NOTE 2 – ACQUISITIONS

Effective March 15, 2016, we acquired all of the outstanding common stock of LoJack. The total purchase price was $131.7 million, which was funded from our cash on hand and included $5.5 million fair value of the 850,100 shares of LoJack common stock which we purchased in the open market prior to executing a definitive acquisition agreement with LoJack.

The following is the final purchase price allocation (in thousands):

Purchase price				$	131,735
Less cash acquired, net of debt assumed					(9,303	)
Net cash paid					122,432
Fair value of net assets acquired:
Current assets other than cash	$	41,214
Property and equipment		11,910
Developed technology		8,200
Tradename		35,500
Customer lists		4,650
Dealer relationships		16,850
Other non-current assets		4,208
Deferred tax liability		(5,466	)
Current liabilities		(37,647	)
Deferred revenue, non-current		(10,883	)
Other non-current liabilities		(2,576	)
Total fair value of net assets acquired					65,960
Goodwill				$	56,472

We paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets acquired as we believe LoJack’s highly recognizable brand, proprietary stolen vehicle recovery technology, unique relationships with U.S. law enforcement agencies and strong relationships with auto dealers, heavy equipment providers and global licensees aligns with our strategic focus to create a global telematics market leader well-positioned to drive the broad adoption of connected vehicle telematics technologies and applications to consumers worldwide. The combined enterprise offers customers access to integrated, turnkey offerings that enable a multitude of high value applications encompassing vehicle security and enhanced driver safety. Furthermore, the combined technology offerings provide global customers with connected vehicle applications to help ensure that retail auto dealers remain competitive and relevant in rapidly evolving markets.

The goodwill arising from the acquisition is not deductible for income tax purposes.

As of March 15, 2016, the fair value of the acquired receivables was $21.2 million, comprised of a gross contractual amount of $22.3 million net of receivables of $1.1 million not expected to be collected. Additionally, the fair value of inventories acquired included a purchase accounting fair value step-up of $4.5 million. In fiscal 2017, we recognized $4.3 million of this markup as a component of cost of revenues.

In August 2016, we received an independent appraisal of property and equipment, which resulted in a purchase accounting fair value step-up of $2.5 million. In fiscal 2017, we recognized $0.7 million of this markup as a component of cost of revenues and operating expenses that reflects the extent to which the property and equipment subject to step-up were depreciated.

In connection with the acquisition, we assumed liabilities related to LoJack’s quality assurance programs, warranty claims and contract obligations which are included in accrued expenses and other current liabilities presented above.

Revenues of LoJack included in the consolidated statements of operations for fiscal 2017 were $117.5 million. Post-acquisition earnings on a standalone basis are impracticable to determine, because immediately following the acquisition we began to integrate LoJack into our existing operations.

The following is unaudited pro forma consolidated financial information presented as if the acquisition had occurred on March 1, 2015 (in thousands except per share amounts):

	Pro Forma
	Year Ended February 28,
	2017		2016
Revenues	$	356,357	$	408,464
Net income	$	1,132	$	5,069
Earnings per share:
Basic	$	0.03	$	0.14
Diluted	$	0.03	$	0.14
Shares used in computing earnings per share:
Basic		35,917		36,448
Diluted		36,397		36,950

The following adjustments were included in the unaudited pro forma financial information (in thousands):

	Pro Forma
	Year Ended February 28,
	2017			2016
LoJack standalone net income:
From March 1 to March 14, 2016	$	973		$	-
For the year ended December 31, 2015		-			3,197
Increase (decrease) in revenue for fair valuation of deferred revenue		1,807			(1,807	)
(Increase) decrease in costs and expenses: Amortization of inventory step-up		4,339			(4,339	)
Amortization of intangible assets and depreciation of property, equipment and improvements acquired		(309	)		(7,402	)
Acquisition and integration expenses		4,513			(4,168	)
Net increase (decrease) in pretax income (loss)		11,323			(14,519	)
Income tax effects		(2,287	)		2,648
Change in net income (loss)		9,036			(11,871	)
Net income (loss) as reported		(7,904	)		16,940
Pro forma net income	$	1,132		$	5,069

The pro forma consolidated financial information is not necessarily indicative of what our actual results of operations would have been had the acquisition been included in our historical consolidated financial statements for each of the fiscal years ended February 28, 2017 and 2016. In addition, the pro forma consolidated financial information does not attempt to project the future results of operations of the combined company.

The following adjustments were included in the unaudited pro forma financial information (in thousands):

	Pro Forma
	Year Ended February 28,
	2017			2016
LoJack standalone net income:
From March 1 to March 14, 2016	$	973		$	-
For the year ended December 31, 2015		-			3,197
Increase (decrease) in revenue for fair valuation of deferred revenue		1,807			(1,807	)
(Increase) decrease in costs and expenses: Amortization of inventory step-up		4,339			(4,339	)
Amortization of intangible assets and depreciation of property, equipment and improvements acquired		(309	)		(7,402	)
Acquisition and integration expenses		4,513			(4,168	)
Net increase (decrease) in pretax income (loss)		11,323			(14,519	)
Income tax effects		(2,287	)		2,648
Change in net income (loss)		9,036			(11,871	)
Net income (loss) as reported		(7,904	)		16,940
Pro forma net income	$	1,132		$	5,069