Note 2 - Business Acquisitions, Goodwill and Other Purchased Intangible Assets

3 Months Ended

Mar. 25, 2017

Notes to Financial Statements

Business Combination, Goodwill, and Intangible Assets Disclosure [Text Block]

2. Business Acquisitions, Goodwill and Other Purchased Intangible Assets

Kita

On

January

4,

2017,

we completed the acquisition of all of the outstanding share capital of Kita Manufacturing Co., LTD. and Kita USA, Inc. (together “Kita”) (the “Acquisition”), Kita, headquartered in Osaka, Japan, and with operations in Attleboro, Massachusetts and Kyoto, Japan, designs, manufactures and sells spring probe contacts used in final test contactors, probe cards, PCB test boards and connectors sold to customers worldwide.

The acquisition of Kita was a strategic transaction to expand our total available market, extend our market leadership and broaden our product offerings.

In connection with the Acquisition, during the

three

months ended

March

25,

2017

and

March

26,

2016

we incurred acquisition related costs, which were expensed as selling, general and administrative costs totaling

$0.2

 million and

$0.1

 million, respectively.

The Acquisition has been accounted for in conformity with FASB Accounting Standards Codification 

805,

Business Combinations (“ASC 

805”).

 

The total purchase price consisted of the following (

in thousands

):

Cash paid to Kita shareholders	$	15,000
Fair value of contingent consideration		2,251
Total purchase price	$	17,251

The contingent consideration represents the estimated fair value of future payments totaling up to

$3.0

million we would be required to make as a result of Kita achieving annual revenue and EBITDA targets in

2017

and

2018

as specified in the purchase agreement.

The contingent consideration payable has been classified as level

3

in the fair value hierarchy. See Note

3,

“Financial Instruments Measured at Fair Value” for additional information on the

three

-tier fair value hierarchy.

We have not finalized the purchase price allocation. Accordingly, the preliminary purchase price allocation shown below could materially change as the fair values of the tangible and intangible assets acquired and liabilities assumed and the related income tax effects are finalized during the remainder of the measurement period (which will not exceed

12

months from the acquisition closing date).

The acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. 

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values was as follows (

in thousands

):

Current assets, including cash received	$	10,148
Fixed assets		12,751
Other assets		2,290
Intangible assets subject to amortization		4,650
Goodwill		3,083
Total assets acquired		32,922
Liabilities assumed		(15,671	)
Net assets acquired	$	17,251

Kita’s results of operations were included in, but not material to, Cohu’s consolidated statements of operations and comprehensive income commencing

January

4,

2017

and sales during the

three

-month period ended

March

25,

2017

were

$4.1

million.  Prior to the acquisition by Cohu, Kita only prepared consolidated financial information on a bi-annual basis and due to the availability of comparable information, it is impracticable to present the amounts of revenues and earnings of Kita for the

three

-month period ended

March

26,

2016.

 

Goodwill and Intangible Assets 

Changes in the carrying value of goodwill during the year ended

December

31,

2016

and the

three

-month period ended

March

25,

2017

were as follows

(

in thousands

):

	Goodwill
Balance, December 26, 2015	$	60,264
Impact of currency exchange		(1,415	)
Balance, December 31, 2016		58,849
Additions		3,083
Impact of currency exchange		1,116
Balance, March 25, 2017	$	63,048

Purchased intangible assets, subject to amortization are as follows

(

in thousands

)

:

	March 25, 2017						December 31, 2016
	Gross Carrying		Accumulated		Remaining Useful		Gross Carrying		Accumulated
	Amount		Amortization		Life ( years)		Amount		Amortization
Ismeca technology	$	26,895	$	14,428		3.8	$	26,191	$	13,241
Trade names		5,498		573		13.5		5,353		468
	$	32,393	$	15,001			$	31,544	$	13,709

Amounts presented above exclude purchased intangible assets totaling

$4.7

 million, net of amortization of

$0.2

 million, generated as a result of the Acquisition as these amounts are preliminary and subject to change. Amortization expense related to intangible assets in the

first

quarter of fiscal

2017

and

2016

was

$1.1

 million and

$1.8

million, respectively. The year-over-year decrease in amortization is a result of certain intangible assets that became fully amortized in the prior year. Changes in the carrying values of these intangible assets are a result of the impact of fluctuations in currency exchange rates.