Goodwill and Other Intangible Assets

6 Months Ended

Jul. 03, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

Goodwill

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



	Twenty-Six Weeks Ended
	July 3, 2016		June 28, 2015
Balance, beginning of period	$	145,607	$	170,773
Goodwill additions	108,002		4,100
Goodwill adjustments	3,672		(6,937		)
Balance, end of period	$	257,281	$	167,936

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. 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 DCG Systems, Inc.

On December 10, 2015, we acquired 100% of the outstanding shares of DCG Systems, Inc. (“DCG”) for approximately $161.8 million in cash. DCG, with approximately 200 employees and headquarters in Fremont, California, is a leading supplier of electrical fault characterization, localization and editing tools, providing process development, yield ramp and failure analysis applications for a wide range of semiconductor and electronics manufacturers.

The total purchase price of the acquisition was $182.2 million. We incurred $3.3 million in transactional costs during the thirteen week period ended December 31, 2015, which were recorded in selling, general and administrative costs in our consolidated statements of operations. The excess of the purchase price over the fair value of the net assets acquired was $109.2 million, which was recorded as goodwill in the Industry Group and is primarily related to expected future cash flows attributable to the synergies expected to be realized after our acquisition and integration of the acquired electrical fault analysis (“EFA”) business.

The preliminary fair values of the assets acquired and liabilities assumed in the acquisition were recognized as follows (in thousands):



	Purchase Price Allocation
Current assets	$	64,335
Non-current assets	9,930
Deferred tax assets	207
Current liabilities	(23,859		)
Non-current liabilities	(7,889		)
Deferred tax liabilities	(1,244		)
Net tangible assets acquired	41,480
Intangible assets acquired:
Developed technology	10,500
In-process research and development	13,100
Customer relationships	6,900
Backlog	1,000
Total intangible assets acquired	31,500
Goodwill	109,246
Total	$	182,226

The acquired intangible assets are being amortized using the following methodologies and over the following estimated useful lives:



Intangible Asset	Amortization Methodology	Estimated Useful Life	Weighted Average Amortization Period
Developed technology	Straight-line	2 - 4 years	3.1 years
In-process research and development	Straight-line	3 years	3.0 years
Customer relationships	Straight-line	10 years	10.0 years
Backlog	Amortized when revenue is recognized	0.5 - 1.5 years	0.8 years
Total intangible assets			4.5 years

The allocation of purchase price consideration to assets and liabilities is not yet finalized. The preliminary allocation of the purchase price was based upon preliminary estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of preliminary purchase price allocation that are not yet finalized are certain tax matters. We are also still in the process of determining how much of the goodwill may be deductible for income tax purposes. In the thirteen week period ended July 3, 2016, we recorded additional deferred tax liabilities of $1.2 million which also resulted in an increase in goodwill.

In the thirteen week period ended July 3, 2016, the acquired business contributed revenue of $20.7 million and net income of $1.2 million to our consolidated financial results. In the twenty-six week period ended July 3, 2016, the acquired business contributed revenue of $34.5 million and net loss of $0.5 million to our consolidated financial results.

No pro forma financial information has been provided for this acquisition as it is not significant compared to our overall consolidated financial position.

Intangible Assets

Patents, trademarks and other acquired intangible assets are amortized using the straight-line method over their estimated useful lives ranging from 6 months to 10 years. Customer relationships are amortized using the straight-line method over their estimated useful lives ranging from 5 to 10 years. Developed technology is amortized using the straight-line method over the estimated useful life of the related technology ranging from 2 to 10 years. In-process research and development costs are amortized using the straight-line method over their estimated useful lives ranging from 3 to 5.5 years.

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



	July 3, 2016			December 31, 2015
Patents, trademarks and other	$	25,865		$	24,278
Accumulated amortization	(16,436		)	(13,923		)
Net patents, trademarks and other	9,429			10,355
Customer relationships	28,565			21,245
Accumulated amortization	(9,944		)	(8,083		)
Net customer relationships	18,621			13,162
Developed technology	33,093			22,155
Accumulated amortization	(14,118		)	(10,517		)
Net developed technology	18,975			11,638
In-process research and development	15,806			2,669
Accumulated amortization	(2,054		)	(1,881		)
Net in-process research and development	13,752			788
Total intangible assets, net	$	60,777		$	35,943

Amortization expense was as follows (in thousands):



	Twenty-Six Weeks Ended
	July 3, 2016		June 28, 2015
Patents, trademarks and other	$	2,292	$	1,904
Customer relationships	1,701		1,332
Developed technology	3,434		1,753
In-process research and development	153		136
Total amortization expense	$	7,580	$	5,125

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		In-Process Research and Development		Total
Remainder of 2016	$	1,106	$	1,716	$	3,513	$	153	$	6,488
2017	2,918		3,086		5,543		2,682		14,229
2018	2,133		3,002		2,910		4,367		12,412
2019	2,033		2,609		2,910		4,367		11,919
2020	1,215		2,295		1,535		2,183		7,228
Thereafter	24		5,913		2,564		—		8,501
Total future amortization expense	$	9,429	$	18,621	$	18,975	$	13,752	$	60,777

- 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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