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Note 7 - Goodwill
 3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Goodwill Disclosure [Text Block]
7.
Goodwill
 
The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there
may
be impairment on each reporting unit. In connection with the evaluation of goodwill for impairment, the Company
may
first
consider qualitative factors to assess whether there are any indicators to suggest it is more likely than
not
that the fair value of a reporting unit
may
not
exceed its carrying amount. If after assessing such factors or circumstances, the Company determines it is more likely than
not
that the fair value of a reporting unit is greater than its carrying amount, then a quantitative assessment is
not
required. If the Company chooses to bypass the qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to qualitatively conclude that
no
impairment has occurred, then the Company will perform a quantitative assessment. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit’s carrying value over its fair value.
 
As of
December 31, 2019,
the Company concluded that it operated as a single reporting unit and performed the
2019
goodwill impairment test using a single reporting unit.
 
Changes in the carrying value of goodwill for the
three
months ended
March 31, 2020
were as follows:
 
   
Three Months Ended
March 31, 2020
  
Twelve Months Ended
December 31, 2019
Balance, beginning   $
7,694
     $
7,851
  
Effect of foreign currency adjustments    
(148
 )    
(157
 )
Acquisitions    
44,400
      
-
  
Impairment loss    
(18,144
 )    
-
  
Balance, ending   $
33,802
     $
7,694
  
 
The increase in goodwill for the
three
months ended
March 31, 2020
is related to the acquisitions of Parcus Medical and Arthrosurface Inc. in
January
and
February 2020
as further discussed in Note
3.
As a result of the acquisitions, the Company now has
two
reporting units. The newly formed reporting unit includes Parcus Medical and Arthrosurface, which share similar economic and qualitative characteristics. This reporting unit produces sports medicine surgical tools, instruments and joint implants. The legacy Anika business remains in
one
reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform.
 
The widespread economic volatility resulting from the COVID-
19
pandemic triggered impairment testing in the
first
quarter of
2020,
and accordingly, the Company performed interim impairment testing on the goodwill balances of its reporting units. For the legacy Anika reporting unit, the Company performed a qualitative assessment including consideration of
1
) general macroeconomic factors,
2
) industry and market conditions, and
3
) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing. The Company determined it was
not
more likely than
not
that the fair value of the legacy Anika reporting unit is less than its carry amount and thus, goodwill was
not
impaired as of
March 31, 2020.
 
U.S. government policy responses to the COVID-
19
pandemic and the resulting changes in healthcare guidelines caused a temporary suspension of domestic elective surgical procedures. As a result of these events during the quarter, the Company performed a quantitative assessment of goodwill impairment related to the Parcus Medical and Arthrosurface reporting unit as of
March 31, 2020.
The Company then estimated the fair value of the Parcus Medical and Arthrosurface reporting unit using a discounted cash flow method, which is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period. The Company determined that a discounted cash flow model provided the best approximation of fair value of the reporting unit for the purpose of performing the interim impairment test.
 
This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, the achievement of certain cost synergies, terminal growth rates and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made reasonable assumptions to best estimate future cash flows under a high degree of economic uncertainty that existed as of
March 31, 2020.
In developing its assumptions, the Company also considered observed trends of its industry participants.
 
The results of the interim impairment test indicated that the estimated fair value of the Parcus and Arthrosurface reporting unit was less than its carrying value. This is primarily due to decreases in near term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures which directly impact the Parcus and Arthrosurface reporting unit. Consequently, a non-cash goodwill impairment charge was recorded as reflected in the table above. If the pandemic's economic impact is more severe, or if the economic recovery takes longer to materialize or does
not
materialize as strongly as anticipated, this could result in further goodwill impairment charges.