Strategic Technology Transactions, Goodwill and Purchased Intangible Assets

12 Months Ended

Dec. 28, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Strategic Technology Transactions, Goodwill and Purchased Intangible Assets

2.	Strategic Technology Transactions, Goodwill and Purchased Intangible Assets

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 of Ismeca was a strategic transaction to expand our semiconductor total available market, extend our market leadership, expand our customer base, and broaden our product and technology offerings.

The acquisition has been accounted for in conformity with FASB Accounting Standards Codification 805, Business Combinations. The purchase price of this acquisition was approximately $90.8 million, and was funded primarily by cash reserves ($57.1 million) and certain liabilities assumed ($33.7 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 below. The acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will generally not be deductible for tax purposes. Goodwill associated with the acquisition was primarily attributable to the opportunities from the addition of Ismeca’s products and it has been assigned to our semiconductor equipment segment.

The total purchase price has been allocated to Ismeca’s net tangible and intangible assets based on their estimated fair values as of December 31, 2012, the effective date of the acquisition. The allocation of purchase price to the acquired assets and assumed liabilities was as follows (in thousands):


Current assets	$	38,058
Fixed assets		1,314
Other assets		7,395
Intangible assets		33,138
Goodwill		10,930

Total assets acquired		90,835
Liabilities assumed		(33,692	)

Net assets acquired	$	57,143

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


	Estimated Fair Value		Average Useful Life
Complete technology	$	21,399	8 years
Customer relationships		7,475	8 years
Covenants not-to-compete		325	3 years
Trade name		3,939	Indefinite

	$	33,138

The 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 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.

Unaudited Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of Cohu and Ismeca on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each of the periods presented. The pro forma financial information for all periods presented also includes adjustments to, amortization charges for acquired intangible assets, adjustments to interest income, and related tax effects.

The pro forma financial information for the twelve months ended December 28, 2013 combines our results for that period, which include the results of Ismeca subsequent to December 31, 2012, the date of acquisition. The pro forma financial information for the twelve months ended December 29, 2012 and December 31, 2011 combines our historical results for that period with the historical results of Ismeca.

The following table summarizes the unaudited pro forma financial information (in thousands, except per share data):


	Twelve Months Ended
	December 28, 2013						December 29, 2012						December 31, 2011 ⁽¹⁾
	Reported			Pro Forma			Reported			Pro Forma			Reported		Pro Forma
Net sales	$	247,300		$	247,300		$	221,162		$	306,043		$	308,968	$	410,063

Net income (loss)	$	(33,418	)	$	(33,418	)	$	(12,243	)	$	(12,296	)	$	15,719	$	21,027

Net income (loss) per share:
Basic	$	(1.34	)	$	(1.34	)	$	(0.50	)	$	(0.50	)	$	0.65	$	0.87

Diluted	$	(1.34	)	$	(1.34	)	$	(0.50	)	$	(0.50	)	$	0.64	$	0.86

Changes in the carrying value of goodwill by reportable segment during the years ended December 28, 2013 and December 29, 2012 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		10,930		—		10,930
Impact of currency exchange		1,533		94		1,627

Balance, December 28, 2013	$	67,983	$	3,330	$	71,313

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.

Our purchased intangible assets, subject to amortization, were as follows (in thousands):


	December 28, 2013						December 29, 2012
	Gross Carrying Amount		Accumulated Amortization		Remaining Useful Life		Gross Carrying Amount		Accumulated Amortization
Rasco technology	$	33,689	$	21,319		3.0 years	$	32,399	$	16,452
Ismeca technology		29,915		3,809		7.0 years		—		—
Duma technology		864		408		1.6 years		864		120

	$	64,468	$	25,536			$	33,263	$	16,572

The amounts included in the table above at December 28, 2013 exclude approximately $2.4 million and $4.0 million, related to the trade names of Rasco and Ismeca, respectively, and at December 29, 2012 exclude approximately $2.3 million related to Rasco trade name which have an indefinite life and are not being amortized. Changes in the carrying values of purchased intangible assets are a result of the impact of fluctuation in currency exchange rates.

Amortization expense related to purchased intangible assets was approximately $8.1 million, $4.1 million and $4.6 million in 2013, 2012 and 2011, respectively. As of December 28, 2013, we expect amortization expense in future periods to be as follows: 2014 – $8.3 million; 2015 – $8.2 million; 2016 – $7.6 million; 2017 – $3.7 million 2018 – $3.7 million; and thereafter $7.4 million.

- 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.

+ References+ Details