Strategic Technology Transactions, Goodwill and Other Purchased Intangible Assets

9 Months Ended

Sep. 28, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Strategic Technology Transactions, Goodwill and Other Purchased Intangible Assets

2. Strategic Technology Transactions, Goodwill and Other Purchased Intangible Assets

Ismeca

On December 31, 2012, we acquired all of the outstanding share capital of Ismeca Semiconductor Holding SA (“Ismeca”). Ismeca, headquartered in La Chaux-de-Fonds, Switzerland, and with major operations in Malacca, Malaysia and Suzhou, China, designs, manufactures and sells turret-based test handling and back-end finishing equipment for integrated circuits, light emitting diodes (LEDs) and discrete components.

The acquisition has been accounted for in conformity with FASB Accounting Standards Codification 805, Business Combinations. The purchase price of this acquisition was approximately $88.8 million, and was funded primarily by cash reserves ($57.1 million) and certain liabilities assumed ($31.7 million). Total consideration has been allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of the completion of the acquisition. Amounts allocated to intangible assets are being amortized on a straight-line basis over their useful lives as noted in the table below.

Management’s preliminary allocation of purchase price as noted in the Original Values column below was based on an initial internal estimate of fair values. During the third fiscal quarter of 2013, with the assistance of a third party and using information as of the acquisition date, we updated the valuation of acquired intangible assets which resulted in adjustments to our initial allocation. We also received certain income tax information which resulted in adjustments to increase other assets and liabilities assumed but had no impact on net tangible assets acquired. The changes described above are noted in the Revised Values column below (in thousands):

	Original Values			Revised Values
Current assets	$	36,510		$	36,510
Fixed assets		1,314			1,314
Other assets		2,427			6,607
Intangible assets		25,365			33,138
Goodwill		19,273			11,245
Total assets acquired		84,889			88,814
Liabilities assumed		(27,746	)		(31,671	)
Net assets acquired	$	57,143		$	57,143

The preliminary and updated allocation of the intangible assets is as follows (in thousands):

	Original Value		Revised Value		Average Useful Life
Complete technology	$	16,827	$	21,399	8 years
Customer relationships		3,631		7,475	8 years
Covenants not-to-compete		—		325	3 years
Trade name		4,907		3,939	Indefinite
	$	25,365	$	33,138

The updated value assigned to Ismeca’s complete technology was determined by discounting the estimated future cash flows associated with the existing developed and core technologies to their present value. Developed and core technology, which comprise products that have reached technological feasibility, includes the products in Ismeca’s product line. The revenue estimates used to value the complete 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 Ismeca and its competitors. The rates utilized to discount the net cash flows of complete technology to their present value are based on the risks associated with the respective cash flows taking into consideration the weighted average cost of capital of Cohu’s semiconductor equipment segment.

The updated value assigned to Ismeca’s customer relationships was determined by discounting the estimated cash flows associated with the existing customers as of the acquisition date taking into consideration expected attrition of the existing customer base. The estimated cash flows were based on revenues for those existing customers net of operating expenses and net contributory asset charges associated with servicing those customers. The estimated revenues were based on revenue growth rates for the back-end semiconductor equipment industry. Operating expenses were estimated based on the supporting infrastructure expected to sustain the assumed revenue growth rates. Net contributory asset charges were based on the estimated fair value of those assets that contribute to the generation of the estimated cash flows.

During the third quarter of fiscal 2013, management updated its valuation of certain purchased intangible assets, however, certain tax issues are pending. Upon completion of the tax items, Cohu anticipates that the ultimate purchase price allocation may differ from the assessment outlined above. Any additional changes to the estimates of the fair value of the assets and liabilities will be allocated primarily to goodwill.

Duma

In August 2012, our microwave communication equipment segment acquired the intellectual property and certain other assets of Duma Video, Inc. (“Duma”), a distributor of low latency compression video encoding and decoding devices. The purchase price of these assets was approximately $1.0 million and the amount allocated to intangible assets is being amortized on a straight-line basis over three years. Under the terms of the purchase agreement, in addition to the up-front cash payment, we may be required to make future payments to the seller totaling a maximum of approximately $0.5 million, contingent upon the completion of certain milestone events.

Goodwill

Changes in the carrying value of goodwill by reportable segment during the year ended December 29, 2012 and the nine-month period ended September 28, 2013 were as follows (in thousands):

	Semiconductor Equipment		Microwave Communications		Total Goodwill
Balance, December 31, 2011	$	54,872	$	3,188	$	58,060
Impact of currency exchange		648		48		696
Balance, December 29, 2012		55,520		3,236		58,756
Additions net of adjustments		11,245		—		11,245
Impact of currency exchange		840		54		894
Balance, September 28, 2013	$	67,605	$	3,290	$	70,895

Purchased Intangible Assets

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

	September 28, 2013				December 29, 2012
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Rasco technology	$	33,140	$	19,936	$	32,399	$	16,452
Ismeca technology		29,450		2,812		—		—
Duma technology		864		336		864		120
	$	63,454	$	23,084	$	33,263	$	16,572

Amortization expense related to intangible assets was approximately $2.6 million in the third quarter of fiscal 2013 and $6.0 million in the first nine months of fiscal 2013. During the third quarter of fiscal 2013, management updated its valuation of certain intangible assets acquired from Ismeca and we recorded additional amortization expense of approximately $0.6 million based on the revised amounts. Amortization expense related to intangible assets was approximately $1.0 million in the third quarter of fiscal 2012 and $3.0 million in the first nine months of fiscal 2012. The amounts included in the table above for the period ended September 28, 2013 exclude approximately $2.3 million and $4.0 million, related to the trade names of Rasco and Ismeca, respectively, and for the period ended December 29, 2012 exclude approximately $2.3 million related to the Rasco trade name which have indefinite lives and are not being amortized. Changes in the carrying values of purchased intangible assets include the impact of fluctuations in currency exchange rates.