Business Acquisitions, Goodwill and Acquired Intangible Assets

12 Months Ended

Dec. 29, 2019

Business Acquisitions, Goodwill and Acquired Intangible Assets

The Company spent $484.0 million, $3.1 million and $774.1 million on acquisitions and other investments, net of cash acquired, in 2019, 2018 and 2017, respectively.

2019 Acquisitions

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for $224.8 million in cash. The acquired businesses include Princeton Instruments, Photometrics and Lumenera. The acquired businesses provide a range of imaging solutions, primarily for life sciences, academic research and customized original equipment manufacturer industrial imaging solutions. Princeton Instruments and Photometrics manufacture state-of-the-art cameras, spectrographs and optics for advanced research in physical sciences, life sciences research and spectroscopy imaging. Applications and markets include materials analysis, quantum technology and cell biology imaging using fluorescence and chemiluminescence. Lumenera primarily provides rugged USB-based customized cameras for markets such as traffic management, as well as life sciences applications. Principally located in the United States and Canada, the acquired businesses are part of the Digital Imaging segment.

On August 1, 2019, we acquired the gas and flame detection businesses of 3M Company for $233.5 million in cash. The gas and flame detection businesses includes Oldham, Simtronics, Gas Measurement Instruments, Detcon and select Scott Safety products. The gas and flame detection businesses provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, the United Kingdom and the United States, the acquired businesses are part of the Environmental Instrumentation product line of the Instrumentation segment.

On August 30, 2019, we acquired Micralyne Inc. (“Micralyne”) for $25.7 million in cash. Micralyne is a foundry providing MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in non-silicon-based MEMS (e.g. gold, polymers) often required for human body compatibility. Based in Edmonton, Alberta, Canada, the acquired business is part of the Digital Imaging segment.

2017 Acquisitions

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, e2v 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 $274.2 million in net sales and operating income of $37.3 million, which included $8.3 million in acquisition-related costs and $11.2 million in additional intangible asset amortization expense for 2017.

Fiscal year 2017 includes pretax charges of $27.0 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, $5.7 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, $8.0 million impacted the Digital Imaging segment and $0.3 million impacted the Aerospace and Defense segment operating results. Fiscal year 2016 includes pretax charges of $7.9 million related to the acquisition of e2v, of which, $1.9 million was recorded to selling, general and administrative expenses, $0.5 million was recorded to interest expense and $5.5 million was recorded as other expense.

The following table presents proforma net sales, net income and earnings per share data assuming e2v was acquired at the beginning of the 2017 fiscal year:


	Fiscal Year (a)
(Unaudited - in millions, except per share amounts)	2017
Net sales	$	2,696.8
Net income	$	209.8
Basic earnings per common share	$	5.96
Diluted earnings per common share	$	5.78
(a) The above unaudited proforma information is presented for the e2v acquisition as it is considered a material acquisition.

On July 20, 2017, a subsidiary of Teledyne acquired assets of Scientific Systems, Inc. (“SSI”) for an initial cash payment of $31.0 million. A subsequent cash payment of $0.3 million related to a purchase price adjustment was made in 2017. 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.

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

Other

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 acquisitions primarily from borrowings under its credit facilities, issuance of senior notes and term loans and cash on hand.

Teledyne’s goodwill was $2,050.5 million at December 29, 2019, and $1,735.2 million at December 30, 2018. The increase in the balance of goodwill in 2019 resulted from recent acquisitions and the impact of exchange rate changes. Teledyne’s net acquired intangible assets were $430.8 million at December 29, 2019, and $344.3 million at December 30, 2018. The increase in the balance of acquired intangible assets in 2019 primarily resulted from recent acquisitions, partially offset by the amortization of acquired intangible assets and the impact of exchange rate changes. The Company’s cost to acquire the 2019 and 2017 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 fair value of all the acquired identifiable assets and liabilities summarized below for the 2019 acquisitions is provisional pending finalization of the Company’s acquisition accounting, including the finalization of the valuation of the intangible assets acquired, identification and measurement of certain inventory and property, plant and equipment balances, identification and measurement of certain liabilities, including the potential for loss contingencies and uncertain tax positions, if any, as well as the measurement of tax basis in certain jurisdictions and the resulting deferred taxes that might arise from book and tax basis differences, if any. The Company believes that such preliminary allocations provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize its fair value determination of these acquired identifiable assets and liabilities.

The following tables show the purchase price (net of cash acquired), provisional goodwill acquired and provisional intangible assets acquired for the acquisitions made in 2019 (in millions):


	2019
Acquisitions	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
Scientific imaging businesses	February 5, 2019	$	224.8	$	149.9	$	52.4
Gas and flame detection businesses	August 1, 2019	233.5		147.7		69.0
Micralyne Inc.	August 30, 2019	25.7		7.3		0.9
Total		$	484.0	$	304.9	$	122.3
(a) Net of cash acquired and any purchase price adjustments.

The majority of the goodwill resulting from the acquisition of the scientific imaging businesses will be deductible for tax purposes. Goodwill resulting from the acquisition of the gas and flame detection businesses and Micralyne will not be deductible for tax purposes.


Provisional fair values allocated to the assets acquired and liabilities assumed (in millions):	2019
Current assets, excluding cash acquired	$	83.0
Property, plant and equipment	30.7
Goodwill	304.9
Acquired intangible assets	122.3
Other long-term assets	7.1
Total assets acquired	548.0
Current liabilities	(33.4)
Long-term liabilities	(30.6)
Total liabilities assumed	(64.0)

Cash paid, net of cash acquired	$	484.0

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 2019 (dollars in millions; amounts considered provisional as discussed above):


	2019
Intangibles subject to amortization:	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	81.8	9.8
Customer list/relationships	27.9		11.9
Backlog	0.7		1.5

Total intangibles subject to amortization	110.4		10.3

Intangibles not subject to amortization:
Trademarks	11.9		n/a


Total acquired intangible assets	$	122.3	n/a

Goodwill	$	304.9	n/a


Goodwill (in millions):	Instrumentation		Digital Imaging		Aerospace and Defense Electronics		Engineered Systems		Total












Balance at December 31, 2017	$	756.4	$	815.6	$	182.0	$	22.7	$	1,776.7
Current year acquisitions	1.8		—		—		—		1.8
Foreign currency changes and other (a)	(3.5)		(5.9)		(33.5)		(0.4)		(43.3)
Balance at December 30, 2018	754.7		809.7		148.5		22.3		1,735.2
Current year acquisitions	147.7		157.2		—		—		304.9
Foreign currency changes and other (a)	3.5		(4.2)		15.8		(4.7)		10.4
Balance at December 29, 2019	$	905.9	$	962.7	$	164.3	$	17.6	$	2,050.5

(a) Certain prior period balances have been recast due to a business realignment affecting the Aerospace and Defense Electronics segment the Digital Imaging segment and the Engineered Systems segment in 2019 and the Aerospace and Defense Electronics segment and the Digital Imaging segment Systems segment in 2018. Please refer to Note 12 Business Segments of the Notes to Consolidated Financial Statements included in this Form 10-K for further information.


	2019										2018
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired intangible assets (in millions):
Proprietary technology	$	397.5	$	207.6	$	189.9	$	313.7	$	179.8	$	133.9
Customer list/relationships	177.6		101.4		76.2		148.8		90.9		57.9
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	4.1		3.3		0.8		3.9		3.0		0.9
Backlog	16.4		16.1		0.3		15.6		15.6		—
Acquired intangible assets subject to amortization	597.2		329.9		267.3		483.6		290.8		192.8
Acquired intangible assets not subject to amortization:
Trademarks	163.5		—		163.5		151.5		—		151.5
Total acquired intangible assets	$	760.7	$	329.9	$	430.8	$	635.1	$	290.8	$	344.3

Amortizable acquired 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 $37.4 million, $39.5 million and $41.4 million in amortization expense in 2019, 2018 and 2017, respectively, for acquired intangible assets. The expected future amortization expense, including provisional amounts for the 2019 acquisitions, for the next five years is as follows (in millions): 2020 - $38.5; 2021 - $37.1; 2022 - $34.3; 2023 - $30.5; 2024 - $28.7.

The estimated remaining useful lives by asset category as of December 29, 2019, are as follows:


Acquired intangibles subject to amortization						Weighted average remaining useful life in years
Proprietary technology						6.7
Customer list/relationships						7.0
Patents						2.9
Backlog						1.0
Trademarks						3.3
Total acquired intangibles subject to amortization						6.7