Business Acquisitions

DVTEL Inc.

On November 30, 2015, the Company acquired 100% of the outstanding stock of DVTEL Inc. ("DVTEL"), a provider of software and hardware technologies for advanced video surveillance, for approximately $97.5 million in cash. At December 31, 2015, the Company initially reported net tangible assets of $12.1 million in the respective balance sheet accounts, $27.4 million of identified intangible assets, and $58.0 million of goodwill, which has been recorded within the Company's Security segment.

During the fourth quarter of 2016 the Company finalized the purchase price allocation, resulting in a $1.3 million decrease to tangible assets, $1.2 million decrease to net deferred taxes, and a corresponding $2.5 million increase in goodwill.

The allocation of the purchase price for DVETEL is as follows (in thousands):



Cash acquired	$	5,015
Other tangible assets and liabilities, net	4,025
Net deferred taxes	582
Identifiable intangible assets	27,380
Goodwill	60,494
Total purchase price	$	97,496

The Company made an election under Section 338 of the Internal Revenue Code of 1986, as amended, which resulted in tax-deductible goodwill related to the acquisition of DVTEL. The Company estimates that the tax-deductible goodwill and intangibles resulting from the election will be approximately $24.8 million, to be amortized for United States tax purposes over a 15-year period. The value of tax-deductible goodwill and intangibles differs from the amounts listed in the purchase price allocation above as the impact of the elections made under Section 338 only affects United States income taxes for the goodwill and intangibles that are owned by the Company's United States subsidiaries.

In connection with the allocation of purchase price to the assets acquired and liabilities assumed, the Company identified certain intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and estimated useful lives (in thousands, except years):



	Estimated Useful Life	Amount
Developed technology	7.5 years	$	21,500
Customer relationships	10.0 years	3,800
In-process research and development	n/a	1,700
Other	1.0 year	380
		$	27,380

Acquisition-date identifiable intangible assets primarily consist of intangibles derived from developed technology, customer relationships, and in-process research and development. Developed technology represents completed software related to internal and external software platforms. In-process research and development represents the value assigned to acquired research and development projects that, as of the acquisition date, had not established technological feasibility and had no alternative future use. The in-process research and development intangible assets are capitalized and accounted for as indefinite-lived intangible assets and are subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project and launch of the product, we will make a separate determination of useful life of the in-process research and development intangible assets and the related amortization will be recorded as an expense over the estimated useful life of the specific projects.

An average 10-year useful life for customer relationships has been estimated based on the projected economic benefits associated with this asset. The average 10-year estimated useful life represents the approximate point in the projection period in which a majority of the asset’s cash flows are expected to be realized based on assumed attrition rates.

The developed technology, customer relationships, and in-process research and development were valued using the multi-period excess earnings method.


Note 18.	Business Acquisitions - (Continued)

Innovative Security Designs, LLC

On June 6, 2016, the Company acquired the assets of Innovative Security Designs, LLC ("ISD"), a developer of embedded firmware and advanced camera surveillance platforms, for approximately $1.8 million in cash. At June 30, 2016, the Company initially reported the $1.6 million excess of the purchase price over the preliminary net tangible assets acquired in Other assets. The Company has since performed a purchase price allocation which resulted in an allocation of $1.6 million of goodwill in conjunction with the ISD acquisition, which has been recorded in the Company’s Security segment.

Armasight, Inc.

On June 28, 2016, the Company acquired 100% of the outstanding stock of Armasight, Inc. ("Armasight"), a developer of sporting and military optics products, for approximately $43.5 million in cash. At June 30, 2016, the Company initially reported the $36.0 million excess of the purchase price over the preliminary net tangible assets acquired had been recorded in Other assets. During the third quarter of 2016 the Company performed a preliminary purchase price allocation which resulted in an allocation of $7.6 million to identifiable intangible assets and $31.1 million to goodwill which has been recorded in the Company's Surveillance segment.

During the fourth quarter of 2016 the Company finalized the purchase price allocation, resulting in the recording of a $0.9 million deferred tax asset, $2.8 million deferred tax liability, and a corresponding $1.9 million increase in goodwill. The $33.0 million of goodwill represents future economic benefits expected to arise from synergies from combining operations and the ability of Armasight to provide the Company domain knowledge and distribution channels in adjacent markets.

The allocation of the purchase price for Armasight is as follows (in thousands):



Cash acquired	$	2,804
Other tangible assets and liabilities, net	1,925
Net deferred taxes	(1,855		)
Identifiable intangible assets	7,600
Goodwill	32,994
Total purchase price	$	43,468



	Estimated Useful Life	Amount
Customer relationships	4.0 years	5,200
Trade name	3.0 years	1,000
Trade Secrets	6.0 years	1,400
		$	7,600

Acquisition-date identifiable intangible assets primarily consist of intangibles derived from customer relationships, trade names and trademarks, and trade secrets. Customer relationships represents Armasight's ability to consistently offer compelling products that appeal to consumer preferences which is the critical factor impacting the decisions of retailers to carry Armasight products. The trade name represents the value of the Armasight name within the outdoor and tactical weapons sight industry. The trade secrets represents the knowledge that is institutionalized within the employees and former shareholders of Armasight and their relationships with key suppliers.

Customer relationships were valued using the income approach and the lost income and multi-period excess earnings method. The trade name and trade secrets were valued using the income approach and the relief from royalty method.


Note 18.	Business Acquisitions - (Continued)

Point Grey Research, Inc.

On November 4, 2016, the Company closed a transaction to acquire the assets of Point Grey Research Inc. (“Point Grey”), a global leader in the development of advanced visible imaging cameras and solutions that are used in industrial automation systems, medical diagnostic equipment, people counting systems, intelligent traffic systems, military and defense products, and advanced mapping systems, for approximately $259.2 million in cash, subject to customary post-closing adjustments. The Company has performed a preliminary purchase price allocation which resulted in an allocation of $39.8 million to identifiable intangible assets and 183.7 million to goodwill which has been recorded in the Company’s OEM & Emerging Markets segment.

The preliminary allocation of the purchase price for Point Grey is as follows (in thousands):



Cash acquired	$	2,994
Other tangible assets and liabilities, net	35,127
Net deferred taxes	(2,438		)
Identifiable intangible assets	39,800
Goodwill	183,678
Total purchase price	$	259,161

The allocation of the purchase price related to this acquisition is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets, and preliminary estimates of the fair value of liabilities assumed. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of the identifiable intangible assets, property and equipment, and certain other tangible assets and liabilities. The preliminary goodwill of 183.7 million represents future economic benefits expected to arise from synergies from combining operations and the ability of Point Grey to provide the Company domain knowledge and distribution channels in adjacent markets.

In connection with the preliminary allocation of purchase price to the assets acquired and liabilities assumed, the Company identified certain intangible assets. The following table presents the acquired intangible assets, their preliminary estimated fair values, and preliminary estimated useful lives (in thousands, except years):



	Estimated Useful Life	Amount
Developed technology	10.0 years	$	23,100
Customer relationships	7.0 years	13,200
Backlog	1.0 year	2,300
Non-Competition Agreements	5.0 years	1,000
Other	n/a	200
		$	39,800

Acquisition-date identifiable intangible assets primarily consist of intangibles derived from developed technology, customer relationships, backlog, and non-competition agreements. Developed technology represents the economic advantage of having certain technologies in place that lowers manufacturing and operating costs and drives higher margins. Customer relationships represents the relationships Point Grey has established in the OEM and people counting markets as of the date of the acquisition. Backlog represents “pre-sold” business at the date of acquisition, which provides positive earning streams post acquisition that exceed what is required to provide a return on the other assets employed. Non-competition agreements represent the economic benefit of having agreements with certain current and former employees and shareholders of Point Grey that restrict their ability to compete directly with the Company.

The developed technology was valued using the income approach and relief from royalty method. Customer relationships and backlog were valued using the income approach and multi-period excess earnings method. Non-competition agreements were valued using the income approach and the with-and-without method.


Note 18.	Business Acquisitions - (Continued)

Prox Dynamics, AS

On November 30, 2016, the Company acquired 100% of the outstanding stock of Prox Dynamics AS. (“Prox Dynamics”), a leading developer and manufacturer of nano-class UAS for military and para-military intelligence, surveillance, and reconnaissance applications, for approximately $134.1 million in cash, subject to customary post-close adjustments. Tangible assets acquired, including accounts receivable and inventories, are included in the Consolidated Balance Sheet as of December 31, 2016 and are recorded in the Company’s Surveillance segment. The allocation of the purchase price to identifiable intangible assets and goodwill is subject to the final determination on the valuation of assets acquired and liabilities assumed. Accordingly, the excess purchase price of approximately $122.8 million has been recorded in Other assets as of December 31, 2016.

The acquisitions of DVTEL, ISD, Armasight, Point Grey, and Prox Dynamics are not significant as defined in Regulation S-X under the Securities Exchange Act of 1934, nor are they significant compared to the Company's overall results of operations. Consequently, no pro forma financial information is provided.