or more significant inputs that are not observable (Level 3 fair value measures).

In connection with the acquisition of SBG, Raven is committed to making additional earn-out payments, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date contingent upon achieving certain revenues. At October 31, 2016, the fair value of this contingent consideration was $1,375, of which $219 was classified as "Accrued liabilities" and $1,156 was classified as "Other liabilities" in the Consolidated Balance Sheet. At October 31, 2015, the fair value of this contingent consideration was $1,338, of which $329 was classified as "Accrued liabilities" and $1,009 as "Other liabilities." The Company paid $37 and $239 in earn-out payments in the three- and nine-month periods ended October 31, 2016, respectively. The Company paid $38 and $188 in earn-out payments in the three- and nine-month periods ended October 31, 2015, respectively. To date, the Company has paid a total of $548 of this potential earn-out liability.

Related to the acquisition of Vista in 2012, the Company is committed to making annual payments based upon earn-out percentages on specific revenue streams for seven years after the purchase date, not to exceed $15,000.

As described in our Annual Report on Form 10-K/A for the fiscal year ended January 31, 2016, in the fiscal 2016 third quarter the Company (based on a reassessment of its forecasted future revenue projections associated with Vista) determined that the estimated fair value of this contingent consideration should be reduced by $2,273. This adjustment was recognized as a benefit to "Cost of sales" in the Consolidated Statements of Income and Comprehensive Income for the three- and nine-month periods ended October 31, 2015.

At October 31, 2016, the fair value of this contingent consideration was $325, of which $96 was classified in "Accrued liabilities" and $229 as "Other liabilities" in the Consolidated Balance Sheet. At October 31, 2015 the fair value of this contingent consideration was $550, of which $76 was classified as "Accrued liabilities" and $474 as "Other liabilities" in the Consolidated Balance Sheets. The Company paid $79 and $585 in the nine-month periods ended October 31, 2016 and 2015, respectively. The Company made no payments in the three-month periods ended October 31, 2016 or 2015, respectively. To date, the Company has paid a total of $1,471 of this potential earn-out liability.