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Acquisitions | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Acquisitions | 9) Acquisitions Electro Scientific Industries, Inc. On February 1, 2019, the Company completed its acquisition of Electro Scientific Industries, Inc. (“ESI”) pursuant to an Agreement and Plan of Merger, dated as of October 29, 2018 (the “Merger Agreement”), by and among the Company, EAS Equipment, Inc., formerly a Delaware corporation and a wholly-owned subsidiary of the Company, and ESI (the “ESI Merger”). At the effective time of the ESI Merger and pursuant to the terms and conditions of the Merger Agreement, each share of ESI’s common stock that was issued and outstanding immediately prior to the effective time of the ESI Merger was converted into the right to receive $30.00 in cash, without interest and subject to deduction of any required withholding tax. The aggregate consideration was $1,032,671, which excludes related transaction fees and expenses, and non-cash consideration related to the exchange of share-based awards of $30,630, for a total purchase consideration of $1,063,301. The Company funded the payment of the aggregate consideration with a combination of the Company’s available cash on hand and the proceeds from the Company’s senior secured term loan facility described in Note 11. ESI provides laser-based manufacturing solutions for the micro-machining industry that enable customers to optimize production. It’s market is composed primarily of flexible and rigid PCB processing/fabrication, semiconductor wafer processing and passive component manufacturing and testing. ESI solutions incorporate specialized laser technology and proprietary control software to efficiently process the materials and components that are an integral part of electronic devices and systems. The purchase price of ESI consisted of the following:
Cash paid for outstanding shares(1) |  | $ | 1,032,671 |
Settlement of share-based compensation awards(2) |  |  | 30,630 |
Total purchase price |  |  | 1,063,301 |
Less: Cash and cash equivalents acquired |  |  | (44,072 | )
Total purchase price, net of cash and cash equivalents acquired |  | $ | 1,019,229 |
(1) | Represents cash paid of $30.00 per share for 34,422,361 shares of ESI common stock, without interest and subject to a deduction for any required withholding tax.
(2) | Represents the vested but not issued portion of ESI share-based compensation awards as of the acquisition date of February 1, 2019.
Under the acquisition method of accounting, the total estimated acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of ESI based on their fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The Company expects that none of such goodwill and intangible assets will be deductible for tax purposes. The following table summarizes the allocation of the preliminary purchase price to the fair values assigned to assets acquired and liabilities assumed at the date of the ESI Merger:
Current assets (excluding inventory) |  | $ | 208,009 |
Inventory |  |  | 83,036 |
Intangible assets |  |  | 316,200 |
Goodwill |  |  | 471,722 |
Property, plant and equipment |  |  | 65,489 |
Long-term assets |  |  | 9,633 |
Total assets acquired |  |  | 1,154,089 |
Current liabilities |  |  | 51,479 |
Non-current deferred taxes |  |  | 32,150 |
Other long-term liabilities |  |  | 7,159 |
Total liabilities assumed |  |  | 90,788 |
Fair value of assets acquired and liabilities assumed |  |  | 1,063,301 |
Less: Cash and cash equivalents acquired |  |  | (44,072 | )
Total purchase price, net of cash and cash equivalents acquired |  | $ | 1,019,229 |
During the second quarter of 2019, the Company recorded an increase in fair value of approximately $12,600 to property, plant and equipment, based upon the final valuation for land and three ESI facilities located in Portland, Oregon. The Company also recorded a reduction in fair value of approximately $9,800 to inventories relating to three product lines. These adjustments also resulted in an adjustment to intangible assets of $2,400 and goodwill of $1,300 and the related impact to the deferred tax line items. The fair value write-up of acquired finished goods inventory was $7,624, the amount of which will be expensed over the period during which the acquired inventory is sold. F or the nine months ended September 30, 2019, the Company recorded $7,624 of incremental cost of sales charges associated with the fair value write-up of inventory acquired in the ESI Merger. The fair value of acquired property, plant and equipment of $ 39,267 will be amortized over the estimated useful life of the applicable assets, excluding the fair value write-up in the value of land. Property, plant and equipment is valued at its value-in-use, unless there was a known plan to dispose of the asset. The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the asset. The following table reflects the allocation of the acquired intangible assets and related estimate of useful lives:
Completed technology - Laser |  | $ | 255,700 |  |  |  |  | 12 years |
Completed technology - Non-Laser |  |  | 18,300 |  |  |  |  | 10 years |
Trademarks and trade names |  |  | 14,400 |  |  |  |  | 7 years |
Customer relationships |  |  | 25,400 |  |  |  |  | 10 years |
Backlog |  |  | 2,400 |  |  |  |  | 1 year |
|  | $ | 316,200 |  |  |  |  |
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. The net fair value of the acquired intangibles was determined using the income approach. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the purchase accounting assessment will result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company’s results of operations and financial position. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect additional information received about facts and circumstances which existed at the date of acquisition. The Company records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating results in the period in which the adjustments are determined. The size and breadth of the ESI Merger will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the acquisition date and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented above. The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including broadening its position in key industrial end markets to complementary solutions, and leveraging component and systems expertise to provide robust solutions to meet customer evolving technology needs. The results of this acquisition were included in the Company’s consolidated statement of operations beginning on February 1, 2019. ESI constitutes the Company’s Equipment & Solutions reportable segment (see Note 17). Certain executives from ESI had severance provisions in their respective ESI employment agreements. The agreements included terms that were accounted for as dual-trigger arrangements. Through the Company’s acquisition accounting, the expense relating to these benefits was recognized in the combined entity’s financial statements. The Company recorded costs of $2,701 and $14,023 in acquisition and integration costs as compensation expense and stock-based compensation expense, respectively, for the nine months ended September 30, 2019 associated with these severance provisions. The restricted stock units and stock appreciation rights that were eligible for accelerated vesting if the executive exercised his or her rights but were not issued as of each reporting period-end, were excluded from the computation of basic earnings per share and included in the computation of diluted earnings per share for such reporting period. The Company’s consolidated net revenue and earnings for the three and nine months ended September 30, 2019 include the following amounts of revenue and earnings of ESI since the acquisition date:
|  | Three Months Ended September 30, 2019 |  |  | Nine Months Ended September 30, 2019 |
Total net revenues |  | $ | 49,308 |  |  | $ | 140,403 |
Net loss |  | $ | (5,843 | ) |  | $ | (40,685 | )
Net loss per share: |  |  |  |  |  |  |  |
Basic |  | $ | (0.11 | ) |  | $ | (0.74 | )
Diluted |  | $ | (0.11 | ) |  | $ | (0.74 | )
Pro Forma Results The following unaudited pro forma financial information presents the combined results of operations of the Company as if the ESI Merger had occurred on January 1, 2018. The unaudited pro forma financial information is not necessarily indicative of what the Company’s condensed consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined Company.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Total net revenues |  | $ | 462,451 |  |  | $ | 573,070 |  |  | $ | 1,414,660 |  |  | $ | 1,917,348 |
Net income |  | $ | 47,669 |  |  | $ | 91,111 |  |  | $ | 127,676 |  |  | $ | 357,333 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.87 |  |  | $ | 1.67 |  |  | $ | 2.34 |  |  | $ | 6.55 |
Diluted |  | $ | 0.86 |  |  | $ | 1.65 |  |  | $ | 2.32 |  |  | $ | 6.48 |
The unaudited pro forma financial information above gives effect primarily to the following:
| (1) | Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment, respectively, from the purchase price allocation.
| (2) | Revenue and cost of goods sold adjustments as a result of the reduction in deferred revenue and the cost related to their estimated fair value.
| (3) | Incremental interest expense related to the Company’s 2019 Incremental Term Loan Facility, as defined and discussed in Note 11.
| (4) | The exclusion of acquisition costs and inventory step-up amortization from the three and nine month periods ended September 30, 2019 and the addition of these items to the three and nine month periods ended September 30, 2018.
| (5) | The exclusion of debt issuance costs due to the modification of the 2019 Incremental Term Loan Facility from the three and nine month periods ended September 30, 2019 and the addition of this item to the three and nine month periods ended September 30, 2018.
| (6) | The estimated tax impact of the above adjustments.
During the third quarter of 2019, the Company identified adjustments related to our unaudited pro forma disclosures that were reported during the first and second quarters of 2019. The impact of these adjustments has been revised for all periods presented above.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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