Note 2—Acquisition

On June 19, 2015, we completed the acquisition of the aerospace printer product line for civil and commercial aircraft from Rugged Information Technology Equipment Corporation (RITEC) under the terms of an Asset Purchase Agreement dated June 18, 2015. The products of RITEC consist of aerospace printers for use in commercial aircraft sold primarily to aircraft manufacturers, tier one contractors and directly to airlines around the world. Our aerospace printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The Company began shipment of the RITEC products in the third quarter of fiscal 2016.

The purchase price of the acquisition was $7.4 million which was funded using available cash and investment securities. The Company withheld $0.8 million of the purchase price in escrow for twelve months following the acquisition date to support the sellers’ indemnifications in the event of any breach in the representations, warranties or covenants of RITEC. The Company retained $0.1 million from the escrow, which was recorded as other income in the consolidated statement of income for the period ended January 31, 2017.

The assets acquired consist principally of accounts receivable and certain intangible assets. Acquisition related costs of approximately $0.1 million are included in the general and administrative expenses in the Company’s consolidated statements of income for fiscal year ended 2016. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

The Company also entered into a Transition Services Agreement, under which RITEC provided transition services and continued to manufacture products in the acquired product line until the Company transitioned the manufacturing to its West Warwick, Rhode Island facility. The TSA concluded in the third quarter of fiscal 2017 and AstroNova purchased the remaining inventory held by RITEC for $0.2 million.

Also as part of the Asset Purchase Agreement, the Company entered into a License Agreement, which grants RITEC certain rights to use the intellectual property acquired by the Company in the design, development, marketing, manufacture, sale and servicing of aerospace printers for aircraft sold to the military end-user market and printers sold to other non-aircraft market segments. RITEC will pay royalties equal to 7.5% of the revenue price on all products sold into the military end-user aircraft market during the first five years of the License Agreement. No royalty revenue was accrued in fiscal 2017.

The purchase price of the acquisition has been allocated on the basis of the fair value as follows:


(In thousands)
Accounts Receivable	$	50
Identifiable Intangible Assets		3,780
Goodwill		3,530

Total Purchase Price	$	7,360

The fair value of the intangible assets acquired was estimated by applying the income approach. This fair value measurement is based on significant inputs that are not observable in the market and therefore, represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement and Disclosure.” Key assumptions include (1) a weighted average cost of capital of 15.5%; (2) a range of earnings projections from $0.1-$0.7 million and (3) a range of contract renewal probability from 30%-100%.

Goodwill of $3.5 million, which is deductible for tax purposes, represents the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired from RITEC. The carrying amount of the goodwill was allocated to the T&M segment of the Company.

The following table reflects the fair value of the acquired identifiable intangible assets and related estimated useful lives:


(In thousands)	Fair Value		Useful Life (Years)
Customer Contract Relationships	$	2,830		10
Non-Competition Agreement		950		5

Total	$	3,780

Assuming the acquisition of RITEC occurred on February 1, 2014, the impact on net revenue, net income and earnings per share would not have been material to the Company for the years ended January 31, 2017, 2016 and 2015.