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Acquisition | 12 Months Ended
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Dec. 26, 2020
Business Combinations [Abstract] |
Acquisition | Acquisitions High Precision Devises, Inc. Acquisition On October 19, 2020, we acquired 100% of the shares of HPD for total consideration of $16.9 million, net of cash acquired of $1.7 million, which included an estimated adjustment for changes in working capital, which are not yet finalized. This acquisition brings highly specialized skills and know-how to address the unique test challenges within the emerging quantum computing, superconducting computing, and ultra-sensitive sensor markets which operate at temperatures as low as 30 millikelvin. The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer. The acquired assets and liabilities of HPD were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. Our Consolidated Statements of Income include the financial results of HPD subsequent to the acquisition date of October 19, 2020. Revenue related to HPD since the acquisition date that was included in our Consolidated Statements of Income for fiscal 2020 was not material. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values. The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed. While the quantification of identifiable intangible assets is still in process, we expect certain amounts provisionally recorded as goodwill to be allocated to such assets as customer relationships, developed technologies, backlog and potentially other technology-related assets as we complete purchase accounting. While we have recorded a provisional allocation of value based on the best estimates available at this time, we do not yet have a final allocation of value between amortizing and non-amortizing intangible assets. The items pending include finalizing our evaluation of acquired tangible and financial assets, finalizing the working capital adjustment under the purchase agreement, and finalizing certain key assumptions used to value intangible assets. We expect that some amount of intangible assets provisionally recorded as goodwill may ultimately be allocated to an amortizing intangible asset or vice versa, and similarly the relative values of intangible assets may change as the valuation is finalized. We have recorded estimated amortization based on these provisional amounts from the acquisition date through December 26, 2020. To the extent that upon finalization the required amortization changes, we will record an adjustment to appropriately reflect amortization of the related assets between the acquisition date and the date at which the amounts become estimable. We have one year over which to finalize purchase accounting, and while we expect to complete purchasing accounting before that time, the impact of the potential changes to estimated amounts or related amortization to the financial statements as a whole is not expected to be material. As described above, adjustments to fair value for intangible assets have not yet been finalized, however provisional amounts are included in the table below and in the 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 allocated to the underlying assets acquired and liabilities assumed based on the provisional amounts are as follows (in thousands):`
|  | Amount
Cash and cash equivalents |  | $ | 1,680 |
Accounts receivable |  | 1,017 |
Inventory |  | 3,047 |
Property, plant and equipment |  | 669 |
Operating lease, right-of-use-assets |  | 2,554 |
Prepaid expenses and other assets |  | 599 |
Tangible assets acquired |  | 9,566 |
Deferred revenue |  | (2,393) |
Accounts payable and accrued liabilities |  | (1,268) |
Operating lease liabilities |  | (2,554) |
Deferred tax liability |  | (3,465) |
Total net tangible assets acquired and liabilities assumed |  | (114) |
Intangible assets |  | 14,020 |
Goodwill |  | 4,654 |
Net assets acquired |  | $ | 18,560 |
The preliminary intangible assets as of the closing date of the acquisition included (in thousands):
|  | Amount |  | Weighted Average Useful Life (in years)
Developed technologies |  | $ | 8,000 |  |  | 10.0
Customer relationships |  | 5,400 |  |  | 5.0
Order backlog |  | 400 |  |  | 0.5
Trade names |  | 220 |  |  | 5.0
Total intangible assets |  | $ | 14,020 |  |  | 7.7
The fair value of the intangible assets acquired in connection with the acquisition was 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. Identifiable Intangible Assets Valuation of intangible assets involves multiple assumptions. The key assumptions are described below. Developed technology acquired primarily consists of existing technology related to cryogenic probe stations, Adiabatic Demagnetization Refrigerator ("ADR"), and continuous ADR cryostats and similar tools, and technology related to other cryogenic applications. We valued the developed technology 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 HPD'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. Order backlog represents business under existing contractual obligations. Expected cash flow from order backlog was valued on a discounted direct cash flow basis, net of returns on contributory assets such as working capital, property and equipment, trade name and assembled workforce. The identified trade names intangibles relate to the estimated fair value of future cash flows related to the HPD 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 HPD reporting unit within the Systems reportable segment. We have not presented unaudited combined pro forma financial information as the HPD 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 for total cash consideration of $35.0 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. The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer. The acquired assets and liabilities of Baldwin Park were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. Our Consolidated Statements of Income include the financial results of Baldwin Park subsequent to the acquisition date of July 30, 2020. Revenue related to Baldwin Park since the acquisition date that was included in our Consolidated Statements of Income for fiscal 2020 was not material. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values. The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. Our purchase accounting remains open as of the reporting date, subject to finalization of the fair value of certain acquired assets and liabilities. The item pending includes finalizing certain key assumptions used to value intangible assets. The estimated fair value of assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):
|  | Amount
Accounts receivable |  | $ | 4,365 |
Inventory |  | 2,579 |
Property, plant and equipment |  | 9,053 |
Operating lease, right-of-use-assets |  | 519 |
Prepaid expenses and other assets |  | 56 |
Tangible assets acquired |  | 16,572 |
Accounts payable and accrued liabilities |  | (743) |
Operating lease liabilities |  | (519) |
Total net tangible assets acquired and liabilities assumed |  | 15,310 |
Intangible assets |  | 14,100 |
Goodwill |  | 5,590 |
Net assets acquired |  | $ | 35,000 |
The preliminary intangible assets as of the closing date of the acquisition included (in thousands):
|  | Amount |  | Weighted Average Useful Life (in years)
Developed technologies |  | $ | 10,400 |  |  | 10.0
Customer relationships |  | 3,300 |  |  | 3.0
In-process research and development |  | 400 |  |  | N/A
Total intangible assets |  | $ | 14,100 |  |  | 8.3
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. Identifiable Intangible Assets Valuation of intangible assets involves multiple assumptions. The key assumptions are described below. Developed technology acquired consists of existing technology related to 3D NAND Flash probe cards and the value of cost savings expected to be derived from Low Temperature Co-fired Ceramic ("LTCC") technology. We valued the developed technology related to 3D NAND Flash 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. We valued the LTCC developed technology asset using the incremental cash flow method. This method estimates value based on the incremental cash flow afforded by having the LTCC capability in place on the acquisition date versus having no capability in place and needing to replicate or replace that capability. The incremental cash flows are then discounted to a present value to arrive at an estimate of fair value for this asset class. In-process research and development acquired primarily consists of research and development projects that were in process at the time of acquisition related to technologies used in DRAM probe cards. Once these projects are complete they will be placed in developed technologies and amortized over its useful life. We valued the IPR&D 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 Baldwin Park'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. 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, none of which qualify for recognition as a separate intangible asset. We expect 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 Probe Cards reporting unit within the Probe Cards reportable segment. We have not presented unaudited combined pro forma financial information as the Baldwin Park acquisition was not significant to our consolidated results of operations and financial position. FRT GmbH Acquisition On October 9, 2019, we acquired 100% of the shares of 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. 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. 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, for additional information. 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. The acquisition was accounted for using the acquisition method of accounting, with FormFactor treated as the acquirer. The acquired assets and liabilities of FRT were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. Our Consolidated Statements of Income include the financial results of FRT subsequent to the acquisition date of October 9, 2019. Revenue in fiscal 2019 related to FRT subsequent to the acquisition date that was included in our Consolidated Statements of Income was not material. Separate from the purchase agreement, we entered into a term loan agreement with a lender for an aggregate amount of $23.4 million to finance the acquisition. See Note 5, Debt, for additional information. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values. The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. We have 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 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 net 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
Order backlog |  | 1,645 |  |  | 0.5
Trade names |  | 208 |  |  | 2.0
Total intangible assets |  | $ | 17,429 |  |  | 6.9
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. Identifiable Intangible Assets Valuation of intangible assets involves multiple assumptions. The key assumptions are described below. Developed technology acquired primarily consists of existing technology related to hybrid 3D surface metrology measurement equipment. We valued the developed technology 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. Order backlog represents business under existing contractual obligations. Expected cash flow from order backlog was valued on a direct cash flow basis. The identified trade names intangibles relate 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.

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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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