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Acquisitions | 9 Months Ended
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Sep. 30, 2020
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 Company funded the payment for ESI’s outstanding shares with a combination of the Company’s available cash on hand and the proceeds from the Company’s 2019 Incremental Term Loan Facility, as defined and as described further in Note 11. ESI provides laser-based manufacturing systems solutions for the micro-machining industry that enable customers to optimize production. ESI’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) |  | $ | 1,032.7 |
Settlement of share-based compensation awards(2) |  |  | 30.6 |
Total purchase price |  |  | 1,063.3 |
Less: Cash and cash equivalents acquired |  |  | (44.1 | )
Total purchase price, net of cash and cash equivalents acquired |  | $ | 1,019.2 |
| (1) | Represents cash paid of $30.00 per share for approximately 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. None of the goodwill and intangible assets are deductible for tax purposes. The following table summarizes the final allocation of the purchase price to the fair values assigned to assets acquired and liabilities assumed at the date of the ESI Merger:
Current assets (excluding inventory) |  | $ | 208.0 |
Inventory |  |  | 81.7 |
Intangible assets |  |  | 316.2 |
Goodwill |  |  | 474.0 |
Property, plant and equipment |  |  | 65.5 |
Long-term assets |  |  | 9.6 |
Total assets acquired |  |  | 1,155.0 |
Current liabilities |  |  | 51.5 |
Non-current deferred taxes |  |  | 33.0 |
Other long-term liabilities |  |  | 7.2 |
Total liabilities assumed |  |  | 91.7 |
Fair value of assets acquired and liabilities assumed |  |  | 1,063.3 |
Less: Cash and cash equivalents acquired |  |  | (44.1 | )
Total purchase price, net of cash and cash equivalents acquired |  | $ | 1,019.2 |
The fair value write-up of acquired finished goods inventory was $7.6, the amount of which was expensed over the period during which the acquired inventory was sold. For the nine months ended September 30, 2019, the Company recorded $7.6 of incremental cost of sales charge associated with the fair value write-up of inventory acquired in the ESI Merger. The fair value write-up of acquired property, plant and equipment of $39.3 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 |  | $ | 255.7 |  |  | 12 years
Completed technology - Non-Laser |  |  | 18.3 |  |  | 10 years
Trademarks and trade names |  |  | 14.4 |  |  | 7 years
Customer relationships |  |  | 25.4 |  |  | 10 years
Backlog |  |  | 2.4 |  |  | 1 year
|  | $ | 316.2 |  |  |
The fair value of the acquired intangibles was determined using the income approach. In performing these valuations, the key underlying assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. This acquisition resulted in a purchase price that exceeded the estimated fair value of tangible and intangible assets, the excess amount of which was allocated to goodwill. The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including broadening it s position in key industrial 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 $2.7 and $14.0 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. 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 the 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 |  |  | 2019 |
Total net revenues |  | $ | 462.5 |  |  | $ | 1,414.7 |
Net income |  | $ | 47.7 |  |  | $ | 127.7 |
Net income per share: |  |  |  |  |  |  |  |
Basic |  | $ | 0.87 |  |  | $ | 2.34 |
Diluted |  | $ | 0.86 |  |  | $ | 2.32 |
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.
| (4) | The exclusion of acquisition costs and inventory and demonstration inventory step-up amortization from the three and nine months ended September 30, 2019.
| (5) | The exclusion of debt issuance costs due to the modification of the Term Loan Facility from the three and nine months ended September 30, 2019.
| (6) | The estimated tax impact of the above adjustments.

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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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