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Note 2 - Goodwill and Purchased Intangible Assets

9 Months Ended

Sep. 26, 2020

Goodwill and Intangible Assets Disclosure [Text Block]

2.	Goodwill and Purchased Intangible Assets

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended December 28, 2019, and the nine-month period ended September 26, 2020, by segment, were as follows (in thousands):

	Semiconductor Test
	& Inspection			PCB Test			Total
Balance, December 30, 2018	$	220,808		$	21,319		$	242,127
Adjustments		2,117			(983	)		1,134
Impairments		(715	)		-			(715	)
Impact of currency exchange		(3,435	)		(442	)		(3,877	)
Balance, December 28, 2019		218,775			19,894			238,669
Impact of currency exchange		4,953			719			5,672
Balance, September 26, 2020	$	223,728		$	20,613		$	244,341

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

	September 26, 2020						December 28, 2019
					Remaining
					Weighted
					Average
	Gross				Amort.		Gross
	Carrying Amount		Accum. Amort.		Period (in years)		Carrying Amount		Accum. Amort.
Developed technology	$	233,442	$	73,584		6	$	227,619	$	49,805
Customer relationships		73,165		20,282		8.7		72,251		14,824
Trade names		23,154		5,591		8.9		22,612		3,892
Covenant not-to-compete		334		125		6.3		322		96
Total intangible assets	$	330,095	$	99,582			$	322,804	$	68,617

The table above excludes $8.3 million and $20.8 million of IPR&D, at September 26, 2020 and December 28, 2019, respectively, which has an indefinite life and is subject to impairment or future amortization as developed technology when the projects are completed. During the nine months ended September 26, 2020, we completed certain projects previously included in IPR&D and transferred $1.3 million to developed technology. Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates.

We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable. We previously completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2019, the first day of our fourth quarter and concluded there were no impairments of goodwill within our reporting units or our indefinite-lived intangible assets.

Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we concluded there was no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmaps and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value. During the third quarter of 2020, we became aware of additional delays in customer adoption of these new products under development leading us to re-evaluate the fair value of these projects and we determined that the carrying value exceeded the fair value and, as a result, we recorded a $7.3 million impairment to IPR&D. For the nine months ended September 26, 2020 total impairments recorded to IPR&D projects was $11.2 million. We also considered changes in market volatility, the improvement in Cohu’s stock price and our actual and expected operating results as compared to the forecasts utilized during our first quarter test noting no events or conditions that suggested a triggering event had occurred related to our goodwill as of September 26, 2020.

The forecasts utilized in the interim impairment tests were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and may not be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required, we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Amortization expense related to intangible assets was approximately $9.8 million in the third quarter of fiscal 2020 and $28.8 million in the first nine months of fiscal 2020. Amortization expense related to intangible assets was approximately $10.0 million in the third quarter of fiscal 2019 and $30.0 million in the first nine months of fiscal 2019.