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Acquisitions | 9 Months Ended
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Sep. 28, 2014
Business Combinations [Abstract] |
Acquisitions |
Note 2: | Acquisitions
ProSoft Technology, Inc. We acquired 100% of the outstanding shares of ProSoft Technology, Inc. (ProSoft) on June 11, 2014 for cash of $105.0 million. The purchase price remains subject to a working capital adjustment. ProSoft is a leading manufacturer of industrial networking products that translate between disparate automation systems, including the various protocols used by different automation vendors. The results of ProSoft have been included in our Condensed Consolidated Financial Statements from June 11, 2014, and are reported within the Industrial IT segment. ProSoft is headquartered in Bakersfield, California. The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed as of June 11, 2014 (in thousands).
Cash |  | $ | 2,517 |
Receivables |  |  | 5,559 |
Inventories |  |  | 3,624 |
Other current assets |  |  | 240 |
Property, plant and equipment |  |  | 1,061 |
Goodwill |  |  | 57,075 |
Intangible assets |  |  | 40,800 |
Other non-current assets |  |  | 622 |
Total assets |  | $ | 111,498 |
Accounts payable |  | $ | 2,851 |
Accrued liabilities |  |  | 2,515 |
Other non-current liabilities |  |  | 1,132 |
Total liabilities |  | $ | 6,498 |
Net assets |  | $ | 105,000 |
The above purchase price allocation is preliminary and is subject to revision as additional information about the fair value of individual assets and liabilities becomes available. We are in the process of finalizing third party valuations of certain tangible and intangible assets and ensuring our accounting policies are applied at ProSoft. The preliminary measurement of receivables, inventories, property, plant, and equipment, intangible assets, goodwill, deferred income taxes, and other assets and liabilities are subject to change. A change in the estimated fair value of the net assets acquired will change the amount of the purchase price allocable to goodwill. The fair value of acquired receivables is $5.6 million, with a gross contractual amount of $6.2 million. We do not expect to collect $0.6 million of the acquired receivables. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations. For purposes of the above allocation, we have estimated a fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. We used various valuation methods including discounted cash flows to estimate the fair value of the identifiable intangible assets (Level 3 valuation). Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the ProSoft acquisition primarily consist of expanded access to the Industrial IT market and channel partners. Our tax basis in the acquired goodwill is $57.1 million. The goodwill balance we recorded is deductible for tax purposes over a period of 15 years up to the amount of the tax basis. The preliminary intangible assets related to the acquisition consisted of the following:
|  | Preliminary Estimated Fair Value |  |  | Amortization Period |
|  | (In thousands) |  |  | (In years) |
Intangible assets subject to amortization: |  |  |  |  |  |  |  |
Customer relationships |  | $ | 26,600 |  |  |  | 20.0 |
Developed technologies |  |  | 9,000 |  |  |  | 5.0 |
Trademarks |  |  | 5,000 |  |  |  | 5.0 |
Backlog |  |  | 200 |  |  |  | 0.3 |
Total intangible assets subject to amortization |  |  | 40,800 |  |  |  |  |
Intangible assets not subject to amortization: |  |  |  |  |  |  |  |
Goodwill |  |  | 57,075 |  |  |  |  |
Total intangible assets not subject to amortization |  |  | 57,075 |  |  |  |  |
Total intangible assets |  | $ | 97,875 |  |  |  |  |
Weighted average amortization period |  |  |  |  |  |  | 14.8 |
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the developed technologies intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period of consumption of the intangible asset. The useful life for the customer relationship intangible asset was based on our forecasts of customer turnover. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship. Our revenues and income from continuing operations before taxes for the three months ended September 28, 2014 included $14.4 million and $0.1 million, respectively, from ProSoft. Our revenues and income (loss) from continuing operations before taxes for the nine months ended September 28, 2014 included $17.1 million and $(0.3) million, respectively, from ProSoft. Included in our income from continuing operations before taxes for the three and nine months ended September 28, 2014 are $0.9 million and $1.4 million, respectively, of cost of sales related to the preliminary adjustment of inventory to fair value, and $1.1 million and $1.4 million, respectively, of amortization of intangible assets. Grass Valley We acquired 100% of the outstanding ownership interest in Grass Valley USA, LLC and GVBB Holdings S.a.r.l., (collectively, Grass Valley) on March 31, 2014 for cash of $218.2 million. Grass Valley is a leading provider of innovative technologies for the broadcast industry, including production switchers, cameras, servers, and editing solutions. Grass Valley is headquartered in Hillsboro, Oregon, with significant locations throughout the United States, Europe, and Asia. The results of Grass Valley have been included in our Condensed Consolidated Financial Statements from March 31, 2014, and are reported within the Broadcast segment. The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed as of March 31, 2014 (in thousands).
Cash |  | $ | 9,397 |
Receivables |  |  | 70,142 |
Inventories |  |  | 19,607 |
Other current assets |  |  | 4,172 |
Property, plant and equipment |  |  | 23,071 |
Goodwill |  |  | 118,733 |
Intangible assets |  |  | 95,500 |
Other non-current assets |  |  | 16,637 |
Total assets |  | $ | 357,259 |
Accounts payable |  | $ | 51,276 |
Accrued liabilities |  |  | 56,057 |
Deferred revenue |  |  | 14,000 |
Postretirement benefits |  |  | 16,538 |
Other non-current liabilities |  |  | 1,199 |
Total liabilities |  | $ | 139,070 |
Net assets |  | $ | 218,189 |
The above purchase price allocation is preliminary, and is subject to revision as additional information about the fair value of individual assets and liabilities becomes available. We are in the process of finalizing third party valuations of certain tangible and intangible assets and ensuring our accounting policies are applied at Grass Valley. The preliminary measurement of receivables, inventories, property, plant, and equipment, intangible assets, goodwill, deferred income taxes, deferred revenue, and other assets and liabilities are subject to change. A change in the estimated fair value of the net assets acquired will change the amount of the purchase price allocable to goodwill. The fair value of acquired receivables is $70.1 million, with a gross contractual amount of $79.2 million. We do not expect to collect $9.1 million of the acquired receivables. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations. For purposes of the above allocation, we have estimated a fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. We based our estimate of the fair value for the acquired property, plant, and equipment on a preliminary valuation study performed by a third party valuation firm. We used various valuation methods including discounted cash flows to estimate the fair value of the identifiable intangible assets (Level 3 valuation). Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. The expected synergies for the Grass Valley acquisition primarily consist of cost savings from the ability to consolidate existing and acquired operating facilities and other support functions, as well as expanded access to the Broadcast market. Our estimated tax basis in the acquired goodwill is $118.7 million. The goodwill balance we recorded is deductible for tax purposes over a period of 15 years up to the amount of the tax basis. The preliminary intangible assets related to the acquisition consisted of the following:
|  | Estimated Fair Value |  |  | Amortization Period |
|  | (In thousands) |  |  | (In years) |
Intangible assets subject to amortization: |  |  |  |  |  |  |  |
Developed technologies |  | $ | 37,000 |  |  |  | 5.0 |
Customer relationships |  |  | 27,000 |  |  |  | 15.0 |
Backlog |  |  | 1,500 |  |  |  | 0.3 |
Total intangible assets subject to amortization |  |  | 65,500 |  |  |  |  |
Intangible assets not subject to amortization: |  |  |  |  |  |  |  |
Goodwill |  |  | 118,733 |  |  |  |  |
Trademarks |  |  | 22,000 |  |  |  |  |
In-process research and development |  |  | 8,000 |  |  |  |  |
Total intangible assets not subject to amortization |  |  | 148,733 |  |  |  |  |
Total intangible assets |  | $ | 214,233 |  |  |  |  |
Weighted average amortization period |  |  |  |  |  |  | 9.0 |
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the developed technologies intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period of consumption of the intangible asset. The useful life for the customer relationship intangible asset was based on our forecasts of customer turnover. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship. Trademarks have been determined by us to have indefinite lives and are not being amortized, based on our expectation that the trademarked products will generate cash flows for us for an indefinite period. We expect to maintain use of trademarks on existing products and introduce new products in the future that will also display the trademarks, thus extending their lives indefinitely. In-process research and development assets are considered indefinite-lived intangible assets until the completion or abandonment of the associated research and development efforts. Upon completion of the development process, we will make a determination of the useful life of the asset and begin amortizing the assets over that period. If the project is abandoned, we will write-off the asset at such time. Our revenues and income (loss) from continuing operations before taxes for the three months ended September 28, 2014 included $66.2 million and $(7.7) million, respectively, from Grass Valley. Our revenues and income (loss) from continuing operations before taxes for the nine months ended September 28, 2014 included $133.0 million and $(30.5) million, respectively, from Grass Valley. Included in our income (loss) from continuing operations before taxes for the nine months ended September 28, 2014 are $6.9 million of cost of sales related to the preliminary adjustment of inventory to fair value. Included in our income (loss) from continuing operations before taxes for the three and nine months ended September 28, 2014 are $2.4 million and $6.2 million, respectively, of amortization of intangible assets. We also recognized certain severance, restructuring, and acquisition integration costs in the three and nine months ended September 28, 2014 related to Grass Valley. See Note 7. The following table illustrates the unaudited pro forma effect on operating results as if the Grass Valley and ProSoft acquisitions had been completed as of January 1, 2013.
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 28, 2014 |  |  | September 29, 2013 |  |  | September 28, 2014 |  |  | September 29, 2013 |
|  | (In thousands, except per share data) |
|  | (Unaudited) |
Revenues |  | $ | 612,617 |  |  | $ | 609,760 |  |  | $ | 1,790,876 |  |  | $ | 1,851,860 |
Income from continuing operations |  |  | 36,036 |  |  |  | 70,399 |  |  |  | 49,645 |  |  |  | 81,707 |
Diluted income per share from continuing operations |  | $ | 0.82 |  |  | $ | 1.58 |  |  | $ | 1.12 |  |  | $ | 1.82 |
For purposes of the pro forma disclosures, the nine months ended September 29, 2013 include nonrecurring expenses from the effects of purchase accounting, including the cost of sales arising from the adjustment of inventory to fair value of $8.3 million, amortization of the sales backlog intangible asset of $1.7 million, and Belden’s transaction costs of $1.6 million. The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition. Softel Limited We acquired Softel Limited (Softel) for $9.1 million, net of cash acquired, on January 25, 2013. Softel is a key technology supplier to the media sector with a portfolio of technologies well aligned with industry trends and growing demand. Softel is located in the United Kingdom. The results of Softel are reported within the Broadcast segment. The Softel acquisition was not material to our financial position or results of operations.

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