Intangible Assets and Goodwill

The Company accounts for acquisitions using purchase accounting with the results of operations for each acquiree included in the Company's condensed consolidated financial statements for the period subsequent to the date of acquisition.

Avigilon Corporation

On March 28, 2018, the Company completed the acquisition of Avigilon Corporation, a provider of advanced end-to-end security and surveillance solutions including video analytics, network video management hardware and software, surveillance cameras and access control solutions. The purchase price of $974 million, consisted of cash payments of $980 million for outstanding common stock, restricted stock units and employee held stock options, net of cash acquired of $107 million, debt assumed of $75 million and transaction costs of $26 million. Prior to the end of the first quarter, $35 million of the assumed debt was repaid with the remaining $40 million repaid during the second quarter of 2018.

The acquisition of Avigilon has been accounted for at fair value as of the acquisition date, based on the fair value of the total consideration transferred which has been attributed to all identifiable assets acquired and liabilities assumed and measured at fair value. The purchase accounting is not yet complete and as such the final allocation between deferred income tax accounts and goodwill may be subject to change. The following table summarizes fair values of assets acquired and liabilities assumed as of the March 28, 2018 acquisition date:



Accounts receivable, net	$	67
Inventory	93
Other current assets	24
Property, plant and equipment, net	33
Deferred income taxes	4
Accounts payable	(21		)
Accrued liabilities	(28		)
Deferred income tax liabilities	(134		)
Goodwill	438
Intangible assets	498
Total consideration	$	974

Acquired intangible assets consist of $110 million of customer relationships, $380 million of developed technology and $8 million of trade names and will have useful lives of two to 20 years. The fair values of all intangible assets were estimated using the income approach. Customer relationships and developed technology were valued under the excess earnings method which assumes that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable specifically to the intangible asset. Trade names were valued under the relief from royalty method, which assumes value to the extent that the acquired company is relieved of the obligation to pay royalties for the benefits received from them.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Goodwill is not deductible for tax purposes.

The pro forma effect of this acquisition is not significant.

Other Acquisitions

On April 9, 2018, the Company completed the acquisition of a provider of two-way radio communications for a gross purchase price of $11 million, recognizing $7 million of identifiable intangible assets, which will be amortized over a period of seven years. The results of operations for this acquisition have been included in the Company’s condensed consolidated statements of operations subsequent to the acquisition date.

On March 7, 2018, the Company completed the acquisition of Plant Holdings, Inc., the parent company of Airbus DS Communications for a purchase price of $237 million net cash. This acquisition will expand the Company's software portfolio in the Command Center with additional solutions for Next Generation 9-1-1. The Company recognized $155 million of goodwill, $80 million of identifiable intangible assets and $2 million of net assets acquired. The identifiable intangible assets were classified as $41 million of customer-related intangibles, $27 million of completed technology and $12 million of trade names. The identifiable intangible assets will be amortized over a period of 10 to 20 years. The purchase accounting is not yet complete and as such the final allocation between deferred income tax accounts and goodwill may be subject to change.

On August 28, 2017, the Company completed the acquisition of Kodiak Networks, a provider of broadband push-to-talk (PTT) for commercial customers, for a gross purchase price of $225 million. As a result of the acquisition, the Company recognized $191 million of goodwill, $44 million of identifiable intangible assets and $10 million of acquired liabilities. The identifiable intangible assets were classified as $25 million of customer-related intangibles and $19 million of completed technology and will be amortized over a period of 13 to 16 years.

On March 13, 2017, the Company completed the acquisition of Interexport, a company that provides Services for communications systems to public safety and commercial customers in Chile, for a gross purchase price of $98 billion Chilean pesos, or approximately $147 million U.S. dollars based on cash payments of $55 million, net of cash acquired, and assumed liabilities of $92 million, primarily related to capital leases. As a result of the acquisition, the Company recognized $61 million of identifiable intangible assets, $70 million of acquired property, plant and equipment and $16 million of net other tangible assets. The estimated identifiable intangible assets were classified as $56 million of customer-related intangibles and $5 million of other intangibles and will be amortized over a period of seven years.

The pro forma effects of these acquisitions are not significant.

Intangible Assets

Amortized intangible assets were comprised of the following:



	June 30, 2018				December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Completed technology	$	555	$	71	$	148	$	55
Patents	2		2		2		2
Customer-related	1,116		310		977		242
Other intangibles	75		25		56		23
	$	1,748	$	408	$	1,183	$	322

Amortization expense on intangible assets was $53 million for the three months ended June 30, 2018 and $94 million for the six months ended June 30, 2018. Amortization expense on intangible assets was $37 million for the three months ended July 1, 2017 and $73 million for the six months ended July 1, 2017. As of June 30, 2018, annual amortization expense is estimated to be $98 million in 2018, $193 million in 2019, $190 million in 2020, $186 million in 2021, $184 million in 2022, and $83 million in 2023.

Amortized intangible assets, excluding goodwill, were comprised of the following by segment:



	June 30, 2018				December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Products and Systems Integration	$	510	$	19	$	12	$	8
Services and Software	1,238		389		1,171		314
	$	1,748	$	408	$	1,183	$	322

Goodwill

The following table displays a rollforward of the carrying amount of goodwill by segment from January 1, 2018 to June 30, 2018:



	Products and Systems Integration		Services and Software			Total
Balance as of January 1, 2018	$	362	$	576		$	938
Goodwill acquired	359		231			590
Purchase accounting adjustments	5		(1		)	4
Foreign currency	—		(4		)	(4		)
Balance as of June 30, 2018	$	726	$	802		$	1,528

During the second quarter of 2018, the Company modified its internal reporting structure to better align the way financial information is reported to and analyzed by executive leadership, in part, as a result of recent acquisitions contributing to the growth within the newly aligned Services and Software segment. Previously, the Company had two reporting segments: Products and Services. The changes in reporting structure consist of Systems Integration related revenue and costs moving from the old Services segment into the newly presented Products and Systems Integration segment and Software related revenue and costs moving from the old Products segment into the newly presented Services and Software segment.