5. Acquisitions

Fiscal 2016 Acquisitions

During fiscal 2016, we acquired four businesses, including the Creganna Medical group, for a combined cash purchase price of $1.3 billion, net of cash acquired. The acquisitions have been reported as part of our Industrial Solutions and Transportation Solutions segments from the date of acquisition.

We have preliminarily allocated the purchase price of acquired businesses to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We are in the process of completing the valuation of identifiable intangible assets, fixed assets, pre-acquisition contingencies, and income taxes. Accordingly, the fair values set forth below are subject to adjustment upon finalization of the valuations. The amount of these potential adjustments could be significant. We expect to complete the purchase price allocation for these acquisitions during fiscal 2017.

The following table summarizes the preliminary allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed at the date of acquisition, in accordance with the acquisition method of accounting:

	(in millions)
Cash and cash equivalents	$	75
Other current assets		88
Goodwill		836
Intangible assets		530
Other non-current assets		39

Total assets acquired		1,568

Current liabilities		35
Deferred income taxes		107
Other non-current liabilities		15

Total liabilities assumed		157

Net assets acquired		1,411
Cash and cash equivalents acquired		(75	)

Net cash paid	$	1,336

The fair values assigned to intangible assets were preliminarily determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. Both valuation methods rely on management judgment, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates, and other factors. Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.

Acquired intangible assets consisted of the following:

	Amount		Weighted-Average Amortization Period
	(in millions)		(in years)
Customer relationships	$	300		18
Developed technology		170		11
Trade names and trademarks		45		25
Customer order backlog		15		3

Total	$	530		16

The acquired intangible assets are being amortized on a straight-line basis over their expected useful lives.

Goodwill of $836 million was recognized in these transactions, representing the excess of the purchase price over the fair value of the tangible and intangible assets acquired and liabilities assumed. This goodwill is attributable primarily to cost savings and other synergies related to operational efficiencies including the consolidation of manufacturing, marketing, and general and administrative functions. The goodwill has been allocated to the Industrial Solutions and Transportation Solutions segments and is not deductible for tax purposes. However, prior to being acquired by us, one of the fiscal 2016 acquisitions completed certain acquisitions that resulted in goodwill with an estimated value of $15 million that is deductible primarily for U.S. tax purposes, which we will deduct through 2025.

Fiscal 2016 acquisitions contributed net sales of $167 million and operating income of $8 million to our Consolidated Statement of Operations during fiscal 2016. The operating income included $10 million of acquisition costs, $7 million associated with the amortization of acquisition-related fair value adjustments related to acquired inventories and customer order backlog, and $2 million of integration costs.

Fiscal 2015 Acquisitions

In October 2014, we acquired 100% of the outstanding shares of Measurement Specialties, Inc. ("Measurement Specialties"), a leading global designer and manufacturer of sensors and sensor-based systems, for $86.00 in cash per share. The total value paid was approximately $1.7 billion, net of cash acquired, and included $225 million for the repayment of Measurement Specialties' debt and accrued interest. Measurement Specialties offers a broad portfolio of technologies including pressure, vibration, force, temperature, humidity, ultrasonic, position, and fluid sensors, for a wide range of applications and industries. This business has been reported as part of our Transportation Solutions segment from the date of acquisition.

The following table summarizes the allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed at the date of acquisition, in accordance with the acquisition method of accounting:

	(in millions)
Cash and cash equivalents	$	37
Accounts receivable		84
Inventories		110
Other current assets		20
Property, plant, and equipment		95
Goodwill		1,064
Intangible assets		547
Other non-current assets		9

Total assets acquired		1,966

Short-term debt		20
Accounts payable		48
Other current liabilities		67
Long-term debt		203
Deferred income taxes		98
Other non-current liabilities		9

Total liabilities assumed		445

Net assets acquired		1,521
Cash and cash equivalents acquired		(37	)

Net cash paid	$	1,484

The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. The valuation of tangible assets was derived using a combination of the income, market, and cost approaches. Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.

Acquired intangible assets consisted of the following:

	Amount		Weighted-Average Amortization Period
	(in millions)		(in years)
Customer relationships	$	370		18
Developed technology		161		9
Trade names and trademarks		4		1
Customer order backlog		12		< 1

Total	$	547		15

The acquired intangible assets are being amortized on a straight-line basis over their expected useful lives.

Goodwill of $1,064 million was recognized in the transaction, representing the excess of the purchase price over the fair value of the tangible and intangible assets acquired and liabilities assumed. This goodwill is attributable primarily to cost savings and other synergies related to operational efficiencies including the consolidation of manufacturing, marketing, and general and administrative functions. The goodwill has been allocated to the Transportation Solutions segment and is not deductible for tax purposes. However, prior to its merger with us, Measurement Specialties completed certain acquisitions that resulted in goodwill with an estimated value of $23 million that is deductible primarily for U.S. tax purposes, which we will deduct through 2030.

During fiscal 2015, Measurement Specialties contributed net sales of $548 million to our Consolidated Statement of Operations. Due to the commingled nature of our operations, it is not practicable to separately identify operating income of Measurement Specialties on a stand-alone basis.

During fiscal 2015, we acquired three additional businesses for $241 million in cash, net of cash acquired.

Fiscal 2014 Acquisitions

During fiscal 2014, we acquired five businesses, including the SEACON Group ("SEACON"), a leading provider of underwater connector technology and systems, for $522 million in cash, net of cash acquired.

Pro Forma Financial Information

The following unaudited pro forma financial information reflects our consolidated results of operations had the fiscal 2016 acquisitions occurred at the beginning of fiscal 2015 and the Measurement Specialties acquisition occurred at the beginning of fiscal 2014:

	Pro Forma for Fiscal
	2016		2015		2014
	(in millions, except per share data)
Net sales	$	12,471	$	12,613	$	12,429
Net income		2,038		2,448		1,744
Diluted earnings per share		5.52	$	5.96	$	4.18

The pro forma financial information for the fiscal 2016 acquisitions was based on our preliminary allocation of the purchase price and therefore is subject to adjustment upon finalization of the purchase price allocation. The pro forma adjustments, which were not significant, included interest expense based on pro forma changes in our combined capital structure, charges related to acquired customer order backlog, charges related to the amortization of the fair value of acquired intangible assets, charges related to the fair value adjustment to acquisition-date inventories, and acquisition and other costs, and the related tax effects.

Pro forma results do not include any anticipated synergies or other anticipated benefits of these acquisitions. Accordingly, the unaudited pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had these acquisitions occurred at the beginning of the preceding fiscal years.