Acquisitions | 9 Months Ended |
Sep. 28, 2013 |
Acquisitions | ' |
Acquisitions | ' |
4. Acquisitions |
|
Acquisition of Certain Assets of Thermal Technology, LLC |
|
On May 16, 2013, the Company acquired substantially all of the business of Thermal Technology, LLC, (“Thermal Technology”), a developer and seller of a wide range of high temperature thermal and vacuum products used in the fabrication of advanced materials that are deployed across multiple industries including LED, medical devices, oil and gas and automotive. This acquisition was achieved by the Company acquiring an entity to which certain assets and trade payables of Thermal Technology had been transferred immediately prior to the acquisition. The acquisition of Thermal Technology provides the Company with key technologies that will allow the Company, it believes, to address new markets with production equipment options that can be optimized around customers’ specific needs. The purchase consideration consisted of 3.4 million shares of the Company’s common stock valued at an aggregate of $14,463 (as of the date of acquisition) and potential contingent consideration of $35,000 based upon meeting certain financial metrics. The final purchase price is subject to a net working capital adjustment, dependent upon the level of working capital at the acquisition date, that has not yet been finalized. The fair value of the contingent consideration was $6,211 at the date of acquisition. |
|
The transaction has been accounted for as a business combination and the results are included in the Company’s results of operations from May 16, 2013, the date of acquisition. The acquired business contributed revenues of $3,545 and a loss of $3,071 to the consolidated results of the Company for the period from acquisition to September 28, 2013. The results of the acquired business are included in the Company’s sapphire business reporting segment. |
|
Significant judgment is required in estimating the fair value of intangible assets acquired in a business combination and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management. |
|
The Company employs the income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product life cycles, economic barriers to entry, a brand’s relative market position and the discount rate applied to the cash flows, among others. |
|
Each period the Company will revalue the contingent consideration obligations associated with the acquisition to fair value and record changes in the fair value as contingent consideration expense or income. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates and changes in assumed probability with respect to the attainment of certain financial and operational metrics. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense (income) recorded in any given period. |
|
As of September 28, 2013, the purchase price (including the estimated contingent consideration) and related allocations for the acquisition are preliminary. The Company is currently in the process of investigating the facts and circumstances existing as of the acquisition date in order to finalize its valuation and establish the related tax basis. As a result of the preliminary purchase price allocation, the Company recognized $6,744 of goodwill, which is primarily due to the expected future cash flows from synergies with the operations of the Company and assembled workforce. The goodwill created by the transaction is nondeductible for tax purposes. A summary of the preliminary purchase price allocation for the acquisition of Thermal Technology business is as follows: |
|
Fair value of consideration transferred: |
|
Common stock | | $ | 14,463 | |
Contingent consideration obligations | | 6,211 | |
Preliminary estimate of net working capital adjustment | | (735 | ) |
Total fair value of consideration | | $ | 19,939 | |
|
Fair value of assets acquired and liabilities assumed: |
|
Accounts receivable | | $ | 1,008 | |
Inventory | | 7,861 | |
Property, plant and equipment | | 1,700 | |
Deferred tax asset | | 411 | |
Other assets | | 439 | |
Intangible assets | | 14,500 | |
Goodwill | | 6,744 | |
Accounts payable and accrued expenses | | (7,057 | ) |
Customer deposits | | (2,509 | ) |
Deferred tax liability | | (3,149 | ) |
Other current liabilities | | (9 | ) |
Total net assets acquired | | $ | 19,939 | |
|
The purchase consideration includes contingent consideration payable by the Company upon the attainment of certain financial targets through the period ending December 31, 2018. Specifically, the contingent consideration is based upon a portion of revenue achieved for the remainder of 2013 to 2018, subject to certain thresholds and a cap on total payments. The Company determined the fair value of the contingent consideration obligations based on a probability-weighted income approach derived from future revenue estimates. The undiscounted range of outcomes that the Company used to value the contingent consideration arrangement was between $7,507 and $20,205. During the three and nine months ended September 28, 2013, the Company recorded contingent consideration income of $1,075 and $934, respectively, related to change in the fair value of the liability at September 28, 2013. |
|
The Company incurred transaction costs of $1,188, which consisted primarily of legal and accounting fees. These costs have been recorded as general and administrative expense for the nine months ended September 28, 2013. The acquisition of Thermal Technology’s business did not have a material effect on the Company’s results of operations. Pro forma results of operations have not been presented due to the immaterial impact the amounts would have had on the Company’s historical results of operations. |
|
Acquisition of Certain Assets of Twin Creeks Technologies, Inc. |
|
On November 8, 2012, the Company acquired certain assets and intellectual property of Twin Creeks Technologies, Inc. (“Twin Creeks”), a privately owned company involved in the development of an ion implanter technology, which the Company refers to as the Hyperion ion implanter. The assets were purchased from Twin Creeks’ lenders in a private sale for total consideration with a fair value of $15,372. The purchase consideration consisted of $10,172 in cash and a potential additional $40,000 of contingent consideration. The fair value of the contingent consideration was estimated at $5,200 at the date of acquisition. |
|
The acquisition of these select assets, including the associated in-process research and development, is intended to have a broad application in the production of engineered substrates for power semiconductors, uses within the sapphire and LED industries and thin wafers for solar applications and certain other potential applications. In addition, the Company expects to pursue the development of thin sapphire laminates for use in applications such as cover and touch screen devices. |
|
The transaction has been accounted for as a business combination and is included in the Company’s results of operations from the acquisition date of November 8, 2012. The acquired assets did not contribute revenues from the acquisition date to September 28, 2013. The goodwill created by the transaction is expected to be deductible for tax purposes. The results of the acquired assets, including goodwill, are included in the Company’s PV and sapphire segments. |
|
As of September 28, 2013, the valuation of acquired assets, and assumed liabilities is preliminary. The Company is in the process of investigating the facts and circumstances existing as of the acquisition date in order to finalize its valuation. Based on new information gathered about facts and circumstances that existed as of the acquisition date related to the valuation of certain acquired assets and assumed liabilities, the Company updated the preliminary valuations of assets acquired during the three months ended March 30, 2013 which resulted in an increase to goodwill of $2,000 and a decrease to deferred tax assets of $2,000 as reflected in the table below. The adjustments have been retrospectively applied to the December 31, 2012 balance sheet. These adjustments had no impact on the statement of operations or statement of cash flows. A summary of the preliminary purchase price allocation for the acquisition of certain assets and assumed liabilities of Twin Creeks is as follows: |
|
Fair value of consideration transferred: |
|
Cash | | $ | 10,172 | |
Contingent consideration obligations | | 5,200 | |
Total fair value of consideration | | $ | 15,372 | |
|
Fair value of assets acquired and liabilities assumed: |
|
Property, plant and equipment | | $ | 1,529 | |
Other assets | | 23 | |
In-process research and development | | 12,300 | |
Goodwill | | 2,907 | |
Accounts payable | | (1,362 | ) |
Other current liabilities | | (25 | ) |
Total net assets acquired | | $ | 15,372 | |
|
The purchase consideration includes contingent consideration payable by the Company in the form of a royalty on net sales of hydrogen ion implantation systems, related equipment, parts and accessories and materials made from hydrogen ion implantation systems and of royalties from any sub-licenses granted by the Company of the underlying intellectual property acquired. These payments are subject to the Company’s right to set-off up to $6,000 for infringement claims brought by third-parties related to the intellectual property acquired. The royalty amount payable is capped at the earlier of payment of $40,000 of royalties or the end of the 15-year term of the license agreement. The Company determined the fair value of the contingent consideration obligations based on a probability-weighted income approach derived from assessments of future revenue. The weighted-average undiscounted probable outcome that the Company initially used to value the contingent consideration arrangement was $27,562. During the three and nine months ended September 28, 2013, the Company recorded contingent consideration expense of $6,046 and $6,747, respectively, related to change in the fair value of the liability at September 28, 2013. |
|
Intangible assets are composed of the estimated fair value of acquired in-process research and development (“IPR&D”) related to the Hyperion™ ion implanter technology. At the date of acquisition and through September 28, 2013, the Hyperion™ ion implanter technology had not reached commercial technological feasibility nor had an alternative future use and is therefore considered to be IPR&D. The estimated fair value was determined using a probability-weighted income approach, which discounts expected future cash flows to present value. The projected cash flows from the Hyperion™ tool were based on certain key assumptions, including estimates of future revenue and expenses and taking into account the stage of development of the technology at the acquisition date and the time and resources needed to complete development. The Company used a discount rate of 28% and cash flows that have been probability-adjusted to reflect the risks of product commercialization. This discount rate used is comparable to the estimated internal rate of return on Twin Creeks operations and represents the rate that market participants would use to value the intangible assets. |
|
The major risks and uncertainties associated with the timely and successful completion of development of the IPR&D include the Company’s ability to demonstrate technological feasibility of the product and to successfully complete this task within budgeted costs. Consequently, the eventual realized value of the acquired IPR&D may vary from its estimated fair value at the date of acquisition. |
|
The acquisition of certain select assets of Twin Creeks did not have a material effect on the Company’s results of operations for the three and nine months ended September 28, 2013. Pro forma results of operations have not been presented due to the immaterial impact the amounts would have had on the Company’s historical results of operations. |