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Note 3 - Goodwill and Purchased Intangible Assets

12 Months Ended

Dec. 26, 2020

Goodwill and Intangible Assets Disclosure [Text Block]

3. Goodwill and Purchased Intangible Assets

Changes in the carrying value of our goodwill during the years ended December 26, 2020, and December 28, 2019, were as follows (in thousands):

	Semiconductor Test & Inspection			PCB Test			Total Goodwill
Balance December 29, 2018	$	220,808		$	21,319		$	242,127
Additions		2,117			(983	)		1,134
Impairments⁽¹⁾		(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		11,949			1,686			13,635
Balance December 26, 2020	$	230,724		$	21,580		$	252,304

(1) Impairment of goodwill associated with our FSG segment that is presented as discontinued operations. This amount was not pushed down in the consolidated financial statements and was included within the balance of our Semiconductor Test & Inspection segment.

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

	December 26, 2020						December 28, 2019
					Remaining
	Gross Carrying		Accumulated		Useful Life		Gross Carrying		Accumulated
	Amount		Amortization		(years)		Amount		Amortization
Developed technology	$	239,250	$	83,246		5.7	$	227,619	$	49,805
Customer relationships		74,933		22,751		8.5		72,251		14,824
Trade names		23,756		6,279		8.7		22,612		3,892
Covenant not-to-compete		340		136		6.0		322		96
	$	338,279	$	112,412			$	322,804	$	68,617

The table above excludes $7.8 million and $20.8 million of in-process technology in 2020 and 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 current year $1.8 million of in-process technology was completed and transferred to developed technology and began being amortized. 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 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 at that time. Other events and changes in circumstances may also require goodwill and our indefinite-lived intangible assets 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 and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and 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 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 an additional $7.3 million impairment to IPR&D. For the twelve months ended December 26, 2020 total impairments recorded to IPR&D projects was $11.2 million.

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 purchased intangible assets was approximately $38.7 million in 2020, $39.6 million in 2019 and $17.2 million in 2018. As of December 26, 2020, we expect amortization expense in future periods to be as follows: 2021 - $36.4 million; 2022 - $36.4 million; 2023 - $36.3 million; 2024 - $36.3 million 2025 - $27.1 million; and thereafter $53.5 million.