UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[√]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
Incorporation or Organization)
95-1934119
(I.R.S. Employer Identification No.)
12367 Crosthwaite Circle, Poway, California
(Address of principal executive offices)
92064-6817
(Zip Code)
Registrant’s telephone number, including area code: (858) 848-8100
Title of Each Class
Common Stock, $1.00 par value
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
COHU
Name of Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $655,000,000 based on the closing stock price as
reported by the Nasdaq Stock Market LLC as of June 26, 2020. Shares of common stock held by each officer and director and by each person or group who
owns 5% or more of the outstanding common stock have been excluded in that such persons or groups may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 18, 2021, the Registrant had 42,223,006 shares of its $1.00 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Cohu, Inc.’s 2021 Annual Meeting of Stockholders to be held on May 5, 2021, and to be filed pursuant to Regulation
14A within 120 days after registrant’s fiscal year ended December 26, 2020, are incorporated by reference into Part III of this Report.
COHU, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 26, 2020
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Signatures
Exhibits, Financial Statement Schedules
Form 10-K Summary
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This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Securities Exchange Act
of 1934 and the Securities Act of 1933, which are subject to known and unknown risks and uncertainties. The forward-looking
statements include statements concerning, among other things, our business strategy (including the influence of anticipated
trends and developments in our business and the markets in which we operate), financial results, operating results, revenues,
gross margin, operating expenses, products, projected costs and capital expenditures, research and development programs,
sales and marketing initiatives, acquisitions and competition. In some cases, you can identify these statements by our use of
forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.
Forward-looking statements are based on information available to us as of the filing date of this Annual Report on Form 10-
K and our current expectations about future events, which are inherently subject to change and involve known and unknown
risks and uncertainties. You should not place undue reliance on these forward-looking statements. We have no obligation to
update any of these statements, and we assume no obligation to do so. Actual events or results may differ materially from
those expressed or implied by these statements due to various factors, including but not limited to the matters discussed below
in the section entitled “Item 1A: Risk Factors,” and elsewhere in this Annual Report on Form 10-K.
PART I
Item 1. Business.
Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test
modules, test contactors, thermal sub-systems, semiconductor automated test equipment and bare board PCB test systems
used by global semiconductor and electronics manufacturers and semiconductor test subcontractors. We offer a wide range
of products and services, and revenue from our capital equipment products is driven by the capital expenditure budgets and
spending patterns of our customers, who often delay or accelerate purchases in reaction to variations in their business. The
level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor
devices and PCBs and the products that incorporate them. Our recurring revenues are driven by an increase in the number of
semiconductor devices and PCBs that are tested and by the continuous introduction of new products and technologies by our
customers.
On October 1, 2018, we acquired Xcerra Corporation (“Xcerra”), a Massachusetts-based company. Xcerra, formerly known
as LTX-Credence Corporation, is a global provider of test and handling capital equipment, interface products and related
services to the semiconductor and electronics manufacturing industries. Xcerra operated in semiconductor and electronics
manufacturing test markets through its atg-Luther & Maelzer, Everett Charles Technologies (ECT), LTX-Credence and
Multitest businesses. The acquisition of Xcerra extended Cohu’s market position in the test handler and test contactor markets
and expanded Cohu’s addressable market with our entry into semiconductor automated test equipment (ATE) and bare board
PCB test. The results of Xcerra’s operations have been included in our consolidated results since October 1, 2018. As a result
of the timing of the acquisition, our fiscal 2020 and 2019 results include Xcerra for the entire year whereas fiscal 2018
amounts only include Xcerra for the three months ended December 29, 2018. This acquisition helped transform our business
into a broader semiconductor test, inspection and test handling market leader with greater scale, diversification and market
opportunities.
Management previously determined that Xcerra’s fixtures services business did not align with Cohu’s long-term strategic
plan and engaged in a process to divest this portion of the business. As a result, as of December 28, 2019 and December 29,
2018, the assets of our fixtures business are considered “held for sale” and the operations of our fixtures business were
presented as “discontinued operations”. This business was sold in February 2020. Unless otherwise noted, all amounts
presented are from continuing operations.
We have determined that we have two reportable segments, Semiconductor Test and Inspection Equipment (“Semiconductor
Test & Inspection”) and PCB Test Equipment (“PCB Test”). Financial information on our reportable segments for each of
the last three years is included in Note 10, “Segment and Geographic Information” in Part IV, Item 15(a) of this Form 10-K.
1
Sales by reportable segment, expressed as a percentage of total consolidated net sales, for the last three years were as follows:
Semiconductor Test & Inspection
PCB Test
2020
92%
8%
100%
2019
93%
7%
100%
2018
98%
2%
100%
Cohu, Inc. (“Cohu”, “we”, “our”, “us” and the “Company”) was incorporated under the laws of California in 1947, as Kalbfell
Lab, Inc. and commenced active operations in the same year. Our name was changed to Kay Lab in 1954. In 1957, Cohu was
reincorporated under the laws of the State of Delaware as Cohu Electronics, Inc. and in 1972 our name was changed to Cohu,
Inc.
Our Products
We currently sell the following products:
Semiconductor Test. Semiconductor ATE (Automated Test Equipment) is used both for wafer level and device package
testing. Our semiconductor ATE solutions consist primarily of two platforms focused on the system on a chip (SoC) device
market. The Diamond series platform, which includes the flagship Diamondx test system, offers high-density instrumentation
for low-cost testing of microcontrollers, application specific standard products (ASSP), power management, display drivers,
sensors and other mixed signal devices. The PAx series of testers is focused primarily on the RF Front End IC and Module
market.
Semiconductor Handlers. Semiconductor test handlers are used in conjunction with semiconductor ATE to automate the
testing of packaged semiconductor devices. Our handlers support a variety of package sizes and device types, including those
used in automotive, mobile, industrial, computing applications, among others. We offer a broad range of test handlers,
including pick-and-place, turret, gravity, strip, MEMS and thermal sub-systems, along with inspection handlers that perform
automated optical inspection of semiconductor devices.
Interface Products. Our interface products are comprised of test contactors, probe heads and probe pins. Test contactors serve
as the interface between the test handler and the semiconductor device under test such as digital semiconductor devices
utilizing spring probe technology, power management and LED semiconductor devices utilizing cantilever technology, and
RF semiconductor devices based on contacts designed to operate at high frequencies. Test contactors and probe heads are
specific to individual semiconductor device designs, need to be replaced frequently and increase in size with the number of
devices tested in parallel. Interface Products are included in our recurring revenues.
Spares and Kits. We provide consumable, non-consumable and spare items that are used to maintain, sustain or otherwise
enable customers’ equipment to meet its performance, availability and production requirements. We also design and
manufacture a wide range of device dedication kits that enable handlers to process different semiconductor packages. Spares
and Kits are included in our recurring revenues.
Services. Our worldwide service organization performs installations and necessary maintenance of systems sold. We provide
various parts and labor warranties on test and handling systems and instruments designed and manufactured by us and
warranties on certain components that have been purchased from other manufacturers and incorporated into our test and
handling systems. We also provide training on the maintenance and operation of our systems as well as application, data
management software and consulting services on our products. Our InSight test cell enterprise software platform provides
our customers with a centralized data management system to monitor equipment performance. Services are included in our
recurring revenues.
Bare Board PCB Test Systems. Bare board PCB test systems are used to test pre-assembly printed circuit boards. Our PCB
test systems include flying probe testers, which are used to test low-volume, highly complex circuit boards and do not require
the use of a separate test fixture, as well as universal grid testers, which require the use of a custom test fixture and are well-
suited for circuit boards in high volume manufacturing.
2
Sales by Product Line
During the last three years, our consolidated net sales were distributed as follows:
Semiconductor test & inspection systems (including kits)
Interface products, spares, kits (not as part of systems sales) and
services
PCB test systems
2020
50%
45%
5%
2019
51%
44%
5%
2018
55%
43%
2%
Customers
Our customers include semiconductor integrated device manufacturers, fabless design houses, PCB manufacturers, and test
subcontractors throughout the world. Repeat sales to existing customers represent a significant portion of our sales. During
the last three years, customers of our Semiconductor Test & Inspection segment that comprised 10% or greater of our
consolidated net sales were as follows:
Intel
2020
2019
2018
*
11.1%
*
*No single customer exceeded 10% of consolidated net sales for the years ended December 26, 2020 and December 29,
2018.
No customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 26, 2020,
December 28, 2019 or December 29, 2018.
The loss of, or a significant reduction in, orders by these or other significant customers, including reductions due to market,
economic or competitive conditions or the outsourcing of final integrated circuit test to subcontractors that are not our
customers would adversely affect our financial condition and results of operations.
Additional financial information on revenues from external customers by geographic area for each of the last three years is
included in Note 10, “Segment and Geographic Information” in Part IV, Item 15(a) of this Form 10-K.
Sales and Marketing
We market our products worldwide through a combination of a direct sales force and independent sales representatives. In
geographic areas where we believe there is sufficient sales potential, we generally employ our own personnel. Our United
States, (U.S.) sales offices are located in Poway and Milpitas, California, Lincoln, Rhode Island and Norwood, Massachusetts.
Our European sales offices are located in Wertheim and Kolbermoor, Germany; Grenoble, France; Agrate, Italy and La
Chaux-de-Fonds, Switzerland. We operate in Asia with sales and service offices in Singapore, Malaysia, Thailand,
Philippines, Taiwan, China, South Korea and Japan.
Competition
The semiconductor equipment and PCB test industries are intensely competitive and are characterized by rapid technological
change and demanding worldwide service requirements. Significant competitive factors include product performance, price,
reliability, lead-time, customer support and installed base of products. While we believe that we are the leading worldwide
supplier of semiconductor test handling equipment, we face substantial competition in Japan and Taiwan which represent a
significant percentage of the worldwide market. Test subcontractors in Asia also purchase mostly from local Asian
competitors. In the semiconductor test market, we face competition from two dominant suppliers headquartered in the U.S.
and Japan, both of which are substantially larger than Cohu’s test business. While we are among the leading worldwide
suppliers of test contactors, this market is fragmented with a large number of global and local competitors. Further, the PCB
test industry is characterized by significant Asia-based competition and intense price competition. To remain competitive
within the industries we serve, we believe we will require significant financial resources to offer a broad range of products,
maintain localized customer support and service centers worldwide and to invest in research and development of new
products. Failure to introduce new products in a timely manner or the introduction by competitors of products with actual or
perceived advantages could result in a loss of competitive position and reduced sales of existing products. No assurance can
be given that we will continue to compete successfully throughout the world.
3
Backlog
Our backlog of unfilled orders for products, by segment at December 26, 2020 and December 28, 2019 was as follows:
(in millions)
Semiconductor Test & Inspection
PCB Test
Total consolidated backlog
2020
2019
$
$
237.1 $
22.4
259.5 $
149.9
10.5
160.4
Backlog is generally expected to ship within the next twelve months. Our backlog at any point in time may not be
representative of actual sales in any future period due to the possibility of customer changes in delivery schedules, cancellation
of orders, potential delays in product shipments, and difficulties in obtaining parts from suppliers or failure to satisfy customer
acceptance requirements resulting in the inability to recognize revenue under accounting requirements. Furthermore, many
orders are subject to cancellation or rescheduling by the customer with limited or no penalty. A reduction in backlog during
any period could have a material adverse effect on our business, financial condition and results of operations.
Manufacturing and Raw Materials
Our principal manufacturing operations are currently located in Malacca, Malaysia (handler operations and kits); Laguna,
Philippines (kits and test contactors); Lincoln, Rhode Island (connectors); Osaka, Japan (probe pins); and Wertheim, Germany
(bare board PCB test systems).
We outsource the manufacturing of many of our semiconductor automated test equipment products to Jabil Circuit, Inc’s
facility in Penang, Malaysia. Our contract manufacturing partner is responsible for significant material procurement,
assembly and testing. We continue to manage product design through pilot production for the subcontracted products, and
we are directly involved in qualifying suppliers and key components used in all our products. Our contract manufacturer is
responsible for funding the capital expenses incurred in connection with the manufacture of our products, except with regard
to end-of-line testing equipment and other specific manufacturing equipment utilized in assembling our products or sub-
components which are financed and owned by Cohu. Contracting with a global provider such as Jabil, gives us added
flexibility to manufacture certain products closer to target markets in Asia, potentially increasing responsiveness to customers
while reducing costs and delivery times.
Many of the components and subassemblies we utilize are standard products, although some items are made to our
specifications. Certain components are obtained or are available from a limited number of suppliers. We seek to reduce our
dependence on sole and limited source suppliers, however in some cases the complete or partial loss of certain of these sources
could have a material adverse effect on our operations while we attempt to locate and qualify replacement suppliers.
Patents and Trademarks
Our technology is protected by various intellectual property laws including patent, license, trademark, copyright and trade
secret laws. In addition, we believe that, due to the rapid pace of technological change in the semiconductor and electronic
equipment industries, the successful manufacture and sale of our products also depends upon our experience, technological
know-how, manufacturing and marketing skills and speed of response to sales opportunities. In the absence of patent
protection, we would be vulnerable to competitors who attempt to copy or imitate our products or processes. We believe our
intellectual property has value and we have in the past and will in the future take actions we deem appropriate to protect such
property from misappropriation. However, there can be no assurance such actions will provide meaningful protection from
competition. Protecting our intellectual property rights or defending against claims brought by other holders of such rights,
either directly against us or against customers we have agreed to indemnify, would likely be expensive and time consuming
and could have a material adverse effect on our operations.
Research and Development
Research and development activities are carried on in our various subsidiaries and are directed toward development of new
products and equipment, as well as enhancements to existing products and equipment. Our total research and development
expense was $86.2 million in 2020, $86.1 million in 2019 and $56.4 million in 2018. The increase in research and
development expense in 2019 was primarily associated with the acquisition of Xcerra on October 1, 2018. Incremental
research and development expense directly attributed to Xcerra in 2020, 2019 and 2018 was $44.2 million, $45.4 million and
$11.5 million, respectively.
4
We work closely with our customers to make improvements to our existing products and in the development of new products.
We expect to continue to invest heavily in research and development and must manage product transitions successfully as
introductions of new products could adversely impact sales.
Seasonality
Historically, the semiconductor industry has been seasonal with recurring periods of oversupply and excess capacity, which
often have had a significant effect on the semiconductor industry’s demand for capital equipment, including equipment of
the type we manufacture and market. We anticipate that the markets for newer generations of semiconductors and
semiconductor equipment will be subject to similar cycles and severe downturns. Any significant reductions in capital
equipment investment by semiconductor integrated device manufacturers and test subcontractors will materially and
adversely affect our business, financial position and results of operations. See the risk factor entitled “The semiconductor
industry we serve is seasonal, volatile and unpredictable.”
Executive Officers of the Registrant
The following sets forth the names, ages, positions and offices held by all executive officers of Cohu as of February 18, 2021.
Executive Officers serve at the discretion of the Board of Directors, until their successors are appointed.
Name
Age Position
Luis A. Müller
Jeffrey D. Jones
Christopher G. Bohrson
Thomas D. Kampfer
Ian P. Lawee
51 President and Chief Executive Officer
59 Vice President, Finance and Chief Financial Officer
61 Senior Vice President, Global Customer Group
57 Vice President, Corporate Development, General Counsel and Secretary
54 Senior Vice President and General Manager, Semiconductor Test Group
Dr. Müller has been the President and Chief Executive Officer of Cohu since December 28, 2014. His previous roles at Cohu
include serving as President of Cohu’s Semiconductor Equipment Group (“SEG”) from 2011 to 2014; Managing Director of
Rasco GmbH (“Rasco”) from 2009 to 2011; Vice President of Delta Design’s High Speed Handling Group from 2008 to
2011; and Director of Engineering at Delta Design from 2005 to 2008. Prior to joining Cohu, Dr. Müller spent nine years at
Teradyne Inc., where he held management positions in engineering and business development.
Mr. Jones joined Cohu’s Delta Design subsidiary in July 2005 as Vice President Finance and Controller. In November 2007,
Mr. Jones was named Vice President, Finance and Chief Financial Officer of Cohu. Prior to joining Delta Design, Mr. Jones,
was Vice President and General Manager of the Systems Group at SBS Technologies, Inc., a designer and manufacturer of
embedded computer products. Prior to SBS Technologies, Mr. Jones was an Audit Manager for Coopers & Lybrand (now
PricewaterhouseCoopers).
Mr. Bohrson was appointed Senior Vice President, Global Customer Group on February 8, 2021. Previously, Mr. Bohrson
served as Sr. Vice President and General Manager, Test Handler Group beginning in October 2018 and was Vice President
and General Manager for Digital Test Handlers from January 2017 until October 2018 and served as Vice President Sales
and Service, Americas from May 2016 to January 2017. Prior to joining Cohu, from 2007 through 2016, Mr. Bohrson held
several executive positions at Bosch Automotive Service Solutions/SPX lastly as Vice President and General Manager of the
OEM Diagnostics and Information Solutions group. Prior to that, Mr. Bohrson spent twenty years working in a variety of
management and technical roles at Teradyne, Inc.’s semiconductor and broadband test division in the U.S. and Asia.
Mr. Kampfer joined Cohu in May 2017 as Vice President Corporate Development, General Counsel and Secretary. Mr.
Kampfer previously served from June 2015 to May 2017 as Executive Vice President and Chief Financial Officer of Multi-
Fineline Electronix, Inc. Prior to that, Mr. Kampfer served from 2012 to 2015 as President of CohuHD, formerly a division
of Cohu, which was divested in 2014. Previously, Mr. Kampfer spent eight years with Iomega Corporation, holding several
executive positions, including President and Chief Operating Officer and Vice President, General Counsel and Secretary.
Earlier, Mr. Kampfer served in various legal and business development executive roles with Proxima Corporation, and also
held various positions in manufacturing engineering and legal at IBM.
5
Mr. Lawee joined Cohu in May 2019 as Vice President and General Manager of Cohu’s Semiconductor Test Group and
subsequently promoted to Senior Vice President and General Manager on February 9, 2021. Mr. Lawee has more than 25
years of experience in multiple management positions at both semiconductor and test instrumentation companies. Between
2009 and 2019, he served in multiple General Manager and Senior Director roles at Analog Devices, with responsibilities
spanning Interface, Isolation and Precision Converter semiconductor franchises, as well as Business Unit responsibility for
semiconductors sold into the Energy market. Prior to that, Mr. Lawee spent 15 years working in a variety of product,
marketing and engineering management roles at Teradyne’s semiconductor test division.
Governmental Regulations
Our business activities are worldwide and are subject to various federal, state, local, and foreign laws and our products and
services are governed by a number of rules and regulations. Costs and accruals incurred to comply with these governmental
regulations are presently not material to our capital expenditures, results of operations and competitive position. Although
there is no assurance that existing or future government laws applicable to our operations, services or products will not have
a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently
anticipate material expenditures for government regulations.
Environmental
Our products and operations are, or may in the future be, subject to various federal, state, local, and foreign laws and
regulations concerning the environment. Compliance with federal, state, local and international laws that have been enacted
or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the
environment and the prevention of climate change have not had a material effect and are not expected to have a material
effect upon our capital expenditures, results of operations or our competitive position. However, future changes in regulations
may require expenditures that could adversely impact earnings in future years. We believe we are in compliance and are
committed to maintaining compliance with all environmental laws applicable to our operations, products and services, and
to reducing our environmental impact across all aspects of our business.
Global Trade
As a global company, the import and export of our products and services are subject to laws and regulations including
international treaties, U.S. export controls and sanctions laws, customs regulations, and local trade rules around the world.
We believe we are in compliance and are committed to maintaining compliance with all global trade laws applicable to our
operations, products and services.
Human Capital Management
Cohu is a global supplier of semiconductor test and inspection handlers, MEMS test modules, test contactors, thermal sub-
systems, semiconductor automated test equipment and bare board PCB test systems used by global semiconductor and
electronics manufacturers and semiconductor test subcontractors. We believe that the daily commitment and dedication of
our workforce in meeting our customers’ needs is one of the significant contributors to our success as an organization. To
ensure we maintain our position as a global leader in the semiconductor test space, we are committed to providing a safe and
positive work environment for our employees that emphasizes learning and professional development, respect for individuals
and ethical conduct, and that is facilitated by a direct management-employee engagement model.
Diversity, Inclusion, and Non-discrimination
We welcome and value diversity ensuring that our work benefits from a broad range of viewpoints and perspectives. We
strive to maintain workplaces that are free from discrimination or harassment based on race, color, religion, gender, gender
identity or gender expression, national origin or ancestry, age, disability, veteran status, military service, sexual orientation,
genetic information, and any other protected category recognized under applicable laws. Cohu is committed to respecting and
protecting all human rights including those of women and minority groups.
Employees
As of December 26, 2020, we had approximately 3,250 employees, including approximately 100 temporary employees, in
25 countries. Approximately 22% of our employees are located in the Americas, 19% are located in EMEA (Europe, the
Middle East and Africa) and 59% are located in China and Asia Pacific. Our employee headcount has fluctuated in the last
five years primarily due to the volatile and unpredictable business conditions in the semiconductor equipment industry and
has also been impacted by acquisitions and divestitures.
6
Management Engagement Practices
We adhere to our core values and Code of Business Conduct and Ethics with a commitment to treating our employees and
all our partners with professionalism, dignity and respect. We pride ourselves at fostering an innovative environment and
collaborative work relationships. This includes respecting principles of freedom of association and the right to engage in
collective bargaining in accordance with applicable laws.
Our employees in the U.S. and most locations in Asia are not covered by collective bargaining agreements. However, certain
employees at our operations in Germany are represented by works councils and employees in La Chaux-de-Fonds,
Switzerland are members of the microtechnology and Swiss watch trade union. The Collective Bargaining Agreement of
“Metallurgie (ingenieurs et cadres)” is applicable to all employees of our French subsidiary and certain employees in our
China operation belong to local trade unions. We have not experienced any work stoppages and consider relations with our
employees to be good.
Health and Safety
The health and safety of our employees is of utmost important to us. Cohu works to protect the health and safety of employees
and our customers and intends to conduct all business activities in an environmentally and socially responsible manner. We
encourage and strive to have every employee actively champion those behaviors and the attitudes necessary to prevent work-
related injuries, illnesses, property damage, and adverse impact to the environment. Our ultimate goal is to achieve a level of
work-related injuries as close to zero as possible through continuous investment in our safety programs. We provide protective
equipment (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate given employee job
duties.
During fiscal 2020, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect
our employees, our subcontractors and our customers. These protocols include complying with social distancing, enhanced
hygiene and other health and safety standards as required by federal, state and local government agencies, and taking into
consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition,
we modified the way we conduct many aspects of our business to reduce the number of in-person interactions. For example,
we significantly expanded the use of virtual interactions in all aspects of our business, including customer facing activities.
Many of our administrative and operational functions during this time have required modification as well, including most of
our workforce working remotely.
Compensation and Benefits
Cohu is committed to providing market competitive compensation programs to attract, retain and motivate a high performing
workforce critical to our long-term success. As part of our compensation philosophy, we focus Cohu’s workforce on our
financial and other business goals to drive and motivate employee performance in key areas through the administration of
our management incentive plan, equity incentive plan, global profit-sharing and other local bonus plans, as may be applicable
to a given position. Cohu also complies with applicable wage, work hours, overtime and benefits laws.
To foster a stronger sense of ownership and align the interests of our employees with shareholders, grants of restricted stock
units are provided to many of our employees on an annual basis and all eligible employees are able to purchase shares of our
common stock, at a 15% discount, through our Employee Stock Purchase Plan. Furthermore, we offer comprehensive, locally
relevant and innovative benefits to all eligible employees. In the U.S, these include, among other benefits:
● Comprehensive health and wellness insurance coverage is offered to employees working an average of 24 hours or
more each week.
● 401(k) retirement plan with matching company contributions of up to 4% of eligible compensation.
● Tuition reimbursement program.
● Parental leave is provided to all new parents for birth, adoption or foster placement.
● Paid Time Off Programs covering time away from work due to employee and family illness, holidays, vacation, civic
duties, etc.
7
Outside of the U.S., we have provided other innovative benefits to help address market-specific needs, such as supplemental
medical coverage or reimbursements, paid time off programs, wellness and development events and programs, transportation
subsidies, etc.
Succession Planning
We perform succession planning annually to ensure that we develop and sustain a strong bench of talent capable of performing
at the highest levels. Not only is talent identified, but potential paths of development are discussed to ensure that employees
have an opportunity to build their skills and are well-prepared for future roles. The strength of our succession planning process
is evident through our long history of promoting our leaders from within the organization, including 60% of our current
executive leadership team.
Available Information
Our web site address is www.cohu.com. We make available free of charge, on or through our web site, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as
reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Our Code of
Business Conduct and Ethics and other documents related to our corporate governance are also posted on our web site at
https://cohu.gcs-web.com/corporate-governance/documents-charters. When required by the rules of the Nasdaq Stock
Market, LLC, or Nasdaq, or the Securities and Exchange Commission, or SEC, we will disclose any future amendment to, or
waiver of, any provision of the code of conduct for our chief executive officer and principal financial officer or any member
or members of our board of directors on our website within four business days following the date of such amendment or
waiver. Information contained on our web site is not deemed part of this report.
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Item 1A. Risk Factors.
In addition to the other information in this Annual Report on Form 10-K, you should carefully consider the risk factors
discussed in this Annual Report on Form 10-K in evaluating Cohu and our business (the “risk factors”). Many of the following
risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business
and economic environment as a result. If any of the identified risks actually occur, our business, financial condition and
results of operations could be materially adversely affected, the trading price of our common stock could decline, and you
may lose all or part of your investment in our common stock. The risks and uncertainties described in this Annual Report on
Form 10-K are not the only ones we face. Additional risks that we currently do not know about, or that we currently deem to
be immaterial, may also impair our business operations or the trading price of our common stock.
Risk Factors Summary
Investing in our securities involves a high degree of risk. The following is a summary of the principal factors that make an
investment in our securities speculative or risky, all of which are more fully described below. This summary should be read
in conjunction with the “Risk Factors” described below and should not be relied upon as a complete summary of the material
risks facing our business.
Risks Relating to Our Business Operations and Industry
● The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business,
financial condition and results of operations.
● We are making investments in new products and product enhancements, which may adversely affect our operating
results; these investments may not be commercially successful.
● We are exposed to the risks of operating a global business.
● We have manufacturing operations in Asia. Any failure to effectively manage multiple manufacturing sites and to
secure raw materials meeting our quality, cost and other requirements, or failures by our suppliers to perform, could
harm our sales, service levels and reputation.
● Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could
adversely impact our operations.
● The semiconductor industry we serve is seasonal, volatile and unpredictable.
● The semiconductor equipment and printed circuit board (“PCB”) test industries are intensely competitive.
● Semiconductor equipment is subject to rapid technological change, product introductions and transitions which may
result in inventory write-offs, and our new product development involves numerous risks and uncertainties.
● The seasonal nature of the semiconductor equipment industry places enormous demands on our employees,
operations and infrastructure.
● A limited number of customers account for a substantial percentage of our net sales.
● A majority of our revenues are generated from exports to foreign countries, primarily in Asia, that are subject to
economic and political instability and we compete against a number of Asia-based test contactor, test handler,
automated test equipment and PCB test suppliers.
Risks Relating to our Indebtedness, Financing and Future Access to Capital
● The incurrence of substantial indebtedness in connection with our financing of the Xcerra acquisition may have an
adverse impact on Cohu’s liquidity, limit Cohu’s flexibility in responding to other business opportunities and
increase Cohu’s vulnerability to adverse economic and industry conditions.
● Our Credit Agreement contains various representations and negative covenants that limit, subject to certain
exceptions and baskets, our ability and/or our subsidiaries’ ability to enter into financing and other transactions
relating to our assets.
● Cohu has total consolidated debt of $319.9 million as of December 26, 2020 and because of such high debt levels
we may not be able to service our debt obligations in accordance with their terms; the Tax Cuts and Jobs Act severely
limits the deductibility of interest expense.
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● The issuance of shares of our common stock in connection with any future offerings of securities by us, will dilute
our shareholders’ ownership interest in the company.
Risks Relating to Acquisitions and Other Strategic Transactions
● We are exposed to other risks associated with other acquisitions, investments and divestitures.
● We expect to continue to evaluate and pursue divestitures of non-core assets.
Risks Relating to Owning Our Stock
● Our financial and operating results may vary and fall below analysts’ estimates, or credit rating agencies may change
their ratings on Cohu, any of which may cause the price of our common stock to decline or make it difficult to
obtain other financing.
Risks Relating to Regulatory Matters
● Global economic and political conditions, including trade tariffs and export restrictions, have impacted our business
and may continue to have an impact on our business and financial condition.
Risks Relating to Cybersecurity, the Economy, and Litigation
● Our business and operations could suffer in the event of cybersecurity breaches.
For a more complete discussion of the material risks facing our business, see below.
Risks Relating to Our Business Operations and Industry
The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business,
financial condition and results of operations.
The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial
condition and results of operations. As the COVID-19 virus has spread rapidly and globally, from March 2020 and continuing
to the present, authorities have implemented numerous measures to try to contain the virus, such as travel bans and
restrictions, quarantines, shelter in place orders, and shutdowns, including in all of the jurisdictions where we operate. These
measures have adversely impacted, and are continuing to adversely impact, our workforce and operations, the operations of
our customers, and those of our respective vendors and suppliers. We have significant operations in the U.S., Germany,
Switzerland, Malaysia, Japan and the Philippines, and each of these countries has been significantly affected by the COVID-
19 outbreak. During the COVID-19 pandemic, it has been common for restrictions to be implemented, relaxed and then
implemented again with little or no notice, which adversely impacts our ability to accurately predict our future revenue and
budget future expenses and is disruptive to our operations.
Although we believe that Cohu qualifies as an “essential business” in the jurisdictions in which we operate, our business has
been, and is continuing to be, adversely impacted by evolving and extended public health requirements around the world;
government-mandated facility shutdowns; import/export, shipping and logistics disruptions and delays; other supply chain
and distribution constraints or delays; rapid changes to business, political or regulatory conditions affecting the semiconductor
equipment industry and the overall global economy; availability of employees and lost employee productivity; risks
associated with, at times, temporarily housing employees in our Malaysia and Philippines factories; remote working IT and
increased cybersecurity risks; increased internal control risks over financial reporting as key finance staff work remotely;
delayed product development programs; customers’ canceling, pushing out orders or refusal to accept product deliveries;
delayed collection of receivables; other actions of our customers, suppliers and competitors which may be sudden and
inconsistent with our expectations; higher shipping and logistics costs; higher component costs; manufacturing capacity
limitations; additional credit rating agency downgrades could occur which would increase our cost of raising capital; and
potential additional impairment of goodwill or other intangible assets or inventory write-downs due to lower product demand
may become necessary. Any of the foregoing COVID-19 driven impacts may have a material adverse effect on our financial
condition and results of operations, and may also have the effect of increasing the likelihood and/or magnitude of other risks
described in these risk factors. We continuously monitor the pandemic but cannot predict its future course or impacts.
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We are making investments in new products and product enhancements, which may adversely affect our operating results;
these investments may not be commercially successful.
Given the highly competitive and rapidly evolving technology environment in which we operate, we believe it is important
to develop new and enhanced product offerings to meet strategic opportunities as they evolve. This includes developing
products that we believe are necessary to meet the future needs of the marketplace and to enter new markets. We are currently
significantly investing in new product development programs relating to test contactors, test handlers and automated test
equipment. For example, in fiscal 2020, we incurred $86.2 million in research and development expenses. We expect to
continue to make investments and we may, at any time, based on product need or marketplace demand, decide to significantly
increase our product development expenditures in these or other products. The cost of investments in new product offerings
and product enhancements can have a negative impact on our operating results. We have in the past made material investments
in new product platforms that for various reasons, such as technical challenges or lack of customer adoption, have not
generated the expected sales or return. There can be no assurance that other new products we develop will be accepted in the
marketplace or generate material revenues for us.
We are exposed to the risks of operating a global business.
We are a global corporation with offices and subsidiaries in certain foreign locations to manufacture our products, support
our sales and services to the global semiconductor industry and, as such, we face risks in doing business abroad. For example,
while our corporate headquarters are located in California, additional key engineering, sales, and administrative personnel
are located in China, Germany, Japan, Malaysia, Philippines, Singapore, Switzerland, Taiwan and elsewhere in the U.S., and
our manufacturing operations are primarily located in Germany, Japan, Malaysia, Philippines and the U.S. Certain aspects
inherent in transacting business internationally could negatively impact our operating results, including:
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costs and difficulties in staffing and managing international operations;
legislative or regulatory requirements and potential changes in or interpretations of requirements in the United States
and in the countries in which we manufacture or sell our products;
trade restrictions, including treaty changes, sanctions and the suspension of export licenses;
compliance with and changes in import/export tariffs and regulations;
complex labor laws and privacy regulations;
difficulties in adequately supervising employees widely distributed around the world (including due to implementing
remote work arrangements in response to the COVID-19 pandemic);
difficulties in enforcing contractual and intellectual property rights;
longer payment cycles;
health epidemics, such as the COVID-19 pandemic;
local and global political and economic conditions, including ongoing uncertainty surrounding the COVID-19
pandemic and its implications;
natural disasters and geopolitical instability;
varied environmental laws and regulations at each of our principal locations;
complex tax laws and potentially adverse tax consequences, including restrictions on repatriating earnings and the
threat of “double taxation;” and
fluctuations in foreign currency exchange rates against the U.S. Dollar, which can affect demand for our products and
increase our costs.
Additionally, managing geographically dispersed operations presents difficult challenges associated with organizational
alignment and infrastructure, communications and information technology, inventory control, customer relationship
management, terrorist threats and related security matters and cultural diversities. If we are unsuccessful in managing such
operations effectively, our business and results of operations will be adversely affected.
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We continue to monitor global privacy laws and legislation to determine its impact on our business. We do not sell to
consumers nor process individual credit card information, but do maintain certain personally identifiable information on our
employees. Such employee information may be subject to the EU General Data Protection Regulation and the recently
effective California Consumer Protection Act. We believe that we have implemented reasonable procedures and internal
controls in compliance with these laws, but should such actions be insufficient, we may be subject to regulatory investigations,
fines and legal costs. If one or more of these risks occurs, it could require us to dedicate significant resources to remedy, and
if we are unsuccessful in finding a solution, our financial results will suffer.
We have manufacturing operations in Asia. Any failure to effectively manage multiple manufacturing sites and to secure
raw materials meeting our quality, cost and other requirements, or failures by our suppliers to perform, could harm our
sales, service levels and reputation.
A substantial majority of our products are manufactured in Asia. Our reliance on overseas manufacturers exposes us to
significant risks including complex management, foreign currency, legal, tax and economic risks, which we may not be able
to address quickly and adequately. In addition, it is time consuming and costly to qualify overseas supplier relationships. If
we should fail to effectively manage overseas manufacturing operations or logistics, or if one or more of them should
experience delays, disruptions or quality control problems, or if we had to change or add additional manufacturing sites, our
ability to ship products to our customers could be delayed. Also, the addition of overseas manufacturing locations increases
the demands on our administrative and operations infrastructure and the complexity of our supply chain management and
logistics. Our overseas sites are more susceptible to impacts from natural disasters, health epidemics and geopolitical
instability (see risk factors entitled “The ongoing global COVID-19 pandemic has adversely affected, and is continuing to
adversely affect, our business, financial condition and results of operations” and “The occurrence of natural disasters, health
epidemics, corruption and geopolitical instability caused by terrorist attacks and other threats may adversely impact our
operations and sales”). If our overseas manufacturing locations are unable to meet our manufacturing requirements in a
timely manner, our ability to ship products and to realize the related revenues when anticipated could be materially affected.
Our suppliers are subject to the fluctuations in general economic cycles, and global economic conditions may impact their
ability to operate their businesses. They may also be impacted by possible import, export, tariff and other trade barriers,
increasing costs of raw materials, labor and distribution, resulting in demands for less attractive contract terms or an inability
for them to meet our requirements or conduct their own businesses. Additionally, consolidation in our supply chain due to
mergers and acquisitions may reduce the number of suppliers or change our relationships with them. The performance and
financial condition of a supplier may cause us to alter our business terms or to cease doing business with a particular supplier,
or change our sourcing practices generally, which could in turn adversely affect our own business and financial condition.
Failure to effectively manage our manufacturing and our relationships with our suppliers could have a material adverse effect
on our business and results of operations.
Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely
impact our operations.
We use numerous vendors to supply parts, components and subassemblies for the manufacture of our products. It is not
always possible to maintain multiple qualified suppliers for all of our parts, components and subassemblies. As a result, many
key parts may be available only from a single supplier (“sole source”) or a limited number of suppliers. In addition, suppliers
may significantly raise prices or cease manufacturing certain components (with or without advance notice to us) that are
difficult to replace without significant reengineering of our products. On occasion, we have experienced problems in obtaining
adequate and reliable quantities of various parts and components from certain key or sole source suppliers. Our results of
operations may be materially and adversely impacted if we do not receive sufficient parts to meet our requirements in a timely
and cost-effective manner.
The semiconductor industry we serve is seasonal, volatile and unpredictable.
Visibility into our markets is limited. The semiconductor equipment business is highly dependent on the overall strength of
the semiconductor industry. Historically, the semiconductor industry has been seasonal with recurring periods of oversupply
and excess capacity, which often have had a significant effect on the semiconductor industry’s demand for capital equipment,
including equipment of the type we manufacture and market. We anticipate that the markets for newer generations of
semiconductors and semiconductor equipment will also be subject to similar cycles and severe downturns. Any significant
reductions in capital equipment investment by semiconductor integrated device manufacturers and test subcontractors will
materially and adversely affect our business, financial position and results of operations. In addition, the seasonal, volatile
and unpredictable nature of semiconductor equipment demand has in the past and may in the future expose us to significant
excess and obsolete and lower of cost or net realizable value inventory write-offs and reserve requirements. In 2020, 2019
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and 2018, we recorded pre-tax inventory-related charges of approximately $6.0 million, $4.1 million, and $1.4 million,
respectively, primarily as a result of changes in customer forecasts. We saw weakness in market conditions in 2019, followed
by COVID-19 driven uncertainties in 2020, then a significant market recovery beginning in third quarter 2020. Abrupt,
unexpected and severe demand changes have occurred in the past and are expected to reoccur in the future within our industry.
The semiconductor equipment and PCB test industries are intensely competitive.
The industries we serve are intensely competitive, and we face substantial competition from numerous companies throughout
the world. The test handler industry, while relatively small in terms of worldwide market size compared to other segments of
the semiconductor equipment industry, has several participants resulting in intense competitive pricing pressures. Future
competition may include companies that do not currently supply test handlers. Similarly, the PCB test industry is
characterized by significant Asia-based competition and intense price competition. Some of our competitors are part of larger
corporations that have substantially greater financial, engineering, manufacturing and customer support capabilities and
provide more extensive product offerings. In addition, there are emerging companies that provide or may provide innovative
technology incorporated in products that may compete successfully against our products. We expect our competitors to
continue to improve the design and performance of their current products and introduce new products with improved
performance capabilities. Our failure to introduce new products in a timely manner, the introduction by our competitors of
products with perceived or actual advantages, or disputes over rights to use certain intellectual property or technology could
result in a loss of our competitive position and reduced sales of, or margins on our existing products. Intense competition has
adversely impacted our product average selling prices and gross margins on certain products. If we are unable to reduce the
cost of our existing products and successfully introduce new lower cost products, then we expect that these competitive
conditions would negatively impact our gross margin and operating results in the foreseeable future.
We have increased investments in our test contactor business and announced significant growth targets for the business over
the next several years, but due to weak market conditions we did not achieve our growth goals in 2019 and 2020. The test
contactor market is fragmented, with many entrenched regional players, and subject to intense price competition and high
localized customer support requirements. We believe that customer support and responsiveness and an ability to consistently
meet tight deadlines is critical to our success. If we are unable to reduce the cost of our test contactor products, while also
meeting customer support requirements and deadlines, then we expect that these competitive conditions would negatively
impact our test contactor operating results and impede us from achieving our test contactor sales goals.
In addition, with the Xcerra acquisition, Cohu entered the automated test equipment (“ATE”) market. Our ability to increase
our ATE sales will depend, in part, on our ability to obtain orders from new customers. Semiconductor and electronics
manufacturers typically select a particular vendor’s product for testing new generations of a device and make substantial
investments to develop related test program applications and interfaces. Once a manufacturer has selected an ATE vendor for
a new generation of a device, that manufacturer is more likely to purchase systems from that vendor for that generation of
the device, and, possibly, subsequent generations of that device as well. Cohu has a niche position and relatively low share
in the ATE market, and this market is primarily driven by two larger companies with significantly more resources to invest
into the ATE market. Therefore, the opportunities to obtain orders from new customers or existing customers may be limited,
which may impair our ability to grow our ATE revenue. These factors may materially and adversely affect our current and
future target markets and our ability to compete successfully in those markets.
Semiconductor equipment is subject to rapid technological change, product introductions and transitions which may result
in inventory write-offs, and our new product development involves numerous risks and uncertainties.
Semiconductor equipment and processes are subject to rapid technological change. We believe that our future success will
depend in part on our ability to enhance existing products and develop new products with improved performance capabilities.
We expect to continue to invest heavily in research and development and must manage product transitions successfully, as
introductions of new products, including the products obtained in our acquisitions, may adversely impact sales and/or margins
of existing products. In addition, the introduction of new products by us or by our competitors, the concentration of our
revenues in a limited number of large customers, the migration to new semiconductor testing methodologies and the custom
nature of our inventory parts increases the risk that our established products and related inventory may become obsolete,
resulting in significant excess and obsolete inventory exposure. This exposure resulted in charges to operations during each
of the years in the three-year period ended December 26, 2020. Future inventory write-offs and increased inventory reserve
requirements could have a material adverse impact on our results of operations and financial condition.
The design, development, commercial introduction and manufacture of new semiconductor equipment is an inherently
complex process that involves a number of risks and uncertainties. These risks include potential problems in meeting customer
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acceptance and performance requirements, integration of the equipment with other suppliers’ equipment and the customers’
manufacturing processes, transitioning from product development to volume manufacturing and the ability of the equipment
to satisfy the semiconductor industry’s constantly evolving needs and achieve commercial acceptance at prices that produce
satisfactory profit margins. The design and development of new semiconductor equipment is heavily influenced by changes
in integrated circuit assembly, test and final manufacturing processes and integrated circuit package design changes. We
believe that the rate of change in such processes and integrated circuit packages is accelerating. As a result of these changes
and other factors, assessing the market potential and commercial viability of test handling, ATE, MEMS, system-level and
burn-in test equipment and test contactors is extremely difficult and subject to a great deal of risk. In addition, not all
integrated circuit manufacturers employ the same manufacturing processes. Differences in such processes make it difficult to
design standard test products that can achieve broad market acceptance. As a result, we might not accurately assess the
semiconductor industry’s future equipment requirements and fail to design and develop products that meet such requirements
and achieve market acceptance. Failure to accurately assess customer requirements and market trends for new semiconductor
test products may have a material adverse impact on our operations, financial condition and results of operations.
The transition from product development to the manufacture of new semiconductor equipment is a difficult process and
delays in product introductions and problems in manufacturing such equipment are common. We have in the past and may
in the future experience difficulties in manufacturing and volume production of our new equipment. In addition, as is common
with semiconductor equipment, after sale support and warranty costs have typically been significantly higher with new
products than with our established products. Future technologies, processes and product developments may render our current
or future product offerings obsolete and we might not be able to develop, introduce and successfully manufacture new
products or make enhancements to our existing products in a timely manner to satisfy customer requirements or achieve
market acceptance. Furthermore, we might not realize acceptable profit margins on such products.
The seasonal nature of the semiconductor equipment industry places enormous demands on our employees, operations
and infrastructure.
The semiconductor equipment industry is characterized by dramatic and sometimes rapid changes in demand for its products.
These are generally dictated by introduction of new consumer products, launch of new model vehicles, implementation of
new communications infrastructure, or in response to an increase in industrial equipment and machinery that utilizes
semiconductors. A number of other factors including changes in integrated circuit design and packaging may affect demand
for our products. Sudden changes in demand for semiconductor equipment commonly occur, and have a significant impact
on our operations, and such changes in demand (up or down) are difficult to predict and proactively plan for. We have in the
past and may in the future experience difficulties, particularly in manufacturing, in training and recruiting the large number
of additions to our workforce. The volatility in headcount and business levels, combined with the seasonal nature of the
semiconductor industry, may require that we invest substantial amounts in new operational and financial systems, procedures
and controls. We may not be able to successfully adjust our systems, facilities and production capacity to meet our customers’
changing requirements. Any inability to meet such requirements will have an adverse impact on our business, financial
position and results of operations. Sudden demand changes (as, for example, we experienced in 2019 and 2020) in business
conditions, positive or negative, are common in our industry but the timing of such changes is very difficult to predict.
A limited number of customers account for a substantial percentage of our net sales.
A small number of customers have been responsible for a significant portion of our net sales. For fiscal year 2020, net revenue
from our ten largest customers represented 47% of our total net revenue. During the past five years, the percentage of our
sales derived from these significant customers has varied greatly. Such variations are due to changes in the customers’
business, consolidation within the semiconductor industry and their purchase of products from our competitors. It is common
in the semiconductor equipment industry for customers to purchase products from more than one equipment supplier,
increasing the risk that our competitive position with a specific customer may deteriorate. No assurance can be given that we
will continue to maintain our competitive position with these or other significant customers. Also, consolidation in the
semiconductor industry may reduce our customer base and could adversely affect the market for our products, which could
cause a decline in our revenues. With consolidation, the number of actual and potential customers for our products has
decreased in recent years. Consolidation may lead to relatively fewer opportunities to sell our products if we are not chosen
as a supplier by any given prospective customer, and may lead to increased pricing pressures from customers that have greater
volume purchasing power.
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We expect the percentage of our revenues derived from significant customers will vary greatly in future periods. The loss of,
or a significant reduction in, orders by these or other significant customers as a result of competitive products, market
conditions including end market demand for our customers’ products, outsourcing final semiconductor test to test
subcontractors that are not our customers or other factors, would have a material adverse impact on our business, financial
condition and results of operations. Furthermore, the concentration of our revenues in a limited number of large customers is
likely to cause significant fluctuations in our future annual and quarterly operating results.
A majority of our revenues are generated from exports to foreign countries, primarily in Asia, that are subject to economic
and political instability and we compete against a number of Asia-based test contactor, test handler, automated test
equipment and PCB test suppliers.
The majority of our export sales are made to destinations in Asia. Political or economic instability, particularly in Asia, may
adversely impact the demand for capital equipment, including equipment of the type we manufacture and market (see risk
factor “Global economic and political conditions, including trade tariffs and export restrictions, have impacted our business
and may continue to have an impact on our business and financial condition”). In addition, we face intense competition from
a number of Asian suppliers that have certain advantages over United States (U.S.) suppliers, including us. These advantages
include, among other things, proximity to customers, lower cost structures, a willingness to compete solely on price, favorable
tariffs and affiliation with significantly larger organizations. In addition, changes in the amount or price of semiconductors
produced in Asia could impact the profitability or capital equipment spending programs of our foreign and domestic
customers.
If we cannot continue to develop, manufacture, market and support products and services that meet customer requirements
for innovation and quality, our revenue and gross margin may suffer.
The process of developing new high technology products and services and enhancing existing products and services is
complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological
trends accurately could significantly harm our sales and results of operations. Our customers’ selection processes typically
are lengthy and can require us to incur significant sales, service and engineering resources, and regularly to provide the
customer evaluation systems for several months at no charge, in pursuit of a single customer opportunity. We may not win
the competitive selection process and may never generate any revenue despite incurring such expenditures. The delays
inherent in these lengthy sales cycles increase the risk that a customer will decide to cancel, curtail, reduce or delay its product
plans, causing us to lose anticipated sales.
In addition, in the course of conducting our business, we must adequately address quality issues associated with our products
and services, including defects in our engineering, design and manufacturing processes, as well as defects in third-party
components included in our products. To address quality issues, we work extensively with our customers and suppliers and
engage in product testing to determine the cause of quality problems and appropriate solutions. Finding solutions to quality
issues can be expensive and may result in additional warranty, replacement and other costs. In addition, if any of our products
contain defects or have reliability, quality or safety issues, we may need to conduct a product recall which could result in
significant repair or replacement costs and substantial delays in product shipments and may damage our reputation, which
could make it more difficult to sell our products. Any of these occurrences could have a material adverse effect on our
business, results of operations or financial condition. In addition, quality issues can impair our relationships with new or
existing customers and adversely affect our reputation, which could lead to a material adverse effect on our operating results.
Our global Enterprise Resource Management (“ERP”) upgrade may adversely affect our business and results of
operations or the effectiveness of internal controls over financial reporting.
We are in final development stages of a phased global replacement of our existing ERP solution and launched the first phase
of such new ERP solution in first and fourth quarter 2020. The second phase and rollout is planned throughout 2021. The
new solution is being developed as an enterprise solution in partnership with a leading provider of ERP tools. Additional
investments in enterprise tools that focus on product life-cycle management, our customer experience, and supply chain
management are in process to support our growing business. These implementations are extremely complex and time-
consuming projects that involve substantial expenditures on software and implementation activities. If we do not effectively
implement the system or if the system does not operate as intended, it could result in the loss or corruption of data, delayed
order processing and shipments and increased costs. It could also adversely affect our financial reporting systems and our
ability to produce financial reports and process transactions, the effectiveness of internal controls over financial reporting,
and our business, financial condition, results of operations and cash flows.
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The loss of key personnel could adversely impact our business.
Certain key personnel are critical to our business. Our future operating results depend substantially upon the continued service
of our key personnel, many of whom are not bound by employment or non-competition agreements. Our future operating
results also depend in significant part upon our ability to attract and retain qualified management, manufacturing, technical,
engineering, marketing, sales and support personnel. Competition for qualified personnel, particularly those with technical
skills, is intense, and we cannot ensure success in attracting or retaining qualified personnel. In addition, the cost of living in
the San Diego and Bay Area, California; Boston, Massachusetts; St. Paul, Minnesota; Lincoln, Rhode Island; Kolbermoor
and Wertheim, Germany; La Chaux-de-Fonds, Switzerland and Osaka, Japan areas, where the majority of our engineering
personnel are located, is high and we have had difficulty in recruiting prospective employees from other locations. There may
be only a limited number of persons with the requisite skills and relevant industry experience to serve in these positions and
it may become increasingly difficult for us to hire personnel over time. More recently, the COVID-19 pandemic has increased
the risks that our executives and other key employees may be suddenly unable to perform their duties due to health or other
personal responsibilities. Our business, financial condition and results of operations could be materially adversely affected
by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by
our inability to attract and retain skilled employees.
Third parties may violate our proprietary rights or accuse us of infringing upon their proprietary rights.
We rely on patent, copyright, trademark and trade secret laws to establish and maintain proprietary rights in our technology
and products. Any of our proprietary rights may expire due to patent life, or be challenged, invalidated or circumvented. In
addition, from time-to-time, we receive notices from third parties regarding patent or copyright claims. Any such claims, with
or without merit, could be time-consuming to defend, result in costly litigation, divert management’s attention and resources
and cause us to incur significant expenses. In the event of a successful claim of infringement against us and our failure or
inability to license the infringed technology or to substitute similar non-infringing technology, our business, financial
condition and results of operations could be adversely affected. We are also subject to the theft and misappropriation of
intellectual property by others, including incidents relating to former employees. We believe we are taking reasonable actions
to protect and improve our security, through strengthened IT infrastructure and internal controls, but if these actions are not
successful our business could be adversely affected.
Risks Relating to our Indebtedness, Financing and Future Access to Capital
The incurrence of substantial indebtedness in connection with our financing of the Xcerra acquisition may have an
adverse impact on Cohu’s liquidity, limit Cohu’s flexibility in responding to other business opportunities and increase
Cohu’s vulnerability to adverse economic and industry conditions.
In connection with the Xcerra acquisition, Cohu entered into a term loan facility, with an aggregate principal amount of
$350.0 million (the “Debt Financing” or “Credit Agreement”). Such indebtedness has reduced Cohu’s liquidity and has
caused Cohu to place more reliance on cash generated from operations to pay principal and interest on Cohu’s debt, thereby
reducing the availability of Cohu’s cash flow for working capital and capital expenditure needs or to pursue other potential
strategic plans. In addition, our indebtedness may make us more vulnerable to changes in general economic conditions and/or
a downturn in our business, thereby making it more difficult for us to satisfy our obligations. During the second half of 2020,
Cohu took action to reduce outstanding principal under its Debt Financing; however, Cohu gives no future assurance as to if,
when or how much any subsequent voluntary principal reductions may be. If we fail to make required debt payments, or if
we fail to comply with financial or other covenants in our Credit Agreement, we would be in default under the agreement.
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Our Credit Agreement contains various representations and negative covenants that limit, subject to certain exceptions
and baskets, our ability and/or our subsidiaries’ ability to, among other things:
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incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;
issue redeemable stock and preferred stock;
pay cash dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock;
enter into rate, commodity, equity or currency swap, hedging or other similar transactions;
make loans, investments or acquisitions;
enter into agreements that restrict distributions from our subsidiaries;
create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to
guarantee our debt, limit our or any of our subsidiaries’ ability to create liens, or that require the grant of a lien to
secure an obligation if a lien is granted to secure another obligation;
sell assets and capital stock of our subsidiaries;
enter into certain transactions with affiliates;
sell, transfer, license, lease or dispose of our or our subsidiaries’ assets; and
dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us and our subsidiaries,
taken as a whole, to, another person.
The restrictions contained in our Credit Agreement could adversely affect our ability to:
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finance our operations;
make needed capital expenditures;
make strategic acquisitions or investments or enter into alliances;
withstand a future downturn in our business or the economy in general;
engage in business activities, including future opportunities, that may be in our interest; and
plan for or react to market conditions or otherwise execute our business strategies.
A breach of any of these negative covenants could result in a default under the Credit Agreement. Further, additional
indebtedness that we incur in the future may subject us to further covenants. Our failure to comply with these covenants could
result in a default under the agreements governing the relevant indebtedness. The lender may accelerate the payment terms
of the Credit Agreement upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu
to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations
and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse
effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the
event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu.
Any event that could require us to repay debt prior to its due date could have a material adverse impact on our financial
condition and results of operations.
Our ability to comply with covenants contained in such debt agreements may be affected by events beyond our control,
including prevailing economic, financial and industry conditions. Even if we are able to comply with all of the applicable
covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by,
among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate
opportunities that we believe would be beneficial to us. In addition, our obligations under the Credit Agreement are secured,
on a first-priority basis, and such security interests could be enforced in the event of default by the collateral agent for the
Credit Agreement.
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Changes in the method of determining the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with
an alternative reference rate, may adversely affect interest rates.
Interest rates under our Credit Agreement are calculated using LIBOR. On July 27, 2017, the Financial Conduct Authority
(the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of
LIBOR after 2021 and it is unclear whether new methods of calculating LIBOR will be established. If LIBOR ceases to exist
after 2021, a comparable or successor reference rate must be negotiated and agreed among the Administrative Agent, Cohu
and certain lenders under the Credit Agreement. The U.S. Federal Reserve, in conjunction with the Alternative Reference
Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase
agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the
establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. To the extent these interest
rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and
cash flows.
Cohu has total consolidated debt of $319.9 million as of December 26, 2020 and because of such high debt levels we may
not be able to service our debt obligations in accordance with their terms; the Tax Cuts and Jobs Act severely limits the
deductibility of interest expense.
Cohu’s ability to meet its expense and debt service obligations contained in the Debt Financing agreements will depend on
Cohu’s future performance, which will be affected by financial, business, economic and other factors, including potential
changes in industry conditions, industry supply and demand balance, customer preferences, the success of Cohu’s products,
pressure from competitors, new product innovation and overall business execution. In addition, Cohu is subject to interest
rate risks, and continuing increases in interest rates will increase Cohu’s debt service obligations. If Cohu is ever unable to
meet its debt service obligations or fail to comply with the covenants contained in the agreements governing its indebtedness,
Cohu may be required to refinance all or part of its debt, sell important strategic assets at unfavorable prices, incur additional
indebtedness or issue Cohu Common Stock or other equity securities. Cohu may not be able to, at any given time, refinance
its debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to Cohu, in amounts sufficient
to meet Cohu’s needs or at all. If Cohu is able to raise additional funds through the issuance of equity or equity-linked
securities, such issuance would also result in dilution to Cohu’s stockholders. Cohu’s inability to service its debt obligations
or refinance its debt could have a material adverse effect on its business, financial conditions or operating results. In addition,
Cohu’s debt obligations may limit its ability to make required investments in capacity, technology or other areas of its
business, which could have a material adverse effect on its business, financial conditions or operating results. Furthermore,
the Tax Cuts and Jobs Act ("Tax Act") limits the deductibility of interest expense in a given year to 30% of adjusted taxable
income, as defined; the Coronavirus Aid, Relief, and Economic Security ("CARES") Act temporarily increased this limitation
to 50% for 2019 and 2020. This resulted in the inability of Cohu to utilize a substantial portion of its interest expense
deductions in 2018 and 2019. We were able to fully deduct the interest expense in 2020 plus the disallowed amounts carried
over from 2018 and 2019, however, the Tax Acts may continue to impact our ability to utilize future deductions.
Due to the nature of our business, we need continued access to capital, which if not available to us or if not available on
favorable terms, could harm our ability to operate or expand our business.
Our business requires capital to finance accounts receivable and product inventory that is not financed by trade creditors
when our business is expanding. If cash from available sources is insufficient or cash is used for unanticipated needs, we may
require additional capital sooner than anticipated.
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities will
provide sufficient resources to meet our working capital and cash requirements for at least the next twelve months; however,
a material adverse impact from COVID-19 or a desire to reduce our outstanding indebtedness could result in a need to raise
additional capital. Alternatively, we could decide to raise capital or incur additional indebtedness to fund strategic initiatives
or operating activities, particularly if we pursue additional acquisitions. In the event we are required, or elect, to raise
additional funds, we may be unable to do so on favorable terms, or at all, and may incur expenses in raising the additional
funds and increase our interest rate exposure, and any future indebtedness could adversely affect our operating results and
severely limit our ability to plan for, or react to, changes in our business or industry. Further, under our Credit Agreement,
we are significantly limited by financial and other negative covenants in our credit arrangements, including limitations on
our borrowing of additional funds and issuing dividends. If we cannot raise funds on acceptable terms, we may not be able
to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any inability to
raise additional capital when required could have an adverse effect on our business and operating results.
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The issuance of shares of our common stock in connection with any future offerings of securities by us, will dilute our
shareholders’ ownership interest in the company.
We may seek additional financing in the future to meet our capital needs, to repay outstanding indebtedness under our existing
Credit Agreement or to meet our strategic initiatives or operating activities. We have in the past issued common stock as
acquisition consideration. For example, the Xcerra acquisition was financed in part by the issuance of additional shares of
our common stock to shareholders of Xcerra, comprising approximately 11.8 million shares of common stock, or
approximately 29% of our issued and outstanding shares of common stock immediately after completing the transaction. We
may determine to utilize common stock as acquisition consideration, issue convertible debt, or pursue a follow-on equity
offering to raise capital for debt reduction or for other general corporate purposes, at any time in the future. Any issuances of
additional shares of our common stock would dilute shareholders’ ownership interest in our company, and shareholders would
have a proportionately reduced ownership and voting interest in our company as a result of equity issuance. If we raise
additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants. Additionally,
our ability to make scheduled payments or refinance our obligations will depend on our operating and financial performance,
which in turn is subject to prevailing economic conditions and financial, business and other factors beyond our control.
Risks Relating to Acquisitions and Other Strategic Transactions
Because a significant portion of Cohu’s total assets are represented by goodwill, which is subject to mandatory impairment
evaluation, and other intangibles, Cohu could be required to write off some or all of this goodwill and other intangibles,
which may adversely affect the combined company’s financial condition and results of operations.
Cohu accounted for the acquisition of Xcerra using the purchase method of accounting. A portion of the purchase price for
this business was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values
at the date of consummation of the merger. 45% of Cohu’s total assets is comprised of goodwill and other intangibles, of
which approximately $252.3 million is allocated to goodwill. In accordance with Accounting Standards Codification (“ASC”)
350, Intangibles - Goodwill and Other, goodwill and certain other intangible assets with indefinite useful lives are not
amortized but are reviewed at least annually for impairment, or more frequently if there are indications of impairment.
Significant declines in the price of Cohu’s common stock could increase the risk of an impairment. All other intangible assets
are subject to periodic amortization. Cohu evaluates the remaining useful lives of other intangible assets each quarter to
determine whether events and circumstances warrant a revision to the remaining period of amortization. If we are unable to
realize the anticipated benefits of the Xcerra acquisition, when Cohu performs future impairment tests, it is possible that the
carrying value of goodwill or other intangible assets could exceed their implied fair value and therefore would require
adjustment. Such adjustment would result in a charge to operating income in that period. For example, in first quarter 2020,
and again in third quarter 2020, Cohu recorded impairment charges of approximately $3.9 million and $7.3 million,
respectively, to adjust in-process research and development (“IPR&D”) assets obtained in the acquisition of Xcerra to their
current fair value. There can be no assurance that there will not be further adjustments for impairment in future periods.
We are exposed to other risks associated with other acquisitions, investments and divestitures.
As part of our business strategy, we will continue to regularly evaluate investments in, or acquisitions of, complementary
businesses, joint ventures, services and technologies, and we expect that periodically we will continue to make such
investments and acquisitions in the future. For example, we acquired Xcerra Corporation in 2018 for total consideration of
approximately $794.4 million. Acquisitions and investments involve numerous risks, including, but not limited to:
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difficulties entering potentially new markets or manufacturing in new geographies where Cohu has no or limited direct
prior experience;
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difficulties and increased costs in connection with integration of the personnel, operations, technologies and products
of acquired businesses;
increasing the scope, geographic diversity and complexity of our business;
the cost and risk of having to potentially develop new and unfamiliar sales channels for acquired businesses;
diversion of management’s attention from other operational matters;
product manufacturing disruptions and delays as we potentially consolidate certain manufacturing sites;
difficulties and significant costs in integrating the systems and processes of two companies with complex operations
including multiple manufacturing sites;
the potential loss of key employees, customers or suppliers of Cohu or acquired businesses;
lack of synergy, or the inability to realize expected synergies, resulting from the acquisition;
potential unknown liabilities associated with the acquired businesses;
failure to commercialize purchased technology;
the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results
in future periods; and
challenges caused by distance, language and cultural differences.
We may decide to finance future acquisitions and investments through a combination of borrowings, proceeds from equity
or debt offerings and the use of cash, cash equivalents and short-term investments. If we finance acquisitions or investments
by issuing equity-linked (such as convertible debt) or equity securities, our existing stockholders may be diluted which would
likely affect the market price of our stock. For example, the Xcerra acquisition resulted in significant dilution as it was
financed, in part, by the issuance of approximately 11.8 million shares of common stock, or approximately 29% of our issued
and outstanding shares of common stock immediately after completing the transaction. Mergers, acquisitions and investments
are inherently risky and the inability to effectively manage these risks could materially and adversely affect our business,
financial condition and results of operations.
We expect to continue to evaluate and pursue divestitures of non-core assets
Further, as a strategy to pay down our long-term debt, we expect to continue to evaluate and pursue divestitures of assets that
management determines to be non-core to our overall business strategy. Any such divestitures may distract Cohu’s
management team, disrupt employees, may not yield attractive valuations, may incur material restructuring and transaction
expenses and tax obligations, and may otherwise be unsuccessful. Divestitures may also involve warranties, indemnification
or covenants that could restrict our business or result in litigation, additional expenses or liabilities. In addition, discontinuing
product categories, even categories that we consider non-strategic, reduces the size and diversification of our business and
causes us to be more dependent on a smaller number of product categories.
Risks Relating to Owning Our Stock
Our financial and operating results may vary and fall below analysts’ estimates, or credit rating agencies may change
their ratings on Cohu, any of which may cause the price of our common stock to decline or make it difficult to obtain
other financing.
Our operating results may fluctuate from quarter to quarter due to a variety of factors including, but not limited to:
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seasonal, volatile and unpredictable nature of the semiconductor equipment industry;
timing and amount of orders from customers and shipments to customers;
customer decisions to cancel orders or push out deliveries;
inability to recognize revenue due to accounting requirements;
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inventory write-downs;
unexpected expenses or cost overruns in the introduction and support of products;
inability to deliver solutions as expected by our customers;
intangible and deferred tax asset write-downs; and
general economic and market conditions, including the global COVID-19 pandemic.
Due to these factors or other unanticipated events, quarter-to-quarter comparisons of our operating results may not be reliable
indicators of our future performance. In addition, from time-to-time our quarterly financial results may fall below the
expectations of the securities and industry analysts who publish reports on our company or of investors in general. This could
cause the market price of our stock to decline, perhaps significantly.
In addition, as a result of the Credit Facility, we maintain credit ratings with Moody’s Investors Service, Inc. (“Moody’s”)
and S&P Global Ratings (“S&P”). The current Moody’s and S&P issuer credit ratings for Cohu are B2 and B-, respectively.
Any future downgrade of Cohu’s credit ratings or rating outlooks may materially and adversely affect the market price of our
equity and the availability, cost or interest rate of other credit or financing. Cohu’s current credit ratings are considered non-
investment grade and make it more costly (as compared to investment grade borrowers) for Cohu or its subsidiaries to borrow
money or enter into new credit facilities and to raise certain other types of capital and/or complete additional financings.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results, and current and potential stockholders may lose confidence in our financial reporting.
We are required by the Securities and Exchange Commission to establish and maintain adequate internal control over financial
reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to
evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal
controls. Although we believe that we have adequate internal controls in place at this time, we cannot be certain that, with
significantly greater global complexity, we will be able to maintain adequate internal control over our financial reporting in
future periods. Any failure to maintain such internal controls could adversely impact our ability to report our financial results
on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding
of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the Securities and
Exchange Commission and Nasdaq Global Select Market, we could face severe consequences from those authorities. In either
case, there could result a material adverse effect on our business. Inferior internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We have experienced significant volatility in our stock price.
A variety of factors may cause the price of our stock to be volatile. The stock market in general, and the market for shares of
high-technology companies in particular, including ours, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. During the three-year period ended December 26, 2020, the
price of our common stock has ranged from $41.00 to $8.89. The price of our stock may be more volatile than the stock of
other companies due to, among other factors, the unpredictable, volatile and seasonal nature of the semiconductor industry,
our significant customer concentration, intense competition in the test contactor, test handler, automated test equipment and
PCB test industry, our limited backlog, our debt levels and high leverage, and our relatively low daily stock trading volume.
The market price of our common stock is likely to continue to fluctuate significantly in the future, including fluctuations
related and unrelated to our performance.
We may underperform relative to our expectations.
Our business and financial performance are subject to certain risks and uncertainties, as described in these risk factors. We
may not achieve our forecasted growth rates, levels of revenue, earnings, or operating efficiency that we expect and may
incur losses in the business at any time. Any underperformance from our expectations or forecasts could have a material
adverse effect on our financial condition, results of operations, and cause abrupt, significant stock price declines. Also,
perceived company underperformance could attract shareholder activism and such activities could interfere with our ability
to execute our business plans, be costly and time-consuming, disrupt our operations, divert the attention of management or
result in other short-term focused corporate actions, any of which could have an adverse effect on our business or stock price.
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Provisions of our certificate of incorporation and bylaws and Delaware law may make a takeover of Cohu more difficult.
There are provisions in our basic corporate documents and under Delaware law that could discourage, delay or prevent a
change in control, even if a change in control may be regarded as beneficial to some or all of our stockholders.
Risks Relating to Regulatory Matters
There may be changes in, and uncertainty with respect to, legislation, regulation and governmental policy in the United
States.
The change in administration in the United States in January 2021 may result in changes to, and uncertainty with respect to,
legislation, regulation and government policy. Specific legislative and regulatory proposals that could have a material impact
on us include, but are not limited to, infrastructure renewal programs, modifications to international trade policy, increased
duties, tariffs or other export restrictions, public company reporting requirements, environmental regulation, corporate tax
legislation, new employment and privacy laws, and antitrust enforcement.
Unanticipated changes in our tax provisions, enactment of new tax laws, or exposure to additional income tax liabilities
could affect our profitability.
We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our tax liabilities are affected by,
among other things, the amounts our affiliated entities charge each other for intercompany transactions. Our German
subsidiaries income tax returns for 2015 to 2017, and our Philippines subsidiary income tax return for 2017 are currently
under routine examination by tax authorities in their respective countries. Subsequent to December 26, 2020, we were notified
by the taxing authority in Malaysia of its intent to perform an audit for 2014 to 2019 for one of our Malaysian subsidiaries.
We may be subject to ongoing tax examinations in various jurisdictions. Tax authorities may disagree with our intercompany
charges or other matters and assess additional taxes. While we regularly assess the likely outcomes of these examinations to
determine the appropriateness of our tax provision, tax audits are inherently uncertain, and an unfavorable outcome could
occur. An unanticipated, unfavorable outcome in any specific period could harm our operating results for that period or future
periods. The financial cost and management attention and time devoted to defending income tax positions may divert
resources from our business operations, which could harm our business and profitability. Tax examinations may also impact
the timing and/or amount of our refund claims. In addition, our effective tax rate in the future could be adversely affected by
changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax
assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation
process. In particular, the carrying value of our deferred tax assets and the utilization of our net operating loss and credit
carryforwards are dependent on our ability to generate future taxable income in the U.S. and other countries. Furthermore,
these carryforwards may be subject to annual limitations as a result of changes in Cohu’s ownership. As a result of the
acquisition of Xcerra, a greater than 50% cumulative ownership change in Xcerra triggered a significant limitation in the
utilization of their net operating loss and research credit carryforwards. Cohu’s ability to use the acquired Xcerra U.S. net
operating loss and credit carryforwards is subject to annual limitations as defined in sections 382 and 383 of the Internal
Revenue Code.
Compliance with regulations may impact sales to foreign customers and impose costs.
Certain products and services that we offer require compliance with U.S. and other foreign country export and other
regulations. Compliance with complex U.S. and other foreign country laws and regulations that apply to our international
sales activities increases our cost of doing business in international jurisdictions and could expose us or our employees to
fines and penalties. These laws and regulations include import and export requirements, the U.S. State Department
International Traffic in Arms Regulations (“ITAR”) and U.S. and other foreign country laws such as the Foreign Corrupt
Practices Act (“FCPA”), and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and
regulations could result in fines, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of
our business and damage to our reputation. Although we have implemented policies and procedures designed to ensure
compliance with these laws, there can be no assurance that our employees, contractors or agents will not violate our policies,
or that our policies will be effective in preventing all potential violations. Any such violations could include prohibitions on
our ability to offer our products and services to one or more countries, and could also materially damage our reputation, our
brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.
Further, defending against claims of violations of these laws and regulations, even if we are successful, could be time-
consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses.
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In addition to government regulations regarding sale and export, we are subject to other regulations regarding our products.
For example, the U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict
minerals in their products, with substantial supply chain verification requirements if the materials come from, or could have
come from, the Democratic Republic of the Congo or adjoining countries. These new rules and verification requirements
impose additional costs on us and on our suppliers and may limit the sources or increase the cost of materials used in our
products. Further, if we are unable to certify that our products are conflict free, we may face challenges with our customers
that could place us at a competitive disadvantage, and our reputation may be harmed.
Global economic and political conditions, including trade tariffs and export restrictions, have impacted our business and
may continue to have an impact on our business and financial condition.
In fiscal year 2020, 83% of our revenue was from products shipped to customer locations outside the United States. We also
purchase a significant portion of components and subassemblies from suppliers outside the United States. Additionally, a
significant portion of our facilities are located outside the United States, including China, Germany, Japan, Malaysia,
Philippines, Singapore, Switzerland and Taiwan.
There have been significant changes in U.S. export regulations relating to China since 2019. In May 2019, the Bureau of
Industry and Security (“BIS”) of the U.S. Department of Commerce added Huawei to the BIS’s Entity List, which imposes
limitations on the supply of certain U.S. items and product support to Huawei (all references to Huawei include its wholly-
owned subsidiary HiSilicon). Subsequently, in May 2020 and August 2020, BIS announced rules which amended the foreign-
produced direct product rule and the Entity List to target Huawei’s acquisition of Huawei-designed and subsequently third-
party semiconductors that are the direct product of certain U.S.-origin software and technology. Also, as of June 2020, the
BIS requires exporters to obtain a license for specified items if at the time of the export they had knowledge that the item was
intended to support Chinese “military end users,” in addition to “military end uses.”
Cohu has evaluated the foregoing regulations, and at this time, despite an ongoing material adverse impact on direct and
indirect Huawei sales, we have not seen any overall material impact to our business. However, we believe that these collective
export restrictions and the ongoing unpredictability of U.S.-China trade relations have encouraged China-based companies
to actively seek to obtain a greater supply of similar or substitute products from our foreign competitors that are not subject
to these restrictions, thereby decreasing our long-term competitiveness as a supplier to China-based companies. Recent
history indicates that the U.S. government may impose other new export restrictions, or tariffs, without prior notice impacting
our ability (or our customers’ ability) to sell and ship products to China-based companies and any such additional restrictions
may have an adverse effect on our business, results of operations, or financial condition. In addition, the change in
administration in the United States in January 2021 may result in changes to, and uncertainty with respect to, trade tariffs and
export restrictions. Any such changes may have a further adverse effect on our business, results of operations, or financial
condition.
Any failure to comply with environmental laws and regulations could subject us to significant fines and liabilities, and
new laws and regulations (such as involving climate change) or changes in regulatory interpretation or enforcement could
make compliance more difficult and costly.
We are subject to various U.S. federal, state and local, and foreign governmental laws and regulations relating to the protection
of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal
of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace. We could
incur substantial costs, including cleanup costs, civil or criminal fines or sanctions and third-party claims for property damage
or personal injury, as a result of violations of or liabilities under environmental laws and regulations or non-compliance with
the environmental permits required at our facilities. In addition, new regulations or public expectations for reductions in
greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require us to make
additional investments in facilities and equipment. As a result, the effects of climate change could have a long-term adverse
impact on our business and results of operations.
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Risks Relating to Cybersecurity, the Economy, and Litigation
Our business and operations could suffer in the event of cybersecurity breaches.
Attempts by others to gain unauthorized access to information technology systems are becoming more sophisticated and are
sometimes successful. These attempts, which might be related to industrial or other espionage, include covertly introducing
malware to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate
all cybersecurity incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its
magnitude and effects. We have been impacted by immaterial “phishing” schemes and we are continuing our efforts to train
employees on such risks but may still incur damages from such schemes in the future. We believe that extensive employee
telework practices, implemented in response to the COVID-19 pandemic, have increased our cybersecurity risks. The theft,
unauthorized use or publication of our intellectual property and/or confidential business information could harm our
competitive position, reduce the value of our investment in research and development and other strategic initiatives or
otherwise adversely affect our business. To the extent that any security breach results in inappropriate disclosure of our
customers’ or licensees’ confidential information, we may incur liability as a result. Further, in late 2020, a global
cyberbreach, widely reported as the “SolarWinds” hack, occurred and caused significant disruption at one of our suppliers
and as a result created delays in our operation. Any future attacks that disrupt our IT systems, or those of our suppliers, could
impact our sales, financial results and stock price. In response to these risks, we expect to continue to devote additional
resources to the security of our information technology systems.
The occurrence of natural disasters, health epidemics, and geopolitical instability caused by terrorist attacks and other
threats may adversely impact our operations and sales.
Our corporate headquarters is located in San Diego, California, our Asian sales and service headquarters are located in
Singapore and Taiwan, and the majority of our sales are made to destinations in Asia. In addition, we have Asia-based
manufacturing plants in Malaysia, Philippines and Japan. These regions are known for being vulnerable to natural disasters
and other risks, such as earthquakes, tsunamis, fires and floods, volcanic eruptions, and geopolitical risks, which at times
have disrupted the local economies. For example, a significant earthquake or tsunami could materially affect operating results.
We are not insured for most losses and business interruptions of this kind, or for geopolitical or terrorism impacts, and
presently have limited redundant, multiple site capacity in the event of a disaster. In the event of such disaster, our business
would materially suffer.
Our business could also be adversely affected by the effects of a widespread outbreak of contagious diseases, and has been
and is continuing to be adversely affected by the COVID-19 global pandemic (see risk factor entitled “The ongoing global
COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and
results of operations”).
Global economic conditions may have an impact on our business and financial condition in ways that we currently cannot
predict.
Our operations and financial results depend on worldwide economic conditions and their impact on levels of business
spending. Continued uncertainties may reduce future sales of our products and services. While we believe we have a strong
customer base and have experienced strong collections in the past, if the current market conditions deteriorate, we may
experience increased collection times and greater write-offs, either of which could have a material adverse effect on our cash
flow.
In addition, the tightening of credit markets and concerns regarding the availability of credit may make it more difficult for
our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment, including the products
we sell. Delays in our customers’ ability to obtain such financing, or the unavailability of such financing would adversely
affect our product sales and revenues and therefore harm our business and operating results. Possible import, export, tariff
and other trade barriers, which could be imposed by Asia, the United States, other countries or the European Union might
also have a material adverse effect on our operating results. We cannot predict the timing, duration of or effect on our business
of an economic slowdown or the timing or strength of a subsequent recovery.
24
We may become subject to litigation or regulatory proceedings that could have an adverse effect on our business.
From time to time, we may be subject to litigation or other administrative, regulatory or governmental proceedings, including
tax audits and resulting claims that could require significant management time and resources and cause us to incur expenses
and, in the event of an adverse decision, pay damages or incur costs in an amount that could have a material adverse effect
on our financial position or results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Certain information concerning our principal properties at December 26, 2020, is set forth below:
Location
Poway, California
Kolbermoor, Germany
Malacca, Malaysia
Calamba City, Laguna, Philippines
La Chaux-de-Fonds, Switzerland
Osaka, Japan
Suzhou, China
Singapore
Milpitas, California
Norwood, Massachusetts
Lincoln, Rhode Island
Wertheim, Germany
Major
Activities
1, 2, 3, 4, 5
2, 3, 4, 5
2, 3, 4, 5
2, 3, 4, 5
2, 4, 5
2, 3, 4, 5
2, 3, 4, 5
2, 4, 5
2, 4, 5
2, 4, 5
2, 3, 4, 5
2, 3, 4, 5
Reportable
Segment
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
PCB Test/Semiconductor Test &
Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
Semiconductor Test & Inspection
PCB Test
Approx.
Sq. Ft.
Ownership
147,000
Leased
83,000 Owned
Leased
96,000
Leased
52,000
33,000
Leased
67,000 Owned
31,000
Leased
31,000
31,000
56,000
22,000
22,000
Leased
Leased
Leased
Leased
Leased
Major activities have been separated into the following categories: 1. Corporate Administration/Principal Executive Offices
and Global Headquarters, 2. Sales, Service and Customer Support, 3. Manufacturing, 4. Engineering and Product
Development, and 5. Marketing, Finance and General Administration
In addition to the locations listed above, we lease other properties primarily for manufacturing, sales, service, engineering,
and general administration in various locations. We believe our facilities are suitable for their respective uses and are adequate
for our present needs.
Item 3. Legal Proceedings.
See Note 12, “Commitments and Contingencies” in Part IV, Item 15(a) of this Form 10-K for information regarding legal
proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
25
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities.
(a) Market Information
Cohu, Inc. stock is traded on the Nasdaq Global Select Market under the symbol “COHU”.
Holders
At February 18, 2021, Cohu had 574 stockholders of record. The actual number of stockholders is greater than this number
of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers
and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust
by other entities.
Dividends
Cash dividends, per share, declared in 2020 and 2019 were as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Fiscal 2020
Fiscal 2019
0.06 $
- $
- $
- $
0.06 $
0.06
0.06
0.06
0.06
0.24
$
$
$
$
$
As a result of the COVID-19 pandemic, we are proactively managing cash flow and Cohu’s Board of Directors authorized
suspending our quarterly cash dividend indefinitely, as of May 5, 2020. The dividend suspension will result in approximately
$10 million of annualized cash savings, which we expect to utilize for deleveraging and strengthening our balance sheet.
Future reinstatement of our dividend policy may be affected by, among other items, our views on potential future capital
requirements, including those related to debt service requirements, research and development, investments and acquisitions,
legal risks and stock repurchases.
Recent Sales of Unregistered Securities
During 2020, we did not issue any securities that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
During the fourth quarter of 2020, we did not repurchase any equity securities.
Equity Compensation Plan Information
The information required by this Item regarding equity compensation plans is incorporated by reference to the information
set forth in Part III, Item 12 of this Annual Report on Form 10-K.
26
Comparative Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed”
with the SEC or subject to the liabilities of Section 18 of the Exchange Act except to the extent that Cohu specifically
incorporates it by reference into a document filed under the Securities Act or the Exchange Act.
The graph below compares the cumulative total stockholder return on the common stock of Cohu for the last five fiscal years
with the cumulative total return on custom Peer Group Indexes and a Nasdaq Global Select Market Index over the same
period (assuming the investment of $100 in Cohu’s common stock, Peer Group Index and Nasdaq Global Select Market Index
on December 26, 2015, and reinvestment of all dividends). The custom Peer Group Index is comprised of the peer group
companies associated with our performance stock units issued under our equity incentive plan. This peer group is revised
annually to reflect acquisitions and to include equivalent companies in the semiconductor equipment market to ensure a
sufficiently large number of companies in the peer group composition to enable a meaningful comparison of our stock
performance. In 2020, the custom Peer Group Index was comprised of Advanced Energy Industries Inc., Axcelis
Technologies Inc., Brooks Automation Inc., Cabot Microelectronics Corp, Cirrus Logic Inc., Entegris, Inc., FormFactor Inc.,
Kulicke and Soffa Industries Inc., MTS Systems Corporation, Novanta Inc, OSI Systems, Inc., Onto Innovation Inc. (formerly
Nanometrics Inc.), Photronics Inc., Synaptics, Ultra Clean Holdings Inc., and Veeco Instruments Inc. In 2019, the custom
Peer Group Index was comprised of Advanced Energy Industries Inc., Advantest Corp, ASM Pacific Technology Ltd, Axcelis
Technologies Inc., BE Semiconductor Industries NV, Brooks Automation Inc., Cabot Microelectronics Corp, Camtek Ltd,
Electro Scientific Industries Inc., FormFactor Inc., Kulicke and Soffa Industries Inc., Micronics Japan Co Ltd, MKS
Instruments Inc., Nanometrics Inc., Photronics Inc., Rudolph Technologies Inc., Teradyne Inc., Ultra Clean Holdings Inc.,
and Veeco Instruments Inc. (includes Ultratech through acquisition). In selecting our 2020 peer group the Compensation
Committee of our Board of Directors considered competitive market data and an analysis prepared by Compensia and
identified companies headquartered in the U.S. in the semiconductor capital equipment and electronic capital equipment and
instrumentation sectors that were comparable to us on the basis of revenue, our market capitalization, and that had similar
scope of operations.
Cohu, Inc.
NASDAQ Index
Russell 2000
2019 Peer Group
2020 Peer Group
2015
2016
2017
2018
2019
2020
$
$
$
$
$
100 $
100 $
100 $
100 $
100 $
110 $
109 $
121 $
141 $
124 $
175 $
141 $
139 $
180 $
150 $
128 $
137 $
124 $
150 $
130 $
183 $
187 $
155 $
240 $
221 $
319
272
186
320
302
27
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with Cohu’s consolidated financial statements and notes
thereto included in Part IV, Item 15(a) and with management’s discussion and analysis of financial condition and results of
operations, included in Part II, Item 7. On October 1, 2018, we completed the acquisition of Xcerra Corporation and the
results of its operations have been included in our consolidated financial statements only since that date. Due to the timing of
the acquisition our results for 2018 only include Xcerra for the three months ended December 29, 2018. Results for the periods
ended December 26, 2020 and December 28, 2019 include Xcerra for the full twelve months. Management determined that
the fixtures services business, that was acquired as part of Xcerra, did not align with Cohu’s long-term strategic plan and
management divested this portion of the business in February 2020. As a result, the assets of our fixtures business are
considered “held for sale” as of December 28, 2019 and December 29, 2018 and the operations of our fixtures business are
reported as “discontinued operations” for the periods ended December 26, 2020, December 28, 2019 and December 29, 2018.
Years ended,
(in thousands, except per share data)
Consolidated statement of operations data:
Dec. 26
2020(1) (2)
Dec. 28
2019(1) (2)
Dec. 29
2018(1) (2)
Dec. 30
2017(2) (3)
Dec. 31
2016(4)
Net sales
Income (loss) from continuing operations
Net income (loss)
Net income (loss) attributable to noncontrolling
interest
Net income (loss) attributable to Cohu
Income (loss) per share:
$
$
$
$
$
Income (loss) from continuing operations - basic $
Income (loss) from continuing operations -
636,007 $
(13,843) $
(13,801) $
583,329 $
(68,995) $
(69,692) $
451,768 $
(32,543) $
(32,424) $
352,704 $
33,121 $
32,843 $
282,084
3,260
3,039
- $
(13,801) $
8 $
(69,700) $
(243) $
(32,181) $
- $
32,843 $
-
3,039
(0.33) $
(1.68) $
(1.02) $
1.19 $
0.12
diluted
Net income (loss) attributable to Cohu - basic
Net income (loss) attributable to Cohu - diluted
Cash dividends per share
Consolidated balance sheet data:
Total consolidated assets
Total debt
Working capital
$
$
$
$
(0.33) $
(0.33) $
(0.33) $
0.06 $
(1.68) $
(1.69) $
(1.69) $
0.24 $
(1.02) $
(1.01) $
(1.01) $
0.24 $
1.15 $
1.18 $
1.14 $
0.24 $
0.12
0.11
0.11
0.24
$ 1,090,346 $ 1,077,710 $ 1,134,002 $
352,828 $
$
324,650 $
$
319,940 $
310,593 $
353,035 $
290,811 $
420,457 $
8,963 $
212,171 $
345,512
-
176,460
(1) In 2020, total operating expenses related to the acquisition of Xcerra were as follows: $11.3 million in restructuring
charges comprised of $3.7 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to
Xcerra’s products, employee severance costs of $6.5 million and $1.1 million of other restructuring costs. We also
recorded $34.5 million for the amortization of acquisition-related intangibles. Additionally, 2020 results include an
impairment charge of $11.2 million related to in process research and development and a gain on sale of facilities totaling
$4.5 million.
In 2019, total operating expenses related to the acquisition of Xcerra were as follows: $16.2 million in restructuring
charges comprised of $2.7 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to
Xcerra’s products, employee severance costs of $12.2 million and $1.3 million of other restructuring costs. We also
recorded $35.5 million for the amortization of acquisition-related intangibles and $0.4 million of merger related costs.
In 2018, total operating expenses related to the acquisition of Xcerra as follows: $37.8 million in restructuring charges
comprised of $19.1 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to Xcerra’s
products, employee severance costs of $17.8 million and $0.9 million of other restructuring costs. We also recorded
$13.1 million for the amortization of acquisition-related intangibles and $9.8 million of merger related costs.
(2) Results for the years ended December 26, 2020, December 28, 2019, December 29, 2018 and December 30, 2017,
include the impact from the Tax Act. See Note 9, “Income Taxes” in Part IV, Item 15(a) of this Form 10-K for additional
information.
(3) On January 4, 2017, we purchased Kita Manufacturing Co. LTD. (“Kita”) and the results of its operations have been
included in our consolidated financial statements since that date.
(4) The year ended December 31, 2016 consists of 53 weeks. All other years in the table above are comprised of 52 weeks.
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test
modules, test contactors and thermal subsystems, semiconductor automated test equipment and bare board printed circuit
board (PCB) test systems used by global semiconductor and electronics manufacturers and test subcontractors. We offer a
wide range of products and services and our revenue from capital equipment products is driven by the capital expenditure
budgets and spending patterns of our customers, who often abruptly delay or accelerate purchases in reaction to variations in
their business. The level of capital expenditures by these companies depends on the current and anticipated market demand
for semiconductor devices and printed circuit boards and the products that incorporate them. Our consumable products are
driven by the number of semiconductor devices and printed circuit boards that are tested and by the continuous introduction
of new products and new technologies by our customers. As a result, our consumable products provide a more stable recurring
source of revenue and generally do not have the same degree of cyclicality as our capital equipment products.
For the year ended December 26, 2020, our net sales increased 9.0% year-over-year to $636.0 million. Our consolidated net
sales for the years ended December 26, 2020 and December 28, 2019, include Xcerra’s sales for the full year (all twelve
months) totaling $331.2 million and $300.8 million, respectively. The year ended December 29, 2018, includes Xcerra’s sales
for the three months subsequent to the merger on October 1, 2018, which totaled $94.4 million.
In 2019 and 2020, the global semiconductor market was impacted by U.S. and China trade tensions which impacted our
customers’ ability to supply product to certain end users resulting in customer test cell utilization below levels that have
historically triggered the need for additional capacity. During the first half of 2020 our net sales were negatively impacted by
movement control orders and the subsequent supply disruptions caused by the rapid and global spread of COVID-19 and
weakness in the automotive market. Demand for equipment used in testing mobility semiconductor applications, data centers
and personal computers strengthened during the second half of 2020 driven by the launch and accelerated ramp of our
RedDragon RF module for testing 5G, Wi-Fi 6 and Ultra-Wideband devices, and new customers for our Neon inspection
platform. We also began to see improved demand from semiconductor automotive and industrial customers and orders for
PCB test equipment were at near record levels. Based on improved business conditions, during the second half of 2020, we
took action to reduce outstanding principal, by $36.4 million, under our Term Loan B debt associated with the financing of
the Xcerra acquisition in October 2018.
While our total sales for the twelve months of 2020 were negatively impacted by the global economic downturn caused by
the COVID-19 pandemic, we saw strong demand for our products in the second half of the year and our long-term market
drivers and market strategy remain intact. We are encouraged by positive order momentum across our main market segments,
and customer traction with our new products going into 2021. We remain optimistic about the long-term prospects for our
business due to the increasing ubiquity of semiconductors, the future rollout of 5G networks, increasing semiconductor
complexity, increasing quality demands from semiconductor customers, increasing test intensity and continued proliferation
of electronics in a variety of products across the automotive, mobility and industrial markets. We are focused on cross-selling
opportunities and supporting our customers’ deployment of 5G RF capabilities on next generation smartphones and growing
our sales to semiconductor and electronics manufacturers and test subcontractors.
29
Application of Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our
estimates on historical experience, forecasts and on various other assumptions that are believed to be reasonable under the
circumstances; however actual results may differ from those estimates under different assumptions or conditions. The
methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we
report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting estimates that
we believe are the most important to investors’ understanding of our financial results and condition and require complex
management judgment include:
●
●
●
●
●
revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations;
estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and
allowance for bad debts, which impact gross margin or operating expenses;
the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits,
the valuation allowance on deferred tax assets and accounting for the impact of the change to U.S. tax law as described
herein, which impact our tax provision;
the assessment of recoverability of long-lived and indefinite-lived assets including goodwill and other intangible
assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets
or accelerate their depreciation; and
the valuation and recognition of share-based compensation, which impacts gross margin, research and development
expense, and selling, general and administrative expense.
Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that
we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that
are difficult or subjective.
Revenue Recognition: Our net sales are derived from the sale of products and services and are adjusted for estimated returns
and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a
contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system
products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue
recognition until such events occur. Revenue for established products that have previously satisfied a customer’s acceptance
requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be
demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and
cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include
installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the
installation is performed. Service revenue is recognized over time as the transfer of control is completed for the related
contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally
recognized upon shipment. Certain of our equipment sales have multiple performance obligations. These arrangements
involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations
may occur at different points in time or over different periods of time. For arrangements containing multiple performance
obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling
price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Unsatisfied
performance obligations primarily represent contracts for products with future delivery dates. At December 26, 2020 and
December 28, 2019 we had $17.1 million and $16.1 million of revenue expected to be recognized in the future related to
performance obligations that are unsatisfied (or partially unsatisfied), respectively. We generally sell our equipment with a
product warranty. The product warranty provides assurance to customers that delivered products are as specified in the
contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, Guarantees
(“ASC 460”), and not as a separate performance obligation. The transaction price reflects our expectations about the
consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration
primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes
sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such
consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable
consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to
which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant
reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is
30
subsequently resolved. The estimate is based on information available for projected future sales. Variable consideration that
does not meet revenue recognition criteria is deferred. Accounts receivable represents our unconditional right to receive
consideration from our customer. Payments terms do not exceed one year from the invoice date and therefore do not include
a significant financing component. To date, there have been no material impairment losses on accounts receivable. There
were no material contract assets recorded on the consolidated balance sheet in any of the periods presented. On shipments
where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet
representing the difference between the receivable recorded and the inventory shipped.
Accounts Receivable: We maintain an allowance for credit losses for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of
their ability to make payments, additional allowances may be required. Our customers include semiconductor manufacturers
and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit
losses is adequate and represents our best estimate of future losses we will continue to monitor customer liquidity and other
economic conditions, including the impact of the COVID-19 pandemic, which may result in changes to our estimates.
We adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, on December 29, 2019 the first day of our fiscal 2020. The ASU
required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the
adoption that are presented for comparative purposes are not adjusted. Based on our analysis of historical and anticipated
collections of trade receivables, the impact of adoption of Topic 326 was insignificant.
Inventory: The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of
saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products.
The demand forecast is a direct input in the development of our short-term manufacturing plans. We record valuation reserves
on our inventory for estimated excess and obsolete inventory and lower of cost or net realizable value concerns equal to the
difference between the cost of inventory and the estimated realizable value based upon assumptions about future product
demand, market conditions and product selling prices. If future product demand, market conditions or product selling prices
are less than those projected by management or if continued modifications to products are required to meet specifications or
other customer requirements, increases to inventory reserves may be required which would have a negative impact on our
gross margin.
Income Taxes: We estimate our liability for income taxes based on the various jurisdictions where we conduct business. This
requires us to estimate our (i) current taxes; (ii) temporary differences that result from differing treatment of certain items for
tax and accounting purposes and (iii) unrecognized tax benefits. Temporary differences result in deferred tax assets and
liabilities that are reflected in the consolidated balance sheet. The deferred tax assets are reduced by a valuation allowance if,
based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Establishing, reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease
in tax expense in the statement of operations. We must make significant judgments to determine the provision for income
taxes, deferred tax assets and liabilities, unrecognized tax benefits and any valuation allowance to be recorded against deferred
tax assets. Our gross deferred tax asset balance as of December 26, 2020, was approximately $122.8 million, with a valuation
allowance of approximately $86.1 million.
The Tax Act was enacted on December 22, 2017. The accounting for the tax effects of the enactment of the Tax Act was
completed in 2018. The accounting for the CARES Act, enacted on March 27, 2020, was incorporated in 2020. See Note 9,
“Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein by reference.
Segment Information: We applied the provisions of ASC Topic 280, Segment Reporting, (“ASC 280”), which sets forth a
management approach to segment reporting and establishes requirements to report selected segment information quarterly
and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds
material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose
operating results are reviewed by the chief operating decision maker and for which discrete financial information is available.
We have determined that our four identified operating segments are: Test Handler Group (“THG”), Semiconductor Tester
Group (“STG”), Interface Solutions Group (“ISG”) and PCB Test Group (“PTG”). Our THG, STG and ISG operating
segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and
the nature of products and services provided. As a result, we report in two segments, Semiconductor Test & Inspection and
PCB Test.
Goodwill and Indefinite-Lived Intangibles, Other Intangible Assets and Long-lived Assets: We evaluate goodwill and other
indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for
31
impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be
recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting
unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value,
a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit
and it’s carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach
valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and
certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future
cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts,
industry trade organization data and general economic conditions. Fair value determinations require considerable judgment
and are sensitive to changes in underlying assumptions and factors.
We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of
October 1, 2020, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that
date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual
measurement dates. As of December 26, 2020, we do not believe that circumstances have occurred that indicate impairment
of our goodwill is more-likely-than-not. In the event we determine that an interim goodwill impairment review is required in
a future period, the review may result in an impairment charge, which would have a negative impact on our results of
operations.
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
recorded during the first quarter as the carrying value exceeded fair value. During the third quarter of 2020, we became aware
of additional delays in customer adoption of the same 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 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.
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which
an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of
assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is
not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on
the difference between the carrying amount and estimated fair value.
Warranty: We provide for the estimated costs of product warranties in the period sales are recognized. Our warranty
obligation estimates are affected by historical product shipment levels, product performance and material and labor costs
incurred in correcting product performance problems. Should product performance, material usage or labor repair costs differ
from our estimates, revisions to the estimated warranty liability would be required.
Contingencies: We are subject to certain contingencies that arise in the ordinary course of our businesses which require us
to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset. If a loss or asset
impairment is probable and the amount of the loss or impairment is reasonably estimable, we accrue a charge to operations
in the period such conditions become known.
32
Share-based Compensation: Share-based compensation expense related to restricted stock unit awards is calculated based
on the market price of our common stock on the grant date, reduced by the present value of dividends expected to be paid on
our common stock prior to vesting of the restricted stock unit. Share-based compensation on performance stock units with
market-based goals is calculated using a Monte Carlo simulation model on the date of the grant. Share-based compensation
expense related to stock options is recorded based on the fair value of the award on its grant date, which we estimate using
the Black-Scholes valuation model.
Our estimate of share-based compensation expense requires a number of complex and subjective assumptions and the
assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve
inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we
have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.
Recent Accounting Pronouncements: For a description of accounting changes and recent accounting pronouncements,
including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1,
“Recent Accounting Pronouncements” in Part IV, Item 15(a) of this Form 10-K.
RESULTS OF OPERATIONS
Recent Transactions Impacting Results of Operations
On October 1, 2018 we completed our merger with Xcerra Corporation and the results of its operations have been included
in our consolidated financial statements only since that date. Due to the timing of the merger our results for 2018 only include
Xcerra for the three months ended December 29, 2018 whereas the periods ended December 26, 2020 and December 28,
2019 include Xcerra for the full twelve months. Previously, management determined that the fixtures services business, that
was acquired as part of Xcerra, did not align with Cohu’s long-term strategic plan and management divested this portion of
the business in February 2020. The assets of our fixtures business were considered “held for sale” as of December 28, 2019
and the operating results of our fixtures business are presented as “discontinued operations” for the periods ended December
26, 2020, December 28, 2019 and December 29, 2018. Unless otherwise indicated, the discussion below covers the
comparative results from continuing operations.
The following table summarizes certain operating data as a percentage of net sales:
Net sales
Cost of sales
Gross margin
Research and development
Selling, general and administrative
Amortization of purchased intangible assets
Restructuring charges
Impairment charges
Gain on sale of facilities
Income (loss) from operations
2020
2019
2018
100.0%
(57.3)
42.7
(13.5)
(20.3)
(6.1)
(1.2)
(1.8)
0.7
0.5%
100.0%
(60.6)
39.4
(14.8)
(24.5)
(6.8)
(2.3)
-
-
(9.0)%
100.0%
(64.7)
35.3
(12.5)
(21.4)
(3.8)
(4.1)
-
-
(6.5)%
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7
in our 2019 Annual Report on Form 10-K, filed with the SEC on March 10, 2020, for comparative discussion of our fiscal
years ended December 28, 2019 and December 29, 2018.
2020 Compared to 2019
Net Sales
Cohu’s consolidated net sales increased 9.0% from $583.3 million in 2019 to $636.0 million in 2020. During the first half of
2020, our net sales were impacted by disruptions caused by the COVID-19 pandemic and movement control orders which
resulted in supply disruptions impacting our ability to ship product and were further impacted by reduced demand in the
automotive segment. In the second half of 2020 demand for equipment used in testing mobility semiconductor applications,
data centers and personal computers strengthened driven by the launch and accelerated ramp of our RedDragon RF module
for testing 5G, Wi-Fi 6 and Ultra-Wideband devices, and new customers for our Neon inspection platform. We also began to
33
see improved demand from semiconductor automotive and industrial customers, and orders for PCB test equipment were at
near record levels.
Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)
Gross margin consists of net sales less cost of sales (excluding the impact of amortization of developed technology and
backlog). Cost of sales consists primarily of the materials, assembly and test labor and overhead from operations. Our gross
margin can fluctuate due to a number of factors, including, but not limited to, the mix of products sold, product support costs,
increases to inventory reserves, the sale of previously reserved inventory and utilization of manufacturing capacity. Our gross
margin, as a percentage of net sales, increased to 42.7% in 2020 from 39.4% in 2019. Increased business volume in the second
half of 2020 allowed us to better leverage our fixed costs helping to improve our gross margin over 2019. Other items
impacting our gross margin in 2020 are discussed below.
We compute the majority of our excess and obsolete inventory reserve requirements using inventory usage forecasts ranging
from one to three years. During 2020, we recorded net charges to cost of sales of approximately $6.0 million, for excess and
obsolete inventory. In addition to our normal excess and obsolete provision, as part of the integration and restructuring
activities related to Xcerra we recorded $3.7 million of inventory related charges specifically related to the decision to end
manufacturing of certain semiconductor test handler products. In 2019, net charges to cost of sales were $4.1 million, for
excess and obsolete inventory and we recorded $2.7 million of inventory related charges related to the decision to end
manufacturing of certain of Xcerra’s semiconductor test handler products.
We believe our reserves for excess and obsolete inventory and lower of cost or net realizable value are adequate to cover
known exposures at December 26, 2020. Reductions in customer forecasts, continued modifications to products, our failure
to meet specifications or other customer requirements may result in additional charges to operations that could negatively
impact our gross margin in future periods.
Our cost of sales was also impacted by the amortization of inventory step-up related to fair value adjustments to inventory
acquired from Xcerra and during 2019, $6.0 million of inventory step-up costs were amortized. All inventory step-up was
fully amortized in in 2019 and there was no amortization in 2020.
Research and Development Expense (“R&D Expense”)
R&D expense consists primarily of salaries and related costs of employees engaged in ongoing research, product design and
development activities, costs of engineering materials and supplies and professional consulting expenses. Our future operating
results depend, to a considerable extent, on our ability to maintain a competitive advantage in the products we provide, and
historically we have maintained our commitment to investing in R&D in order to be able to continue to offer new products
to our customers. R&D expense in 2020 was $86.2 million, or 13.5% of net sales, compared to $86.1 million, or 14.8% of
net sales in 2019. Despite increased business volume, R&D expense was essentially flat, year-over-year, as temporary salary
reductions, decreased travel and other cost control measures implemented in response to the economic uncertainty caused by
the COVID-19 pandemic allowed us to control costs in 2020.
Selling, General and Administrative Expense (“SG&A Expense”)
SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for independent sales
representatives, product promotion and costs of professional services. SG&A expense as a percentage of net sales decreased
to 20.3% in 2020, from 24.5% in 2019, decreasing from $142.9 million in 2019 to $129.2 million in 2020. Lower SG&A
expense in 2020 was a result of temporary salary reductions, decreased travel and other cost control measures implemented
in response to the economic uncertainty caused by the COVID-19 pandemic.
From time-to-time Cohu incurs costs specifically related to business acquisitions. In 2019, we incurred acquisition costs
totaling $0.4 million that were entirely comprised of professional service and other transaction related expenses associated
with the merger of Xcerra. No acquisition costs were incurred in 2020.
In 2020 and 2019, we recorded $0.1 million and $1.2 million of expense, respectively, related to a reduction of an
indemnification receivable related to an uncertain tax position recorded in the acquisition of Ismeca Semiconductor Holdings
SA (“Ismeca”) in 2013. In connection with this reduction we also booked a corresponding amount as a credit to our income
tax provision and, as a result, the impact of this reduction on net income was zero.
34
Amortization of Purchased Intangible Assets
Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business
combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $38.7 million and
$39.6 million for 2020 and 2019, respectively. The decrease in expense recorded during the current year was a result of
fluctuations in exchange rates.
Restructuring Charges
Subsequent to the merger with Xcerra in the fourth quarter 2018, we began a strategic restructuring program designed to
reposition our organization and improve our cost structure as part of our targeted integration plan regarding Xcerra. In
connection with the integration plan, we recorded restructuring charges, exclusive of the inventory related charges described
above, totaling $7.6 million and $13.5 million in 2020 and 2019, respectively.
See Note 5, “Restructuring Charges” in Part IV, Item 15(a) of this Form 10-K for additional information with respect to
restructuring charges.
Impairment Charges
During the first quarter of 2020, the volatility in Cohu’s stock price and 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
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 roadmap 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 certain new products under development as a result of the COVID-19 pandemic and customer product road map
changes. This change in facts led us to re-evaluate the fair value of these projects and we determined that the carrying value
exceeded the fair value, and 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.
Gain on sale of facilities
As part of our previously announced Xcerra integration plan we implemented certain facility consolidation actions. During
2020 we completed the sales of our facilities located in Rosenheim, Germany and Penang, Malaysia resulting in a gain of
$4.5 million.
Interest Expense and Income
Interest expense was $13.8 million in 2020 compared to $20.6 million in 2019. The year-over-year decrease in our interest
expense resulted from a significant decrease in LIBOR and the reduction in the outstanding principal under our Term Loan
B debt associated with the financing of the Xcerra acquisition.
Interest income was $0.2 million in 2020 as compared to $0.8 million in 2019.
Foreign Transaction Gain (Loss) and Other
We have operations in foreign countries and conduct business in the local currency in these countries. During 2020, the U.S.
Dollar weakened significantly against the Swiss Franc and Euro, which resulted in the recognition of $3.2 million in foreign
currency losses, net of $0.8 million of gains generated by foreign currency forward contracts. During the fourth quarter of
2020, we began entering into foreign currency forward contracts to hedge against future movements in foreign exchange rates
that affect certain U.S. Dollar denominated assets and liabilities at our subsidiaries whose functional currency is the local
currency. In 2019, we incurred an insignificant foreign currency transaction gain for the year.
See Note 8 “Derivative Financial Instruments” in Part IV, Item 15(a) of this Form 10-K for additional information with
respect to our foreign currency forward contracts.
35
Income Taxes
The income tax provision (benefit) expressed as a percentage of pre-tax income or loss in 2020 and 2019 was 5.1% and
(4.3)%, respectively. The income tax provision (benefit) for the years ended December 26, 2020, and December 28, 2019
differs from the U.S. federal statutory rate primarily due to changes in the valuation allowance on our deferred tax assets,
foreign income taxed at different rates, releases from statute expirations, impact of the Tax Act and other factors.
Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”)
based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of
taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing
taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income
in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income
exclusive of reversing temporary differences and carryforwards.
In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively
verified. We have evaluated our DTAs at each reporting period, including an assessment of our cumulative income or loss
over the prior three-year period and future periods, to determine if a valuation allowance was required. A significant negative
factor in our assessment was Cohu’s three-year cumulative loss history at the end of various fiscal periods including 2020.
As a result of our cumulative, three-year U.S. GAAP pretax loss from continuing operations at the end of 2020, we were
unable to conclude that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the realizability
of our DTAs at the end of each quarterly reporting period in 2021 and, should circumstances change, it is possible an
additional valuation allowance will be recorded or the remaining valuation allowance, or a portion thereof, will be reversed
in a future period.
Our valuation allowance on our DTAs at December 26, 2020, and December 28, 2019, was approximately $86.1 million and
$93.5 million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are realizable
primarily through future reversals of existing taxable temporary differences and to a lesser extent future taxable income
exclusive of reversing temporary differences and carryforwards.
As the realization of DTAs is determined by tax jurisdiction, the deferred tax liabilities recorded by our non-U.S. subsidiaries
were not a source of taxable income in assessing the realization of our DTAs in the U.S.
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and further explanation of our provision for
income taxes, see Note 9, “Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein
by reference.
Loss from Continuing Operations and Net Loss
As a result of the factors set forth above, our net loss from continuing operations and net loss was $13.8 million in 2020. Net
loss from continuing operations was $69.0 million in 2019 and, including the results of our discontinued operations which
includes an impairment related to the disposal of our FSG segment, our net loss was $69.7 million.
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on capital expenditures by semiconductor manufacturers and test subcontractors that are, in turn,
dependent on the current and anticipated market demand for semiconductors. The seasonal and volatile nature of demand for
semiconductor equipment, our primary industry, makes estimates of future revenues, results of operations and net cash flows
difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by operations and we manage
our business to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating
assets and to fund new products and product enhancements primarily through research and development.
On October 1, 2018, we entered into a bank credit agreement which provides for a $350.0 million seven-year Term Loan B
facility and borrowed the full amount. The Term Loan B facility matures on October 1, 2025. These proceeds were used on
October 1, 2018, together with our cash and cash equivalents, to finance the acquisition of Xcerra. See Note 4 “Borrowings
and Credit Agreements” included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein by reference.
36
At December 26, 2020, our total indebtedness, net of discount and deferred financing costs, was $319.9 million, which
included $301.1 million outstanding under the Term Loan B, $3.6 million outstanding under Kita’s term loans, $9.9 million
outstanding under Cohu GmbH’s construction loans, and $5.3 million outstanding under Kita’s lines of credit.
We believe that our sources of liquidity will be sufficient to satisfy our anticipated cash requirements through at least the next
12 months. Our liquidity could be negatively affected by a decrease in demand for our products. In addition, we may make
acquisitions or increase our capital expenditures and may need to raise additional capital through debt or equity financing to
provide for greater flexibility to fund these activities. Additional financing may not be available or not available on terms
favorable to us. A discussion of cash flows for the year ended December 29, 2018 has been omitted from this Annual Report
on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” under the heading “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended
December 28, 2019, filed with the SEC on March 10, 2020, which discussion is incorporated herein by reference and which
is available free of charge on the SEC’s website at www.sec.gov.
Liquidity
Working Capital: The following summarizes our cash, cash equivalents, short-term investments and working capital at
December 26, 2020 and December 28, 2019:
(in thousands)
Cash, cash equivalents and short-term investments
Working capital
2020
170,027 $
310,593 $
2019
156,098 $
290,811 $
$
$
Increase
Percentage
Change
13,929
19,782
8.9%
6.8%
As of December 26, 2020, $74.4 million of our cash, cash equivalents and short-term investments was held by our foreign
subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay foreign
withholding taxes if we repatriate these funds. Except for working capital requirements in certain jurisdictions, we provide
for all withholding and other residual taxes related to unremitted earnings of our foreign subsidiaries. Beginning in 2018,
earnings realized in foreign jurisdictions are subject to U.S. taxes in accordance with the Tax Act.
Cash Flows
Operating Activities: Cash provided by operating activities consists of our net loss adjusted for non-cash expenses and
changes in operating assets and liabilities. These adjustments include impairment charges, depreciation expense on property,
plant and equipment, share-based compensation expense, amortization of intangible assets, deferred income taxes,
amortization of cloud-based software implementation costs, gain on extinguishment of debt, interest capitalized associated
with cloud computing implementation, amortization of debt discounts and issuance costs and gains from sale of property,
plant and equipment. Our net cash flows provided by operating activities in 2020 totaled $49.7 million compared to
$17.3 million in 2019. The increase in cash provided by operating activities in the current year was a result of an increase in
current year net sales and the decrease in our net loss, but was also impacted by changes in current assets and liabilities which
included increases in accounts receivable, inventory and accounts payable. A significant increase in net sales in the fourth
quarter of 2020 and the timing of the resulting cash conversion cycle drove the $20.2 million increase in accounts receivable.
The $15.0 million increase in inventory was driven by purchases from suppliers made to fulfill anticipated future shipments
of products. Increased business activities in the fourth quarter and the timing of payments to our suppliers resulted in the
$15.1 million increase in accounts payable. Cash provided by operating activities was also impacted by increases in accrued
compensation, warranty and other liabilities which increased $4.7 million, driven primarily by increases in incentive
compensation due to current year results. Advance payments from customers related to equipment orders expected to be
fulfilled during 2021 has resulted in a $2.2 million increase in customer advances. Income taxes payable decreased
$2.1 million a result of tax payments made in certain foreign jurisdictions.
37
Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business,
purchases of investments, proceeds from investment maturities, business acquisitions, asset disposals and business
divestitures. Our net cash used in investing activities in 2020 totaled $18.4 million. Additions to property, plant and equipment
in 2020 were $18.7 million and were made to support the operating and development activities of our Semiconductor Test &
Inspection segment. During 2020 we used $19.7 million in cash for purchases of short-term investments. We invest our excess
cash, in an attempt to seek the highest available return while preserving capital, in short-term investments since excess cash
may be required for a business-related purpose. During 2020 we generated cash totaling $17.0 million from the sale of land,
buildings, and fixed assets as part of facility consolidation program and $3.0 million from the sale of our fixtures services
business.
Financing Activities: In fiscal 2020, our cash used in financing activities totaled $38.1 million. During 2020, we paid
dividends totaling $5.0 million, or $0.06 per common share. As a result of the COVID-19 pandemic, we are proactively
managing cash flow and Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of
May 5, 2020. The dividend suspension will result in approximately $10 million of annualized cash savings, which we expect
to utilize for deleveraging and strengthening our balance sheet. Repayments of short-term borrowings and long-term debt
during fiscal 2020 totaled $41.1 million and included a $35.4 million repurchase and retirement of our Term Loan B debt
during the third and fourth quarters of 2020 made to deleverage our balance sheet. We received proceeds under a revolving
line of credit and construction loan totaling $5.9 million. Proceeds from the construction loan are being used to expand our
facility in Kolbermoor, Germany, enabling us to consolidate the German operations of our Semiconductor Test & Inspection
segment. Proceeds from the revolving line of credit are being used to increase the manufacturing capacity of our
Semiconductor Test & Inspection segment facility located in Osaka, Japan. Net proceeds from the issuance of our common
stock under our equity incentive and employee stock purchase plans, totaled $2.1 million during 2020. We issue share-based
awards and maintain an employee stock purchase plan as components of our overall employee compensation.
Capital Resources
We have access to credit facilitates and other borrowings provided by financial institutions to finance acquisitions, capital
expenditures and our operations if needed. A summary of our borrowings and available credit is as follows.
Credit Agreement
On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Credit Facility and borrowed the full
amount to finance a portion of the Xcerra acquisition. Loans under the Credit Facility amortize in equal quarterly installments
of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal and interest in
respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Facility bear
interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At December 26, 2020, the
outstanding loan balance, net of discount and deferred financing costs, was $301.1 million and $2.4 million of the outstanding
balance is presented as current installments of long-term debt in our consolidated balance sheets. At December 28, 2019, the
outstanding loan balance, net of discount and deferred financing costs, was $339.1 million and $2.3 million of the outstanding
balance is presented as current installments of long-term debt in our consolidated balance sheets.
Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain events
of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit
Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure
to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that
related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the
insolvency of Cohu, or upon the change of control of Cohu. As of December 26, 2020, we believe no such events of default
have occurred.
In the second half of 2020, we repurchased $36.4 million in principal of our Term Loan Facility for $35.4 million in cash.
We accounted for the repurchase as a debt extinguishment, which resulted in a gain of $0.3 million reflected in other expense,
net, in our consolidated statement of operations, as well as a $0.7 million reduction in debt discounts and deferred financing
costs in our consolidated balance sheets. After the repurchase, approximately $306.6 million in principal of the Term Loan
Facility remains outstanding as of December 26, 2020.
38
Kita Term Loans
As a result of our acquisition of Kita, we assumed term loans from a series of Japanese financial institutions primarily related
to the expansion of Kita’s facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest rates
ranging from 0.05% to 0.44%, and expire at various dates through 2034. At December 26, 2020, the outstanding loan balance
was $3.6 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our
consolidated balance sheets. At December 28, 2019, the outstanding loan balance was $3.8 million and $0.4 million of the
outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. The term loans
are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency
exchange rates.
Xcerra Term Loan
As a result of our acquisition of Xcerra, we assumed a term loan related to the purchase of Xcerra’s facility in Rosenheim,
Germany. The loan was payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest was due
quarterly over the duration of the term loan ending in March 2024. At December 28, 2019, the outstanding loan balance was
$1.5 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our
consolidated balance sheets. During the third quarter of 2020 the term loan was fully repaid using proceeds received from the
sale of our facility located in Rosenheim, Germany.
Construction Loans
On July 26, 2019, one of our wholly owned subsidiaries located in Germany entered into two construction loans (“Loan
Facilities”) with a German financial institution providing total borrowing of €8.6 million. The Loan Facilities have 10-year
and 15-year terms, which commenced on August 1, 2019, the initial draw-down date. Additionally, on June 16, 2020, a third
construction loan with the same financial institution was entered into providing total borrowing of €1.5 million. This loan
facility has a 10-year term, which has not commenced. The Loan Facilities are being utilized to finance the expansion of our
facility in Kolbermoor, Germany, enabling us to combine the operations of multiple subsidiaries in one location as part of
our previously announced strategic restructuring program. The Loan Facilities are secured by the land and the existing
building on the site and bear interest at agreed upon rates based on separate €3.4 million, €5.2 million and €1.5 million facility
amounts.
On August 1, 2019, the full €3.4 million was drawn under the first facility, which is payable over 10 years at an annual interest
rate of 0.8%. Interest only payments are required to be made each quarter starting in September 2019 with principal and
interest payments due each quarter starting in the month of December 2021. Principal repayments will be made over 8 years
starting at the end of 2021.
Through December 26, 2020, we drew €4.9 million under the second facility, which is payable over 15 years at an annual
interest rate of 1.05%. Interest only payments are required to be made each month starting in December 2019 with principal
and interest payments due each month starting in the month of May 2020. Principal repayments will be made over 15 years
starting at the end of May 2020. As of December 26, 2020, €0.3 million had not been drawn under the second facility.
Through December 26, 2020, no amounts have been drawn under the third facility. Future amounts, if drawn, will be payable
over 10 years at an annual interest rate of 1.2%. Interest payments are required to be made each month starting in the month
following the first draw-down date with principal and interest payments due each month starting in the month of May 2021.
Principal repayments will be made over 10 years starting at the end of May 2021.
At December 26, 2020 and December 28, 2019, total outstanding borrowings under the Loan Facilities was $9.9 million and
$5.5 million with $0.4 million and $0.3 million of the total outstanding balance being presented as current installments of
long-term debt in our consolidated balance sheets based on contractual due dates, respectively. The loans are denominated in
Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.
Lines of Credit
As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in
Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $9.3 million. At
December 26, 2020, total borrowings outstanding under the revolving lines of credit were $5.3 million. As these credit facility
agreements renew monthly, they have been included in short-term borrowings in our consolidated balance sheets.
39
The revolving lines of credit are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because
of changes in currency exchange rates.
Our wholly owned Ismeca subsidiary has one available line of credit which provides it with borrowings of up to a total of
2.0 million Swiss Francs, a portion of which is reserved for tax guarantees. At December 26, 2020 and December 28, 2019,
no amounts were outstanding under this line of credit.
We also have a letter of credit facility (“LC Facility”) under which Bank of America, N.A., has agreed to administer the
issuance of letters of credit on our behalf. The LC Facility requires us to maintain deposits of cash or other approved
investments in amounts that approximate our outstanding letters of credit and contains customary restrictive covenants. In
addition, our wholly owned subsidiary, Xcerra, has arrangements with various financial institutions for the issuance of letters
of credit and bank guarantees. As of December 26, 2020, $0.8 million was outstanding under standby letters of credit and
bank guarantees.
We expect that we will continue to make capital expenditures to support our business and we anticipate that present working
capital will be sufficient to meet our operating requirements for at least the next twelve months.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 26, 2020, and the effect such obligations
are expected to have on our liquidity and cash flows in future periods. Amounts excluded include our liability for
unrecognized tax benefits that totaled approximately $33.7 million at December 26, 2020. We are currently unable to provide
a reasonably reliable estimate of the amount or period(s) the cash settlement of this liability may occur.
(in thousands)
Operating leases (1)
Finance leases
Bank term loans principal and
interest
Revolving credit facilities
Total contractual obligations
$
$
Fiscal year-end
Total
2021
39,635 $
401
7,015 $
179
2022-2023
11,484 $
222
2024-2025 Thereafter
9,194 $
-
367,572
5,314
412,922 $
14,195
5,314
26,703 $
29,075
-
40,781 $
316,167
-
325,361 $
11,942
-
8,135
-
20,077
(1)
Excludes an insignificant amount of short-term lease obligations.
The table above does not include pension, post-retirement benefit and warranty obligations because it is not certain when
these liabilities will be funded. For additional information regarding our pension and post-retirement benefits obligations see
Note 6, “Employee Benefit Plans” and for more information on our contractual obligations, see Note 13, “Guarantees” in
Part IV, Item 15(a) of this Form 10-K.
Commitments to contract manufacturers and suppliers. From time-to-time, we enter into commitments with our vendors
and outsourcing partners to purchase inventory at fixed prices or in guaranteed quantities. We are not able to determine the
aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent
authorizations to purchase rather than binding agreements. Our purchase orders are based on our current manufacturing needs
and are fulfilled by our vendors within relatively short time horizons. We typically do not have significant agreements for the
purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements
for the next three months.
Off-Balance Sheet Arrangements. During the ordinary course of business, we provide standby letters of credit instruments
to certain parties as required. As of December 26, 2020, $0.8 million was outstanding under standby letters of credit.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Investment and Interest Rate Risk.
At December 26, 2020, our investment portfolio included short-term, fixed-income investment securities with a fair value of
approximately $20.7 million, and we did not hold or issue financial instruments for trading purposes. These securities are
subject to interest rate risk and will likely decline in value if interest rates increase. Our future investment income may fall
short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities
40
that decline in market value due to changes in interest rates. As we classify our short-term securities as available-for-sale, no
gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in
fair value are determined to be other-than-temporary. Due to the relatively short duration of our investment portfolio, an
immediate ten percent change in interest rates would have no material impact on our financial condition or results of
operations.
We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the
length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and our ability
and intent to hold the investment for a period of time sufficient for anticipated recovery of market value. As of December 26,
2020, the cost and fair value of investments with loss positions were approximately $8.7 million. We evaluated the nature of
these investments, credit worthiness of the issuer and the duration of these impairments and concluded that these losses were
temporary and we have the ability and intent to hold these investments to maturity.
Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial
statements. However, the fair value of our debt will generally fluctuate with movements of interest rates, increasing in periods
of declining rates of interest and declining in periods of increasing rates of interest. As of December 26, 2020, we have
approximately $306.6 million of long-term debt due under a credit facility that is subject to quarterly interest payments that
are based on either a base rate plus a margin of up to 2.0% per annum, or the London Interbank Offered Rate (LIBOR) plus
a margin of up to 3.0% per annum. The selection of the interest rate formula is at our discretion. The interest rate otherwise
payable under the credit facility will be subject to increase by 2.0% per annum during the continuance of a payment default
and may be subject to increase by 2.0% per annum with respect to the overdue principal amount of any loans outstanding and
overdue interest payments and other overdue fees and amounts. At December 26, 2020, the interest rate in effect on these
borrowings was 3.15%.
In July 2017, the UK’s Financial Conduct Authority, which regulates the LIBOR, announced that it intends to phase out
LIBOR by the end of 2021. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the
administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted
alternatives to LIBOR. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include
proposals by the Alternative Reference Rates Committee that has been convened by the Federal Reserve Board and the
Federal Reserve Bank of New York. We cannot currently predict the effect of the discontinuation of, or other changes to,
LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere in the global
capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative
reference rate or rates, could have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial
instruments that currently use LIBOR as a benchmark rate. Our Term Loan B facility constitutes our most significant exposure
to this transition and there is no guarantee that a shift from LIBOR to a new reference rate will not result in increases to our
borrowing costs.
Foreign Currency Exchange Risk.
We have operations in several foreign countries and conduct business in the local currency in these countries. As a result, we
have risk associated with currency fluctuations as the value of foreign currencies fluctuate against the U.S. dollar, in particular
the Swiss Franc, Euro, Malaysian Ringgit, Chinese Yuan, Philippine Peso and Japanese Yen. These fluctuations can impact
our reported earnings.
During the fourth quarter of 2020, we began entering into foreign currency forward contracts with a financial institution to
hedge against future movements in foreign exchange rates that affect certain existing U.S. Dollar denominated assets and
liabilities at our subsidiaries whose functional currency is the local currency. Under this program, our strategy is to have
increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward
contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.
Fluctuations in currency exchange rates also impact the U.S. Dollar amount of our net investment in foreign operations. The
assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars at the exchange rates in effect at the fiscal
year-end balance sheet date. Income and expense accounts are translated at an average exchange rate during the year which
approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’
equity as a component of accumulated other comprehensive income. As a result of fluctuations in certain foreign currency
exchange rates in relation to the U.S. Dollar as of December 26, 2020 compared to December 28, 2019, our stockholders’
equity increased by $27.3 million as a result of the foreign currency translation.
41
Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. dollar as compared to these
currencies as of December 26, 2020 would result in an approximate $38.6 million positive translation adjustment recorded in
other comprehensive income within stockholders’ equity. Conversely, a hypothetical 10% appreciation of the U.S. dollar as
compared to these currencies as of December 26, 2020 would result in an approximate $38.6 million negative translation
adjustment recorded in other comprehensive income within stockholders’ equity.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is included in Part IV, Item 15(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures - Under the supervision and with the
participation of our management, including our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were
effective as of December 26, 2020, the end of the period covered by this annual report.
Changes in Internal Control over Financial Reporting - During the three months ended December 26, 2020, certain of
our wholly owned subsidiaries implemented an integrated finance/accounting and manufacturing software system. The
implementations involved changes in systems that included internal controls, and accordingly, these changes have required
changes to our system of internal controls.
We reviewed the systems as they were being implemented and the controls affected by the implementation of the new systems
and made appropriate changes to affected internal controls during the implementation process. We believe that the controls
as modified are appropriate and functioning effectively. This change was not in response to any identified deficiency or
weakness in our internal control over financial reporting.
Other than those described above, there have been no changes in our internal control over financial reporting during the most
recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over
financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting - Our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the framework in
Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was
effective as of December 26, 2020.
Ernst & Young LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements
included in this Annual Report on Form 10-K, has also audited the effectiveness of our internal control over financial
reporting as of December 26, 2020, as stated in their report which is included herein.
42
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Cohu, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Cohu, Inc.’s internal control over financial reporting as of December 26, 2020, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Cohu, Inc. (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 26, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28, 2019, and the related
consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the
three years in the period ended December 26, 2020, and the related notes and the financial statement schedule listed in the
Index at Item 15(a) and our report dated February 26, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Diego, California
February 26, 2021
43
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this Form 10-K is incorporated
by reference in this section. The other information required by this item is hereby incorporated by reference to Cohu’s
definitive proxy statement, which will be filed with the Securities and Exchange Commission (SEC) within 120 days after
the close of fiscal 2020.
Code of Business Conduct and Code of Ethics
Cohu has adopted a code of business conduct and ethics for directors, officers and employees. The code is available on the
Investor Relations section of our website at www.cohu.com. We intend to make all required disclosures concerning any
amendments to, or waivers from, our code of ethics on our website, within four business days of such amendment or waiver.
Corporate Governance Guidelines and Certain Committee Charters
Cohu has adopted Corporate Governance Guidelines as well as charters for its Audit, Compensation and Nominating and
Governance Committees. These documents are available on the Investor Relations section of our website at www.cohu.com.
The information on our website is not incorporated by reference in or considered to be a part of this Annual Report on
Form 10-K.
Item 11. Executive Compensation.
Information regarding Executive Compensation is hereby incorporated by reference to Cohu’s definitive proxy statement,
which will be filed with the SEC within 120 days after the close of fiscal 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days
after the close of fiscal 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding Certain Relationships and Related Transactions, and Director Independence is hereby incorporated by
reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal
2020.
Item 14. Principal Accounting Fees and Services.
Information regarding the Principal Accounting Fees and Services is hereby incorporated by reference to Cohu’s definitive
proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2020.
44
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
(1) Financial Statements
The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young
LLP, are included in this Annual Report on Form 10-K beginning on page 46:
Description
Form 10-K
Page Number
Consolidated Balance Sheets at December 26, 2020 and December 28, 2019
Consolidated Statements of Operations for each of the three years in the period ended December
26, 2020
46
47
Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the
48
period ended December 26, 2020
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended
49
December 26, 2020
Consolidated Statements of Cash Flows for each of the three years in the period ended December
50
26, 2020
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(2) Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
51
85
92
All other financial statement schedules have been omitted because the required information is not applicable or
not present in amounts sufficient to require submission of the schedule, or because the information required is
included in the Consolidated Financial Statements or the notes thereto.
(3) Exhibits
The exhibits listed under Item 15(b) hereof are filed with, or incorporated by reference into, this Annual Report
on Form 10-K.
45
COHU, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses
Other current assets
Assets held for sale
Current assets of discontinued operations (Note 14)
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
Operating lease right of use assets
Noncurrent assets of discontinued operations (Note 14)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings
Current installments of long-term debt
Accounts payable
Customer advances
Accrued compensation and benefits
Accrued warranty
Deferred profit
Income taxes payable
Other accrued liabilities
Current liabilities of discontinued operations (Note 14)
Total current liabilities
Long-term debt
Deferred income taxes
Long-term lease liabilities
Accrued retirement benefits
Noncurrent income tax liabilities
Other accrued liabilities
Noncurrent liabilities of discontinued operations (Note 14)
December 26, December 28,
2020
2019
$
$
$
149,358 $
20,669
151,919
142,500
18,773
1,827
-
-
485,046
66,916
252,304
233,685
23,192
29,203
-
1,090,346 $
5,314 $
3,075
67,923
14,410
34,862
6,066
8,671
3,857
30,275
-
174,453
311,551
28,816
25,787
21,663
6,888
8,900
-
155,194
904
127,921
130,706
17,483
3,158
827
3,503
439,696
70,912
238,669
275,019
20,030
33,269
115
1,077,710
3,195
3,322
48,697
12,160
23,741
5,893
7,645
3,894
39,739
599
148,885
346,518
31,310
28,877
21,930
8,438
8,656
24
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares authorized, none issued
Common stock, $1 par value; 60,000 shares authorized, 42,190 shares issued and
outstanding in 2020 and 41,395 shares in 2019
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
-
-
42,190
448,194
26,230
(4,326)
512,288
1,090,346 $
41,395
433,190
42,517
(34,030)
483,072
1,077,710
$
The accompanying notes are an integral part of these statements.
46
COHU, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Net sales
Cost and expenses:
Cost of sales (1)
Research and development
Selling, general and administrative
Amortization of purchased intangible assets
Restructuring charges (Note 5)
Impairment charges
Gain on sale of facilities
Income (loss) from operations
Other (expense) income:
Interest expense
Interest income
Foreign transaction gain (loss)
Gain on extinguishment of debt
Loss from continuing operations before taxes
Income tax provision (benefit)
Loss from continuing operations
Income (loss) from discontinued operations, net of tax
Net loss
Net income (loss) attributable to noncontrolling interest
Net loss attributable to Cohu
Income (loss) per share:
Basic:
Loss from continuing operations before noncontrolling
interest
Income (loss) from discontinued operations
Net income (loss) attributable to noncontrolling interest
Net loss attributable to Cohu
Diluted:
Loss from continuing operations before noncontrolling
interest
Income (loss) from discontinued operations
Net income (loss) attributable to noncontrolling interest
Net loss attributable to Cohu
Weighted average shares used in computing
$
$
$
$
$
$
$
Years ended
December 26, December 28, December 29,
2019
2020
2018
$
636,007 $
583,329 $
451,768
364,225
86,151
129,248
38,746
7,623
11,249
(4,495)
632,747
3,260
(13,759)
224
(3,170)
268
(13,177)
666
(13,843)
42
(13,801) $
- $
(13,801) $
(0.33) $
0.00
-
(0.33) $
(0.33) $
0.00
-
(0.33) $
353,500
86,147
142,936
39,590
13,484
-
-
635,657
(52,328)
(20,556)
764
43
-
(72,077)
(3,082)
(68,995)
(697)
(69,692) $
8 $
(69,700) $
(1.68) $
(0.01)
0.00
(1.69) $
(1.68) $
(0.01)
0.00
(1.69) $
292,460
56,434
96,754
17,197
18,704
-
-
481,549
(29,781)
(4,977)
1,187
1,659
-
(31,912)
631
(32,543)
119
(32,424)
(243)
(32,181)
(1.02)
0.00
(0.01)
(1.01)
(1.02)
0.00
(0.01)
(1.01)
Basic
Diluted
41,854
41,854
41,159
41,159
31,776
31,776
(1)
Excludes amortization of $29,510, $30,126, and $13,586 for the years ended December 26, 2020, December 28, 2019,
and December 29, 2018, respectively.
The accompanying notes are an integral part of these statements.
47
COHU, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Years ended
December 26, December 28, December 29,
2019
2018
2020
Net loss
$
(13,801 ) $
(69,692) $
(32,424)
Income (loss) from continuing operations before noncontrolling
interest
Net income (loss) attributable to Cohu
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other comprehensive income (loss), net of tax
Other comprehensive income (loss) attributable to
noncontrolling interest
Other comprehensive income (loss) attributable to Cohu
-
(13,801 )
8
(69,700)
(243)
(32,181)
27,321
2,383
-
29,704
-
29,704
(7,522)
(628)
-
(8,150)
(4)
(8,146)
(8,905)
805
7
(8,093)
(5)
(8,088)
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling
interest
Comprehensive income (loss) attributable to Cohu
$
15,903
(77,842)
(40,517)
-
15,903 $
4
(77,846) $
(248)
(40,269)
The accompanying notes are an integral part of these statements.
48
COHU, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except par value and per share amounts)
Balance at December 30, 2017
Cumulative effect of accounting
change (a)
Net loss
Changes in cumulative translation
adjustment
Adjustments related to postretirement
benefits, net of tax
Changes in unrealized gains and
losses on investments, net of tax
Cash dividends - $0.24 per share
Exercise of stock options
Shares issued under ESPP
Shares issued for restricted stock
units vested
Repurchase and retirement of stock
Noncontrolling interest
Share-based compensation expense
Shares issued for acquisition of
Xcerra
Balance at December 29, 2018
Cumulative effect of accounting
change (b)
Net loss
Changes in cumulative translation
adjustment
Adjustments related to postretirement
benefits, net of tax
Cash dividends - $0.24 per share
Exercise of stock options
Shares issued under ESPP
Shares issued for restricted stock
units vested
Repurchase and retirement of stock
Noncontrolling interest
Share-based compensation expense
Divestiture of interest in consolidated
entity
Balance at December 28, 2019
Net loss
Changes in cumulative translation
adjustment
Adjustments related to postretirement
benefits, net of tax
Cash dividends - $0.06 per share
Exercise of stock options
Shares issued under ESPP
Shares issued for restricted stock
units vested
Repurchase and retirement of stock
Share-based compensation expense
Balance at December 26, 2020
$
Common
stock
$1 par value
$
28,489 $
Accumulated
other
Paid-in
capital
Retained
earnings
comprehensive Noncontrolling
loss
Interest
Total
127,663 $
150,726 $
(17,787) $
- $
289,091
-
-
-
-
-
-
67
85
-
-
-
-
1,057
(32,424)
-
-
-
-
613
1,438
-
(7,689)
-
-
541
(195)
-
-
(541)
(11,405)
-
18,280
-
-
-
-
-
-
(8,905)
805
7
-
-
-
-
-
-
-
11,776
40,763
283,642
419,690
-
111,670
-
(25,880)
-
-
-
-
-
-
-
-
-
-
(299)
-
-
(299)
1,057
(32,424)
(8,905)
805
7
(7,689)
680
1,523
-
(11,600)
(299)
18,280
295,418
545,944
10,352
(69,692)
-
-
-
-
10,352
(69,692)
-
(7,522)
(4)
(7,526)
-
-
-
-
-
42
187
599
(196)
-
-
-
-
-
-
-
367
2,159
(599)
(2,575)
-
14,148
-
(9,866)
-
-
-
-
53
-
(628)
-
-
-
-
-
-
-
-
41,395
-
-
433,190
-
-
42,517
(13,801)
-
(34,030)
-
-
-
-
27,321
-
-
101
243
-
-
1,001
3,026
660
(209)
-
42,190 $
(660)
(2,597)
14,234
448,194 $
-
(2,486)
-
-
-
-
-
26,230 $
2,383
-
-
-
-
-
-
(4,326) $
-
-
-
-
-
-
(53)
-
356
-
-
-
-
-
-
-
-
-
-
- $
(628)
(9,866)
409
2,346
-
(2,771)
-
14,148
356
483,072
(13,801)
27,321
2,383
(2,486)
1,102
3,269
-
(2,806)
14,234
512,288
(a)
(b)
Cumulative effect of accounting change relates to our adoption of ASU 2014-09.
Cumulative effect of accounting change relates to our adoption of ASU 2016-02. Please refer to Note 1 of the Consolidated Financial
Statements for further detail on the adoption of this accounting standard.
The accompanying notes are an integral part of these statements.
49
COHU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss attributable to Cohu
Net income (loss) from noncontrolling interest
Adjustments to reconcile net loss to net cash provided by operating activities:
$
(13,801) $
-
(69,700) $
8
(32,181)
(243)
December 26,
2020
Years ended
December 28,
December 29,
2019
2018
(Gain) loss on disposal of discontinued operations (Note 14)
Interest capitalized associated with cloud computing implementation
Gain on divestiture of consolidated entity
Gain on extinguishment of debt
Impairment charges related to indefinite lived intangibles
Depreciation and amortization
Share-based compensation expense including restructuring charges
Amortization of inventory step-up and inventory related charges
Amortization of debt discounts and issuance costs
Accrued retiree benefits
Deferred income taxes
Adjustment to contingent consideration liability
Changes in other assets
Amortization of cloud-based software implementation costs
(Gain) loss from sale of property, plant and equipment
Changes in other accrued liabilities
Changes in current assets and liabilities, excluding effects from acquisitions
and divestitures:
Customer advances
Accounts receivable
Inventories
Accrued compensation, warranty and other liabilities
Accounts payable
Deferred profit
Other current assets
Income taxes payable
Operating lease right-of-use assets
Current and long-term operating lease liabilities
Net cash provided by operating activities
Cash flows from investing activities, excluding effects from acquisitions and
divestitures:
Purchases of property, plant and equipment
Net cash received from sale of land, facility and assets
Purchases of short-term investments
Payment for purchase of Xcerra, net of cash received
Sales and maturities of short-term investments
Net cash received from sale of fixtures services business
Net cash used in investing activities
Cash flows from financing activities:
Cash dividends paid
Proceeds from revolving line of credit and construction loans
Repayments of long-term debt
Net issuance (repurchases) of stock, including awards settled in cash
Proceeds from Term Loan B
Payment of debt issuance costs
Payment of contingent consideration
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash held by discontinued operations (Note 14)
Cash and cash equivalents at end of year from continuing operations
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
Dividends declared but not yet paid
Property, plant and equipment purchases included in accounts payable
Inventory capitalized as capital assets
The accompanying notes are an integral part of these statements.
50
$
$
$
$
$
$
(35)
(124)
-
(268)
11,249
52,746
14,234
3,731
1,177
1,675
(5,305)
-
285
1,191
(4,170)
91
2,188
(20,210)
(14,982)
4,678
15,058
871
1,150
(2,089)
6,831
(6,437)
49,734
(18,660)
17,025
(19,703)
-
-
2,975
(18,363)
(4,971)
5,878
(41,056)
2,077
-
-
-
(38,072)
129
(6,572)
155,930
149,358
-
149,358 $
5,772 $
16,324 $
- $
1,063 $
1,050 $
1,138
(168)
(149)
-
-
58,871
14,148
8,347
1,110
1,017
(5,385)
-
(3,044)
-
173
5,348
11,548
21,150
26
(9,405)
(3,122)
997
(5,996)
(10,719)
7,159
(6,083)
17,269
(18,000)
1,767
(315)
-
-
-
(16,548)
(9,827)
5,477
(3,817)
(16)
-
-
-
(8,183)
(1,529)
(8,991)
164,921
155,930
(736)
155,194 $
14,942 $
14,846 $
2,484 $
1,601 $
300 $
-
-
-
-
-
26,047
18,279
24,179
-
(560)
(8,207)
657
(2,961)
-
293
198
2,513
5,785
2,043
1,472
(7,103)
37
148
4,041
-
-
34,437
(4,967)
1,005
(38,700)
(339,115)
59,469
-
(322,308)
(6,949)
-
(2,323)
(8,978)
348,250
(7,072)
(823)
322,105
(3,599)
30,635
134,286
164,921
(461)
164,460
6,243
4,977
2,445
599
857
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Basis of Presentation – Cohu, Inc. (“Cohu”, “we”, “our”, “us” and the “Company”), through our wholly owned
subsidiaries, is a provider of semiconductor test equipment and services. Our Consolidated Financial Statements include
the accounts of Cohu and our wholly owned subsidiaries and variable interest entities (“VIEs”) for which we are the
primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. We evaluate the
need to consolidate affiliates based on standards set forth in ASC Topic 810, Consolidation (“ASC 810”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from these estimates.
Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. Our current fiscal year,
which ended on December 26, 2020, consisted of 52 weeks. Our fiscal years ended on December 28, 2019, and December
29, 2018, each consisted of 52 weeks.
Principles of Consolidation for Variable Interest Entities – We follow ASC Topic 810-10-15 guidance with respect
to accounting for VIEs. On December 28, 2019, we divested our entire 20% interest in ALBS Solutions Sdn Bhd
(“ALBS”), our only VIE. As a result of the divestment, we no longer had a controlling interest in ALBS and stopped
consolidating ALBS as of that date. Divestment of our ownership in ALBS resulted in a gain of $0.1 million which is
included in restructuring charges for the year ended December 28, 2019.
Discontinued Operations – On October 1, 2018, we acquired a fixtures services business as part of our acquisition of
Xcerra. Our management determined that this business did not align with Cohu’s core business and was not a strategic
fit within our organization. As a result, the fixtures services business was marketed for sale shortly after the acquisition
and the assets of our fixtures business were considered “held for sale” and the operations of our fixtures business are
considered “discontinued operations”. In February 2020, we completed the sale of this business. See Note 14,
“Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing
operations.
Income (Loss) Per Share – Basic income (loss) per common share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share
includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of
outstanding restricted stock and performance stock units and issuance of stock under our employee stock purchase plan
using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share
computations due to their anti-dilutive effect. For purposes of computing diluted income (loss) per share, stock options
with exercise prices that exceed the average fair market value of our common stock for the period are excluded. For the
years ended December 26, 2020, December 28, 2019 and December 29, 2018, approximately 113,000, 422,000 and
146,000 shares, respectively, of our common stock were excluded from the computation.
The following table reconciles the denominators used in computing basic and diluted income (loss) per share:
(in thousands)
Weighted average common shares outstanding
Effect of dilutive stock options and restricted stock units
2020
41,854
-
41,854
2019
41,159
-
41,159
2018
31,776
-
31,776
Cohu has utilized the “control number” concept in the computation of diluted earnings per share to determine whether
potential common stock instruments are dilutive. The control number used is income from continuing operations. The
control number concept requires that the same number of potentially dilutive securities applied in computing diluted
earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their
anti-dilutive effect on such categories.
51
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash, Cash Equivalents and Short-term Investments – Highly liquid investments with insignificant interest rate risk
and original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities
greater than three months are classified as short-term investments. All of our short-term investments are classified as
available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded in the statement
of comprehensive income (loss). We manage our cash equivalents and short-term investments as a single portfolio of
highly marketable securities. We have the ability and intent, if necessary, to liquidate any of our investments in order to
meet the liquidity needs of our current operations during the next 12 months. Accordingly, investments with contractual
maturities greater than one year have been classified as current assets in the accompanying consolidated balance sheets.
Fair Value of Financial Instruments – The carrying amounts of our financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short
maturities of these financial instruments.
Concentration of Credit Risk – Financial instruments that potentially subject us to significant credit risk consist
principally of cash equivalents, short-term investments and trade accounts receivable. We invest in a variety of financial
instruments and, by policy, limit the amount of credit exposure with any one issuer.
We adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, on December 29, 2019 the first day of our fiscal 2020. The ASU required a cumulative-effect
adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented
for comparative purposes are not adjusted. Based on our analysis of historical and anticipated collections of trade
receivables the impact of adoption of Topic 326 was insignificant. Our trade accounts receivable are presented net of
allowance for credit losses, which were insignificant at December 26, 2020 and December 28, 2019. Our customers
include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While
we believe that our allowance for credit losses is adequate and represents our best estimate at December 26, 2020, we
will continue to monitor customer liquidity and other economic conditions, including the impact of the COVID-19
pandemic, which may result in changes to our estimates regarding expected credit losses.
Inventories – Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value.
Cost includes labor, material and overhead costs. Determining market value of inventories involves numerous estimates
and judgments including projecting average selling prices and sales volumes for future periods and costs to complete and
dispose of inventory. As a result of these analyses, we record a charge to cost of sales in advance of the period when the
inventory is sold when estimated market values are below our costs. Charges to cost of sales for excess and obsolete
inventories totaled $8.1 million in 2020. Included in this amount is $2.1 million of inventory charges related to the
decision to end manufacturing of certain of our semiconductor test handler products associated with the integration of
Xcerra. Charges to cost of sales for excess and obsolete inventories totaled $4.8 million in 2019. Included in this amount
is $0.7 million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor
test handler products. Charges to cost of sales for excess and obsolete inventories totaled $10.8 million in 2018. Included
in this amount is $9.4 million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s
semiconductor test handler products.
Inventories by category were as follows (in thousands):
Raw materials and purchased parts
Work in process
Finished goods
Total inventories
December 26,
December 28,
2020
2019
$
$
83,755 $
44,315
14,430
142,500 $
69,665
46,591
14,450
130,706
Gain on Sale of Facilities – As part of our previously announced Xcerra integration plan we implemented certain facility
consolidation actions. See Note 5, “Restructuring Charges” for additional information on this program. During 2020, we
completed the sales of our facilities located in Rosenheim, Germany and Penang, Malaysia which resulted in a gain of
$4.5 million. Our facility in in Penang Malaysia, was presented as held for sale for the year ended December 28, 2019.
52
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment – Depreciation and amortization of property, plant and equipment, both owned and
under financing lease, is calculated principally on the straight-line method based on estimated useful lives of thirty to
forty years for buildings, five to fifteen years for building improvements, three to ten years for machinery, equipment
and software and the lease life for financing leases. Land is not depreciated.
Property, plant and equipment, at cost, consisted of the following (in thousands):
Land and land improvements (1)
Buildings and building improvements (1)
Machinery and equipment
Less accumulated depreciation and amortization
Property, plant and equipment, net
December 26,
December 28,
2020
2019
$
$
8,141 $
41,153
65,342
114,636
(47,720 )
66,916 $
11,659
41,474
61,006
114,139
(43,227)
70,912
(1) Includes assets under financing leases acquired with Xcerra totaling $2.6 million as of December 28, 2019.
Depreciation expense was $14.0 million in 2020, $19.3 million in 2019 and $8.8 million in 2018. The decrease in
depreciation expense recognized in 2020 was a result of assets becoming fully depreciated and facility sales.
Cloud Computing Implementation Costs – We have capitalized certain costs associated with the implementation of
our new cloud-based Enterprise Resource Planning (“ERP”) system in accordance with ASU 2018-15, Intangibles—
Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That Is a Service Contract. Capitalized costs include only external direct
costs of materials and services consumed in developing the system and interest costs incurred, when material, while
developing the system.
Total unamortized capitalized cloud computing implementation costs totaled $13.5 million and $10.3 million at
December 26, 2020 and December 28, 2019, respectively. These amounts are recorded within other assets in our
consolidated balance sheets and the year-over-year increase is due to costs capitalized in the current year. We began
amortizing some of these costs when our new ERP system was placed into service during the first quarter of 2020.
Implementation costs are amortized using the straight-line method over seven years and we recorded $1.2 million in
amortization expense during the year ended December 26, 2020.
Segment Information – We applied the provisions of ASC Topic 280, Segment Reporting, (“ASC 280”), which sets
forth a management approach to segment reporting and establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which
the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in
business activities whose operating results are reviewed by the chief operating decision maker and for which discrete
financial information is available. We have determined that our four identified operating segments are: Test Handler
Group (“THG”), Semiconductor Tester Group (“STG”), Interface Solutions Group (“ISG”) and PCB Test Group
(“PTG”). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their
customers, their economic characteristics, and the nature of products and services provided. As a result, we report in two
segments, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”) and PCB Test
Equipment (“PCB Test”).
Goodwill, Purchased Intangible Assets and Other Long-lived Assets – We evaluate goodwill for impairment annually
and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test
goodwill for impairment by comparing the book value of net assets to the fair value of the reporting units. If the fair
value is determined to be less than the book value, an impairment charge is recognized as the amount by which the
carrying amount of goodwill exceeds the reporting unit's fair value, not to exceed the carrying amount of goodwill. We
estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes
the discounted cash flow method, taking into consideration the market approach and certain market multiples as a
validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based
on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade
organization data and general economic conditions.
53
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as
of October 1, 2020, as we determined that the estimated fair values of our reporting units exceeded their carrying values
on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between
annual measurement dates. As of December 26, 2020, we do not believe that circumstances have occurred that indicate
impairment of our goodwill is more-likely-than-not. In the event we determine that an interim goodwill impairment
review is required, in a future period, the review may result in an impairment charge, which would have a negative impact
on our results of operations.
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount
of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the
asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure
the impairment loss based on the difference between the carrying amount and estimated fair value.
Product Warranty – Product warranty costs are accrued in the period sales are recognized. Our products are generally
sold with standard warranty periods, which differ by product, ranging from 12 to 36 months. Parts and labor are typically
covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated
costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard
warranty period. In those situations, the revenue relating to the extended warranty is deferred at its estimated fair value
and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts
are expensed as incurred.
Income Taxes – We assess our income tax positions and record tax benefits for all years subject to examination based
upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax
positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax
benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that
has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that
a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable,
associated interest and penalties have also been recognized and recorded, net of federal and state tax benefits, in income
tax expense.
The Tax Act was enacted on December 22, 2017. The accounting for the tax effects of the enactment of the Tax Act was
completed in 2018. The accounting for the CARES Act, enacted on March 27, 2020, was incorporated in 2020.
Contingencies and Litigation – We assess the probability of adverse judgments in connection with current and
threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is
probable, and we can reasonably estimate the ultimate cost.
Leases – We adopted ASU 2016-02, Leases (Topic 842), as of December 30, 2018, using the optional transition method
which allowed us to record existing leases at adoption and recognize a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption. We had previously recorded a sale and operating leaseback
transaction in accordance with Topic 840 and as a result of the adoption of the new standard, recognized $10.2 million
of deferred gain as an adjustment to retained earnings. In addition, we had previously recognized assets and liabilities
related to a build-to-suit designation under Topic 840 and, as a result of the adoption of the new standard, derecognized
assets and liabilities of $0.5 million and $0.6 million, respectively, with the difference recorded as an adjustment to
retained earnings. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact,
was recorded as an adjustment to retained earnings.
We determine if a contract contains a lease at inception. Operating leases are included in operating lease right of use
(“ROU”) assets, current other accrued liabilities, and long-term lease liabilities on our consolidated balance sheets.
Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease
liabilities on our consolidated balance sheets.
54
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future
minimum lease payments over the lease term at the adoption date or the commencement date for leases entered into after
the adoption date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rates for the
remaining lease terms based on the information available at the adoption date or commencement date in determining the
present value of future payments.
The operating lease ROU asset also includes any lease payments made, lease incentives, favorable and unfavorable lease
terms recognized in business acquisitions and excludes initial direct costs incurred and variable lease payments. Variable
lease payments include estimated payments that are subject to reconciliations throughout the lease term, increases or
decreases in the contractual rent payments, as a result of changes in indices or interest rates and tax payments that are
based on prevailing rates. Our lease terms may include renewal options to extend the lease when it is reasonably certain
that we will exercise those options. In addition, we include purchase option amounts in our calculations when it is
reasonably certain that we will exercise those options. Rent expense for minimum payments under operating leases is
recognized on a straight-line basis over the term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet but recognized in our consolidated
statements of operations on a straight-line basis over the lease term. We account for lease and non-lease components as
a single lease component and include both in our calculation of the ROU assets and lease liabilities.
We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities. None of our
subleases contain extension options. Variable lease payments in our subleases include tax payments that are based on
prevailing rates. We account for lease and non-lease components as a single lease component.
Revenue Recognition – Our net sales are derived from the sale of products and services and are adjusted for estimated
returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under
the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems,
non-system products or services. In circumstances where control is not transferred until destination or acceptance, we
defer revenue recognition until such events occur.
Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally
recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales
where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are
deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and
standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is
performed. Service revenue is recognized over time as we transfer control to our customer for the related contract or
upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized
upon shipment.
Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or
performance of multiple performance obligations, and transfer of control of performance obligations may occur at
different points in time or over different periods of time. For arrangements containing multiple performance obligations,
the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price
method utilizing estimated sales prices until satisfaction of the deferred performance obligation.
Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At December
26, 2020 and December 28, 2019, we had $17.1 million and $16.1 million of revenue expected to be recognized in the
future related to performance obligations that are unsatisfied (or partially unsatisfied), respectively.
We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that
delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product
warranties under ASC 460, Guarantees (“ASC 460”), and not as a separate performance obligation.
55
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer
and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as
of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we
will receive is unknown as of the end of a reporting period. Variable consideration arrangements are rare; however, when
they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the
transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized
will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable
consideration that does not meet revenue recognition criteria is deferred.
Our contracts are typically less than one year in duration and we have elected to use the practical expedient available in
ASC 606 to expense cost to obtain contracts as they are incurred because they would be amortized over less than one
year.
Accounts receivable represents our unconditional right to receive consideration from our customers. Payments terms do
not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there
have been no material impairment losses on accounts receivable. There were no material contract assets recorded on the
consolidated balance sheet in any of the periods presented.
On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated
balance sheet representing the difference between the receivable recorded and the inventory shipped. In certain instances
where customer payments are received prior to product shipment, the customer’s payments are recorded as customer
advances. At December 26, 2020, we had deferred revenue totaling approximately $17.1 million, current deferred profit
of $8.7 million and deferred profit expected to be recognized after one year included in noncurrent other accrued
liabilities of $6.7 million. At December 28, 2019, we had deferred revenue totaling approximately $16.1 million, current
deferred profit of $7.6 million and deferred profit expected to be recognized after one year included in noncurrent other
accrued liabilities of $7.2 million.
Disaggregated net sales by segment are as follows:
(in thousands)
Systems-Semiconductor Test & Inspection
Non-systems-Semiconductor Test & Inspection
Systems-PCB Test
Non-systems-PCB Test
Net sales
2020
2019
2018
317,821 $
267,419
33,293
17,474
636,007 $
299,473 $
241,405
25,928
16,523
583,329 $
249,514
193,737
6,565
1,952
451,768
$
$
Advertising Costs – Advertising costs are expensed as incurred and were not material for all periods presented.
Restructuring Costs – We record restructuring activities including costs for one-time termination benefits in accordance
with ASC Topic 420 (“ASC 420”), Exit or Disposal Cost Obligations. The timing of recognition for severance costs
accounted for under ASC 420 depends on whether employees are required to render service until they are terminated in
order to receive the termination benefits. If employees are required to render service until they are terminated in order to
receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is
recognized when management has committed to a restructuring plan and has communicated those actions to employees.
Employee termination benefits covered by existing benefit arrangements are recorded in accordance with ASC Topic
712, Nonretirement Postemployment Benefits. These costs are recognized when management has committed to a
restructuring plan and the severance costs are probable and estimable.
Debt Issuance Costs – We capitalize costs related to the issuance of debt. Debt issuance costs directly related to our
Term Loan B are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance
sheets. The amortization of such costs is recognized as interest expense using the effective interest method over the term
of the respective debt issue. Amortization related to deferred debt issuance costs and original discount costs was
$1.2 million, $1.1 million and insignificant for the years ended December 26, 2020, December 28, 2019 and December
29, 2018, respectively.
56
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-based Compensation – We measure and recognize all share-based compensation under the fair value method.
Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including
our stock price volatility, employee exercise patterns (expected life of the options) and related tax effects. The
assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and
estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported
financial results.
Foreign Remeasurement and Currency Translation – Assets and liabilities of our wholly owned foreign subsidiaries
that use the U.S. Dollar as their functional currency are re-measured using exchange rates in effect at the end of the
period, except for nonmonetary assets, such as inventories and property, plant and equipment, which are re-measured
using historical exchange rates. Revenues and costs are re-measured using average exchange rates for the period, except
for costs related to those balance sheet items that are re-measured using historical exchange rates. Gains and losses on
foreign currency transactions are recognized as incurred. During the year ended December 26, 2020, in our consolidated
statement of operations we recognized foreign exchange losses totaling $3.2 million. During the years ended December
28, 2019 and December 29, 2018, foreign exchange gains were insignificant and $1.7 million, respectively.
Certain of our foreign subsidiaries have designated the local currency as their functional currency and, as a result, their
assets and liabilities are translated at the rate of exchange at the balance sheet date, while revenue and expenses are
translated using the average exchange rate for the period. Cumulative translation adjustments resulting from the
translation of the financial statements are included as a separate component of stockholders’ equity.
Foreign Exchange Derivative Contracts – We operate and sell our products in various global markets. As a result, we
are exposed to changes in foreign currency exchange rates. During the fourth quarter of 2020, we began entering into
foreign currency forward contracts with a financial institution to hedge against future movements in foreign exchange
rates that affect certain existing U.S. Dollar denominated assets and liabilities at our subsidiaries whose functional
currency is the local currency. Under this program, our strategy is to have increases or decreases in our foreign currency
exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and
volatility associated with foreign currency transaction gains or losses. Additional information related to our foreign
exchange derivative contracts is included in Note 8, “Derivative Financial Instruments”.
Accumulated Other Comprehensive Loss – Our accumulated other comprehensive loss totaled approximately
$4.3 million at December 26, 2020, and $34.0 million at December 28, 2019, and was attributed to, net of income taxes
where applicable: foreign currency adjustments resulting from the translation of certain accounts into U.S. Dollars and
adjustments to accumulated postretirement benefit obligations. The U.S. Dollar weakened relative to certain foreign
currencies in countries where we have operations as of December 26, 2020, compared to December 28, 2019 and
consequently, our accumulated other comprehensive loss decreased by $27.3 million. In the previous year, the U.S.
Dollar strengthened relative to certain foreign currencies in countries where we have operations and, as a result, our
accumulated other comprehensive loss increased by $7.5 million. Additional information related to accumulated other
comprehensive loss, on an after-tax basis is included in Note 15, “Accumulated Other Comprehensive Loss”.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements – In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was
subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses,
ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, ASU 2019-10, Financial
Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates
and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2016-13, as
amended, affects trade receivables, financial assets and certain other instruments that are not measured at fair value
through net income. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial
statements.
57
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for
Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are not cost
beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The
amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should
be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption
is permitted, and an entity can choose to early adopt any removed or modified disclosures upon issuance of this ASU
and delay adoption of the additional disclosures until their effective date. The adoption of ASU 2018-13 did not have a
material impact on our disclosures.
In August 2018, the FASB issued ASU 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for
Defined Benefit Plans, which improves defined benefit disclosure requirements by removing disclosures that are not cost
beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. The amendments
in this ASU are required to be applied on a retrospective basis to all periods presented. Adoption of ASU 2018-14 resulted
in the elimination of disclosures regarding the effects of a one-percentage-point change in the assumed health care cost
trend rates on the aggregate projected service and interest cost and accumulated postretirement benefit obligation; and
the addition of disclosures explaining the reasons for significant gains and losses related to the change in benefit
obligations for the period. See Note 6, “Employee Benefit Plans” for further discussion of our defined benefit pension
plans.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which simplifies
the accounting for income taxes by eliminating certain exceptions for investments, intraperiod allocations and interim
calculations. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws
or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The amendments
did not create new accounting requirements. We adopted the standard as of December 29, 2019. The adoption of this
standard did not have a significant impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary
optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging
relationships and other transactions affected by reference rate reform. Our Term Loan Credit Facility bears interest at
fluctuating interest rates based on LIBOR. If LIBOR ceases to exist, we may need to renegotiate our loan and we cannot
predict what alternative index would be negotiated with our lenders. ASU 2020-04 was effective upon issuance and may
be applied prospectively to contract modifications made on or before December 31, 2022. We do not expect the adoption
of this guidance to have a material impact on our consolidated financial statements.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not
applicable.
2. Business Acquisitions
On October 1, 2018, pursuant to the Agreement and Plan of Merger dated as of May 7, 2018, we merged with Xcerra, a
Massachusetts-based company. At the time of the merger each share of Xcerra common stock issued and outstanding
immediately (other than dissenting shares and shares held by Cohu, Xcerra or any direct or indirect wholly owned
subsidiary of Cohu or Xcerra), were converted into the right to receive, in the aggregate for all shares of Xcerra common
stock, consideration totaling $794.4 million.
Xcerra, formerly known as LTX-Credence Corporation, is a global provider of test and handling capital equipment,
interface products and related services to the semiconductor and electronics manufacturing industries. Xcerra was
comprised of four businesses in the semiconductor and electronics manufacturing test markets: atg-Luther & Maelzer,
Everett Charles Technologies, LTX-Credence and Multitest. The acquisition of Xcerra was a strategic transaction to
expand our total available market, extend our market leadership and broaden our product offerings.
58
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cohu financed the merger, including all related fees and expenses, with the following:
● $160.5 million cash from our combined balance sheets;
● The incurrence of $350.0 million from the Credit Facility, as defined below;
● The issuance of 11,776,149 shares of Cohu common stock; and
● The issuance of 529,995 assumed RSUs to Xcerra employees, of which $0.8 million of the fair value of the
assumed RSUs was attributed to pre-merger services.
On October 1, 2018, Cohu entered into a credit agreement with Cohu, as borrower, certain of its subsidiaries as guarantor
subsidiaries, the financial institutions party thereto from time to time as lenders, and Deutsche Bank AG New York
Branch, as administrative agent and collateral agent, providing for a $350.0 million Credit Facility (the “Credit Facility”),
and borrowed the full amount. Loans under the Credit Facility amortize in equal quarterly installments equal to 0.25%
of the original principal amount thereof, with the balance payable at maturity. Subject to certain exceptions and
thresholds, the Credit Facility will also require mandatory prepayments in connection with (i) excess cash flow, (ii) non-
ordinary course asset sales and other dispositions and (iii) the issuance of certain debt obligations, among other things.
Cohu has the right to prepay loans under the Credit Agreement in whole or in part at any time, without premium or
penalty. Amounts repaid in respect of loans under the Credit Facility may not be reborrowed. All outstanding principal
and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan
Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. The lender may
accelerate the payment terms of the Credit Agreement upon the occurrence of certain events of default set forth therein,
which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of
Cohu to adhere to the representations and covenants set forth in the Credit Agreement or to provide required notices,
upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are
entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu.
The acquisition method of accounting is based on ASC 805, Business Combinations (“ASC 805”), and uses the fair value
concepts defined in ASC 820, Fair Value Measurement (“ASC 820”). The purchase price allocation described herein
contains adjustments made during the post-acquisition measurement period, which were made as a result of obtaining
new facts and circumstances related to certain assets acquired and liabilities assumed as of the date of acquisition. The
net impact of the measurement period adjustments was offset against goodwill.
The acquisition was nontaxable to Cohu and certain of the assets acquired, including goodwill and intangibles, will not
be deductible for tax purposes. The acquired assets and liabilities of Xcerra were recorded at their respective fair values
including an amount for goodwill which represents the purchase price paid in excess of the fair value of net tangible and
intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled
workforce of Xcerra. Goodwill has been allocated to our THG, STG, ISG and PTG operating segments.
We recorded a $19.6 million step-up of inventory to its fair value as of the acquisition date based on the valuation which
was fully amortized to cost of sales as of December 28, 2019.
59
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of the intangible assets subject to amortization is as follows (in thousands):
Developed technology
Customer relationships
In-process research and development
Product backlog
Trademarks and trade names
Favorable leases
Total intangible assets
Estimated
Fair Value
194,600
65,890
36,360
6,410
16,800
1,100
321,160
$
$
Weighted
Average
Useful Life
(years)
7.8
10.6
indefinite
0.8
11.0
5.5
Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful
lives which approximates the pattern of how the economic benefit is expected to be used. This includes amounts allocated
to customer relationships because of anticipated high customer retention rates that are common in the semiconductor
capital equipment industry.
The value assigned to developed technology was determined by using the multi-period excess earnings method under
the income approach. Developed technology, which comprises products that have reached technological feasibility,
includes the products in Xcerra’s product line. The revenue estimates used to value the developed 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 Xcerra and competitors. The estimated cash flows were based on revenues for
the developed technology net of operating expenses and net of contributory asset charges. The discount rate utilized to
discount the net cash flows of the developed technology to present value was based on the risk associated with the
respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets,
the weighted average cost of capital, the internal rate of return, and the weighted average return on assets.
The value assigned to customer relationships was determined by using the with and without method under the income
approach, which analyzes the difference in discounted cash flows generated with the customer relationships in place
compared to the discounted cash flows generated without the customer relationships in place.
In-process research and development (“IPR&D”) represents the estimated fair value assigned to research and
development projects acquired in a business combination that have not been completed at the date of acquisition and
which have no alternative future use. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a
project reaches technological feasibility amounts capitalized related to the project are reclassified to developed
technology and the intangible asset begins to be amortized over its estimated useful life. For the IPR&D, additional
research and development will be required to assess technological feasibility.
The value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 1,
2018, using the income approach to discount back to present value the cash flows attributable to the backlog.
The value assigned to trademarks and trade names was estimated using the relief-from-royalty method of the income
approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a
royalty in order to exploit the related benefits of this intangible asset.
In our estimate of the fair value of Xcerra’s net assets, Cohu identified leases that appear to be at both favorable and
unfavorable rates compared to current market rates. As a result, Cohu has recorded both favorable and unfavorable lease
assets, which are being amortized to rent expense over the terms of the related lease. As of December 29, 2018, favorable
leases were reclassified from intangible assets, net to operating lease right of use assets as a result of our adoption of
ASU 2016-2, Leases (Topic 842).
60
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Balance December 29, 2018
Additions
Impairments (1)
Impact of currency exchange
Balance December 28, 2019
Impact of currency exchange
Balance December 26, 2020
$
$
220,808 $
2,117
(715)
(3,435)
218,775
11,949
230,724 $
Total Goodwill
242,127
1,134
(715)
(3,877)
238,669
13,635
252,304
21,319 $
(983)
-
(442)
19,894
1,686
21,580 $
(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
Developed technology
Customer relationships
Trade names
Covenant not-to-compete
Gross
Carrying
Amount
$
Accumulated
Amortization
83,246
22,751
6,279
136
112,412
239,250 $
74,933
23,756
340
338,279 $
Remaining
Useful
Life
(years)
5.7
8.5
8.7
6.0
$
$
Gross
Carrying
Amount
$
Accumulated
Amortization
49,805
14,824
3,892
96
68,617
227,619 $
72,251
22,612
322
322,804 $
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
61
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
4. Borrowings and Credit Agreements
The following table is a summary of our borrowings as of December 26, 2020 and December 28, 2019:
(in thousands)
Bank term loan under credit agreement
Bank term loans-Kita
Bank term loan-Xcerra
Construction loan-Cohu GmbH
Lines of credit
Total debt
Less: financing fees and discount
Less: current portion
Total long-term debt
Fiscal year ended
December 26,
2020
December 28,
2019
$
$
306,630 $
3,662
-
9,902
5,314
325,508
(5,568)
(8,389)
311,551 $
346,500
3,830
1,475
5,476
3,195
360,476
(7,441)
(6,517)
346,518
The debt principal payments, excluding financing lease obligations, for the next five years and thereafter are as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Credit Agreement
$
$
9,512
4,720
4,725
4,730
293,864
7,957
325,508
On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Credit Facility and borrowed
the full amount to finance a portion of the Xcerra acquisition. Loans under the Credit Facility amortize in equal quarterly
installments of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal
and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan
Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At December
26, 2020, the outstanding loan balance, net of discount and deferred financing costs, was $301.1 million and $2.4 million
of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. At
December 28, 2019, the outstanding loan balance, net of discount and deferred financing costs, was $339.1 million and
62
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$2.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance
sheets. As of December 26, 2020, the fair value of the debt was $303.1 million. The measurement of the fair value of
debt is based on the average of the bid and ask trading quotes as of December 26, 2020 and is considered a Level 2 fair
value measurement.
Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain
events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the
Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement,
the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon
the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered
against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. As of December 26, 2020, we believe no
such events of default have occurred.
During 2020 we repurchased $36.4 million in principal of our Term Loan Facility for $35.4 million in cash. We
accounted for the repurchase as a debt extinguishment, which resulted in a gain of $0.3 million reflected in other expense,
net, in our consolidated statement of operations, as well as a $0.7 million reduction in debt discounts and deferred
financing costs in our consolidated balance sheets. After the repurchase, approximately $306.6 million in principal of
the Term Loan Facility remains outstanding as of December 26, 2020.
Kita Term Loans
As a result of our acquisition of Kita, we assumed term loans from a series of Japanese financial institutions primarily
related to the expansion of Kita’s facility in Osaka, Japan. The loans are collateralized by the facility and land, carry
interest rates ranging from 0.05% to 0.44%, and expire at various dates through 2034. At December 26, 2020, the
outstanding loan balance was $3.6 million and $0.3 million of the outstanding balance is presented as current installments
of long-term debt in our consolidated balance sheets. The fair value of the debt approximates the carrying value at
December 26, 2020.
The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of
changes in currency exchange rates.
Xcerra Term Loan
As a result of our acquisition of Xcerra, we assumed a term loan related to the purchase of Xcerra’s facility in Rosenheim,
Germany. The loan was payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest was
due quarterly over the duration of the term loan ending in March 2024. At December 28, 2019, the outstanding loan
balance was $1.5 million and $0.3 million of the outstanding balance is presented as current installments of long-term
debt in our consolidated balance sheets. During 2020 the term loan was fully repaid using proceeds received from the
sale of our facility located in Rosenheim, Germany.
Construction Loans
On July 26, 2019, one of our wholly owned subsidiaries located in Germany entered into two construction loans (“Loan
Facilities”) with a German financial institution providing total borrowing of €8.6 million. The Loan Facilities have 10-
year and 15-year terms, which commenced on August 1, 2019, the initial draw-down date. Additionally, on June 16,
2020, a third construction loan with the same financial institution was entered into providing total borrowing of
€1.5 million. This loan facility has a 10-year term, which has not commenced. The Loan Facilities are being utilized to
finance the expansion of our facility in Kolbermoor, Germany, enabling us to combine the operations of multiple
subsidiaries in one location as part of our previously announced strategic restructuring program. The Loan Facilities are
secured by the land and the existing building on the site and bear interest at agreed upon rates based on separate
€3.4 million, €5.2 million and €1.5 million facility amounts.
63
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 1, 2019, the full €3.4 million was drawn under the first facility, which is payable over 10 years at an annual
interest rate of 0.8%. Interest only payments are required to be made each quarter starting in September 2019 with
principal and interest payments due each quarter starting in the month of December 2021. Principal repayments will be
made over 8 years starting at the end of 2021.
Through December 26, 2020, we drew €4.9 million under the second facility, which is payable over 15 years at an annual
interest rate of 1.05%. Interest only payments are required to be made each month starting in December 2019 with
principal and interest payments due each month starting in the month of May 2020. Principal repayments will be made
over 15 years starting at the end of May 2020. As of December 26, 2020, €0.3 million had not been drawn under the
second facility.
Through December 26, 2020, no amounts have been drawn under the third facility. Future amounts, if drawn, will be
payable over 10 years at an annual interest rate of 1.2%. Interest payments are required to be made each month starting
in the month following the first draw-down date with principal and interest payments due each month starting in the
month of May 2021. Principal repayments will be made over 10 years starting at the end of May 2021.
At December 26, 2020 and December 28, 2019, total outstanding borrowings under the Loan Facilities was $9.9 million
and $5.5 million with $0.4 million and $0.3 million of the total outstanding balance being presented as current
installments of long-term debt in our consolidated balance sheets based on contractual due dates, respectively. The loans
are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency
exchange rates.
Lines of Credit
As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions
in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $9.3 million.
At December 26, 2020, total borrowings outstanding under the revolving lines of credit were $5.3 million. As these credit
facility agreements renew monthly, they have been included in short-term borrowings in our consolidated balance sheet.
The revolving lines of credit are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate
because of changes in currency exchange rates.
Our wholly owned Ismeca subsidiary has one available line of credit which provides it with borrowings of up to a total
of 2.0 million Swiss Francs. At December 26, 2020, and December 28, 2019, no amounts were outstanding under this
line of credit.
5. Restructuring Charges
Subsequent to the acquisition of Xcerra, during the fourth quarter of 2018, we began a strategic restructuring program
designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding
the recently acquired Xcerra (“Integration Program”). See Note 2, “Business Acquisitions, Goodwill and Purchased
Intangible Assets” for additional information regarding this transaction. As part of the Integration Program we
consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in
Penang, Malaysia and Fontana, California in 2019.
In the second quarter of 2019, we began the Integration Program of our German operations and entered a social plan with
the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest
elektronische Systeme GmbH. During the fourth quarter of 2020 we implemented a voluntary program and termination
agreements with certain employees of our wholly owned subsidiary, Cohu GmbH. These programs will collectively
reduce headcount, enable us to consolidate the facilities of our multiple operations located near Kolbermoor and
Rosenheim, Germany, as well as transition certain manufacturing to other lower cost regions. The facility consolidations
and reduction in force programs are being implemented as part of a comprehensive review of our operations and are
intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.
64
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the activities described above, we recognized total pretax charges of $11.4 million, $16.2 million and
$37.8 million for the years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively, that are
within the scope of ASC 420, Exit or Disposal Cost Obligations (“ASC 420”). Severance and other separation payments
made to certain executive officers of Xcerra related to change-in-control with double trigger provisions in their existing
employment agreements totaled $6.9 million in the year ended December 29, 2018. Additionally, in the year ended
December 29, 2018, we incurred $8.2 million of compensation costs related to the acceleration of RSUs held by certain
executive officers and the Board of Directors of Xcerra because of the change in control. This non-cash expense is
included in restructuring in our consolidated statements of operations.
All costs of the Integration Program were, and are expected to be, incurred by our Semiconductor Test & Inspection
segment.
Charges related to the Integration Program for the years ended December 26, 2020, December 28, 2019 and December
29, 2018, were as follows (in thousands):
(in thousands)
Employee severance costs
Inventory related charges
Other restructuring costs
Total
2020
2019
2018
$
$
6,485 $
3,731
1,138
11,354 $
12,170 $
2,729
1,314
16,213 $
17,791
19,053
913
37,757
Costs associated with restructuring activities are presented in our consolidated statements of operations as restructuring
charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain
of Xcerra’s semiconductor test handler products, which are classified within cost of sales. Other restructuring costs
include expenses for professional fees associated with employee severance, impairments of fixed assets and facility
closure costs.
The following table summarizes the activity within the restructuring related accounts for the Integration Program during
the years ended December 26, 2020 and December 28, 2019 (in thousands):
Balance, December 29, 2018
Costs accrued
Amounts paid or charged
Impact of currency exchange
Balance, December 28, 2019
Costs accrued
Amounts paid or charged
Impact of currency exchange
Balance, December 26, 2020
Employee
Severance
Other Exit Costs
Total
$
$
4,026
12,170
(14,909)
(51)
1,236
6,485
(2,055)
160
5,826 $
-
1,314
(1,314)
-
-
1,138
(1,138)
-
- $
4,026
13,484
(16,223)
(51)
1,236
7,623
(3,193)
160
5,826
At December 26, 2020, our total accrual for restructuring related items is reflected within current liabilities in our
consolidated balance sheets as these amounts are expected to be paid out in 2021. The estimated costs associated with
the employee severance and facility consolidation actions will be paid predominantly in cash. All amounts accrued
related to inventory will remain in our consolidated balance sheet until it is scrapped.
6. Employee Benefit Plans
Defined Contribution Retirement Plans – Cohu and Xcerra each maintained defined contribution 401(k) retirement
savings plans covering all their respective salaried and hourly U.S. employees. At the beginning of 2020 the legacy
Xcerra plan were merged into Cohu’s. Participation is voluntary and participants’ contributions are based on their eligible
65
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation. Participants in the Cohu plan receive matching contributions of 50% up to 8% of salary contributed,
subject to various statutory limits. In 2020 and 2019 we made matching contributions to the plan of $2.3 million and
$2.0 million, respectively. In 2018 we made contributions to the plan of $1.1 million, which includes matching
contributions to the Xcerra 401(k) plan from October 1 through December 29, 2018.
Defined Benefit Retirement Plans – As a result of our acquisition of Ismeca in 2013, we took over the Ismeca Europe
Semiconductor BVG Pension Plan in Switzerland (“the Swiss Plan”) and the following discussion relates solely to the
Swiss Plan.
Net periodic benefit cost of the Swiss Plan was as follows:
(in thousands)
Service cost
Interest cost
Expected return on assets
Settlements
Net periodic costs
2020
2019
2018
$
$
1,310 $
67
(200 )
292
1,469 $
920 $
267
(168 )
-
1,019 $
925
207
(124)
-
1,008
The following table sets forth the projected benefit obligation, the fair value of plan assets, the funded status and the
liability we have recorded in our consolidated balance sheets related to the Swiss Plan:
(in thousands)
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain (loss)
Participant contributions
Benefits paid
Plan change
Settlements
Foreign currency exchange adjustment
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Return on assets, net of actuarial loss
Employer contributions
Participant contributions
Benefits paid
Settlements
Foreign currency exchange adjustment
Fair value of plan assets at end of year
Net liability at end of year
2020
2019
$
$
(32,241) $
(1,310)
(67)
1,916
(1,136)
419
944
3,446
(3,010)
(31,039)
18,705
129
886
1,136
(419)
(3,446)
1,765
18,756
(12,283) $
(29,910)
(920)
(267)
(1,456)
(1,434)
2,313
-
-
(567)
(32,241)
18,088
281
882
1,434
(2,313)
-
333
18,705
(13,536)
At December 26, 2020 and December 28, 2019, the Swiss Plan’s net liability is included in noncurrent accrued retirement
benefits. Amounts recognized in accumulated other comprehensive loss net of tax related to the Swiss Plan consisted of
an unrecognized net actuarial loss totaling $1.3 million at December 26, 2020, and $4.1 million at December 28, 2019.
Actuarial gain of $1.9 million for the year ended December 26, 2020, was primarily due to plan experience. The actuarial
loss of $1.5 million for the year ended December 28, 2019, was due to assumption changes, partially offset by plan
experience.
66
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted-average actuarial assumptions used to determine the projected benefit obligation under the Swiss Plan are as
follows:
Discount rate
Compensation increase
2020
0.2%
1.1%
2019
0.2%
1.1%
Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows:
Discount rate
Rate of return on assets
Compensation increase
2020
0.2%
1.0%
1.1%
2019
0.9%
0.9%
1.8%
2018
0.7%
0.7%
1.8%
During 2021 employer and employee contributions to the Swiss Plan are expected to total $0.9 million. Estimated benefit
payments are expected to be as follows: 2021 - $1.3 million; 2022 - $1.1 million; 2023 - $1.8 million; 2024 - $1.3 million;
2025 - $1.1 million; and $6.5 million thereafter through 2030.
As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple employers.
We have no investment authority over the assets of the plan that are held and invested by a Swiss insurance company.
Investment holdings are made with respect to Swiss laws and target allocations for plan assets are 58% debt securities
and cash, 20% real estate investments, 10% alternative investments and 12% equity securities. The valuation of the
collective fund assets as a whole is a Level 3 measurement; however, the individual investments of the fund are generally
Level 1 (equity securities), Level 2 (fixed income) and Level 3 (real estate and alternative) investments. We determine
the fair value of the plan assets based on information provided by the collective fund, through review of the collective
fund’s annual financial statements. See Note 7, “Financial Instruments Measured at Fair Value” for additional
information on the three-tier fair value hierarchy.
We maintain other defined benefit plans for employees located outside the U.S. for which the majority of the obligations
and net periodic benefit cost were determined to be immaterial for all periods presented.
Retiree Medical Benefits – We provide post-retirement health benefits to certain executives and directors under a
noncontributory plan. The net periodic benefit cost was $0.1 million in 2020, 2019, and 2018. We fund benefits as costs
are incurred and as a result there are no plan assets.
The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 2.1% in
2020, 3.0% in 2019 and 4.1% in 2018. The annual rates of increase of the cost of health benefits was assumed to be 6.8%
in 2021. This rate was then assumed to decrease 0.27% per year to 4.4% in 2030 and remain level thereafter.
Contributions to the post-retirement health benefit plan are expected to total $0.1 million in 2021. Estimated benefit
payments are expected to be as follows: 2021 - $0.1 million; 2022 - $0.1 million; 2023 - $0.1 million; 2024 - $0.1 million;
2025 - $0.1 million and $0.6 million thereafter through 2030.
The following table sets forth the post-retirement benefit obligation, funded status and the liability we have recorded in
our consolidated balance sheets:
(in thousands)
Accumulated benefit obligation at beginning of year
Interest cost
Actuarial gain
Benefits paid
Accumulated benefit obligation at end of year
Plan assets at end of year
Funded status
67
2020
2019
$
$
(2,571) $
(75)
134
114
(2,398)
-
(2,398) $
(2,880)
(115)
258
166
(2,571)
-
(2,571)
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Compensation – The Cohu, Inc. Deferred Compensation Plan allows certain of our officers to defer a portion
of their current compensation. We have purchased life insurance policies on the participants with Cohu as the named
beneficiary. Participant contributions, distributions and investment earnings and losses are accumulated in a separate
account for each participant. At December 26, 2020, the payroll liability to participants, included in accrued
compensation and benefits in the consolidated balance sheet, was approximately $1.8 million and the cash surrender
value of the related life insurance policies included in other current assets was approximately $1.8 million. At December
28, 2019, the liability totaled $2.0 million and the corresponding assets were $1.7 million.
Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the
issuance of a maximum of 2,650,000 shares of our common stock. Under the Plan, eligible employees may purchase
shares of common stock through payroll deductions. The price paid for the common stock is equal to 85% of the fair
market value of our common stock on specified dates. During the last three years we issued shares under the Plan as
follows: 2020 - 242,633; 2019 - 187,273 and 2018 - 84,678. At December 26, 2020, there were 668,704 shares reserved
for issuance under the Plan.
Stock Options – At December 26, 2020, a total of 1,671,053 shares were available for future equity grants under the
Cohu, Inc. 2005 Equity Incentive Plan (“the 2005 Plan”). Under the 2005 Plan stock options may be granted to
employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not
less than 100% of the fair market value at the date of grant. Options generally vest and become exercisable after one year
or in four annual increments beginning one year after the grant date and expire ten years from the grant date. We have
historically issued new shares of Cohu common stock upon share option exercise.
During 2020, 2019 and 2018 no stock options were granted and the activity under our share-based compensation plans
was as follows:
(in thousands, except per
share data)
Shares
2020
Wt. Avg.
Ex. Price
2019
Wt. Avg.
Ex. Price
2018
Wt. Avg.
Ex. Price
Shares
Shares
Outstanding, beginning of
year
Exercised
Outstanding, end of year
Options exercisable at year
end
363 $
(101) $
262 $
10.27
10.95
10.01
405 $
(42) $
363 $
10.22
9.82
10.27
472 $
(67) $
405 $
10.20
10.10
10.22
262 $
10.01
363 $
10.27
405 $
10.22
The aggregate intrinsic value of options exercised was $1.3 million in 2020, $0.2 million in 2019, and $0.9 million in
2018. At December 26, 2020, the aggregate intrinsic value of options outstanding, vested and expected to vest and
exercisable was $7.5 million.
Information about stock options outstanding at December 26, 2020 is as follows (options in thousands):
Range of
Exercise Prices
$ 9.44
$ 10.55
$ 10.59
- $ 10.54
- $ 10.58
- $ 12.58
Options Outstanding
Approximate
Wt. Avg.
Remaining Wt. Avg.
Number
Outstanding Life (Years) Ex. Price
Options Exercisable
Wt. Avg.
Number
Exercisable Ex. Price
159 $
92 $
11 $
262 $
9.50
10.58
12.44
10.01
9.50
10.58
12.44
10.01
2.2 $
1.2 $
3.5 $
1.9 $
159
92
11
262
68
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units – Under our equity incentive plans, restricted stock units (“RSUs”) may be granted to employees,
consultants and outside directors. Restricted stock units vest over a one-year, two-year or a four-year period from the
date of grant. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and
the shares underlying the restricted stock units are not considered issued and outstanding. New shares of our common
stock will be issued on the date the restricted stock units vest net of the statutory tax withholding requirements to be paid
by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number
of RSUs outstanding at December 26, 2020.
Restricted stock unit activity under our share-based compensation plans was as follows:
(in thousands, except per
share data)
Units
2020
Wt. Avg.
Fair Value Units
2019
Wt. Avg.
Fair Value Units
2018
Wt. Avg.
Fair Value
Outstanding, beginning of
year
Granted
Released
Cancelled
Outstanding, end of year
1,328 $
779 $
(621) $
(72) $
1,414 $
17.05
14.02
17.48
17.59
15.16
1,265 $
694 $
(563) $
(68) $
1,328 $
19.48
14.32
19.08
17.60
17.05
981 $
822 $
(500) $
(38) $
1,265 $
12.50
23.70
13.10
14.67
19.48
RSUs granted in 2018 in the table above include the issuance of 529,995 assumed RSUs to Xcerra employees, based on
a conversion formula.
Equity-Based Performance Stock Units –We grant performance stock units (“PSUs”) to certain senior executives as a
part of our long-term equity compensation program. The number of shares of common stock that will ultimately be issued
to settle PSUs granted ranges from 25% to 200% of the number granted and is determined based on certain performance
criteria over a three-year measurement period. The performance criteria for the PSUs are based on a combination of our
annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR
compared with the annualized TSR of certain peer companies for the performance period. PSUs granted vest 100% on
the third anniversary of their grant, assuming achievement of the applicable performance criteria.
We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation
expense is recognized over the requisite service period. New shares of our common stock will be issued on the date the
PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.
PSU activity under our share-based compensation plans was as follows:
(in thousands, except per
share data)
Units
2020
Wt. Avg.
Fair Value Units
2019
Wt. Avg.
Fair Value Units
2018
Wt. Avg.
Fair Value
Outstanding, beginning of
year
Granted
Released
Cancelled
Outstanding, end of year
364 $
200 $
(39) $
(100) $
425 $
18.72
13.18
21.40
20.25
15.51
340 $
167 $
(36) $
(107) $
364 $
17.89
14.11
11.35
11.35
18.72
334 $
89 $
(41) $
(42) $
340 $
14.31
24.32
9.92
10.69
17.89
Share-based Compensation – We estimate the fair value of stock options and RSUs on the grant date using the Black-
Scholes valuation model. The estimated fair value of PSUs is determined on the grant date using the Monte Carlo
simulation valuation model. Option valuation models require the input of highly subjective assumptions and changes in
the assumptions used can materially affect the grant date fair value of an award. These assumptions for the Black-Scholes
model include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the
award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as
of the grant date. Expected dividends are based primarily on historical factors related to our common stock. Expected
69
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
volatility is based on historic weekly stock price observations of our common stock during the period immediately
preceding the share-based award grant that is equal in length to the award’s expected term. We believe that historical
volatility is the best estimate of future volatility. Expected life of the award is based on historical option exercise data.
The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu and the selected peer
group price volatility, the correlation between Cohu and the selected index, and dividend yields. Share-based
compensation expense related to restricted stock unit awards is calculated based on the market price of our common
stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to
vesting of the restricted stock unit. As a result of the COVID-19 pandemic, Cohu’s Board of Directors authorized
suspending our quarterly cash dividend indefinitely, as of May 5, 2020. All awards granted in 2020 exclude the
assumption of dividend payments and the estimated fair value awards granted in prior years, when dividends were being
paid, are unchanged.
The following weighted average assumptions were used to value share-based awards granted:
Employee Stock Purchase Plan
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (years)
Weighted-average grant date fair value per share
Restricted Stock Units
Dividend yield
2020
0.5%
67.1%
1.1%
0.5
6.01
2020
0.0%
2019
1.3%
46.4%
2.2%
0.5
5.35
2019
1.6 %
$
2018
1.1%
39.0%
1.7%
0.5
5.90
2018
1.0%
$
$
Reported share-based compensation is classified in the consolidated financial statements as follows:
(in thousands)
Cost of sales
Research and development
Selling, general and administrative
Share-based compensation of continuing operations
Income tax benefit
Total share-based compensation, net of tax
2020
2019
2018
$
$
893 $
3,245
10,096
14,234
(963)
13,271 $
736 $
2,994
10,418
14,148
(587)
13,561 $
546
1,717
7,790
10,053
(993)
9,060
We account for forfeitures of plan-based awards as they occur. Share based compensation for the year ended December
29, 2018, excludes $8.2 million of compensation recorded related to the acceleration of RSU awards held by certain
executive officers and the Board of Directors of Xcerra because of the change in control.
At December 26, 2020, we had approximately $17.6 million of pre-tax unrecognized compensation cost related to
unvested restricted stock units and performance stock units which is expected to be recognized over a weighted-average
period of approximately 2.2 years.
7. Financial Instruments Measured at Fair Value
Our cash, cash equivalents, and short-term investments consisted primarily of cash and other investment grade securities.
We do not hold investment securities for trading purposes. All short-term investments, which are comprised entirely of
short-term debt securities, are classified as available-for-sale and recorded at fair value. Investment securities are exposed
to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure
by making high-quality investments and through investment diversification.
Gains and losses on investments are calculated using the specific-identification method and are recognized during the
period in which the investment is sold or when an investment experiences an other-than-temporary decline in value.
Factors that could indicate an impairment exists include, but are not limited to earnings performance, changes in credit
70
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on
sales of short-term investments are included in interest income. Realized gains and losses for the periods presented were
not significant.
Investments that we have classified as short-term, by security type, are as follows (in thousands):
Corporate debt securities (2)
U.S. treasury securities
Government-sponsored enterprise securities
Bank certificates of deposit
Foreign government security
$
$
14,943 $
2,012
1,998
750
965
20,668 $
Amortized
Cost
Unrealized
Estimated
Gains
At December 26, 2020
Gross
Gross
Unrealized
Losses (1)
2 $
-
-
-
-
2 $
1 $
-
-
-
-
1 $
Fair
Value
14,944
2,012
1,998
750
965
20,669
At December 28, 2019
Gross
Gross
Estimated
Amortized
Unrealized Unrealized
Cost
Gains
Losses (1)
- $
Fair
Value
Foreign government security
904
(1) As of December 26, 2020, the cost and fair value of investments with loss positions were approximately
$8.7 million. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these
impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these
losses were temporary and we have the ability and intent to hold these investments to maturity. As of December 28,
2019, we had no investments with loss positions.
904 $
- $
$
(2) Corporate debt securities include investments in financial and other corporate institutions. No single issuer
represents a significant portion of the total corporate debt securities portfolio.
Effective maturities of short-term investments at December 26, 2020, were as follows:
(in thousands)
Due in one year or less
Amortized
Cost
Estimated
Fair Value
$
20,668 $
20,669
Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions. When available, we use quoted market prices to determine the fair value of our
investments, and they are included in Level 1. When quoted market prices are unobservable, we use quotes from
independent pricing vendors based on recent trading activity and other relevant information.
71
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes, by major security type, our financial instruments that are measured at fair value on a
recurring basis and are categorized using the fair value hierarchy (in thousands):
Level 1
Level 3
Level 2
Fair value measurements at December 26, 2020 using:
Total
Estimated
Fair Value
- $
-
-
-
-
-
-
- $
128,874 $
-
-
-
-
-
-
128,874 $
- $
19,734
965
15,694
2,012
1,998
750
41,153 $
128,874
19,734
965
15,694
2,012
1,998
750
170,027
Level 1
Fair value measurements at December 28, 2019 using:
Total
Estimated
Fair Value
- $
-
-
- $
147,523 $
-
-
147,523 $
- $
7,671
904
8,575 $
147,523
7,671
904
156,098
Level 2
Level 3
Cash
Money market funds
Foreign government security
Corporate debt securities
U.S. treasury securities
Government-sponsored enterprise securities
Bank certificates of deposit
Cash
Money market funds
Foreign government security
8. Derivative Financial Instruments
Foreign Exchange Derivative Contracts
$
$
$
$
We operate and sell our products in various global markets and, as a result, we are exposed to changes in foreign currency
exchange rates. In the fourth quarter of 2020, we began utilizing foreign currency forward contracts to hedge against
future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and
liabilities. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated
by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign
currency transaction gains or losses.
We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign
currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these
contracts as of the end of our reporting period in our consolidated balance sheets with changes in fair value recorded
within foreign transaction gain (loss) in our consolidated statements of operations for both realized and unrealized gains
and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash provided by
operating activities in our consolidated statements of cash flows.
The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange
rates and forward points. All our foreign exchange derivative contracts outstanding at December 26, 2020 will mature
during the first quarter of fiscal 2021.
72
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information about our foreign currency forward contracts outstanding as of December 26,
2020 (in thousands):
Currency
Swiss Franc
Euro
Contract Position
Buy
Buy
Contract Amount
(Local Currency)
13,349
9,424
$
$
Contract Amount
(U.S. Dollars)
15,000
11,500
26,500
Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing
models that utilize observable market inputs. The fair value of our foreign currency contracts as of December 26, 2020
was immaterial.
The location and amount of gains (losses) related to non-designated derivative instruments in the consolidated statements
of operations were as follows (in thousands):
Derivatives Not Designated
as Hedging Instruments
Foreign exchange forward contracts
Location of Gain (Loss)
Recognized on Derivatives
Foreign transaction gain (loss)
Fiscal Year
2020
$
756
.
9. Income Taxes
Significant components of the provision (benefit) for income taxes for continuing operations are as follows:
(in thousands)
Current:
U.S. Federal
U.S. State
Foreign
Total current
Deferred:
U.S. Federal
U.S. State
Foreign
Total deferred
2020
2019
2018
$
$
- $
21
5,950
5,971
8
-
(5,313)
(5,305)
666 $
- $
130
2,173
2,303
98
1
(5,484)
(5,385)
(3,082) $
-
51
8,787
8,838
56
-
(8,263)
(8,207)
631
Income (loss) before income taxes from continuing operations consisted of the following:
(in thousands)
U.S.
Foreign
Total
2020
2019
2018
$
$
(25,005) $
11,828
(13,177) $
(72,669 ) $
592
(72,077 ) $
(42,682)
10,770
(31,912)
The Tax Act was enacted on December 22, 2017, and introduced significant changes to U.S. income tax law. Effective
in 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-
sourced earnings and related-party payments, which are referred to as the global intangible low-taxed income (“GILTI”)
tax and the base erosion and anti-abuse tax, respectively. In addition, in 2017 we were subject to a one-time transition
tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The Tax Act also repealed the
alternative minimum tax (AMT) effective January 1, 2018, and made changes to net operating loss provisions, expensing
of certain assets and capitalization of research and development expense with such changes effective for 2018 and later
years.
73
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made
reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 30, 2017
by applying the guidance in SAB 118 because we had not completed our accounting for these effects. During 2018, we
completed the accounting for these effects. Except as described below under “One-time transition tax”, due to the
valuation allowance against our deferred tax assets, there was no net change made in 2018 to our 2017 enactment-date
provisional income tax.
Under GAAP, we are allowed to make an accounting policy election to either (i) treat taxes due on future U.S. inclusions
in taxable income related to GILTI as a current-period expense when incurred or (ii) factor such amounts into a
company’s measurement of its deferred taxes. We have elected to account for GILTI as a period cost.
One-time transition tax
The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to
U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the
remaining earnings. Foreign tax credits and net operating losses may be used to reduce this tax which is referred to as a
transition or deemed repatriation tax.
In 2017 we recorded a provisional amount for our one-time transition tax liability of $16.6 million and used foreign tax
credits and net operating losses to fully offset this liability. In 2018 the IRS and U.S. Treasury issued Notice 2018-29
that addresses certain aspects of the calculation of the transition tax (“Notice 2018-29”). Application of Notice 2018-29
resulted in an increase to our transition tax liability of approximately $5.1 million that was fully offset by net operating
losses resulting in no net increase to income tax expense.
Deferred tax effects
The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we remeasured our
deferred taxes as of December 30, 2017 to reflect the reduced rate that will apply in future periods when these deferred
taxes are settled or realized. We recognized a deferred tax benefit of $4.0 million in 2017, net of a reduction in the related
valuation allowance, to reflect the reduced U.S. tax rate and other effects of the Tax Act including the change in the life
of NOL carryforwards from 20 years to indefinite.
Beginning in 2018, the Tax Act provides a 100% deduction for dividends received from 10-percent owned foreign
corporations by U.S. corporate shareholders, subject to a one-year holding period. Although dividend income is now
exempt from U.S. federal tax in the hands of U.S. corporate shareholders, we must still apply the guidance of ASC 740-
30-25-18 to account for the tax consequences of outside basis differences and other tax impacts of their investments in
non-U.S. subsidiaries.
Except for working capital requirements in certain foreign jurisdictions, we provide for all taxes, including withholding
and other residual taxes, related to unremitted earnings of our foreign subsidiaries.
74
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and tax purposes. Significant components of our deferred tax assets and liabilities were
as follows:
(in thousands)
Deferred tax assets:
Inventory, receivable and warranty reserves
Net operating loss carryforwards
Tax credit carryforwards
Accrued employee benefits
Stock-based compensation
Lease liabilities
Other
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets and other acquisition basis differences
Operating lease right-of-use assets
Unremitted earnings of foreign subsidiaries
Total deferred tax liabilities
Net deferred tax liabilities
2020
2019
11,720 $
56,777
37,393
5,306
2,210
5,146
4,221
122,773
(86,124)
36,649
52,012
4,706
3,119
59,837
(23,188) $
11,235
69,092
36,489
4,274
2,372
5,804
9,390
138,656
(93,494)
45,162
63,866
5,258
2,462
71,586
(26,424)
$
$
Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets
(“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The
four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future
reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax
liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning
strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.
In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be
objectively verified. We have evaluated our DTAs each reporting period, including an assessment of our cumulative
income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. A
significant negative factor in our assessment was Cohu’s three-year cumulative loss history at the end of various fiscal
periods including 2020.
As a result of our cumulative, three-year U.S. GAAP pretax loss from continuing operations at the end of 2020 we were
unable to conclude that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the
realizability of our DTAs at the end of each quarterly reporting period in 2021 and should circumstances change it is
possible an additional valuation allowance will be recorded or the remaining valuation allowance, or a portion thereof,
will be reversed in a future period.
Our valuation allowance on our DTAs at December 26, 2020, and December 28, 2019, was approximately $86.1 million
and $93.5 million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are
realizable primarily through future reversals of existing taxable temporary differences.
75
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As the realization of DTAs is determined by tax jurisdiction, the deferred tax liabilities recorded by our non-U.S.
subsidiaries were not a source of taxable income in assessing the realization of our DTAs in the U.S.
The CARES Act was signed into law on March 27,2020. The CARES Act includes several significant business tax
provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”)
and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, suspend the excess
business loss rules, accelerate refunds of previously generated corporate alternative minimum tax credits, generally
loosen the business interest limitation under IRC section 163(j) from 30 percent to 50 percent among other technical
corrections included in the Tax Cuts and Jobs Act tax provisions. Due to our overall loss position in the US, the CARES
Act did not have a significant impact on Company’s financial position or statement of operations.
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for income
taxes for continuing operations is as follows:
(in thousands)
Tax provision at U.S. 21% statutory rate
Impact of Tax Act, before reduction in valuation
allowance
State income taxes, net of federal tax benefit
Settlements, adjustments and releases from statute
expirations
Federal tax credits
Stock-based compensation
Executive compensation limited by Section 162(m)
Change in valuation allowance
Non-deductible transaction related costs
Deemed dividend
GILTI
Foreign rate differential
Other, net
2020
2019
2018
$
(2,757) $
(15,136 ) $
(6,702)
-
(1,160)
(118)
(46)
727
491
(1,691)
-
1,224
4,191
(1,512)
1,317
666 $
-
(1,097 )
(1,204 )
(1,458 )
587
190
11,270
-
1,453
2,480
(1,266 )
1,099
(3,082 ) $
5,095
(663)
(783)
(864)
(838)
3,456
(2,015)
1,106
470
3,531
(904)
(258)
631
$
At December 26, 2020, including carryforwards from the Xcerra acquisition as described below, we had federal, state
and foreign net operating loss carryforwards of approximately $200.9 million, $130.1 million and $22.5 million,
respectively, that expire in various tax years beginning in 2021 through 2040 or have no expiration date. We also have
federal and state tax credit carryforwards at December 26, 2020 of approximately $11.5 million and $32.8 million,
respectively, certain of which expire in various tax years beginning in 2021 through 2040 or have no expiration date.
The federal and state loss and credit carryforwards are subject to annual limitations under Sections 382 and 383 of the
Internal Revenue Code and applicable state tax law. We believe the state tax credit is not likely to be realized in the
foreseeable future.
We have completed a Section 382 and 383 analysis of the Internal Revenue Code and applicable state law, regarding the
limitation of its net operating loss and business tax credit carryforwards as of December 26, 2020. As a result of the
analysis, we concluded that the acquisition of Xcerra on October 1, 2018, triggered a limitation in the utilization of
Xcerra’s net operating loss and research credit carryforwards. We reduced our deferred tax assets related to the Xcerra
U.S. net operating loss and credit carryforwards that are anticipated to expire unused as a result of ownership changes.
These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuation
allowance with no net effect on the income tax provision or effective tax rate. We will continue to assess the realizability
of these carryforwards in subsequent periods. Future changes in the ownership of Cohu could further limit the utilization
of these carryforwards.
We have certain tax holidays with respect to our operations in Malaysia and the Philippines. These holidays require
compliance with certain conditions and expire at various dates through 2027. The impact of these holidays was an
increase in net income of approximately $3.6 million or $0.09 per share in 2020, $2.1 million, or $0.05 per share, in 2019
and $2.4 million, or $0.08 per share, in fiscal 2018.
76
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:
(in thousands)
Balance at beginning of year
Additions for tax positions of current year
Additions (reductions) for tax positions of prior years
Reductions due to lapse of the statute of limitations
Additions related to Xcerra acquisition
Reductions due to settlements
Foreign exchange rate impact
Balance at end of year
$
$
2020
2019
2018
34,740 $
817
(425)
(304)
-
(1,134)
2
33,696 $
34,873 $
1,231
(484 )
(957 )
-
(30 )
107
34,740 $
10,321
524
191
(645)
24,524
-
(42)
34,873
If the unrecognized tax benefits at December 26, 2020 are ultimately recognized, excluding the impact of U.S. tax
benefits netted against deferred taxes that are subject to a valuation allowance, approximately $5.7 million ($7.0 million
at December 28, 2019 and $8.2 million at December 29, 2018) would result in a reduction in our income tax expense
and effective tax rate. It is reasonably possible that our gross unrecognized tax benefits as of December 26, 2020, could
decrease in 2021 by approximately $0.6 million as a result of the expiration of certain statutes of limitations.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately
$1.0 million and $1.3 million accrued for the payment of interest and penalties at December 26, 2020, and December 28,
2019, respectively. Interest expense, net of accrued interest reversed, was $(0.3) million in 2020, $(0.3) million in 2019
and $0.6 million in 2018.
Our U.S. federal and state income tax returns for years after 2016 and 2015, respectively, remain open to examination,
subject to the statute of limitations. Net operating loss and credit carryforwards arising prior to these years are also open
to examination if and when utilized. The statute of limitations for the assessment and collection of income taxes related
to our foreign tax returns varies by country. In the foreign countries where we have significant operations these time
periods generally range from four to ten years after the year for which the tax return is due or the tax is assessed. While
the examination of several of our German subsidiaries income tax returns for 2012 through 2017 were concluded in 2020,
our other German subsidiaries income tax returns for 2015 to 2017 are currently under routine examination by tax
authorities in Germany. Similarly, our Philippines subsidiary income tax return for 2017 is currently under routine
examination by the Bureau of Internal Revenue, and the audit for the 2018 income tax year was concluded in 2020.
Subsequent to December 26, 2020, we were notified by the taxing authority in Malaysia of its intent to perform an audit
for 2014 to 2019 for one of our Malaysian subsidiaries.
77
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Segment and Geographic Information
We applied the provisions of ASC Topic 280, Segment Reporting, (“ASC 280”), which sets forth a management approach
to segment reporting and establishes requirements to report selected segment information quarterly and to report annually
entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets
and reports revenue. An operating segment is defined as a component that engages in business activities whose operating
results are reviewed by the chief operating decision maker and for which discrete financial information is available. We
determined that our four identified operating segments are: Test Handler Group (THG), Semiconductor Tester Group
(STG), Interface Solutions Group (ISG) and PCB Test Group (PTG). Our THG, STG and ISG operating segments qualify
for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of
products and services provided. As a result, we report in two segments, Semiconductor Test & Inspection and PCB Test.
(in thousands)
Net sales by segment:
Semiconductor Test & Inspection
PCB Test
Total consolidated net sales for reportable
segments
Segment profit (loss) before tax:
Semiconductor Test & Inspection
PCB Test
Profit (loss) for reportable segments
Other unallocated amounts:
Corporate expenses
Interest expense
Interest income
Gain on extinguishment of debt
Loss from continuing operations before taxes
2020
2019
2018
$
$
$
$
585,240 $
50,767
540,878 $
42,451
443,276
8,492
636,007 $
583,329 $
451,768
(2,497) $
6,971
4,474
(4,384)
(13,759)
224
268
(13,177) $
(45,072) $
2,635
(42,437)
(9,848)
(20,556)
764
-
(72,077) $
2,489
(5,154)
(2,665)
(25,457)
(4,977)
1,187
-
(31,912)
(in thousands)
Depreciation and amortization by segment deducted in arriving at profit (loss):
51,548 $
1,198
52,746 $
Semiconductor Test & Inspection
PCB Test
Total depreciation and amortization
2020
$
$
2019
2018
56,621 $
2,250
58,871 $
17,831 $
169
18,000 $
24,634
1,413
26,047
4,957
10
4,967
18,616 $
44
18,660 $
2020
2019
2018
968,028 $
66,826
1,034,854
55,492
-
1,090,346 $
998,756 $
56,938
1,055,694
18,398
3,618
1,077,710 $
1,038,053
57,762
1,095,815
34,367
3,820
1,134,002
Capital expenditures by segment:
Semiconductor Test & Inspection
PCB Test
Total consolidated capital expenditures
(in thousands)
Total assets by segment:
Semiconductor Test & Inspection
PCB Test
Total assets for reportable segments
Corporate, principally cash and investments
Discontinued operations
Total consolidated assets
$
$
$
$
78
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the last three years, the following customers of our Semiconductor Test & Inspection segment that comprised
10% or greater of our consolidated net sales were as follows:
Intel
2020
*
2019
11.1%
2018
*
*No single customer exceeded 10% of consolidated net sales for the years ended December 26, 2020 and
December 29, 2018.
No customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 26, 2020,
December 28, 2019 and December 29, 2018.
Net sales to customers, attributed to countries based on product shipment destination, were as follows:
(in thousands)
China
United States
Taiwan
Malaysia
Philippines
Rest of the world
Total, net
2020
2019
2018
143,360 $
108,694
83,685
57,893
56,272
186,103
636,007 $
118,213 $
71,963
75,725
61,826
51,683
203,919
583,329 $
90,255
61,177
25,074
61,793
46,421
167,048
451,768
$
$
Geographic location of our property, plant and equipment and other long-lived assets was as follows:
(in thousands)
Property, plant and equipment:
Germany
United States
Japan
Malaysia
Philippines
Rest of the world
Total, net
Goodwill and other intangible assets:
Germany
United States
Malaysia
Singapore
Switzerland
Japan
Rest of the world
Total, net
2020
2019
$
$
$
$
19,817 $
17,800
13,231
3,986
9,333
2,749
66,916 $
232,925 $
177,585
45,435
13,469
5,006
3,703
7,866
485,989 $
25,234
16,671
9,964
7,151
8,637
3,255
70,912
228,476
207,642
44,140
13,915
8,190
3,872
7,453
513,688
79
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Leases
We lease certain of our facilities, equipment and vehicles under non-cancelable operating and finance leases. Leases with
initial terms with 12 months or less are not recorded in the consolidated balance sheet, but we recognized those lease
payments in the consolidated statements of operations on a straight-line basis over the lease term. Lease and non-lease
Our leases have remaining lease terms ranging from 1 year to 37 years, some of which include one or more options to
extend the lease for up to 25 years. Our lease term includes renewal terms when we are reasonably certain that we will
exercise the renewal options. We sublease certain leased assets to third parties, mainly as a result of unused space in our
facilities.
Supplemental balance sheet information related to leases was as follows:
(in thousands)
Assets:
Classification
Operating lease assets Operating lease right-of-use assets
Finance lease assets
Total lease assets
Property, plant and equipment, net (1)
Liabilities:
Current:
Operating
Finance
Noncurrent:
Operating
Finance
Total lease liabilities
Other accrued liabilities
Other accrued liabilities
Long-term lease liabilities
Long-term lease liabilities
Weighted-average remaining lease term (years):
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
December 26,
December 28,
2020
2019
$
$
$
$
29,203 $
486
29,689 $
5,287 $
179
25,565
222
31,253 $
7.3
2.3
6.3 %
0.0 %
33,269
2,515
35,784
5,458
2,574
28,877
-
36,909
7.9
0.5
6.3%
4.5%
(1) Finance lease assets are recorded net of accumulated amortization of $48,000 and $0.1 million in 2020 and 2019,
respectively.
The components of lease expense were as follows:
(in thousands)
Operating leases (1)
Variable lease expense
Short-term operating leases
Finance leases:
Amortization of leased assets
Interest on lease liabilities
Sublease income
Net lease cost
December 26,
December 28,
2020
2019
$
$
8,374 $
2,110
93
84
57
(113)
10,605 $
8,525
2,318
256
102
146
(133)
11,214
(1) Operating lease cost excludes impairment expense of $0.2 million related to the write-down of the Fontana facility
right-of-use asset recognized in 2019.
80
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments at December 26, 2020, are as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
$
Total lease payments
Less: Interest
Present value of lease liabilities
$
(1) Excludes sublease income of $0.1 million in 2021.
Operating
leases (1)
Finance
leases
Total
7,015 $
6,187
5,297
4,766
4,428
11,942
39,635
(8,783)
30,852 $
179 $
179
43
-
-
-
401
-
401 $
7,194
6,366
5,340
4,766
4,428
11,942
40,036
(8,783)
31,253
Supplemental cash flow information related to leases was as follows:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Leased assets obtained in exchange for new finance lease liabilities
Leased assets obtained in exchange for new operating lease liabilities
December 26,
December 28,
2020
2019
$
$
$
$
$
8,079 $
57 $
146 $
489 $
2,403 $
6,932
117
34
-
40,844
12. Commitments and Contingencies
From time-to-time we are involved in various legal proceedings, examinations by various tax authorities and claims that
have arisen in the ordinary course of our business. The outcome of any litigation is inherently uncertain. While there can
be no assurance, we do not believe at the present time that the resolution of these matters will have a material adverse
effect on our assets, financial position or results of operations.
13. Guarantees
Accrued Warranty
Changes in accrued warranty during the three-year period ended December 26, 2020, was as follows:
(in thousands)
Beginning balance
Warranty accruals
Warranty payments
Warranty liability assumed
Ending balance
2020
2019
2018
$
$
6,155 $
6,173
(5,946)
-
6,382 $
8,014 $
6,714
(8,573)
-
6,155 $
4,849
7,154
(8,358)
4,369
8,014
Accrued warranty amounts expected to be incurred after one year are included in noncurrent other accrued liabilities in
the consolidated balance sheet. These amounts totaled $0.3 million at both December 26, 2020 and December 28, 2019.
81
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Discontinued Operations
Fixtures Services Business (“FSG”)
On October 1, 2018, we acquired a fixtures services business as part of Xcerra. At the time of the acquisition our
management determined that this business did not align with Cohu’s core business and was not a strategic fit within our
organization. As a result, the fixtures services business was marketed for sale since we acquired Xcerra on October 1,
2018 and it has been presented as discontinued operations. For financial statement purposes, the results of operations for
this business have been segregated from those of continuing operations and are presented in our consolidated financial
statements as discontinued operations for all periods presented.
During the fourth quarter of 2019, we recorded a charge of $1.1 million to impair goodwill and purchased intangible
assets associated with this operating segment as the estimated fair value less cost to sell exceeded the carrying value. We
completed the sale of this business in February 2020 which resulted in an immaterial gain that that was recorded in our
statement of operations for the twelve months ended December 26, 2020, as noted below.
Balance sheet information for our fixtures services business presented as discontinued operations is summarized as
follows (in thousands):
Assets:
Cash
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Other noncurrent assets
Total assets
Liabilities:
Other accrued current liabilities
Total current liabilities
Noncurrent liabilities
Total liabilities
December 28,
2019
$
$
$
$
736
1,316
1,411
40
3,503
33
82
3,618
599
599
24
623
Operating results of our discontinued operations are summarized as follows (in thousands):
December 26,
December 28,
December 29,
2020
2019
2018
Net sales
Operating income
Loss from impairment of FSG
Gain on sale of FSG
Income (loss) before taxes
Income tax provision
Income (loss), net of tax
432 $
6,136 $
1,593
11 $
-
35
46
4
42 $
478 $
(1,086)
-
(608)
89
(697) $
157
-
-
157
38
119
$
$
$
82
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Accumulated Other Comprehensive Loss
Components of other comprehensive loss, on an after-tax basis, were as follows:
(in thousands)
Year ended December 29, 2018
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other comprehensive income (loss)
Year ended December 28, 2019
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Other comprehensive income (loss)
Year ended December 26, 2020
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Other comprehensive income (loss)
$
$
$
$
$
$
Before Tax
Amount
Tax
(Expense)
Benefit
Net of Tax
Amount
(8,905) $
865
7
(8,033) $
(7,522) $
(856)
(8,378) $
27,321 $
2,599
29,920 $
- $
(60)
-
(60) $
- $
228
228 $
- $
(216)
(216) $
(8,905)
805
7
(8,093)
(7,522)
(628)
(8,150)
27,321
2,383
29,704
Components of accumulated other comprehensive loss, net of tax, at the end of each period are as follows:
(in thousands)
Accumulated net currency translation adjustments
Accumulated net adjustments related to postretirement benefits
Total accumulated other comprehensive loss
2020
2019
$
$
(2,877) $
(1,449)
(4,326) $
(30,198)
(3,832)
(34,030)
16. Related Party Transactions
At December 26, 2020 certain of our cash and short-term investments were held and managed by BlackRock, Inc. which
owns 15.2% of our outstanding common stock as reported in its Form 13-G filing made with the Securities and Exchange
Commission on January 26, 2021.
As part of Xcerra, we gained ownership interests in two companies that supply components and provide services to
wholly owned subsidiaries of Xcerra. Multitest elektronische Systeme GmbH and atg-Luther & Maelzer GmbH of FTZ
Fraes-und Technologiezentrum GmbH Frasdorf (“FTZ”) and ETZ Elektrisches Testzentrum fuer Leiterplatten GmbH
(“ETZ”), respectively. FTZ, based in Germany, provides milling services and ETZ, which is also based in Germany,
provides certain component parts. These investments are accounted for under the equity method and are not material to
our consolidated balance sheets. During 2020, 2019 and 2018, purchases of products from FTZ and ETZ were not
material.
83
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Quarterly Financial Data (Unaudited)
Quarter
(in thousands, except per share data)
First (a)
Second (a) Third (a)
Fourth (a)
Year
Net sales:
Cost of sales:
Income (loss)
from continuing
operations
Net income (loss)
Net income
(loss) attributable to
Cohu
2020
2019
2020
2019
2020
2019
2020
2019
$
$
138,921 $
147,809 $
144,084 $
150,011 $
150,647 $
143,498 $
202,355 $
142,011 $
636,007
583,329
(b) $
(b) $
82,837 $
93,394 $
83,127 $
87,605 $
87,147 $
84,565 $
111,114 $
87,936 $
364,225
353,500
$
$
$
$
(17,318) $
(22,851) $
(4,740) $
(19,383) $
(6,646) $
(10,480) $
14,861 $
(16,281) $
(13,843)
(68,995)
(17,276) $
(22,687) $
(4,740) $
(19,359) $
(6,646) $
(10,326) $
14,861 $
(17,320) $
(13,801)
(69,692)
2020
2019
$
$
(17,276) $
(22,643) $
(4,740) $
(19,323) $
(6,646) $
(10,468) $
14,861 $
(17,266) $
(13,801)
(69,700)
Income (loss) per share attributable to Cohu (c):
Basic:
Income (loss)
from continuing
operations
Net income (loss)
Diluted:
Income (loss)
from continuing
operations
Net income (loss)
2020
2019
2020
2019
2020
2019
2020
2019
$
$
$
$
$
$
$
$
(0.42) $
(0.56) $
(0.42) $
(0.55) $
(0.11) $
(0.47) $
(0.11) $
(0.47) $
(0.16) $
(0.25) $
(0.16) $
(0.25) $
0.35 $
(0.39) $
0.35 $
(0.42) $
(0.42) $
(0.56) $
(0.42) $
(0.55) $
(0.11) $
(0.47) $
(0.11) $
(0.47) $
(0.16) $
(0.25) $
(0.16) $
(0.25) $
0.34 $
(0.39) $
0.34 $
(0.42) $
(0.33)
(1.68)
(0.33)
(1.69)
(0.33)
(1.68)
(0.33)
(1.69)
(a)
(b)
(c)
All quarters presented above were comprised of 13 weeks.
Cost of sales is shown exclusive of the amortization of purchased intangible assets.
The sum of the four quarters may not agree to the year total due to rounding or losses within a quarter and the
inclusion or exclusion of common stock equivalents.
84
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Cohu, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cohu, Inc. (the Company) as of December 26, 2020, and
December 28, 2019, and the related consolidated statements of operations, comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and the
financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company at December 26, 2020, and December 28, 2019, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 26, 2020, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 26, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.
The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Description of
the Matter
Valuation of inventories
As of December 26, 2020, the Company’s consolidated inventories balance was $142.5 million. As
described in Note 1 to the consolidated financial statements, the Company values its inventories at lower
of cost, determine on a first-in, first-out basis, or net realizable value. Obsolete inventory or inventory
in excess of management's estimated usage requirement is written down to its estimated net realizable
value.
Auditing management’s estimates for excess and obsolete inventory involved subjective auditor
judgment because the estimates rely on a number of factors that are affected by market and economic
conditions outside the Company's control. In particular, the excess and obsolete inventory calculations
are sensitive to significant assumptions, including product life cycles, historical usage, expected future
usage and on-hand quantities of individual materials.
85
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of internal
controls over the Company's excess and obsolete inventory valuation process, including management's
assessment of the assumptions stated above and data underlying the excess and obsolete inventory
valuation.
To test the valuation of inventories, our audit procedures included, among others, evaluating the
significant assumptions stated above and testing the completeness and accuracy of the underlying data
used by management in the analysis of excess and obsolete inventory. We evaluated adjustments to
inventory reserves for specific product life cycles, compared the balance of on-hand inventories to
usage forecasts and historical usage, and assessed the historical accuracy of management’s estimates
by performing a retrospective analysis comparing prior period forecasted demand to actual historical
sales.
Impairment evaluation of goodwill and indefinite-lived intangible assets
Description of
the Matter
As of December 26, 2020, the Company’s goodwill balance was $252.3 million and indefinite-lived
intangibles balance, consisting of in-process research and development (IPR&D), was $7.8 million. As
described in Note 1 to the consolidated financial statements, goodwill and indefinite-lived intangibles
are evaluated by the Company for impairment annually and when an event occurs, or circumstances
change that indicate that the carrying value may not be recoverable. Goodwill is tested for impairment
at the reporting unit level.
Auditing management’s impairment tests was complex and highly judgmental due to the significant
estimation required in determining the fair value of the reporting units for goodwill and the fair value
of IPR&D assets. For goodwill, significant assumptions used in management’s evaluation included
revenue and margin forecasts, the selection of the discount rates, and the estimation of the long-term
growth rates. For IPR&D assets, significant assumptions used in management’s evaluation included
estimated revenues from the products, royalty rates, and discount rates. These assumptions are affected
by expectations about future market or economic conditions that materially impact the fair value of the
reporting units and the IPR&D assets.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s goodwill and indefinite-lived intangible asset impairment review processes. For
example, we tested controls over the quantitative impairment analyses of goodwill and IPR&D,
including management’s review of the prospective financial information, valuation models and
underlying assumptions used to develop such estimates.
Our audit procedures included, among others, evaluating the Company’s valuation methodology used,
evaluating the prospective financial information utilized in the valuations, evaluating the Company’s
estimates relating to the development of its IPR&D assets, and involving our valuation specialists to
assist in testing certain significant assumptions described above, such as discount rates and long-term
growth rates. We assessed the historical accuracy of management’s estimates and performed sensitivity
analyses on significant assumptions to evaluate the changes in the fair value that would result from
changes in the assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1956.
San Diego, California
February 26, 2021
86
Index to Exhibits
15. (b) The following exhibits are filed as part of, or incorporated into, the 2020 Cohu, Inc. Annual Report on Form 10-
K:
Exhibit No. Description
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to Exhibit
3.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and
Exchange Commission on May 17, 2018
Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from the Cohu,
Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission
on May 17, 2018
Description of Capital Stock incorporated herein by reference to Exhibit 4.1 from the Cohu, Inc. Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2020
Credit and Guaranty Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries
of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.1
from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018
Pledge and Security Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries
of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.2
from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018
Amended Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Appendix A from the
Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*
Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, herein by reference to Appendix B from the
Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*
Cohu, Inc. Deferred Compensation Plan (as amended and restated) incorporated herein by reference to
Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities
and Exchange Commission on December 29, 2008*
Form of employee restricted stock unit agreement for use with restricted stock units granted pursuant to the
Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc.
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*
Form of non-employee director restricted stock unit agreement for use with restricted stock units granted
pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.2 from
the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on
August 4, 2015*
Form of non-employee director restricted stock unit deferral election form for use with restricted stock units
granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit
10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
on August 4, 2015*
87
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Non-employee director fee deferral election form incorporated herein by reference to Exhibit 10.4 from the
Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August
4, 2015*
Form of deferred stock agreement for shares granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan
incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 4, 2015*
Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity
Incentive Plan incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*
Intel Corporation Purchase Agreement Capital Equipment, Goods and Services, dated April 30, 2012, by
and between Delta Design, Inc. and Intel Corporation incorporated herein by reference to Exhibit 99.1 from
the Cohu, Inc. Current Report on Form 8-K/A (file no. 001-04298) filed August 1, 2012
Form of Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc.
Current Report on Form 8-K (file no. 001-04298) filed December 13, 2018*
Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference to Exhibit 10.2
from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange
Commission on December 29, 2008*
Lease agreement dated December 4, 2015 by and between CT Crosthwaite I, LLC and Cohu, Inc.
incorporated herein by reference to Exhibit 10.14 from the Cohu, Inc. Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 23, 2016
Severance Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson
incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
Severance Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones incorporated
herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 4, 2020 *
Severance Agreement, dated September 8, 2020, between the Company and Thomas D. Kampfer
incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
Severance Agreement, dated September 8, 2020, between the Company and Luis A. Müller incorporated
herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 4, 2020 *
Change in Control Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson
incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
Change in Control Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones
incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
88
10.22
10.23
10.24
21
23
Change in Control Agreement, dated September 8, 2020, between the Company and Thomas D. Kampfer
incorporated herein by reference to Exhibit 10.7 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
Change in Control Agreement, dated September 8, 2020, between the Company and Luis A. Müller
incorporated herein by reference to Exhibit 10.8 from the Cohu, Inc. Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 4, 2020 *
Settlement Agreement regarding employment, dated October 27, 2020, between the Company and Pascal
Rondé incorporated herein by reference to Exhibit 10.9 from the Cohu, Inc. Quarterly Report on Form 10-
Q filed with the Securities and Exchange Commission on November 4, 2020 *
Subsidiaries of Cohu, Inc.
Consent of Independent Registered Public Accounting Firm
31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Luis A. Müller
31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones
32.1
32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for Luis A. Müller
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for Jeffrey D. Jones
101.INS
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan or arrangement
89
Item 16. Form 10-K Summary.
None.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 26, 2021
COHU, INC.
By:/s/ Luis A. Müller
Luis A. Müller
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ James A. Donahue
James A. Donahue
Chairman of the Board,
Director
February 26, 2021
/s/ Luis A. Müller
Luis A. Müller
/s/ Jeffrey D. Jones
Jeffrey D. Jones
/s/ William E. Bendush
William E. Bendush
/s/ Steven J. Bilodeau
Steven J. Bilodeau
/s/ Andrew M. Caggia
Andrew M. Caggia
/s/ Lynne J. Camp
Lynne J. Camp
/s/ Nina L. Richardson
Nina L. Richardson
/s/ Jorge L. Titinger
Jorge L. Titinger
President and Chief Executive Officer, Director February 26, 2021
(Principal Executive Officer)
Vice President, Finance and CFO
(Principal Financial and Accounting Officer)
February 26, 2021
Director
Director
Director
Director
Director
Director
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
91
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
(Reductions)
Not
Balance at
Beginning Charged
of Year
to Expense
Additions
(Reductions)
Balance
Charged
(Credited) Deductions/
at End
to Expense Write-offs of Year
$
$
$
40 $
9 $
200 $
(20)(1) $
(109) $
31 $
24(1) $
(28) $
27 $
(1)(1) $
79 $
(41 ) $
128
40
9
Description
Allowance for doubtful accounts:
Year ended December 30, 2018
Year ended December 28, 2019
Year ended December 26, 2020
Reserve for excess and obsolete inventories:
Year ended December 30, 2018
$
17,362 $
(300)(1) $
10,783 $
3,907 $
23,938
Year ended December 28, 2019
$
23,938 $
1,285(1) $
4,792 $
9,057 $
20,958
Year ended December 26, 2020
$
20,958 $
4,611(1) $
8,117 $
6,749 $
26,937
All amounts presented above have been restated to exclude the impact of our discontinued operations.
(1) Changes in reserve balances resulting from foreign currency impact and reclassifications from other reserves.
92