Business Acquisitions and Divestitures

DVTEL Inc.

During 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. During 2016, the Company finalized the purchase price allocation which had no change to the previously recorded allocation of $27.4 million to identified intangible assets. These amounts have been recorded within the Company's Security segment.

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


Note 18.	Business Acquisitions and Divestitures - (Continued)

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.

Innovative Security Designs, LLC

During 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, which resulted in an allocation of $1.6 million to goodwill. These amounts have been recorded in the Company’s Security segment.

Armasight, Inc.

During 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.

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


Note 18.	Business Acquisitions and Divestitures - (Continued)

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.



	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 represent 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.

Point Grey Research, Inc.

During 2016, the Company completed 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. During 2017, the Company finalized the purchase price allocation which had no change to the previously recorded allocation of $39.8 million to identifiable intangible assets and $183.7 million to goodwill. These amounts have been recorded in the Company’s OEM & Emerging Markets segment.

The 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 based on management’s judgments after evaluating several factors, including valuation assessments of tangible and intangible assets, and estimates of the fair value of liabilities assumed. The 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.


Note 18.	Business Acquisitions and Divestitures - (Continued)



	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.

Prox Dynamics, AS

During 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 $134.4 million in cash, which resulted in the allocation of $11.3 million to net tangible asset and the excess purchase price of approximately $123.1 million to other long-term assets. During 2017, the Company finalized the purchase price allocation, which has been recorded in the Company’s Surveillance business segment.

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



Cash acquired	$	11,706
Other tangible assets and liabilities, net	(900		)
Net deferred taxes	(4,250		)
Identifiable intangible assets	31,400
Goodwill	96,431
Total purchase price	$	134,387

The goodwill of $96.4 million million represents future economic benefits expected to arise from synergies from combining operations the ability of Prox Dynamics to provide the Company domain knowledge and distribution channels in adjacent markets.


Note 18.	Business Acquisitions and Divestitures - (Continued)



	Estimated Useful Life	Amount
Developed technology	8 years	$	23,400
Customer relationships	7 years	3,500
Patents	8 years	3,100
Trade name	8 years	1,400
		$	31,400

Acquisition-date identifiable intangible assets primarily consist of intangibles derived from developed technology, customer relationships, patents, and trade name. Developed technology and patents represent the economic advantage of having certain technologies in place that lower manufacturing and operating costs and drive higher margins. Customer relationships represents the relationships Prox Dynamics has established in the military and defense ministries of countries throughout the world. Trade name represents the "Black Hornet" name, which is well recognized within the industry and is known as a leading product within the nano-class UAS segment.

The developed technology and customer relationships were valued using the income approach and multi-period excess earnings method. Patents and trade name were valued using the income approach and relief from royalty method.

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.

Planned Divestiture of the Consumer and Small and Medium-Sized Security Business

During the fourth quarter of 2017, the Company committed to a plan to sell the Consumer and Small and Medium-sized ("SMB") Security business that has a carrying amount of $51.3 million as of December 31, 2017. In the fourth quarter of 2017, all the held for sale criteria were met and all the assets and liabilities of the disposal group were classified as held for sale on the Consolidated Balance Sheets accordingly. The Company estimates the fair value of the disposal group to be $28.8 million. The costs to sell the disposal group, including legal fees, brokers commissions and other closing costs are estimated to be approximately $1.1 million. Consequently, the Company recorded a pre-tax loss on net assets held for sale of $23.6 million as of December 31, 2017 representing the excess of the $51.3 million carrying value over the $27.7 million estimated fair value less costs to sell. The estimated loss on sale has been recorded as loss on net assets held for sale on the Consolidated Statements of Income. This anticipated disposal does not qualify as discontinued operations and therefore, is included in the Company’s continuing operations for all periods presented. The carrying amounts of the major classes of assets and liabilities held for sale included the following (in thousands):



Accounts receivable, net	$	20,414
Inventories	43,050
Other current assets	1,031
Property and equipment, net	4,888
Intangible assets, net	8,359
Goodwill	13,090
Loss on assets	(23,488		)
Assets held for sale, net	$	67,344

Accounts payable and accrued expenses	$	39,544
Liabilities held for sale	$	39,544


Note 18.	Business Acquisitions and Divestitures - (Continued)

We ceased recording depreciation and amortization on property, plant and equipment and identified intangibles assets, respectively, as of the date the assets triggered held for sale accounting. There were no assets or liabilities classified as held for sale as of December 31, 2016. On February 6, 2018, the Company completed the sale of this business. See Note 21, "Subsequent Events", for further discussion.