Note 2 - Business Acquisition, Goodwill and Purchased Intangible Assets

3 Months Ended

Mar. 30, 2024

Notes to Financial Statements

Business Combination, Goodwill, and Intangible Assets Disclosure [Text Block]

2. Business Acquisitions, Goodwill and Purchased Intangible Assets

EQT

On October 2, 2023, we completed the acquisition of Equiptest Engineering Pte. Ltd. (“EQT”), a provider of semiconductor test contactors and other consumables. (“the EQT Acquisition”). EQT is a Singapore-based company with its principal manufacturing site located there. EQT provides test interface products including high performance thermal, MEMS, Infrared, Coaxial and Kelvin Contactors that expand our interface products in mid- to high-power contactors. The EQT Acquisition was a cash-free debt-free transaction and was subject to a working capital adjustment for the difference between the actual and estimated net working capital. We made a cash payment of SGD 66.0 million ($48.3 million) on October 2, 2023 and set up a retention sum liability for potential adjustments to working capital, future tax or insurance claims in the amount of SGD 2.2 million ($1.6 million) resulting in an initial purchase price of SGD 68.3 million ($49.9 million). The working capital adjustment was finalized in January 2024 and an additional cash payment was made to EQT owners of SGD 0.8 million (approximately $0.6 million) resulting in a purchase price of SGD 68.8 million ($50.3 million). The retention liability for remaining tax, insurance and other claims as of March 30, 2024 was SGD 1.7 million ($1.3 million) and is accrued in long term other liabilities on our condensed consolidated balance sheet. The EQT Acquisition has been accounted for in conformity with ASC 805.

We have not finalized the purchase price allocation. Accordingly, the preliminary purchase price allocation shown below could materially change as we are still in the process of finalizing the fair values of the tangible and intangible assets acquired and liabilities assumed, and the related income tax effects may still be adjusted as they are finalized during the remainder of the measurement period (which will not exceed 12 months from the acquisition closing date). The EQT Acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. The acquired assets and liabilities of EQT 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. We expect to finalize the purchase accounting for EQT in the second quarter of 2024.

The table below summarizes the assets acquired and liabilities assumed as of October 2, 2023 (in thousands):

Current assets, including cash received	$	10,135
Property, plant and equipment		538
Intangible assets		34,500
Goodwill		15,377
Total assets acquired		60,550
Liabilities assumed		(10,203	)
Net assets acquired	$	50,347

The preliminary allocation of the intangible assets subject to amortization is as follows (in thousands):

	Estimated Fair Value		Weighted Average Useful Life (years)
Developed technology	$	20,600		8.0
Customer relationships		12,900		10.0
Product backlog		100		1.0
Trademarks and trade names		900		5.0
Total intangible assets	$	34,500

Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful lives which approximates the pattern of how the economic benefit is expected to be used. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry.

The preliminary value assigned to developed technology was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates. Developed technology, which comprises products that have reached technological feasibility, includes the products in EQT’s product line. The revenue estimates used to value the developed technology were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by EQT and competitors. The estimated after-tax cash flows were based on a hypothetical royalty rate applied to the revenues for the developed technology. The discount rate utilized to discount the net cash flows of the developed technology to present value was based on the risk associated with the respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets, the weighted average cost of capital, the internal rate of return, and the weighted average return on assets.

The preliminary value assigned to customer relationships was determined by using the multi-period excess earnings method under the income approach. The estimated cash flows were based on revenues from the existing customers net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the customer relationships to present value was based on the respective cash flows taking into consideration the perceived risks.

The preliminary value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 2, 2023, using the multi-period excess earnings method under the income approach to discount back to present value the cash flows attributable to the backlog at a discount rate commensurate with the expected risks of the backlog cash flows.

The preliminary value assigned to trademarks and trade names acquired was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates.

EQT’s results of operations have been included starting October 2, 2023. The impact of EQT on our condensed consolidated statements of operations and comprehensive income (loss) was not material.

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended December 30, 2023, and the three-month period ended March 30, 2024 were as follows (in thousands):

	Goodwill
Balance December 31, 2022	$	213,539
Additions		24,132
Impact of currency exchange		3,987
Balance, December 30, 2023		241,658
Impact of currency exchange		(3,336	)
Balance, March 30, 2024	$	238,322

Purchased intangible assets subject to amortization are as follows (in thousands):

	March 30, 2024						December 30, 2023
					Remaining
					Weighted
	Gross				Average		Gross
	Carrying		Accum.		Amort.		Carrying		Accum.
	Amount		Amort.		Period (in years)		Amount		Amort.
Developed technology	$	231,681	$	143,340		4	$	233,623	$	137,168
Customer relationships		73,285		30,431		6.8		73,759		28,932
Trade names		21,139		11,516		5.2		21,569		11,231
Product backlog		100		50		0.5		100		25
Covenant not-to-compete		233		169		2.8		250		175
Total intangible assets	$	326,438	$	185,506			$	329,301	$	177,531

Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates.

Amortization expense related to intangible assets in the first quarter of fiscal 2024 and 2023 was $9.8 million and $8.8 million, respectively.