BUSINESS COMBINATION

9 Months Ended

Jul. 01, 2023

3. BUSINESS COMBINATION

Acquisition of Advanced Jet Automation Co., Ltd. (“AJA”)

On September 8, 2022, the Company through one of its subsidiaries, Kulicke and Soffa Luxembourg S.À R.L, entered into a definitive agreement (the “Definitive Agreement”) for the acquisition of Advanced Jet Automation Co., Ltd. (“AJA”), a technology company headquartered in Taiwan. Subsequent to the acquisition, AJA has been renamed to Kulicke and Soffa Hi-Tech Co., Ltd.

On February 22, 2023 (the “Closing Date”), pursuant to the Definitive Agreement, the Company completed its acquisition of AJA, including the material business and assets formerly owned by AJA’s affiliate, Samurai Spirit Inc., a leading developer and manufacturer of high-precision micro-dispensing equipment and solutions in Taiwan. AJA became a wholly-owned subsidiary of the Company and will operate as a business unit (the “dispensing business unit”), deemed a separate operating segment (advanced dispensing) which is reported under the "All Others" category. The acquisition broadens the Company’s existing semiconductor, electronic assembly and advanced display portfolio, increasing opportunities across several exciting growth areas including mini and micro LED, which support both backlighting and direct-emissive approaches.

The purchase price consisted of $38.1 million in cash paid at closing (the “Purchase Price”) and additional potential earn-out payments based on certain revenue and earnings before interest, tax, depreciation and amortization (“EBITDA”) benchmarks established for the dispensing business unit. As at July 1, 2023, the Company held $4.0 million in escrow and will continue to hold such sums for a period of twenty-four (24) months from the Closing Date, as security pending the completion of Ruo Chuan Inc.’s obligations as the seller under the Definitive Agreement.

The Company has estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on current information available. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary allocation and end of the purchase price allocation period of February 21, 2024. Any changes in these estimates may have a material impact on our Consolidated Condensed Statements of Operations or Consolidated Condensed Balance Sheets.

The acquisition of AJA was accounted for in accordance with ASC No. 805, Business Combinations, using the acquisition method.

The following table summarizes the allocation of the assets acquired and liabilities assumed based on the fair values as of the Closing Date:


(in thousands)	February 22, 2023
Cash and cash equivalents	$	1,238
Account and other receivables, net	1,156
Inventory	1,581
Property, plant and equipment, net	1,462
Right-of-use assets	989
Other assets	127
Goodwill	27,975
Intangible assets	7,768
Accounts and other payables	(965)
Accrued expenses and other liabilities	(251)
Contract liabilities	(187)
Lease liability	(989)
Deferred tax liabilities	(1,785)
Total purchase price	$	38,119

Excluding inventory and property, plant and equipment, all other tangible net assets (liabilities) were valued at their respective carrying amounts, which the Company believes approximate their current fair values at the Closing Date. In connection with the acquisition of AJA, the Company recorded deferred tax liabilities primarily relating to the acquired intangible assets.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and includes the value of expected future cash flows of AJA from expected synergies with our other affiliates and other unidentifiable intangible assets. None of the goodwill recorded as part of the acquisition will be deductible for income tax purposes.

The following table summarizes the fair value, useful life and valuation methodology of each identifiable intangible asset.


(in thousands)	Fair Value		Useful Lives
Developed technology(1)	$	4,261	8
Customer relationships(2)	2,131		8
In-process research and development (“IPR&D”)(3)	459		N.A.
Patents(3)	524		8
Order Backlog(4)	393		1
Total identifiable intangible assets	$	7,768

(1)The fair value of developed technology was determined using the Relief-from-Royalty Method under the income approach.

(2)Customer relationships represent the fair value of the existing relationships using the Multi-Period Excess Earnings Method under the income approach.

(3)The fair value of IPR&D and Patents were determined using the Replacement Cost Method, a form of the cost approach.

(4)Order backlog represents primarily the fair value of purchase arrangements with customers using the Multi-Period Excess Earnings Method under the income approach.

IPR&D is recorded as an indefinite-lived intangible asset and not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party. Developed technology, customer relationships, patents and order backlog are amortized using a straight-line method, representing the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

For the three and nine months ended July 1, 2023, the acquired dispensing business unit contributed to a net loss of $0.9 million and $1.3 million respectively.

For the three and nine months ended July 1, 2023, the Company incurred $0.1 million and $0.5 million of expenses related to the acquisition, respectively, which is included within selling, general and administrative expense in the Consolidated Condensed Statements of Operations.

The acquisition did not result in material contributions to revenue and net income in the consolidated financial statements for the three and nine months ended July 1, 2023. Additionally, pro forma financial information is not provided for consolidated revenue and net income as such amounts attributable to AJA were insignificant to the Company’s consolidated financial statements taken as a whole.