Goodwill and Other Intangible Assets

9 Months Ended

Sep. 27, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The roll-forward of activity related to our goodwill was as follows (in thousands):



	Thirty-Nine Weeks Ended
	September 27, 2015			September 28, 2014
Balance, beginning of period	$	170,773		$	136,152
Goodwill additions	4,100			46,880
Goodwill impairment	(18,156		)	—
Goodwill adjustments	(11,078		)	(5,212		)
Balance, end of period	$	145,639		$	177,820

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in connection with our acquisitions. Additions to goodwill represent goodwill from acquisitions made during the period. See further discussion of goodwill impairment below. Adjustments to goodwill include translation adjustments resulting from fluctuations in the value of goodwill held in currencies other than U.S. dollars, as well as adjustments made for the finalization of the purchase price allocations.

Acquisition of Eisenberg Bros Ltd.

On January 9, 2015 we acquired certain assets and liabilities of Eisenberg Bros Ltd. (“EB”), which previously operated as our exclusive agent in Israel of FEI products and services.

The total purchase price of the acquisition was $5.4 million. We paid $0.2 million in transaction costs, which were expensed as incurred and are recorded in selling, general and administrative costs in our consolidated statements of operations. The total purchase price was allocated to the net tangible and intangible assets acquired based on their preliminary fair values as of January 9, 2015. The fair value of net tangible liabilities assumed was $0.1 million and the fair value of net intangible assets acquired was $1.4 million, which consisted solely of customer relationships that are being amortized over a period of 5 years. The excess of the purchase price over the fair value of the net assets acquired was $4.1 million, which was recorded as goodwill in the Industry Group and is primarily related to expected future cash flows from synergies arising from the establishment of a sales and service workforce in Israel.

No pro forma financial information has been provided for this acquisition as it is not material.

Impairment of Goodwill and Long-Lived Assets

In accordance with Accounting Standards Codification 350 (“ASC 350”), Intangibles - Goodwill and Other, we perform an impairment analysis of goodwill and other indefinite lived intangible assets on an annual basis and whenever events or changes in circumstances indicate that it is more likely than not that these assets may be impaired. The continued decline in oil prices has adversely affected our oil and gas business within our Industry Group segment, resulting in lower expected future revenue, operating income, and cash flow. In the thirteen weeks ended September 27, 2015, we updated our strategic plan for the oil and gas business and as a result reduced our forecasted cash flows. This change was deemed to be a triggering event for impairment testing of both oil and gas long-lived assets and goodwill within our Industry Group. Accordingly, we performed a goodwill impairment test following the two step process defined in ASC 350. We have recognized preliminary impairment charges of $8.4 million on developed technology intangible assets and $18.2 million on goodwill. The total preliminary impairment charge of $26.6 million is included in impairment of goodwill and long-lived assets on our consolidated statements of operations within operating expenses for the thirteen and thirty-nine week periods ended September 27, 2015.

In performing step one of the two step impairment test, we first assessed the long-lived assets within the reporting unit for impairment. This assessment was done at the lowest level for which identifiable cash flows are available. In order to determine the fair value of the reporting unit, we first assessed the fair value of the existing intangible assets using discounted cash flow models based on estimated future revenue, operating income, and cash flow, as well as the relief from royalty method. The preliminary impairment charges on the developed technology assets were also based on revised lower expectations about future revenues from certain product and service offerings to oil and gas customers.

To calculate the fair value of the reporting unit we used several different methods, including discounted cash flow models and multiples of revenue based on comparable industry participants and transactions. Our determination of the fair value of the reporting unit incorporates multiple assumptions, including future business growth, earnings projections, and the weighted average cost of capital used for purposes of discounting. The result of the analysis showed that the carrying value was in excess of the fair value of the reporting unit. This was due to revised lower short-term expectations about future revenue, operating income, cash flows for the oil and gas business.

In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. This allocation is similar to a purchase price allocation performed in purchase accounting. If the carrying amount of the reporting unit goodwill exceeds the implied goodwill value, an impairment loss should be recognized in an amount equal to that excess. The excess of the carrying value of the reporting unit goodwill exceeded the fair value of goodwill by $18.2 million.

Due to the complexities inherent in the required fair value analysis, we were not able to finalize the impairment calculations prior to reporting on Form 10-Q for the thirteen weeks ended September 27, 2015; however, we determined that an impairment loss could be reasonably estimated. As a result, the impairment charges that have been recognized in the thirteen week period ended September 27, 2015 are preliminary. We are in the process of finalizing the calculation of reporting unit fair value and the carrying value of intangible assets, and expect to finalize the impairment charges in the fourth quarter of 2015. It is reasonably possible the final impairment charges will differ materially from the amounts recorded in the thirteen weeks ended September 27, 2015.

Other Intangible Assets

Patents, trademarks and other acquired intangible assets are amortized using the straight-line method over their estimated useful lives of 2 to 10 years. Customer relationships are amortized using the straight-line method over their estimated useful lives of 5 to 10 years. Developed technology is amortized using the straight-line method over the estimated useful life of the related technology, which ranges from 5.5 to 10 years.

The gross amount of our other acquired intangible assets and the related accumulated amortization was as follows (in thousands):



	September 27, 2015			December 31, 2014
Patents, trademarks and other	$	26,687		$	25,333
Accumulated amortization	(14,803		)	(12,805		)
Net patents, trademarks and other	11,884			12,528
Customer relationships	21,358			21,739
Accumulated amortization	(7,445		)	(5,863		)
Net customer relationships	13,913			15,876
Developed technology	21,898			33,525
Accumulated amortization	(9,880		)	(7,818		)
Net developed technology	12,018			25,707
Total intangible assets included in other long-term assets	$	37,815		$	54,111

Amortization expense was as follows (in thousands):



	Thirty-Nine Weeks Ended
	September 27, 2015		September 28, 2014
Patents, trademarks and other	$	3,166	$	3,850
Customer relationships	2,002		1,882
Developed technology	2,573		2,906
Total amortization expense	$	7,741	$	8,638

Expected amortization, without consideration for foreign currency effects, is as follows over the next five years and thereafter (in thousands):



	Patents, Trademarks and Other		Customer Relationships		Developed Technology		Total
Remainder of 2015	$	804	$	671	$	642	$	2,117
2016	3,317		2,687		2,566		8,570
2017	2,873		2,340		2,034		7,247
2018	2,081		2,274		1,492		5,847
2019	1,789		1,897		1,492		5,178
Thereafter	1,020		4,044		3,792		8,856
Total future amortization expense	$	11,884	$	13,913	$	12,018	$	37,815

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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