Business Combinations

12 Months Ended

Dec. 31, 2019

BUSINESS COMBINATIONS

In April 2017, we completed the acquisition of substantially all of the assets of Nutfield, a component technology business located in Hudson, New Hampshire, which specializes in the design and manufacture of advanced galvanometer-based optical scanners, scan heads and laser kits, for a total purchase price of approximately $5.5 million. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of the acquired business’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.

On March 9, 2018, we acquired all of the outstanding shares of Laser Control Systems, a laser component technology business located in Bedfordshire, United Kingdom, which specializes in the design and manufacture of advanced digital scan heads and laser software, for a purchase price of $1.7 million. We paid an additional $0.6 million in contingent consideration earned by the former owners for meeting certain milestones. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Laser Control Systems’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.

On March 16, 2018, we acquired all of the outstanding shares of Photocore AG, a vision-based 3D measurement application and software developer in Zurich, Switzerland, for a total purchase price of $2.4 million. This acquisition supports our long-term strategy to improve our existing software offerings with innovative technology in photogrammetry. The results of Photocore AG’s operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.

On July 6, 2018, we acquired all of the outstanding shares of Lanmark, a high-speed laser marking control boards and laser marking software provider located in Acton, Massachusetts, for a purchase price of $6.3 million. We paid an additional $0.3 million in contingent consideration earned by the former owners for meeting certain milestones. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Lanmark’s operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.

On July 13, 2018, we acquired all of the issued and outstanding corporate capital of Open Technologies, a 3D structured light scanning solution company located in Brescia, Italy, for an aggregate purchase price of up to €18.5 million ($21.6 million), subject to post-closing adjustments based on actual net working capital, net financial position and transaction expenses. We paid an additional $2.2 million in contingent consideration earned by the former owners for meeting certain product development milestones. An additional €2.0 million ($2.2 million) in contingent consideration may be earned by the former owners if certain product development milestones are met in the future. The U.S. Dollar amounts have been converted from Euros based on the foreign exchange rate in effect on the closing date of the acquisition. During the fourth quarter of 2019, we impaired the goodwill and intangible assets related to this acquisition. See Note 7, “Goodwill” and Note 8, “Intangible Assets” for further information. The results of Open Technologies’ operations as of and after the date of acquisition have been included in our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018.

The acquisitions of Nutfield, Laser Control Systems, Photocore AG, Lanmark and Open Technologies constitute business combinations as defined by FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. The purchase price allocations below represent our final determination of the fair value of the assets acquired and liabilities assumed for such acquisitions. In the year ended December 31, 2019, certain refinements were booked for the Open Technologies acquisition as part of the finalization process, which included a reduction of $2.6 million to the valuation of the customer relationship intangible and the recognition of a deferred tax liability of $1.9 million. Goodwill increased $4.4 million as result of these changes in the finalization process.

Following is a summary of our allocations of the purchase price to the fair values of the assets acquired and liabilities assumed as of the date of each acquisition:


	Nutfield		Laser Controls Systems		Photocore AG		Lanmark		Open Technologies ⁽³⁾

Accounts receivable	$	160	$	—	$	—	$	610	$	2,735
Inventory	539		—		—		299		1,852
Other assets	96		—		—		76		634
Deferred income tax assets	131		—		—		—		—
Intangible assets	2,329		1,400		1,435		1,366		7,821
Goodwill ⁽¹⁾	2,357		928		1,010		5,355		13,573
Accounts payable and accrued liabilities	(12)		—		—		(159)		(2,926)
Other liabilities ⁽²⁾	(104)		(579)		—		(971)		(5,201)
Deferred income tax liabilities	—		—		—		(325)		(1,876)
Total purchase price, net of cash acquired	$	5,496	$	1,749	$	2,445	$	6,251	$	16,612

⁽¹⁾The goodwill arising from the acquisitions consists largely of the expected synergies from combining operations as well as the value of the workforce. A portion of the goodwill is expected to be tax deductible for Nutfield.

⁽²⁾For Laser Control Systems, Lanmark and Open Technologies, this total consists primarily of the fair value of the projected contingent consideration.

⁽³⁾Amounts converted from Euros to U.S. Dollars based on the foreign exchange rate on the closing date of the acquisition.

Following are the details of the purchase price allocated to the intangible assets acquired for the acquisitions noted above:


	Nutfield					Laser Control Systems				Photocore AG				Lanmark			Open Technologies
	Amount		Weighted Average Life (Years)	Amount		Weighted Average Life (Years)	Amount		Weighted Average Life (Years)		Amount		Weighted Average Life (Years)	Amount		Weighted Average Life (Years)
Trade name	$	29	1	$	—	0	$	—	0		$	—	0	$	—	0
Brand	—		0	26		1	22		1		26		1	103		1
Non-competition agreement	144		5	29		3	9		3		—		0	—		0
Technology	1,970		10	1,319		7	1,343		7		760		7	4,441		7
Customer relationships	95		10	26		10	61		10		580		10	3,277		10
Favorable in-place lease	91		12	—		0	—		0		—		0	—		0
Fair value of intangible assets acquired	$	2,329	10	$	1,400	7	$	1,435	7		$	1,366	8	$	7,821	8

We test goodwill for impairment annually or more frequently if an event occurs or circumstances would indicate that it is more likely than not the fair value of the reporting unit is less than the carrying value. We changed the timing of our annual test of goodwill during 2019 to align with our updated strategic plan and annual budgetary process. Accordingly, we performed our annual quantitative test for impairment of our recorded goodwill as of December 10, 2019. As a result of this test, the estimated fair value of each of the Photonics reporting unit, which included goodwill recognized with the Nutfield, Laser Control Systems and Lanmark acquisitions, and the 3D Design reporting unit, which included goodwill recognized with the Open Technologies acquisition, were determined to be less than the carrying value of the reporting unit, indicating a full impairment. This impairment was driven primarily by historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan.

Additionally, as a result of historical and projected financial performance lower than our expectations and changes in our go-forward strategy in connection with our new strategic plan, the estimated fair value of acquired intangibles recognized with the Nutfield, Laser Control Systems, Lanmark and Open Technologies acquisitions were determined to be less than the carrying value of the net carrying value for such assets. We recognized an impairment charge related to such acquired intangibles of $10.5 million in the fourth quarter of 2019.

Acquisition and integration costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. To date, we have incurred approximately $0.8 million in acquisition and integration costs for the Nutfield, Laser Control Systems, Photocore AG, Lanmark and Open Technologies acquisitions. Pro forma financial results for Nutfield, Laser Control Systems, Photocore AG, Lanmark, and Open Technologies have not been presented because the effects of these transactions, individually and in the aggregate, were not material to our consolidated results of operations.