What changed in this filing

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Item 9A. Controls and Procedures

2021-02-26 compared with 2020-03-10 · 1392 added, 448 removed, 951 unchanged (66% of the section changed)

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 - There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 28, 2019, that has materially affected, or is 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).

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).

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Opinion on Internal Control over Financial Reporting

We have audited Cohu, Inc.’s internal control over financial reporting as of December 28, 2019, 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).

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 28, 2019 and December 29, 2018, 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 28, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated March 10, 2020, expressed an unqualified opinion thereon.

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.

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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.

(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

/s/ Ernst & Young LLP

San Diego, California

March 10, 2020

February 26, 2021

Other Information.

Directors, Executive Officers and Corporate Governance.

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 the Company’s definitive proxy statement, which will be filed with the Securities and Exchange Commission (SEC) within 120 days after the close of fiscal 2019.

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

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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.

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.

Executive Compensation.

Information regarding Executive Compensation is hereby incorporated by reference to the Company’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2019.

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.

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 the Company’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2019.

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.

Certain Relationships and Related Transactions, and Director Independence.

Information regarding Certain Relationships and Related Transactions, and Director Independence is hereby incorporated by reference to the Company’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2019.

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.

Principal Accounting Fees and Services.

Information regarding the Principal Accounting Fees and Services is hereby incorporated by reference to the Company’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2019.

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.

Exhibits , Financial Statement Schedules.

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Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 26, 2020

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 28, 2019

Consolidated Statements of Stockholders’

Equity for each of the three years in the period ended December 26, 2020

Consolidated Statements of Cash Flows for each of the three years in the period ended December 26, 2020

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Financial Statement Schedule

Schedule II – Valuation and Qualifying Accounts

Schedule II –

Valuation and Qualifying Accounts

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.

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(in thousands, except par value)

ASSETS  

Current assets:

Cash and cash equivalents

$ 149,358  

$ 155,194  

Short-term investments

20,669  

Accounts receivable, net

151,919  

127,921  

142,500  

130,706  

Prepaid expenses

18,773  

17,483  

Other current assets

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Total current assets

485,046  

439,696  

Property, plant and equipment, net

66,916  

70,912  

252,304  

238,669  

Intangible assets, net

233,685  

275,019  

23,192  

20,030  

Operating lease right of use assets

29,203  

33,269  

Noncurrent assets of discontinued operations (Note 14)

$ 1,090,346  

$ 1,077,710  

LIABILITIES AND STOCKHOLDERS' EQUITY

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Short-term borrowings

$ 5,314  

$ 3,195  

Current installments of long-term debt

Accounts payable

67,923  

48,697  

Customer advances

14,410  

12,160  

Accrued compensation and benefits

34,862  

23,741  

Accrued warranty

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Other accrued liabilities

30,275  

39,739  

Current liabilities of discontinued operations (Note 14)

Total current liabilities

174,453  

148,885  

Long-term debt

311,551  

346,518  

Deferred income taxes

28,816  

31,310  

Long-term lease liabilities

25,787  

28,877  

Accrued retirement benefits

Noncurrent deferred gain on sale of facility

21,663  

21,930  

Noncurrent income tax liabilities

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60,000 shares authorized, 42,190 shares issued and outstanding in 2020 and 41,395 shares in 2019

42,190  

41,395  

Paid-in capital

448,194  

433,190  

Retained earnings

26,230  

42,517  

Accumulated other comprehensive loss

Total Cohu stockholders' equity

Noncontrolling interest

( 4,326 )  

Total stockholders' equity

512,288  

483,072  

$ 1,090,346  

$ 1,077,710  

The accompanying notes are an integral part of these statements.

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(in thousands, except per share amounts)

$ 636,007  

$ 583,329  

$ 451,768  

Cost and expenses:

Cost of sales (1)

364,225  

353,500  

292,460  

Research and development

86,151  

86,147  

56,434  

Selling, general and administrative

129,248  

142,936  

96,754  

Amortization of purchased intangible assets

38,746  

39,590  

17,197  

Restructuring charges (Note 5)

13,484  

18,704  

Impairment charges

11,249  

Gain on sale of facilities

( 4,495 )  

632,747  

635,657  

481,549  

Income (loss) from operations

( 52,328 )  

Other (expense) income:

Interest expense

( 13,759 )  

( 20,556 )  

Interest income

Foreign transaction gain (loss) and other

Income (loss) from continuing operations before taxes

Foreign transaction gain (loss)

( 3,170 )  

Gain on extinguishment of debt

Loss from continuing operations before taxes

( 13,177 )  

( 72,077 )  

Income tax provision (benefit)

Income (loss) from continuing operations

( 3,082 )  

Loss from continuing operations

( 13,843 )  

( 68,995 )  

Income (loss) from discontinued operations, net of tax

Net income (loss)

( 697 )  

$ ( 13,801 )  

$ ( 69,692 )  

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to Cohu

Net loss attributable to Cohu

$ ( 13,801 )  

$ ( 69,700 )  

Income (loss) per share:

Income (loss) from continuing operations before non-controlling interest

Loss from continuing operations before noncontrolling interest

$ ( 0.33 )  

$ ( 1.68 )  

Income (loss) from discontinued operations

( 0.01 )  

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to Cohu

Income (loss) from continuing operations before non-controlling interest

Net loss attributable to Cohu

$ ( 0.33 )  

$ ( 1.69 )  

Loss from continuing operations before noncontrolling interest

$ ( 0.33 )  

$ ( 1.68 )  

Income (loss) from discontinued operations

( 0.01 )  

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to Cohu

Weighted average shares used in computing income (loss) per share:

Net loss attributable to Cohu

$ ( 0.33 )  

$ ( 1.69 )  

Weighted average shares used in computing

41,854  

41,159  

31,776  

41,854  

41,159  

31,776  

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.

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(in thousands)

Net income (loss)

Net income (loss) attributable to noncontrolling interest

$ ( 13,801 )  

$ ( 69,692 )  

Income (loss) from continuing operations before noncontrolling interest

Net income (loss) attributable to Cohu

( 13,801 )  

( 69,700 )  

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments

27,321  

( 7,522 )  

Adjustments related to postretirement benefits

( 628 )  

Change in unrealized gain/loss on investments

Other comprehensive income (loss), net of tax

29,704  

( 8,150 )  

Other comprehensive income (loss) attributable to noncontrolling interest

Other comprehensive income (loss) attributable to Cohu

29,704  

( 8,146 )  

Comprehensive income (loss)

15,903  

( 77,842 )  

Comprehensive income (loss) attributable to noncontrolling interest

Comprehensive income (loss) attributable to Cohu

$ 15,903  

$ ( 77,846 )  

The accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands, except par value and per share amounts)

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Balance at December 30, 2017

$ 28,489  

$ 127,663  

$ 150,726  

$ ( 17,787 )  

$ 289,091  

Cumulative effect of accounting change (a)

( 32,424 )  

Changes in cumulative translation adjustment

( 8,905 )  

Adjustments related to postretirement benefits, net of tax

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Cash dividends - $ 0.24 per share

( 7,689 )  

Exercise of stock options

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Shares issued for restricted stock units vested

( 541 )  

Repurchase and retirement of stock

( 195 )  

( 11,405 )  

Noncontrolling interest

( 299 )  

Share-based compensation expense

Balance at December 30, 2017

18,280  

Shares issued for acquisition of Xcerra

11,776  

283,642  

295,418  

Balance at December 29, 2018

Cumulative effect of accounting change (a)

40,763  

419,690  

111,670  

( 25,880 )  

( 299 )  

545,944  

Cumulative effect of accounting change (b)

10,352  

( 69,692 )  

Changes in cumulative translation adjustment

( 7,522 )  

Adjustments related to postretirement benefits, net of tax

Changes in unrealized gains and losses on investments, net of tax

( 628 )  

Cash dividends - $ 0.24 per share

( 9,866 )  

Exercise of stock options

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Shares issued for restricted stock units vested

( 599 )  

Repurchase and retirement of stock

( 196 )  

( 2,575 )  

Noncontrolling interest

( 53 )  

Share-based compensation expense

Shares issued for acquisition of Xcerra

14,148  

Divestiture of interest in consolidated entity

Balance at December 28, 2019

Cumulative effect of accounting change (b)

41,395  

433,190  

42,517  

( 34,030 )  

483,072  

( 13,801 )  

Changes in cumulative translation adjustment

27,321  

Adjustments related to postretirement benefits, net of tax

Cash dividends - $ 0.06 per share

( 2,486 )  

Exercise of stock options

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Shares issued for restricted stock units vested

( 660 )  

Repurchase and retirement of stock

Noncontrolling interest

( 209 )  

( 2,597 )  

Share-based compensation expense

Divestiture of interest in consolidated entity

14,234  

Balance at December 26, 2020

$ 42,190  

$ 448,194  

$ 26,230  

$ ( 4,326 )  

$ 512,288  

Cumulative effect of accounting change relates to our adoption of ASU 2014-09.

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Cash flows from operating activities:

Net income (loss) attributable to Cohu

Net loss attributable to Cohu

$ ( 13,801 )  

$ ( 69,700 )  

Net income (loss) from noncontrolling interest

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Loss on impairment and disposal of segments held for sale (Note 13)

Adjustments to reconcile net loss to net cash provided by operating activities:

(Gain) loss on disposal of discontinued operations (Note 14)

( 35 )  

Interest capitalized associated with cloud computing implementation

( 124 )  

( 168 )  

Gain on divestiture of consolidated entity

( 149 )  

Gain on extinguishment of debt

( 268 )  

Impairment charges related to indefinite lived intangibles

11,249  

Depreciation and amortization

52,746  

58,871  

26,047  

Share-based compensation expense including restructuring charges

14,234  

14,148  

18,279  

Amortization of inventory step-up and inventory related charges

24,179  

Amortization of debt discounts and issuance costs

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Deferred income taxes

( 5,305 )  

( 5,385 )  

Adjustment to contingent consideration liability

Changes in other assets

(Gain) loss on disposal of fixed assets

( 3,044 )  

Amortization of cloud-based software implementation costs

(Gain) loss from sale of property, plant and equipment

( 4,170 )  

Changes in other accrued liabilities

Changes in current assets and liabilities, excluding effects from acquisitions and divestitures:

Customer advances

11,548  

Accounts receivable

( 20,210 )  

21,150  

( 14,982 )  

Accrued compensation, warranty and other liabilities

( 9,405 )  

Accounts payable

15,058  

( 3,122 )  

Deferred profit

Other current assets

( 5,996 )  

Income taxes payable

( 2,089 )  

( 10,719 )  

Operating lease right-of-use assets

Current and long-term operating lease liabilities

( 6,437 )  

( 6,083 )  

Net cash provided by operating activities

49,734  

17,269  

34,437  

Cash flows from investing activities, excluding effects from acquisitions and divestitures:

Purchases of property, plant and equipment

( 18,660 )  

( 18,000 )  

Net cash received from sale of land, facility and assets

17,025  

Purchases of short-term investments

( 19,703 )  

( 315 )  

Payment for purchase of Xcerra, net of cash received

Sales and maturities of short-term investments

Payment for purchase of Kita, net of cash received

59,469  

Net cash received from sale of fixtures services business

Net cash used in investing activities

( 18,363 )  

( 16,548 )  

Cash flows from financing activities:

Cash dividends paid

Proceeds from construction loan

( 4,971 )  

( 9,827 )  

Proceeds from revolving line of credit and construction loans

Repayments of long-term debt

Issuance (repurchases) of common stock, net including awards settled in cash

Proceeds from Term B Loan

( 41,056 )  

( 3,817 )  

Net issuance (repurchases) of stock, including awards settled in cash

( 16 )  

Proceeds from Term Loan B

348,250  

Payment of debt issuance costs

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Net cash provided by (used in) financing activities

( 38,072 )  

( 8,183 )  

322,105  

Effect of exchange rate changes on cash and cash equivalents

( 1,529 )  

Net increase (decrease) in cash and cash equivalents

( 6,572 )  

( 8,991 )  

30,635  

Cash and cash equivalents at beginning of year

155,930  

164,921  

134,286  

Cash and cash equivalents at end of year

149,358  

155,930  

164,921  

Cash held by discontinued operations (Note 14)

( 736 )  

Cash and cash equivalents at end of year from continuing operations

$ 149,358  

$ 155,194  

$ 164,460  

Supplemental disclosure of cash flow information:

Cash paid during the year for income taxes

Cash paid for income taxes

$ 5,772  

$ 14,942  

$ 6,243  

Cash paid for interest

$ 16,324  

$ 14,846  

$ 4,977  

Dividends declared but not yet paid

$ 2,484  

$ 2,445  

Property, plant and equipment purchases included in accounts payable

$ 1,063  

$ 1,601  

Inventory capitalized as capital assets

$ 1,050  

The accompanying notes are an integral part of these statements.

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.

Basis of Presentation –

(“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”).

On December 28, 2019, we divested our entire 20% interest in ALBS Solutions Sdn Bhd (“ALBS”), our only consolidated VIE.

As a result of the divestment, we determined that we no longer had a controlling interest in ALBS and we no longer consolidate ALBS as of that date.

Divestment of our ownership interest resulted in a gain of $0.1 million which is included in restructuring charges for the year ended December 28, 2019.

All significant consolidated transactions and balances have been eliminated in consolidation.

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.

We evaluate the need to consolidate affiliates based on standards set forth in ASC Topic 810, Consolidation (“ASC 810”

Actual results could differ from these estimates.

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Our fiscal years ended on December 28, 2019, and December 29, 2018, each consisted of 52 weeks.

Principles of Consolidation for Variable Interest Entities – Prior to the divestment of our ownership interest in ALBS we followed ASC Topic 810-10-15 guidance with respect to accounting for VIEs and as of December 28, 2019, we consolidated one VIE, ALBS.

Discontinued Operations – 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 divested this portion of the business in February 2020.

As a result, the assets of our fixtures business are considered “held for sale” and the operations of our fixtures business are considered “discontinued operations” as of December 28, 2019.

See Note 13, “Discontinued Operations” for additional information.

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.

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.

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Weighted average common shares outstanding

41,854  

41,159  

31,776  

Effect of dilutive stock options and restricted stock units

Cohu has utilized the “control number” concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive.

41,854  

41,159  

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.

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.

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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Trade accounts receivable are presented net of allowance for doubtful accounts, which were insignificant at December 28, 2019 and December 29, 2018.

Our customers primarily include semiconductor manufacturers and semiconductor test subcontractors located throughout many areas of the world.

While we believe that our allowance for doubtful accounts is adequate and represents our best estimate of potential loss exposure at December 28, 2019, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our estimates regarding collectability.

Inventories – Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value.

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.

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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 $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.

In 2017 we recorded charges of $1.1 million.

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

$ 83,755  

$ 69,665  

Work in process

44,315  

46,591  

Finished goods

14,430  

14,450  

Total inventories

Assets Held for Sale – We expect to complete the sale of our facility located in Penang, Malaysia in the first half of 2020 and, as a result, it is being presented as held for sale at December 28, 2019.

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.

$ 142,500  

$ 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.

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.

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Land and land improvements (1)

Buildings and building improvements (1)

$ 8,141  

$ 11,659  

Buildings and building improvements 

41,153  

41,474  

Machinery and equipment

65,342  

61,006  

114,636  

114,139  

Less accumulated depreciation and amortization

( 47,720 )  

Property, plant and equipment, net

Includes assets under financing leases acquired with Xcerra totaling $2.6 million and $2.7 million as of December 28, 2019 and December 29, 2018, respectively.

On December 9, 2019, we committed to exercise our bargain purchase option to acquire our leased facility located in Rosenheim, Germany, currently subject to a financing lease, for €1.1 million no later than June 30, 2020.

Depreciation expense was $19.3 million in 2019, $8.8 million in 2018 and $5.0 million in 2017.

The increase in depreciation expense in 2019 was driven by depreciation recorded on assets acquired from Xcerra.

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 of the system and interest costs incurred, when material, while developing the system.

Total unamortized capitalized cloud computing implementation costs totaled $10.3 million at December 28, 2019 and were insignificant at December 29, 2018.

We expect to begin amortizing these costs when the ERP system is placed into service in 2020, and will amortize the implementation costs using the straight-line method over seven years.

Capitalized amounts are recorded within other assets in our consolidated balance sheets.

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.

$ 66,916  

$ 70,912  

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.

Subsequent to the acquisition of Xcerra on October 1, 2018, 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”).

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.

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.

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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.

We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October 1, 2019, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date.

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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Product Warranty – Product warranty costs are accrued in the period sales are recognized.

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.

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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.

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.

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Where applicable, associated interest and penalties have also been recognized and recorded, net of federal and state tax benefits, in income tax expense.

Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017.

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.

Contingencies and Litigation – We assess the probability of adverse judgments in connection with current and threatened litigation.

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.

Adoption of New Revenue Accounting Standard – We adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) , on December 31, 2017, the first day of our 2018 fiscal year.

We elected to implement the new standard using the modified retrospective method of adoption which only applies to those contracts which were not completed as of December 31, 2017.

Revenue for the years ended December 28, 2019 and December 29, 2018, have been accounted for using ASC 606 and the prior year ended December 30, 2017, has not been adjusted.

Upon adoption of ASC 606, we recorded a cumulative-effect adjustment to retained earnings of $1.1 million on December 31, 2017, which represents the impact of ASC 606 on our deferred revenue.

The adoption of ASC 606 had no impact to cash used in net operating, investing or financing activities in our consolidated statements of cash flows.

Under ASC 606 our revenue will continue to be recognized at a point in time when the performance obligation has been satisfied and transfer of control has occurred, typically, this occurs upon shipment of products to our customers.

In certain instances, when customer payment terms provide that a minority portion of the equipment purchase price be paid only upon customer acceptance, recognition of revenue may occur sooner under ASC 606.

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.

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.

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;

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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.

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Spares, contactor and kit revenue is generally recognized upon shipment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of our equipment sales have multiple performance obligations.

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Unsatisfied performance obligations primarily represent contracts for products with future delivery dates.

At December 28, 2019 and December 29, 2018, we had $10.0 million and $19.1 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied), respectively.

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 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.

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.

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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.

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To date, there have been no material impairment losses on accounts receivable.

There were no material contract assets or contract liabilities recorded on the consolidated balance sheet in any of the periods presented.

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 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.

At December 29, 2018, we had deferred revenue totaling approximately $10.8 million, current deferred profit of $6.9 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $2.0 million.

Our balances at December 29, 2018, include a $1.1 million beginning retained earnings adjustment as a result of our adoption of ASC 606 on the first day of fiscal 2018.

The periodic change is primarily a result of increases and decreases in deferrals of revenue associated with product shipments made to our customers in accordance with our revenue recognition policy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net sales by type and segment are as follows (in thousands) :

Twelve Months Ended

Disaggregated Net Sales

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

$ 317,821  

$ 299,473  

$ 249,514  

Non-systems-Semiconductor Test & Inspection

267,419  

241,405  

193,737  

Systems-PCB Test

33,293  

25,928  

Non-systems-PCB Test

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.

17,474  

16,523  

$ 636,007  

$ 583,329  

$ 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.

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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 B Loan are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance sheets.

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 $1.1 million and insignificant for the years ended December 28, 2019 and December 29, 2018, respectively.

Share-based Compensation – We measure and recognize all share-based compensation under the fair value method.

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.

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.

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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.

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.

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Gains and losses on foreign currency transactions are recognized as incurred.

During the year ended December 28, 2019, foreign exchange gains included in our consolidated statement of operations were insignificant.

During the year ended December 29, 2018, we recognized foreign exchange gains totaling $1.7 million.

During the year ended December 30, 2017, we recognized foreign exchange losses totaling $3.0 million.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss – Our accumulated other comprehensive loss totaled approximately $34.0 million at December 28, 2019, and $25.9 million at December 29, 2018, and was attributed to, net of income taxes where applicable:

Cumulative translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’

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, unrealized losses and gains on investments and adjustments to accumulated postretirement benefit obligations.

Dollar strengthened relative to certain foreign currencies in countries where we have operations as of December 28, 2019, compared to December 29, 2018 and consequently, our accumulated other comprehensive loss increased by $7.5 million.

Similarly, 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 $8.9 million.

Additional information related to accumulated other comprehensive loss, on an after-tax basis is included in Note 14.

Dollars and adjustments to accumulated postretirement benefit obligations.

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 – 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 rather than in the earliest period presented.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification.

We made an accounting policy election to not record right of use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less.

We recognized those lease payments in our consolidated statements of operations on a straight-line basis over the lease term.

We also made an accounting policy election to use the practical expedient allowed in the standard to not separate lease and non-lease components when calculating the ROU asset and lease liability.

Related to adoption of the new standard, we have implemented internal controls and a lease accounting technology system to track the ROU asset and lease liability balances and prepare the related footnote disclosures.

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $30.7 million and $29.9 million, respectively, as of December 30, 2018.

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 standard did not materially impact our consolidated net earnings and had no impact on cash flows.

Recently Issued Accounting Pronouncements – In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

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 .

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.

This ASU will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost and is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.

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.

This ASU is effective for fiscal years ending after December 15, 2020 and early adoption is permitted.

The amendments in this ASU are required to be applied on a retrospective basis to all periods presented.

We are currently assessing and have not yet determined the impact that the adoption of ASU 2018-14 will have on the disclosures to our consolidated financial statements.

The adoption of ASU 2016 - 13 did not have a material impact on our consolidated financial statements.

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.

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.

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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.

We are currently assessing and have not yet determined the impact that the adoption of ASU 2018-13 will have on our consolidated financial statements.

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, eliminates certain exceptions within ASC 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020.

Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We are currently assessing and have not yet determined the impact that the adoption of ASU 2019-12 will have on our consolidated financial statements.

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

Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of May 7, 2018, among Cohu, Inc., a Delaware corporation (“Cohu”), Xcerra Corporation, a Massachusetts corporation (“Xcerra”), and Xavier Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Cohu (“Merger Sub”), Merger Sub merged with and into Xcerra (the “Merger”), with Xcerra surviving such merger as a wholly owned subsidiary of Cohu.

The Merger was effective on October 1, 2018 (“the Effective Time”).

At the Effective Time, each share of Xcerra Common Stock issued and outstanding immediately prior to the Effective Time (other than dissenting shares and shares held by Cohu, Merger Sub, 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, which totaled approximately $794.4 million as of the Effective Time.

Xcerra is comprised of four businesses in the semiconductor and electronics manufacturing test markets:

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 combination of these businesses creates a company with a broad spectrum of semiconductor and PCB test expertise that drives innovative new products and services, and the ability to deliver to customers fully integrated semiconductor test cell solutions.

Xcerra addresses the broad, divergent requirements of the mobility, industrial, automotive and consumer end markets, offering a comprehensive portfolio of solutions and technologies, and a global network of strategically deployed applications and support resources.

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

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 described below;

$ 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;

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.

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.

3 unchanged sentences

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 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 the 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Immediately prior to the Effective Time, each Xcerra RSU that was vested was cancelled and the holder received cash and share consideration for the outstanding shares.

Each unvested RSU held by employees of Xcerra were assumed by Cohu and converted into an RSU representing the number of whole shares of Cohu common stock based on a conversion formula resulting in the number of assumed RSUs described above.

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 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.

3 unchanged sentences

Goodwill has been allocated to our THG, STG, ISG and PTG operating segments.

ASC 805 requires, among other things, that most assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date.

In addition, ASC 805 requires that the consideration transferred be measured at the date the merger is completed at the then-current market price.

The market price of the shares of Cohu Common Stock at the Effective Time was $25.10 which was based upon the closing price of shares of Cohu Common Stock on the NASDAQ Global Select Market on Friday, September 28, 2018, the last day of trading prior to the Effective Time.

ASC 820 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements.

Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability.

In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability.

Fair value measurements for an asset assume the highest and best use by these market participants.

As a result of these standards, Cohu may be required to record the fair value of assets which are not intended to be used or sold and/or to value assets at fair values that do not reflect Cohu’s intended use of those assets.

Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Under ASC 805, acquisition-related transaction costs (e.g., advisory, legal, investment banking and other professional fees) are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred.

Total Merger-related transaction costs, that exclude other costs related to employee termination and restructuring, incurred by Cohu were $0.4 million and $9.8 million in the years ended December 28, 2019 and December 29, 2018, respectively.

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes the assets acquired and liabilities assumed as of the acquisition date, October 1, 2018, with purchase price allocation adjustments made subsequent to the preliminary purchase price allocation ( in thousands ):

Fair Value at

Acquisition Date

Period Adjustments*

Current assets, including cash received

Property, plant and equipment

Intangible assets

Total assets acquired

Liabilities assumed

Net assets acquired

Measurement period adjustments 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 were offset against goodwill.

We recorded a $19.6 million step-up of inventory to its fair value as of the acquisition date based on the valuation which has been fully amortized to cost of sales as of December 28, 2019.

The allocation of the intangible assets subject to amortization is as follows ( in thousands ):

Developed technology

$ 194,600  

Customer relationships

65,890  

In-process research and development

36,360  

Product backlog

Trademarks and trade names

16,800  

Favorable leases

Total intangible assets

$ 321,160  

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.

1 unchanged sentence

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.

2 unchanged sentences

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.

4 unchanged sentences

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.

6 unchanged sentences

Balance December 29, 2018

$ 220,808  

$ 21,319  

$ 242,127  

( 983 )  

Impairments (1)

( 715 )  

Impact of currency exchange

( 3,435 )  

( 442 )  

Balance December 28, 2019

Impairments (1)

218,775  

19,894  

238,669  

Impact of currency exchange

11,949  

13,635  

Balance December 26, 2020

$ 230,724  

$ 21,580  

$ 252,304  

Impairment of goodwill associated with our FSG segment that is presented as discontinued operations.

6 unchanged sentences

Developed technology

$ 239,250  

$ 83,246  

$ 227,619  

$ 49,805  

Customer relationships

Favorable leases*

74,933  

22,751  

72,251  

14,824  

23,756  

22,612  

Covenant not-to-compete

Favorable leases were reclassified to operating lease right of use assets on December 30, 2018 as a result of our adoption of ASU 2016-2.

The table above excludes $20.8 million and $36.3 million of in-process technology in 2019 and 2018, 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 $15.3 million of in-process technology was completed and transferred to developed technology and began being amortized.

$ 338,279  

$ 112,412  

$ 322,804  

$ 68,617  

The table above excludes $ 7.8  million and $ 20.8  million of in-process technology in 2020 and 2019, respectively, which has an indefinite life and is subject to impairment or future amortization as developed technology when the projects are completed.

During the current year $ 1.8  million of in-process technology was completed and transferred to developed technology and began being amortized.

Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates.

Amortization expense related to purchased intangible assets was approximately $39.6 million in 2019, $17.2 million in 2018 and $4.2 million in 2017.

The increases in amortization expense is the result of amortization of purchased intangible assets acquired from Xcerra.

As of December 28, 2019, we expect amortization expense in future periods to be as follows:

2020 - $38.4 million;

2021 - $34.8 million;

2022 - $34.8 million;

2023 - $34.8 million 2024 - $34.8 million;

and thereafter $76.8 million.

We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable.

We completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2019, the first day of our fourth quarter and concluded there were no impairments of goodwill within our reporting units or our indefinite-lived intangible assets at that time.

Other events and changes in circumstances may also require goodwill and our indefinite-lived intangible assets to be tested for impairment between annual measurement dates.

During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID- 19 pandemic led us to determine that there was a triggering event related to goodwill and our indefinite-lived intangible assets.

We performed an interim assessment as of March 28, 2020 and concluded there was no impairment of goodwill within our reporting units.

Anticipated delays in customer adoption of certain new products under development as a result of the COVID- 19 pandemic, changes to future project roadmaps and an increase in the discount rate used in developing our interim fair value estimate resulted in a $ 3.9  million impairment to IPR&D as the carrying value exceeded fair value.

During the third quarter of 2020, we became aware of additional delays in customer adoption of these new products under development leading us to re-evaluate the fair value of these projects and we determined that the carrying value exceeded the fair value and, as a result, we recorded an additional $ 7.3  million impairment to IPR&D.

For the twelve months ended December 26, 2020 total impairments recorded to IPR&D projects was $ 11.2  million.

The forecasts utilized in the interim impairment tests were based on known facts and circumstances.

We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate.

These facts and circumstances are subject to change and may not be the same as future analyses.

In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required, we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Borrowings and Credit Agreements

5 unchanged sentences

Bank term loan under credit agreement

$ 306,630  

$ 346,500  

Bank term loans-Kita

Bank term loan-Xcerra

Construction Loan-Rasco

Construction loan-Cohu GmbH

Lines of credit

325,508  

360,476  

financing fees and discount

( 5,568 )  

current portion

( 8,389 )  

Total long-term debt

Excludes financing lease obligations, which are included in long-term and short-term debt in our consolidated balance sheet, as they were not material at December 29, 2018.

$ 311,551  

$ 346,518  

The debt principal payments, excluding financing lease obligations, for the next five years and thereafter are as follows:

(in thousands)

$ 9,512  

293,864  

$ 325,508  

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.

Loans under the Credit Facility amortize in equal quarterly installments equal to 0.25% of the original principal amount, with the balance payable at maturity.

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 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.

The outstanding loan balance as of December 28, 2019 includes $0.9 million of principal that was paid subsequent to year-end on December 31, 2019.

As of December 28, 2019, the fair value of the debt was $344.8 million.

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.

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.

See Note 2, “Business Acquisitions” for additional information on the Credit Facility.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 is payable over 10 years at an annual interest rate of 2.35%.

Principal plus accrued interest is due quarterly over the duration of the term loan.

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.

The fair value of the debt approximates the carrying value at December 28, 2019.

The term loan is denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

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.

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 Loan s

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 and €5.2 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 payments only 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.

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.

On December 10, 2019, we drew €1.5 million under the second facility, which is payable over 15 years at an annual interest rate of 1.05%.

Interest payments only are required to be made each quarter starting in December 2019 with principal and interest payments due each quarter starting in the month of May 2020.

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 28, 2019, €3.7 million had not been drawn under the second facility as is expected to be drawn in the first half of 2020.

At December 28, 2019, total outstanding borrowings under the Loan Facilities was $5.5 million with $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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The fair value of the debt approximates the carrying value at December 28, 2019.

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 $8.8 million.

At December 28, 2019, total borrowings outstanding under the revolving lines of credit were $3.2 million.

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5 .     

Restructuring Charges

Subsequent to the acquisition of Xcerra on October 1st, 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 the acquisition of Xcerra.

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.

Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program.

In the second quarter of 2019, we entered into a social plan (“Plan”) with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH, as part of our Integration Program.

The Plan will reduce headcount, enable us to consolidate the facilities of our multiple operations located near Rosenheim, Germany, as well as transition certain manufacturing to other lower cost regions.

The facility consolidation 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.

As a result of the activities described above, we recognized total pretax charges of $16.2 million and $37.8 million for the years ended December 28, 2019 and December 29, 2018, respectively, that are within the scope of ASC 420, Exit or Disposal Cost Obligations (“ASC 420”).

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.

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.

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”

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 28, 2019 and December 29, 2018, were as follows (in thousands) :

Twelve Months Ended

December 28, 2019

December 29, 2018

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

$ 6,485  

$ 12,170  

$ 17,791  

Inventory related charges

19,053  

Other restructuring costs

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 and impairments of fixed assets.

$ 11,354  

$ 16,213  

$ 37,757  

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) :

Other Exit Costs

Balance, December 29, 2018

$ 4,026  

Costs accrued

12,170  

13,484  

Amounts paid or charged

( 14,909 )  

( 1,314 )  

Impact of currency exchange

( 51 )  

Balance, December 28, 2019

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Amounts paid or charged

( 2,055 )  

( 1,138 )  

Impact of currency exchange

Balance, December 26, 2020

$ 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.

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All amounts accrued related to inventory will remain in our consolidated balance sheet until it is scrapped.

     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.

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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Benefit Plans

Defined Contribution Retirement Plans – Cohu and Xcerra each maintain defined contribution 401(k) retirement savings plans covering all their respective salaried and hourly U.S.

Participation is voluntary and participants’ contributions are based on their eligible compensation.

Participants in the Cohu plan receive matching contributions of 50% up to 8% of salary contributed and participants in the Xcerra plan receive matching contributions of 50% up to 6% of salary contributed, both subject to various statutory limits.

In 2019 we made matching contributions to the plan of $2.0 million.

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.

In 2017 we made contributions to the plan of $0.6 million.

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)

$ 1,310  

Interest cost

Expected return on assets

( 200 )  

( 168 )  

Net periodic costs

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 sheet related to the Swiss Plan:

$ 1,469  

$ 1,019  

$ 1,008  

(in thousands)

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Benefit obligation at beginning of year

$ ( 32,241 )  

( 1,310 )  

Interest cost

( 67 )  

Actuarial gain (loss)

Participant contributions

( 1,136 )  

Benefits paid

Foreign currency exchange adjustment

( 3,010 )  

Benefit obligation at end of year

( 31,039 )  

Change in plan assets:

Fair value of plan assets at beginning of year

18,705  

18,088  

Return on assets, net of actuarial loss

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Benefits paid

( 419 )  

( 3,446 )  

Foreign currency exchange adjustment

Fair value of plan assets at end of year

18,756  

18,705  

Net liability at end of year

At December 28, 2019 and December 29, 2018, the Swiss Plan’s net liability is included in noncurrent accrued retirement benefits.

Amounts recognized in accumulated other comprehensive income net of tax related to the Swiss Plan consisted of an unrecognized net actuarial loss totaling $4.1 million at December 28, 2019, and $2.7 million at December 29, 2018.

$ ( 12,283 )  

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Compensation increase

During 2020 employer and employee contributions to the Swiss Plan are expected to total $0.9 million.

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:

2020 - $1.4 million;

2021 - $1.3 million;

2022 - $1.1 million;

2023 - $1.7 million;

2024 - $1.3 million;

and $7.0 million thereafter through 2029.

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.

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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 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 2019, 2018, and 2017.

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.

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This rate was then assumed to decrease 0.27 % per year to 4.4 % in 2030 and remain level thereafter.

A one percent increase (decrease) in health care cost trend rates would increase (decrease) the 2019 net periodic benefit cost by approximately $14,000 ($12,000) and the accumulated post-retirement benefit obligation as of December 28, 2019, by approximately $318,000 ($270,000).

Contributions to the post-retirement health benefit plan are expected to total $0.1 million in 2020.

Contributions to the post-retirement health benefit plan are expected to total $ 0.1 million in 

Estimated benefit payments are expected to be as follows:

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2025 - $ 0.1 million and $ 0.6 million thereafter through 2030.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the post-retirement benefit obligation, funded status and the liability we have recorded in our consolidated balance sheets:

1 unchanged sentence

Accumulated benefit obligation at beginning of year

$ ( 2,571 )  

Interest cost

( 75 )  

Actuarial gain

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Accumulated benefit obligation at end of year

( 2,398 )  

Plan assets at end of year

Funded status

Deferred Compensation – The Cohu, Inc.

$ ( 2,398 )  

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.

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Participant contributions, distributions and investment earnings and losses are accumulated in a separate account for each participant.

At December 28, 2019, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $2.0 million and the cash surrender value of the related life insurance policies included in other current assets was approximately $1.7 million.

At December 29, 2018, the liability totaled $2.0 million and the corresponding assets were $1.6 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.

On May 8, 2019, our stockholders approved an amendment to the ESPP which increased the number of ESPP shares that may be issued by 500,000.

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.

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2019 - 187,273 and 2018 - 84,678 .

At December 28, 2019, there were 911,337 shares reserved for issuance under the Plan.

Stock Options – At December 28, 2019, a total of 2,503,918 shares were available for future equity grants under the Cohu, Inc.

2005 Equity Incentive Plan (“the 2005 Plan”).

On May 8, 2019, our stockholders approved amendments to the 2005 Plan which increased the shares of stock available for issuance by 2,000,000 and eliminated a sublimit on the aggregate number of shares that may be issued pursuant to restricted stock, restricted stock units, performance shares or performance unit awards.

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.

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Outstanding, beginning of year

$ 10.27  

$ 10.22  

$ 10.20  

( 101 )  

$ 10.95  

( 42 )  

$ 9.82  

( 67 )  

$ 10.10  

Outstanding, end of year

$ 10.01  

$ 10.27  

$ 10.22  

Options exercisable at year end

The aggregate intrinsic value of options exercised was $0.2 million in 2019, $0.9 million in 2018, and $10.1 million in 2017.

At December 28, 2019, the aggregate intrinsic value of options outstanding, vested and expected to vest and exercisable was $4.4 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 10.01  

$ 10.27  

$ 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) :

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Exercise Prices

Restricted Stock Units – Under our equity incentive plans, restricted stock units may be granted to employees, consultants and outside directors.

$ 9.44 - $ 10.54  

$ 9.50  

$ 10.55 - $ 10.58  

$ 10.58  

$ 10.59 - $ 12.58  

$ 12.44  

$ 10.01  

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.

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As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at December 26, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted stock unit activity under our share-based compensation plans was as follows:

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Outstanding, beginning of year

$ 17.05  

$ 19.48  

$ 12.50  

$ 14.02  

$ 14.32  

$ 23.70  

( 621 )  

$ 17.48  

( 563 )  

$ 19.08  

( 500 )  

$ 13.10  

( 72 )  

$ 17.59  

( 68 )  

$ 17.60  

( 38 )  

$ 14.67  

Outstanding, end of year

$ 15.16  

$ 17.05  

$ 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 performance criteria for the PSUs is based on a combination of the Company’s annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of the Company’s TSR compared with the annualized TSR of certain peer companies for the performance period.

The number of shares of common stock that will ultimately be issued to settle PSUs granted over the last four years is as follows:

Range of Awards

Performance Criteria Period

PSUs granted in 2019, 2018, 2017 and 2016 vest 100% on the third anniversary of their grant.

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 derived service period.

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.

As a result, the actual number of shares issued will be fewer than the actual number of PSUs outstanding at December 28, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSU activity under our share-based compensation plans was as follows:

1 unchanged sentence

Outstanding, beginning of year

$ 18.72  

$ 17.89  

$ 14.31  

$ 13.18  

$ 14.11  

$ 24.32  

( 39 )  

$ 21.40  

( 36 )  

$ 11.35  

( 41 )  

$ 9.92  

( 100 )  

$ 20.25  

( 107 )  

$ 11.35  

( 42 )  

$ 10.69  

Outstanding, end of year

Share-based Compensation – We estimate the fair value of each share-based award on the grant date using the Black-Scholes and the Monte Carlo simulation valuation models.

$ 15.51  

$ 18.72  

$ 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.

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Expected dividends are based primarily on historical factors related to our common stock.

Expected 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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following weighted average assumptions were used to value share-based awards granted:

2 unchanged sentences

Expected volatility

67.1 %  

46.4 %  

Risk-free interest rate

1 unchanged sentence

Weighted-average grant date fair value per share

$ 6.01  

$ 5.35  

$ 5.90  

Restricted Stock Units

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Selling, general and administrative

10,096  

10,418  

Share-based compensation of continuing operations

14,234  

14,148  

10,053  

Income tax benefit

( 963 )  

( 587 )  

Total share-based compensation, net of tax

$ 13,271  

$ 13,561  

$ 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.

This non-cash expense has been included in restructuring charges in our consolidated statements of operations for the year ended December 28, 2019.

At December 28, 2019, we had approximately $18.7 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Financial Instruments Measured at Fair Value

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Realized gains and losses for the periods presented were not significant.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments that we have classified as short-term, by security type, are as follows (in thousands) :

At December 26, 2020

Corporate debt securities (2)

$ 14,943  

$ 14,944  

treasury securities

Government-sponsored enterprise securities

Bank certificates of deposit

Foreign government security

$ 20,668  

$ 20,669  

At December 28, 2019

Foreign government security

As of December 28, 2019 and December 29, 2018 we had no investments with loss positions.

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.

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 after one year through three years

Due in one year or less

$ 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.

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When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information.

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) :

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Total Estimated

$ 128,874  

Money market funds

19,734  

Foreign government security

Corporate debt securities

15,694  

treasury securities

Government-sponsored enterprise securities

Bank certificates of deposit

$ 128,874  

$ 41,153  

$ 170,027  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value measurements at December 28, 2019 using:

Total Estimated

$ 147,523  

Money market funds

Foreign government security

$ 147,523  

$ 8,575  

$ 156,098  

     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.

The following table provides information about our foreign currency forward contracts outstanding as of December 26, 2020 (in thousands) :

Contract Position

Contract Amount

(Local Currency)

Contract Amount (U.S.

13,349  

$ 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

Location of Gain (Loss)

as Hedging Instruments

Recognized on Derivatives

Foreign exchange forward contracts

Foreign transaction gain (loss)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Income Taxes

Significant components of the provision (benefit) for income taxes for continuing operations are as follows:

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Total current

( 5,313 )  

( 5,484 )  

Total deferred

( 5,305 )  

( 5,385 )  

$ ( 3,082 )  

Income (loss) before income taxes from continuing operations consisted of the following:

(in thousands)

$ ( 25,005 )  

$ ( 72,669 )  

11,828  

10,770  

$ ( 13,177 )  

$ ( 72,077 )  

The Tax Act was enacted on December 22, 2017, and introduced significant changes to U.S.

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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.

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.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company 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, the Company 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.

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.

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.

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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 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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax effects

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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, net of a reduction in the related valuation allowance, to reflect the reduced U.S.

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.

6 unchanged sentences

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.

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.

3 unchanged sentences

Inventory, receivable and warranty reserves

$ 11,720  

$ 11,235  

Net operating loss carryforwards

56,777  

69,092  

Tax credit carryforwards

37,393  

36,489  

Accrued employee benefits

2 unchanged sentences

Gross deferred tax assets

122,773  

138,656  

Less valuation allowance

( 86,124 )  

Total deferred tax assets

36,649  

45,162  

Deferred tax liabilities:

Depreciation and fixed asset related

Intangible assets and other acquisition basis differences

52,012  

63,866  

Operating lease right-of-use assets

1 unchanged sentence

Total deferred tax liabilities

59,837  

71,586  

Net deferred tax liabilities

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.

$ ( 23,188 )  

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.

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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 2019.

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 2019 we were unable to conclude that it was “more likely than not” that our 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 28, 2019, and December 29, 2018, was approximately $93.5 million and $84.7 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

subsidiaries were not a source of taxable income in assessing the realization of our DTAs in the U.S.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

Tax provision at U.S.

21% statutory rate (35% in 2017)

21% statutory rate

$ ( 2,757 )  

$ ( 15,136 )  

Impact of Tax Act, before reduction in valuation allowance

State income taxes, net of federal tax benefit

( 1,160 )  

( 1,097 )  

Settlements, adjustments and releases from statute expirations

( 118 )  

( 1,204 )  

Federal tax credits

( 46 )  

( 1,458 )  

Stock-based compensation

1 unchanged sentence

Change in valuation allowance

( 1,691 )  

11,270  

Non-deductible transaction related costs

Deemed dividend

Foreign rate differential

At December 28, 2019, including carryforwards from the Xcerra acquisition as described below, we had federal, state and foreign net operating loss carryforwards of approximately $246.9 million, $160.5 million and $25.1 million, respectively, that expire in various tax years beginning in 2020 through 2039 or have no expiration date.

We also have federal and state tax credit carryforwards at December 28, 2019 of approximately $11.5 million and $31.6 million, respectively, certain of which expire in various tax years beginning in 2020 through 2039 or have no expiration date.

( 1,512 )  

( 1,266 )  

$ ( 3,082 )  

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.

The Company has 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 28, 2019.

As a result of the analysis, the Company 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.

The Company has reduced its deferred tax assets related to the Xcerra U.S.

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.

The Company will continue to assess the realizability of these carryforwards in subsequent periods.

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.

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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 $2.1 million or $0.05 per share in 2019, $2.4 million, or $0.08 per share, in 2018 and $2.8 million, or $0.10 per share, in fiscal 2017.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

1 unchanged sentence

Balance at beginning of year

$ 34,740  

$ 34,873  

$ 10,321  

Additions for tax positions of current year

Additions (reductions) for tax positions of prior years

( 425 )  

( 484 )  

Reductions due to lapse of the statute of limitations

Additions related to Xcerra and Kita acquisitions

( 304 )  

( 957 )  

Additions related to Xcerra acquisition

24,524  

Reductions due to settlements

( 1,134 )  

( 30 )  

Foreign exchange rate impact

Balance at end of year

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 33,696  

$ 34,740  

$ 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 $7.0 million ($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 28, 2019, could decrease in 2020 by approximately $0.4 million as a result of the expiration of certain statutes of limitations.

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 $1.3 million and $1.5 million accrued for the payment of interest and penalties at December 28, 2019, and December 29, 2018, respectively.

Interest expense, net of accrued interest reversed, was $(0.3) million in 2019, $0.6 million in 2018 and $(0.3) million in 2017.

Cohu had approximately $ 1.0  million and $ 1.3  million accrued for the payment of interest and penalties at December 

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.

federal and state income tax returns for years after 2016 and 2015, respectively, remain open to examination, subject to the statute of limitations.

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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.

Our German subsidiaries income tax returns for 2012 to 2016 are currently under routine examination by tax authorities in Germany.

Our Philippines subsidiary income tax return for 2017 is currently under routine examination by the Bureau of Internal Revenue.

The examination of our Japan subsidiary income tax returns for 2017 and 2018 was concluded in 2019.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

We applied the provisions of ASC Topic 280, Segment Reporting , (“ASC 280”

After the acquisition of Xcerra on October 1, 2018, we determined that our four identified operating segments are:

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).

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Semiconductor Test & Inspection

$ 585,240  

$ 540,878  

$ 443,276  

50,767  

42,451  

Total consolidated net sales for reportable segments

$ 636,007  

$ 583,329  

$ 451,768  

Segment profit (loss) before tax:

Semiconductor Test & Inspection

$ ( 2,497 )  

$ ( 45,072 )  

$ 2,489  

Profit (loss) for reportable segments

( 42,437 )  

Other unallocated amounts:

Corporate expenses

( 4,384 )  

( 9,848 )  

Interest expense

( 13,759 )  

( 20,556 )  

Interest income

Income (loss) from continuing operations before taxes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gain on extinguishment of debt

Loss from continuing operations before taxes

$ ( 13,177 )  

$ ( 72,077 )  

(in thousands)

1 unchanged sentence

Semiconductor Test & Inspection

Total depreciation and amortization for reportable segments

$ 51,548  

$ 56,621  

$ 24,634  

Total depreciation and amortization

$ 52,746  

$ 58,871  

$ 26,047  

Capital expenditures by segment:

Semiconductor Test & Inspection

$ 18,616  

$ 17,831  

$ 4,957  

Total consolidated capital expenditures

$ 18,660  

$ 18,000  

$ 4,967  

(in thousands)

1 unchanged sentence

Semiconductor Test & Inspection

$ 968,028  

$ 998,756  

$ 1,038,053  

66,826  

56,938  

57,762  

Total assets for reportable segments

1,034,854  

1,055,694  

1,095,815  

Corporate, principally cash and investments

55,492  

18,398  

34,367  

Discontinued operations

Total consolidated assets

$ 1,090,346  

$ 1,077,710  

$ 1,134,002  

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:

NXP Semiconductors N.V.

* Less than 10% of consolidated net sales.

**No single customer exceeded 10% of consolidated net sales for the year ended December 29, 2018.

No customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 28, 2019 and December 29, 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 and December 29, 2018.

Net sales to customers, attributed to countries based on product shipment destination, were as follows:

(in thousands)

$ 143,360  

$ 118,213  

$ 90,255  

United States

108,694  

71,963  

61,177  

83,685  

75,725  

25,074  

57,893  

61,826  

61,793  

56,272  

51,683  

46,421  

Rest of the world

186,103  

203,919  

167,048  

$ 636,007  

$ 583,329  

$ 451,768  

Geographic location of our property, plant and equipment and other long-lived assets was as follows:

1 unchanged sentence

Property, plant and equipment:

$ 19,817  

$ 25,234  

United States

17,800  

16,671  

13,231  

Rest of the world

$ 66,916  

$ 70,912  

Goodwill and other intangible assets:

$ 232,925  

$ 228,476  

United States

177,585  

207,642  

45,435  

44,140  

13,469  

13,915  

Rest of the world

$ 485,989  

$ 513,688  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 components are included in the calculation of the ROU asset and lease liabilities.

Lease and non-lease components are included in the calculation of the right of use asset (“ROU”) asset and lease liabilities.

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.

1 unchanged sentence

We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases was as follows:

3 unchanged sentences

Operating lease right-of-use assets

$ 29,203  

$ 33,269  

Finance lease assets

1 unchanged sentence

Total lease assets

$ 29,689  

$ 35,784  

Other accrued liabilities

$ 5,287  

$ 5,458  

Other accrued liabilities

Long-term lease liabilities

25,565  

28,877  

Long-term lease liabilities

Total lease liabilities

$ 31,253  

$ 36,909  

Weighted-average remaining lease term (years):

4 unchanged sentences

Finance leases

Finance lease assets are recorded net of accumulated amortization of $0.1 million.

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:

1 unchanged sentence

Operating leases (1)

$ 8,374  

$ 8,525  

Variable lease expense

4 unchanged sentences

Sublease income

( 113 )  

Net lease cost

Operating lease cost excludes impairment expense of $0.2 million related to the write-down of the Fontana facility right-of-use asset.

Prior to adoption of ASC ASU 2016-02, Leases , rental expense was $4.8 million and $3.6 million in 2018 and 2017.

The increase in rental expense was a result of the acquisition of Xcerra on October 1, 2018.

$ 10,605  

$ 11,214  

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

(in thousands)

$ 7,015  

$ 7,194  

11,942  

Total lease payments

39,635  

40,036  

( 8,783 )  

Present value of lease liabilities

Excludes sublease income of $0.1 million in both 2020 and 2021 and also excludes $0.1 million of legally binding minimum lease payments for lease signed but not yet commenced.

$ 30,852  

$ 31,253  

Excludes sublease income of $ 0.1 million in 2021.

Supplemental cash flow information related to leases was as follows:

2 unchanged sentences

Operating cash flows from operating leases

$ 8,079  

$ 6,932  

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

$ 2,403  

$ 40,844  

Commitments and Contingencies

1 unchanged sentence

The outcome of any litigation is inherently uncertain.

While there can be no assurance, at the present time we do not believe that the resolution of the matters described above will have a material adverse effect on our assets, financial position or results of operations.

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.

Accrued Warranty

2 unchanged sentences

Beginning balance

$ 6,155  

$ 8,014  

$ 4,849  

Warranty accruals

Warranty payments

( 5,946 )  

( 8,573 )  

Warranty liability assumed

Ending balance

$ 6,382  

$ 6,155  

$ 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 and $0.2 million at December 28, 2019 and December 29, 2018, respectively.

These amounts totaled $ 0.3  million at both December 26, 2020 and December 28, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Discontinued Operations

Fixtures Services Business (“FSG”)

On October 1, 2018, we acquired a fixtures services business as part of Xcerra.

In the fourth quarter of 2018, our management determined that this business did not align with our core business and was not a strategic fit within our organization.

As a result, the fixtures services business has been marketed for sale since we acquired Xcerra on October 1, 2018 and it has been presented as discontinued operation.

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 the years ended December 28, 2019 and December 29, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2020, we completed the sale of this business which generated a charge of $1.1 million, taken in the fourth quarter of 2019, as a result of the impairment of goodwill and purchased intangible assets associated with this operating segment.

The goodwill and purchased intangible assets were not pushed down in consolidation and had previously been presented as part of our Semiconductor Test & Inspection segment.

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.

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) :

4 unchanged sentences

Other noncurrent assets

$ 3,618  

Other accrued current liabilities

2 unchanged sentences

Total liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating results of our discontinued operations are summarized as follows (in thousands) :

$ 6,136  

$ 1,593  

Operating income

Loss from impairment of FSG

Loss from sale of BMS (1)

( 1,086 )  

Gain on sale of FSG

Income (loss) before taxes

( 608 )  

Income tax provision

Income (loss), net of tax

Represents the write-off of the contingent consideration receivable from the sale of Broadcast Microwave Services, Inc.

$ ( 697 )  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss

3 unchanged sentences

Foreign currency translation adjustments

$ ( 8,905 )  

Adjustments related to postretirement benefits

( 60 )  

Change in unrealized gain/loss on investments

Other comprehensive income (loss)

$ ( 8,033 )  

$ ( 60 )  

Year ended December 28, 2019

Foreign currency translation adjustments

$ ( 7,522 )  

Adjustments related to postretirement benefits

Change in unrealized gain/loss on investments

( 856 )  

Other comprehensive income (loss)

$ ( 8,378 )  

Year ended December 26, 2020

Foreign currency translation adjustments

$ 27,321  

Adjustments related to postretirement benefits

( 216 )  

Other comprehensive income (loss)

$ 29,920  

$ ( 216 )  

$ 29,704  

Components of accumulated other comprehensive loss, net of tax, at the end of each period are as follows:

1 unchanged sentence

Accumulated net currency translation adjustments

$ ( 2,877 )  

Accumulated net adjustments related to postretirement benefits

( 1,449 )  

Total accumulated other comprehensive loss

$ ( 4,326 )  

Related Party Transactions

At December 26, 2020 certain of our cash and short-term investments were held and managed by BlackRock, Inc.

which owns 15.5% of our outstanding common stock as reported in its Form 13-G filing made with the Securities and Exchange Commission on February 4, 2020.

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 2019, purchases of products from FTZ and ETZ were not material.

During 2020, 2019 and 2018, purchases of products from FTZ and ETZ were not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

(in thousands, except per share data)

$ 138,921  

$ 144,084  

$ 150,647  

$ 202,355  

$ 636,007  

$ 147,809  

$ 150,011  

$ 143,498  

$ 142,011  

$ 583,329  

Cost of sales:

Income (loss) from continuing operations

$ 82,837  

$ 83,127  

$ 87,147  

$ 111,114  

$ 364,225  

$ 93,394  

$ 87,605  

$ 84,565  

$ 87,936  

$ 353,500  

Income (loss) from continuing operations

$ ( 17,318 )  

$ ( 4,740 )  

$ ( 6,646 )  

$ 14,861  

$ ( 22,851 )  

$ ( 19,383 )  

$ ( 10,480 )  

$ ( 16,281 )  

Net income (loss)

Net income (loss) attributable to Cohu

Income (loss) per share attributable to Cohu (c):

Income (loss) from continuing operations

$ ( 17,276 )  

$ ( 4,740 )  

$ ( 6,646 )  

$ 14,861  

$ ( 22,687 )  

$ ( 19,359 )  

$ ( 10,326 )  

$ ( 17,320 )  

Net income (loss) attributable to Cohu

$ ( 17,276 )  

$ ( 4,740 )  

$ ( 6,646 )  

$ 14,861  

$ ( 22,643 )  

$ ( 19,323 )  

$ ( 10,468 )  

$ ( 17,266 )  

Income (loss) per share attributable to Cohu (c):

Income (loss) from continuing operations

$ ( 0.42 )  

$ ( 0.11 )  

$ ( 0.16 )  

$ 0.35  

$ ( 0.56 )  

$ ( 0.47 )  

$ ( 0.25 )  

$ ( 0.39 )  

Net income (loss)

Income (loss) from continuing operations

$ ( 0.42 )  

$ ( 0.11 )  

$ ( 0.16 )  

$ 0.35  

$ ( 0.55 )  

$ ( 0.47 )  

$ ( 0.25 )  

$ ( 0.42 )  

Income (loss) from continuing operations

$ ( 0.42 )  

$ ( 0.11 )  

$ ( 0.16 )  

$ 0.34  

$ ( 0.56 )  

$ ( 0.47 )  

$ ( 0.25 )  

$ ( 0.39 )  

Net income (loss)

$ ( 0.42 )  

$ ( 0.11 )  

$ ( 0.16 )  

$ 0.34  

$ ( 0.55 )  

$ ( 0.47 )  

$ ( 0.25 )  

$ ( 0.42 )  

All quarters presented above were comprised of 13 weeks.

We acquired Xcerra on October 1, 2018.

The results of Xcerra have been included in our results of operations from the date of acquisition.

See Note 2, “Business Acquisitions” for additional information regarding this transaction.

Total operating expenses in 2019 and 2018 include acquisition costs and amounts related to the integration and our announced restructuring plan as follows.

The fourth quarter of 2018 includes $19.1 million of inventory write-offs, $14.8 million of amortization of inventory step-up, and $18.7 million of restructuring charges.

The first quarter of 2019 includes $6.0 million of amortization of inventory step-up.

The second quarter of 2019 includes $8.5 million of restructuring charges.

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.

Rep ort of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cohu, Inc.

1 unchanged sentence

We have audited the accompanying consolidated balance sheets of Cohu, Inc.

(the Company) as of December 28, 2019, and December 29, 2018, 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 28, 2019, 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”).

(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 28, 2019, 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 March 10, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842) and related amendments.

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.

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.

6 unchanged sentences

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.

Valuation of inventories

Description of

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.

Addressed the

Matter in Our

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

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.

Addressed the

Matter in Our

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

We have served as the Company’s auditor since 1956.

San Diego, California

March 10, 2020

Index to Exhibits

February 26, 2021

Index to  

The following exhibits are filed as part of, or incorporated into, the 2020 Cohu, Inc.

Annual Report on Form 10-K:

Agreement and Plan of Merger by and among Cohu, Inc., Xavier Acquisition Corporation, and Xcerra Corporation, dated as of May 7, 2018, incorporated herein by reference to Exhibit 2.1 from the Cohu, Inc.

Form 8-K filed with the Securities and Exchange Commission on May 8, 2018

Amended and Restated Certificate of Incorporation of Cohu, Inc.

6 unchanged sentences

001-04298) filed with the Securities and Exchange Commission on May 17, 2018

Description of Capital Stock

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.

40 unchanged sentences

001-04298) filed with the Securities and Exchange Commission on December 29, 2008*

Change in Control Agreement incorporated herein by reference to Exhibit 10.3 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.

1 unchanged sentence

Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2016

Employment Agreement, dated December 19, 2011, and as amended on April 26, 2014 and October 2, 2018, between the Company and Pascal Ronde *

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 *

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.

31.2            

Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jeffrey D.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

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)

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Management contract or compensatory plan or arrangement

1 unchanged sentence

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.

March 10, 2020

February 26, 2021

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  

Chairman of the Board,

March 10, 2020

February 26, 2021

President and Chief Executive Officer, Director

March 10, 2020

February 26, 2021

(Principal Executive Officer)

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Vice President, Finance and CFO

March 10, 2020

February 26, 2021

(Principal Financial and Accounting Officer)

/s/ William E.

March 10, 2020

February 26, 2021

/s/ Steven J.

March 10, 2020

February 26, 2021

/s/ Andrew M.

March 10, 2020

/s/ Robert L.

March 10, 2020

February 26, 2021

VALUATION AND QUALIFYING ACCOUNTS

2 unchanged sentences

Year ended December 30, 2018

$ ( 20 ) (1)  

$ ( 109 )  

Year ended December 28, 2019

$ 24 (1)  

$ ( 28 )  

Year ended December 26, 2020

$ ( 1 ) (1)  

$ ( 41 )  

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 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures