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Acquisition | 9 Months Ended
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Sep. 26, 2020
Business Combinations [Abstract] |
Acquisition | Acquisition FRT Acquisition On October 9, 2019, we acquired 100% of the shares of FRT GmbH ("FRT"), a German-based company, for total consideration of $26.9 million, net of cash acquired of $1.7 million. The fair value of the purchase consideration was comprised of a $22.2 million cash payment and $6.5 million of contingent consideration as of October 9, 2019. We estimated the acquisition price and the allocation of fair value to assets acquired and liabilities assumed as of the acquisition date, October 9, 2019. We subsequently made certain immaterial adjustments to the acquisition price allocation related to acquired assets and assumed liabilities, including to intangibles assets. We finalized our allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):
|  |  |  |  | Amount
Cash and cash equivalents |  |  |  |  | $ | 1,687 |
Accounts receivable |  |  |  |  | 3,079 |
Inventory |  |  |  |  | 2,643 |
Property, plant and equipment |  |  |  |  | 696 |
Operating lease, right of use assets |  |  |  |  | 335 |
Prepaid expenses and other current assets |  |  |  |  | 838 |
Tangible assets acquired |  |  |  |  | 9,278 |
Customer deposits |  |  |  |  | (1,933) |
Accounts payable and accrued liabilities |  |  |  |  | (1,182) |
Operating lease liabilities |  |  |  |  | (335) |
Deferred tax liabilities |  |  |  |  | (5,757) |
Total tangible assets acquired and liabilities assumed |  |  |  |  | 71 |
Intangible assets |  |  |  |  | 17,429 |
Goodwill |  |  |  |  | 11,123 |
Net Assets Acquired |  |  |  |  | $ | 28,623 |
The intangible assets as of the closing date of the acquisition included (in thousands):
| Amount |  | Weighted Average Useful Life (in years)
Developed technologies | $ | 12,505 |  |  | 8.0
Customer relationships | 3,071 |  |  | 6.0
Backlog | 1,645 |  |  | 0.5
Trade names | 208 |  |  | 2.0
Total intangible assets | $ | 17,429 |  |  | 7.0
Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. The contingent consideration is a cash amount equal to 1.5x Earnings Before Interest and Tax ("EBIT") as defined in the purchase agreement, from a minimum of zero up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. For purchase accounting, we estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration include estimating the probability of achieving certain EBIT levels and discounting at an appropriate discount rate. See Note 8, Fair Value and Derivative Instruments, for further discussion on the fair value of contingent consideration. This acquisition strengthens our leadership in test and measurement by expanding our addressable market into 3D hybrid surface metrology and extending the optical applications scope of our existing Systems segment. Separate from the purchase agreement, on October 25, 2019, we entered into a term loan agreement with a lender for an aggregate amount of $23.4 million to finance the acquisition. See Note 6, Debt, for further discussion of the term loan agreement. Identifiable Intangible Assets Valuation of intangible assets involves multiple assumptions. The key assumptions are described below. Developed technologies acquired primarily consists of existing technology related to hybrid 3D surface metrology measurement equipment. We valued the developed technologies using the multi-period excess earnings method under the income approach. Using this approach, the estimated fair values were calculated using expected future cash flows from specific products discounted to their net present values at an appropriate risk-adjusted rate of return. Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to FRT's existing customers. We valued customer relationships using the incremental cash flow method. This method estimates value based on the incremental cash flow afforded by having the customers relationships in place on the acquisition date versus having no relationships in place and needing to replicate or replace those relationships. The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class. Backlog represents business under existing contractual obligations. Expected cash flow from backlog was valued on a direct cash flow basis. The identified trade names intangible relates to the estimated fair value of future cash flows related to the FRT brand. We valued trade names by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trade name. Goodwill The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition. We believe the factors that contributed to goodwill include synergies that are specific to our consolidated business, such as cost savings and operational efficiencies, and the acquisition of a talented workforce that expands our expertise in business development and commercializing semiconductor test products, none of which qualify for recognition as a separate intangible asset. We do not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment. The goodwill arising from the acquisition was allocated to the FRT reporting unit within the Systems reportable segment. We have not presented unaudited combined pro forma financial information as the FRT acquisition was not significant to our consolidated results of operations and financial position. Baldwin Park Acquisition On July 30, 2020, we acquired the probe card assets of Advantest Corporation ("Baldwin Park") for total cash consideration of $35 million. This acquisition brings important enabling technologies and capabilities for designing and manufacturing advanced probe cards, and adds a complementary 3D-NAND Flash probe-card product that is qualified and in production at one of the world's leading NAND Flash manufacturers. As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed. While the identification of identifiable intangible assets is still in process, we expect certain amounts provisionally recorded as goodwill will be ultimately allocated to such assets as customer relationships, developed technologies, backlog and potentially other technology-related assets as we complete purchase accounting. Consistent with the status of the identification of intangible assets, at this time we do not have an estimate of the allocation of value between amortizing and non-amortizing intangible assets, however we do expect that some amount of intangible assets provisionally recorded as goodwill will ultimately be allocated to an amortizing intangible asset. At the time such amount is estimable, we will record any amortization required between the acquisition date and the date at which the amounts become estimable. While we do not yet have a reasonable basis on which to record any such amortization, the impact to the financial statements as a whole is not expected to be material assuming typical lives of these assets and ranges of potential allocation of value. The amounts presented below represent provisional amounts of assets acquired and liabilities assumed, which are recorded based on the best information available. As described above, adjustments to fair value for intangible assets have not yet been determined, however preliminary estimates have been determined for trade inventories and property, plant, and equipment step up. These provisional amounts are included in the table below and in the condensed consolidated balance sheets and are subject to revision as the fair value of the associated assets acquired and liabilities assumed is finalized. The total estimated purchase price would be allocated to the underlying assets acquired and liabilities assumed based on the provisional amounts, as follows (in thousands):
| Amount
Accounts receivable | $ | 4,365 |
Inventory | 2,318 |
Property, plant and equipment | 9,053 |
Operating lease, right of use assets | 519 |
Prepaid expenses and other current assets | 317 |
Tangible assets acquired | 16,572 |
Accounts payable and accrued liabilities | (572) |
Operating lease liabilities | (519) |
Total tangible assets acquired and liabilities assumed | 15,481 |
Goodwill | 19,519 |
Net Assets Acquired | $ | 35,000 |
The operating results of the acquired business are included in the Company’s results of operations since the date of acquisition. Pro forma financial information has not been provided for the acquisition of Baldwin Park as it is not significant to the Company’s operations and financial position. Included in Cost of revenues in the Condensed Consolidated Statements of Income in the three and nine months ended September 26, 2020 is $0.5 million of amortization of the estimated step-up to fair value for finished goods and work-in-process inventories acquired and then sold to customers within the quarter.

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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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