COHU INC 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   (a) Market Information   Cohu, Inc. stock is traded on the Nasdaq Global Select Market under the symbol “COHU”.   Holders   At February 18, 2021, Cohu had 574 stockholders of record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.   Dividends   Cash dividends, per share, declared in 2020 and 2019 were as follows:       Fiscal 2020     Fiscal 2019   First Quarter   $ 0.06     $ 0.06   Second Quarter   $ -     $ 0.06   Third Quarter   $ -     $ 0.06   Fourth Quarter   $ -     $ 0.06   Total   $ 0.06     $ 0.24     As a result of the COVID-19 pandemic, we are proactively managing cash flow and Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of May 5, 2020. The dividend suspension will result in approximately $10 million of annualized cash savings, which we expect to utilize for deleveraging and strengthening our balance sheet. Future reinstatement of our dividend policy may be affected by, among other items, our views on potential future capital requirements, including those related to debt service requirements, research and development, investments and acquisitions, legal risks and stock repurchases.   Recent Sales of Unregistered Securities   During 2020, we did not issue any securities that were not registered under the Securities Act of 1933, as amended.   Issuer Purchases of Equity Securities   During the fourth quarter of 2020, we did not repurchase any equity securities.   Equity Compensation Plan Information   The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 12 of this Annual Report on Form 10-K.   26 Table of Contents   Comparative Stock Performance Graph   The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act except to the extent that Cohu specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.   The graph below compares the cumulative total stockholder return on the common stock of Cohu for the last five fiscal years with the cumulative total return on custom Peer Group Indexes and a Nasdaq Global Select Market Index over the same period (assuming the investment of $100 in Cohu’s common stock, Peer Group Index and Nasdaq Global Select Market Index on December 26, 2015, and reinvestment of all dividends). The custom Peer Group Index is comprised of the peer group companies associated with our performance stock units issued under our equity incentive plan. This peer group is revised annually to reflect acquisitions and to include equivalent companies in the semiconductor equipment market to ensure a sufficiently large number of companies in the peer group composition to enable a meaningful comparison of our stock performance. In 2020, the custom Peer Group Index was comprised of Advanced Energy Industries Inc., Axcelis Technologies Inc., Brooks Automation Inc., Cabot Microelectronics Corp, Cirrus Logic Inc., Entegris, Inc., FormFactor Inc., Kulicke and Soffa Industries Inc., MTS Systems Corporation, Novanta Inc, OSI Systems, Inc., Onto Innovation Inc. (formerly Nanometrics Inc.), Photronics Inc., Synaptics, Ultra Clean Holdings Inc., and Veeco Instruments Inc. In 2019, the custom Peer Group Index was comprised of Advanced Energy Industries Inc., Advantest Corp, ASM Pacific Technology Ltd, Axcelis Technologies Inc., BE Semiconductor Industries NV, Brooks Automation Inc., Cabot Microelectronics Corp, Camtek Ltd, Electro Scientific Industries Inc., FormFactor Inc., Kulicke and Soffa Industries Inc., Micronics Japan Co Ltd, MKS Instruments Inc., Nanometrics Inc., Photronics Inc., Rudolph Technologies Inc., Teradyne Inc., Ultra Clean Holdings Inc., and Veeco Instruments Inc. (includes Ultratech through acquisition). In selecting our 2020 peer group the Compensation Committee of our Board of Directors considered competitive market data and an analysis prepared by Compensia and identified companies headquartered in the U.S. in the semiconductor capital equipment and electronic capital equipment and instrumentation sectors that were comparable to us on the basis of revenue, our market capitalization, and that had similar scope of operations.       2015     2016     2017     2018     2019     2020   Cohu, Inc.   $ 100     $ 110     $ 175     $ 128     $ 183     $ 319   NASDAQ Index   $ 100     $ 109     $ 141     $ 137     $ 187     $ 272   Russell 2000   $ 100     $ 121     $ 139     $ 124     $ 155     $ 186   2019 Peer Group   $ 100     $ 141     $ 180     $ 150     $ 240     $ 320   2020 Peer Group   $ 100     $ 124     $ 150     $ 130     $ 221     $ 302     27 Table of Contents   Item 6. Selected Financial Data.   The following selected financial data should be read in conjunction with Cohu’s consolidated financial statements and notes thereto included in Part IV, Item 15(a) and with management’s discussion and analysis of financial condition and results of operations, included in Part II, Item 7. On October 1, 2018, we completed the acquisition of Xcerra Corporation and the results of its operations have been included in our consolidated financial statements only since that date. Due to the timing of the acquisition our results for 2018 only include Xcerra for the three months ended December 29, 2018. Results for the periods ended December 26, 2020 and December 28, 2019 include Xcerra for the full twelve months. Management determined that the fixtures services business, that was acquired as part of Xcerra, did not align with Cohu’s long-term strategic plan and management divested this portion of the business in February 2020. As a result, the assets of our fixtures business are considered “held for sale” as of December 28, 2019 and December 29, 2018 and the operations of our fixtures business are reported as “discontinued operations” for the periods ended December 26, 2020, December 28, 2019 and December 29, 2018.   Years ended,   Dec. 26     Dec. 28     Dec. 29     Dec. 30     Dec. 31   (in thousands, except per share data)   2020 (1) (2)     2019 (1) (2)     2018 (1) (2)     2017 (2) (3)     2016 (4)   Consolidated statement of operations data:                                         Net sales   $ 636,007     $ 583,329     $ 451,768     $ 352,704     $ 282,084   Income (loss) from continuing operations   $ (13,843 )   $ (68,995 )   $ (32,543 )   $ 33,121     $ 3,260   Net income (loss)   $ (13,801 )   $ (69,692 )   $ (32,424 )   $ 32,843     $ 3,039   Net income (loss) attributable to noncontrolling interest   $ -     $ 8     $ (243 )   $ -     $ -   Net income (loss) attributable to Cohu   $ (13,801 )   $ (69,700 )   $ (32,181 )   $ 32,843     $ 3,039   Income (loss) per share:                                         Income (loss) from continuing operations - basic   $ (0.33 )   $ (1.68 )   $ (1.02 )   $ 1.19     $ 0.12   Income (loss) from continuing operations - diluted   $ (0.33 )   $ (1.68 )   $ (1.02 )   $ 1.15     $ 0.12   Net income (loss) attributable to Cohu - basic   $ (0.33 )   $ (1.69 )   $ (1.01 )   $ 1.18     $ 0.11   Net income (loss) attributable to Cohu - diluted   $ (0.33 )   $ (1.69 )   $ (1.01 )   $ 1.14     $ 0.11   Cash dividends per share   $ 0.06     $ 0.24     $ 0.24     $ 0.24     $ 0.24   Consolidated balance sheet data:                                         Total consolidated assets   $ 1,090,346     $ 1,077,710     $ 1,134,002     $ 420,457     $ 345,512   Total debt   $ 319,940     $ 353,035     $ 352,828     $ 8,963     $ -   Working capital   $ 310,593     $ 290,811     $ 324,650     $ 212,171     $ 176,460     (1) In 2020, total operating expenses related to the acquisition of Xcerra were as follows: $11.3 million in restructuring charges comprised of $3.7 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to Xcerra’s products, employee severance costs of $6.5 million and $1.1 million of other restructuring costs. We also recorded $34.5 million for the amortization of acquisition-related intangibles. Additionally, 2020 results include an impairment charge of $11.2 million related to in process research and development and a gain on sale of facilities totaling $4.5 million.   In 2019, total operating expenses related to the acquisition of Xcerra were as follows: $16.2 million in restructuring charges comprised of $2.7 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to Xcerra’s products, employee severance costs of $12.2 million and $1.3 million of other restructuring costs. We also recorded $35.5 million for the amortization of acquisition-related intangibles and $0.4 million of merger related costs.   In 2018, total operating expenses related to the acquisition of Xcerra as follows: $37.8 million in restructuring charges comprised of $19.1 million of inventory end-of-manufacturing write-downs recorded in cost of sales related to Xcerra’s products, employee severance costs of $17.8 million and $0.9 million of other restructuring costs. We also recorded $13.1 million for the amortization of acquisition-related intangibles and $9.8 million of merger related costs.   (2) Results for the years ended December 26, 2020, December 28, 2019, December 29, 2018 and December 30, 2017, include the impact from the Tax Act. See Note 9, “Income Taxes” in Part IV, Item 15(a) of this Form 10-K for additional information.   (3) On January 4, 2017, we purchased Kita Manufacturing Co. LTD. (“Kita”) and the results of its operations have been included in our consolidated financial statements since that date.   (4) The year ended December 31, 2016 consists of 53 weeks. All other years in the table above are comprised of 52 weeks.   28 Table of Contents   Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   OVERVIEW     Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors and thermal subsystems, semiconductor automated test equipment and bare board printed circuit board (PCB) test systems used by global semiconductor and electronics manufacturers and test subcontractors. We offer a wide range of products and services and our revenue from capital equipment products is driven by the capital expenditure budgets and spending patterns of our customers, who often abruptly delay or accelerate purchases in reaction to variations in their business. The level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor devices and printed circuit boards and the products that incorporate them. Our consumable products are driven by the number of semiconductor devices and printed circuit boards that are tested and by the continuous introduction of new products and new technologies by our customers. As a result, our consumable products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products.   For the year ended December 26, 2020, our net sales increased 9.0% year-over-year to $636.0 million. Our consolidated net sales for the years ended December 26, 2020 and December 28, 2019, include Xcerra’s sales for the full year (all twelve months) totaling $331.2 million and $300.8 million, respectively. The year ended December 29, 2018, includes Xcerra’s sales for the three months subsequent to the merger on October 1, 2018, which totaled $94.4 million.   In 2019 and 2020, the global semiconductor market was impacted by U.S. and China trade tensions which impacted our customers’ ability to supply product to certain end users resulting in customer test cell utilization below levels that have historically triggered the need for additional capacity. During the first half of 2020 our net sales were negatively impacted by movement control orders and the subsequent supply disruptions caused by the rapid and global spread of COVID-19 and weakness in the automotive market. Demand for equipment used in testing mobility semiconductor applications, data centers and personal computers strengthened during the second half of 2020 driven by the launch and accelerated ramp of our RedDragon RF module for testing 5G, Wi-Fi 6 and Ultra-Wideband devices, and new customers for our Neon inspection platform. We also began to see improved demand from semiconductor automotive and industrial customers and orders for PCB test equipment were at near record levels. Based on improved business conditions, during the second half of 2020, we took action to reduce outstanding principal, by $36.4 million, under our Term Loan B debt associated with the financing of the Xcerra acquisition in October 2018.   While our total sales for the twelve months of 2020 were negatively impacted by the global economic downturn caused by the COVID-19 pandemic, we saw strong demand for our products in the second half of the year and our long-term market drivers and market strategy remain intact. We are encouraged by positive order momentum across our main market segments, and customer traction with our new products going into 2021. We remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors, the future rollout of 5G networks, increasing semiconductor complexity, increasing quality demands from semiconductor customers, increasing test intensity and continued proliferation of electronics in a variety of products across the automotive, mobility and industrial markets. We are focused on cross-selling opportunities and supporting our customers’ deployment of 5G RF capabilities on next generation smartphones and growing our sales to semiconductor and electronics manufacturers and test subcontractors.   29 Table of Contents   Application of Critical Accounting Estimates and Policies   Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience, forecasts and on various other assumptions that are believed to be reasonable under the circumstances; however actual results may differ from those estimates under different assumptions or conditions. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include:     ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations;   ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses;   ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits, the valuation allowance on deferred tax assets and accounting for the impact of the change to U.S. tax law as described herein, which impact our tax provision;   ● the assessment of recoverability of long-lived and indefinite-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and   ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense.   Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.   Revenue Recognition: Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur. Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as the transfer of control is completed for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment. Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At December 26, 2020 and December 28, 2019 we had $17.1 million and $16.1 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied), respectively. We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, Guarantees ( “ ASC 460 ” ) , and not as a separate performance obligation. The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The estimate is based on information available for projected future sales. Variable consideration that does not meet revenue recognition criteria is deferred. Accounts receivable represents our unconditional right to receive consideration from our customer. Payments terms do not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets recorded on the consolidated balance sheet in any of the periods presented. On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped.   30 Table of Contents   Accounts Receivable: We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required. Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit losses is adequate and represents our best estimate of future losses we will continue to monitor customer liquidity and other economic conditions, including the impact of the COVID-19 pandemic, which may result in changes to our estimates.   We adopted Accounting Standards Update (“ASU”) 2016-13 , Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , on December 29, 2019 the first day of our fiscal 2020. The ASU required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented for comparative purposes are not adjusted. Based on our analysis of historical and anticipated collections of trade receivables, the impact of adoption of Topic 326 was insignificant.   Inventory: The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The demand forecast is a direct input in the development of our short-term manufacturing plans. We record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or net realizable value concerns equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future product demand, market conditions and product selling prices. If future product demand, market conditions or product selling prices are less than those projected by management or if continued modifications to products are required to meet specifications or other customer requirements, increases to inventory reserves may be required which would have a negative impact on our gross margin.   Income Taxes: We estimate our liability for income taxes based on the various jurisdictions where we conduct business. This requires us to estimate our (i) current taxes; (ii) temporary differences that result from differing treatment of certain items for tax and accounting purposes and (iii) unrecognized tax benefits. Temporary differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet. The deferred tax assets are reduced by a valuation allowance if, based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Establishing, reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the statement of operations. We must make significant judgments to determine the provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets. Our gross deferred tax asset balance as of December 26, 2020, was approximately $122.8 million, with a valuation allowance of approximately $86.1 million.   The Tax Act was enacted on December 22, 2017. The accounting for the tax effects of the enactment of the Tax Act was completed in 2018. The accounting for the CARES Act, enacted on March 27, 2020, was incorporated in 2020. See Note 9, “Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein by reference.   Segment Information: We applied the provisions of ASC Topic 280, Segment Reporting , (“ASC 280”), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We have determined that our four identified operating segments are: Test Handler Group (“THG”), Semiconductor Tester Group (“STG”), Interface Solutions Group (“ISG”) and PCB Test Group (“PTG”). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in two segments, Semiconductor Test & Inspection and PCB Test.   31 Table of Contents   Goodwill and Indefinite-Lived Intangibles, Other Intangible Assets and Long-lived Assets: We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and it’s carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.   We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October 1, 2020, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of December 26, 2020, we do not believe that circumstances have occurred that indicate impairment of our goodwill is more-likely-than-not. In the event we determine that an interim goodwill impairment review is required in a future period, the review may result in an impairment charge, which would have a negative impact on our results of operations.   During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we concluded there was no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmaps and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D recorded during the first quarter as the carrying value exceeded fair value. During the third quarter of 2020, we became aware of additional delays in customer adoption of the same new products under development leading us to re-evaluate the fair value of these projects and we determined that the carrying value exceeded the fair value and, as a result, we recorded a $7.3 million impairment to IPR&D. For the twelve months ended December 26, 2020 total impairments recorded to IPR&D projects was $11.2 million.   The forecasts utilized in the interim impairment tests were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and may not be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.   Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.   Warranty: We provide for the estimated costs of product warranties in the period sales are recognized. Our warranty obligation estimates are affected by historical product shipment levels, product performance and material and labor costs incurred in correcting product performance problems. Should product performance, material usage or labor repair costs differ from our estimates, revisions to the estimated warranty liability would be required.   Contingencies: We are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset. If a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable, we accrue a charge to operations in the period such conditions become known.   32 Table of Contents   Share-based Compensation: Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. Share-based compensation on performance stock units with market-based goals is calculated using a Monte Carlo simulation model on the date of the grant. Share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date, which we estimate using the Black-Scholes valuation model.   Our estimate of share-based compensation expense requires a number of complex and subjective assumptions and the assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.   Recent Accounting Pronouncements : For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, “Recent Accounting Pronouncements” in Part IV, Item 15(a) of this Form 10-K.   RESULTS OF OPERATIONS   Recent Transactions Impacting Results of Operations   On October 1, 2018 we completed our merger with Xcerra Corporation and the results of its operations have been included in our consolidated financial statements only since that date. Due to the timing of the merger our results for 2018 only include Xcerra for the three months ended December 29, 2018 whereas the periods ended December 26, 2020 and December 28, 2019 include Xcerra for the full twelve months. Previously, management determined that the fixtures services business, that was acquired as part of Xcerra, did not align with Cohu’s long-term strategic plan and management divested this portion of the business in February 2020. The assets of our fixtures business were considered “held for sale” as of December 28, 2019 and the operating results of our fixtures business are presented as “discontinued operations” for the periods ended December 26, 2020, December 28, 2019 and December 29, 2018. Unless otherwise indicated, the discussion below covers the comparative results from continuing operations.   The following table summarizes certain operating data as a percentage of net sales:       2020     2019     2018   Net sales     100.0 %     100.0 %     100.0 % Cost of sales     (57.3 )     (60.6 )     (64.7 ) Gross margin     42.7       39.4       35.3   Research and development     (13.5 )     (14.8 )     (12.5 ) Selling, general and administrative     (20.3 )     (24.5 )     (21.4 ) Amortization of purchased intangible assets     (6.1 )     (6.8 )     (3.8 ) Restructuring charges     (1.2 )     (2.3 )     (4.1 ) Impairment charges     (1.8 )     -       -   Gain on sale of facilities     0.7       -       -   Income (loss) from operations     0.5 %     (9.0 )%     (6.5 )%   Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2019 Annual Report on Form 10-K, filed with the SEC on March 10, 2020, for comparative discussion of our fiscal years ended December 28, 2019 and December 29, 2018.   2020 Compared to 2019   Net Sales   Cohu’s consolidated net sales increased 9.0% from $583.3 million in 2019 to $636.0 million in 2020. During the first half of 2020, our net sales were impacted by disruptions caused by the COVID-19 pandemic and movement control orders which resulted in supply disruptions impacting our ability to ship product and were further impacted by reduced demand in the automotive segment. In the second half of 2020 demand for equipment used in testing mobility semiconductor applications, data centers and personal computers strengthened driven by the launch and accelerated ramp of our RedDragon RF module for testing 5G, Wi-Fi 6 and Ultra-Wideband devices, and new customers for our Neon inspection platform. We also began to see improved demand from semiconductor automotive and industrial customers, and orders for PCB test equipment were at near record levels.   33 Table of Contents   Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)   Gross margin consists of net sales less cost of sales (excluding the impact of amortization of developed technology and backlog). Cost of sales consists primarily of the materials, assembly and test labor and overhead from operations. Our gross margin can fluctuate due to a number of factors, including, but not limited to, the mix of products sold, product support costs, increases to inventory reserves, the sale of previously reserved inventory and utilization of manufacturing capacity. Our gross margin, as a percentage of net sales, increased to 42.7% in 2020 from 39.4% in 2019. Increased business volume in the second half of 2020 allowed us to better leverage our fixed costs helping to improve our gross margin over 2019. Other items impacting our gross margin in 2020 are discussed below.   We compute the majority of our excess and obsolete inventory reserve requirements using inventory usage forecasts ranging from one to three years. During 2020, we recorded net charges to cost of sales of approximately $6.0 million, for excess and obsolete inventory. In addition to our normal excess and obsolete provision, as part of the integration and restructuring activities related to Xcerra we recorded $3.7 million of inventory related charges specifically related to the decision to end manufacturing of certain semiconductor test handler products. In 2019, net charges to cost of sales were $4.1 million, for excess and obsolete inventory and we recorded $2.7 million of inventory related charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products.   We believe our reserves for excess and obsolete inventory and lower of cost or net realizable value are adequate to cover known exposures at December 26, 2020. Reductions in customer forecasts, continued modifications to products, our failure to meet specifications or other customer requirements may result in additional charges to operations that could negatively impact our gross margin in future periods.   Our cost of sales was also impacted by the amortization of inventory step-up related to fair value adjustments to inventory acquired from Xcerra and during 2019, $6.0 million of inventory step-up costs were amortized. All inventory step-up was fully amortized in in 2019 and there was no amortization in 2020.   Research and Development Expense (“R&D Expense”)   R&D expense consists primarily of salaries and related costs of employees engaged in ongoing research, product design and development activities, costs of engineering materials and supplies and professional consulting expenses. Our future operating results depend, to a considerable extent, on our ability to maintain a competitive advantage in the products we provide, and historically we have maintained our commitment to investing in R&D in order to be able to continue to offer new products to our customers. R&D expense in 2020 was $86.2 million, or 13.5% of net sales, compared to $86.1 million, or 14.8% of net sales in 2019. Despite increased business volume, R&D expense was essentially flat, year-over-year, as temporary salary reductions, decreased travel and other cost control measures implemented in response to the economic uncertainty caused by the COVID-19 pandemic allowed us to control costs in 2020.   Selling, General and Administrative Expense (“SG&A Expense”)   SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for independent sales representatives, product promotion and costs of professional services. SG&A expense as a percentage of net sales decreased to 20.3% in 2020, from 24.5% in 2019, decreasing from $142.9 million in 2019 to $129.2 million in 2020. Lower SG&A expense in 2020 was a result of temporary salary reductions, decreased travel and other cost control measures implemented in response to the economic uncertainty caused by the COVID-19 pandemic.   From time-to-time Cohu incurs costs specifically related to business acquisitions. In 2019, we incurred acquisition costs totaling $0.4 million that were entirely comprised of professional service and other transaction related expenses associated with the merger of Xcerra. No acquisition costs were incurred in 2020.   In 2020 and 2019, we recorded $0.1 million and $1.2 million of expense, respectively, related to a reduction of an indemnification receivable related to an uncertain tax position recorded in the acquisition of Ismeca Semiconductor Holdings SA (“Ismeca”) in 2013. In connection with this reduction we also booked a corresponding amount as a credit to our income tax provision and, as a result, the impact of this reduction on net income was zero.   34 Table of Contents   Amortization of Purchased Intangible Assets   Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $38.7 million and $39.6 million for 2020 and 2019, respectively. The decrease in expense recorded during the current year was a result of fluctuations in exchange rates.   Restructuring Charges   Subsequent to the merger with Xcerra in the fourth quarter 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding Xcerra. In connection with the integration plan, we recorded restructuring charges, exclusive of the inventory related charges described above, totaling $7.6 million and $13.5 million in 2020 and 2019, respectively.   See Note 5, “Restructuring Charges” in Part IV, Item 15(a) of this Form 10-K for additional information with respect to restructuring charges.   Impairment Charges   During the first quarter of 2020, the volatility in Cohu’s stock price and the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and concluded there was no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmap and an increase in the discount rate used in developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value. During the third quarter of 2020, we became aware of additional delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic and customer product road map changes. This change in facts led us to re-evaluate the fair value of these projects and we determined that the carrying value exceeded the fair value, and we recorded an additional $7.3 million impairment to IPR&D. For the twelve months ended December 26, 2020, total impairments recorded to IPR&D projects was $11.2 million.   Gain on sale of facilities   As part of our previously announced Xcerra integration plan we implemented certain facility consolidation actions. During 2020 we completed the sales of our facilities located in Rosenheim, Germany and Penang, Malaysia resulting in a gain of $4.5 million.   Interest Expense and Income   Interest expense was $13.8 million in 2020 compared to $20.6 million in 2019. The year-over-year decrease in our interest expense resulted from a significant decrease in LIBOR and the reduction in the outstanding principal under our Term Loan B debt associated with the financing of the Xcerra acquisition.   Interest income was $0.2 million in 2020 as compared to $0.8 million in 2019.   Foreign Transaction Gain (Loss) and Other   We have operations in foreign countries and conduct business in the local currency in these countries. During 2020, the U.S. Dollar weakened significantly against the Swiss Franc and Euro, which resulted in the recognition of $3.2 million in foreign currency losses, net of $0.8 million of gains generated by foreign currency forward contracts. During the fourth quarter of 2020, we began entering into foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain U.S. Dollar denominated assets and liabilities at our subsidiaries whose functional currency is the local currency. In 2019, we incurred an insignificant foreign currency transaction gain for the year.   See Note 8 “Derivative Financial Instruments” in Part IV, Item 15(a) of this Form 10-K for additional information with respect to our foreign currency forward contracts.   35 Table of Contents   Income Taxes   The income tax provision (benefit) expressed as a percentage of pre-tax income or loss in 2020 and 2019 was 5.1% and (4.3)%, respectively. The income tax provision (benefit) for the years ended December 26, 2020, and December 28, 2019 differs from the U.S. federal statutory rate primarily due to changes in the valuation allowance on our deferred tax assets, foreign income taxed at different rates, releases from statute expirations, impact of the Tax Act and other factors.   Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.   In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs at each reporting period, including an assessment of our cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cohu’s three-year cumulative loss history at the end of various fiscal periods including 2020.   As a result of our cumulative, three-year U.S. GAAP pretax loss from continuing operations at the end of 2020, we were unable to conclude that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the realizability of our DTAs at the end of each quarterly reporting period in 2021 and, should circumstances change, it is possible an additional valuation allowance will be recorded or the remaining valuation allowance, or a portion thereof, will be reversed in a future period.   Our valuation allowance on our DTAs at December 26, 2020, and December 28, 2019, was approximately $86.1 million and $93.5 million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are realizable primarily through future reversals of existing taxable temporary differences and to a lesser extent future taxable income exclusive of reversing temporary differences and carryforwards.   As the realization of DTAs is determined by tax jurisdiction, the deferred tax liabilities recorded by our non-U.S. subsidiaries were not a source of taxable income in assessing the realization of our DTAs in the U.S.   For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and further explanation of our provision for income taxes, see Note 9, “Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein by reference.   Loss from Continuing Operations and Net Loss   As a result of the factors set forth above, our net loss from continuing operations and net loss was $13.8 million in 2020. Net loss from continuing operations was $69.0 million in 2019 and, including the results of our discontinued operations which includes an impairment related to the disposal of our FSG segment, our net loss was $69.7 million.   LIQUIDITY AND CAPITAL RESOURCES   Our business is dependent on capital expenditures by semiconductor manufacturers and test subcontractors that are, in turn, dependent on the current and anticipated market demand for semiconductors. The seasonal and volatile nature of demand for semiconductor equipment, our primary industry, makes estimates of future revenues, results of operations and net cash flows difficult.   Our primary historical source of liquidity and capital resources has been cash flow generated by operations and we manage our business to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating assets and to fund new products and product enhancements primarily through research and development.   On October 1, 2018, we entered into a bank credit agreement which provides for a $350.0 million seven-year Term Loan B facility and borrowed the full amount. The Term Loan B facility matures on October 1, 2025. These proceeds were used on October 1, 2018, together with our cash and cash equivalents, to finance the acquisition of Xcerra. See Note 4 “Borrowings and Credit Agreements” included in Part IV, Item 15(a) of this Form 10-K, which is incorporated herein by reference.   36 Table of Contents   At December 26, 2020, our total indebtedness, net of discount and deferred financing costs, was $319.9 million, which included $301.1 million outstanding under the Term Loan B, $3.6 million outstanding under Kita’s term loans, $9.9 million outstanding under Cohu GmbH’s construction loans, and $5.3 million outstanding under Kita’s lines of credit.   We believe that our sources of liquidity will be sufficient to satisfy our anticipated cash requirements through at least the next 12 months. Our liquidity could be negatively affected by a decrease in demand for our products. In addition, we may make acquisitions or increase our capital expenditures and may need to raise additional capital through debt or equity financing to provide for greater flexibility to fund these activities. Additional financing may not be available or not available on terms favorable to us. A discussion of cash flows for the year ended December 29, 2018 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 28, 2019, filed with the SEC on March 10, 2020, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.   Liquidity   Working Capital: The following summarizes our cash, cash equivalents, short-term investments and working capital at December 26, 2020 and December 28, 2019:   (in thousands)   2020     2019     Increase     Percentage Change   Cash, cash equivalents and short-term investments   $ 170,027     $ 156,098     $ 13,929       8.9 % Working capital   $ 310,593     $ 290,811     $ 19,782       6.8 %   As of December 26, 2020, $74.4 million of our cash, cash equivalents and short-term investments was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay foreign withholding taxes if we repatriate these funds. Except for working capital requirements in certain jurisdictions, we provide for all withholding and other residual taxes related to unremitted earnings of our foreign subsidiaries. Beginning in 2018, earnings realized in foreign jurisdictions are subject to U.S. taxes in accordance with the Tax Act.   Cash Flows   Operating Activities: Cash provided by operating activities consists of our net loss adjusted for non-cash expenses and changes in operating assets and liabilities. These adjustments include impairment charges, depreciation expense on property, plant and equipment, share-based compensation expense, amortization of intangible assets, deferred income taxes, amortization of cloud-based software implementation costs, gain on extinguishment of debt, interest capitalized associated with cloud computing implementation, amortization of debt discounts and issuance costs and gains from sale of property, plant and equipment. Our net cash flows provided by operating activities in 2020 totaled $49.7 million compared to $17.3 million in 2019. The increase in cash provided by operating activities in the current year was a result of an increase in current year net sales and the decrease in our net loss, but was also impacted by changes in current assets and liabilities which included increases in accounts receivable, inventory and accounts payable. A significant increase in net sales in the fourth quarter of 2020 and the timing of the resulting cash conversion cycle drove the $20.2 million increase in accounts receivable. The $15.0 million increase in inventory was driven by purchases from suppliers made to fulfill anticipated future shipments of products. Increased business activities in the fourth quarter and the timing of payments to our suppliers resulted in the $15.1 million increase in accounts payable. Cash provided by operating activities was also impacted by increases in accrued compensation, warranty and other liabilities which increased $4.7 million, driven primarily by increases in incentive compensation due to current year results. Advance payments from customers related to equipment orders expected to be fulfilled during 2021 has resulted in a $2.2 million increase in customer advances. Income taxes payable decreased $2.1 million a result of tax payments made in certain foreign jurisdictions.   Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business, purchases of investments, proceeds from investment maturities, business acquisitions, asset disposals and business divestitures. Our net cash used in investing activities in 2020 totaled $18.4 million. Additions to property, plant and equipment in 2020 were $18.7 million and were made to support the operating and development activities of our Semiconductor Test & Inspection segment. During 2020 we used $19.7 million in cash for purchases of short-term investments. We invest our excess cash, in an attempt to seek the highest available return while preserving capital, in short-term investments since excess cash may be required for a business-related purpose. During 2020 we generated cash totaling $17.0 million from the sale of land, buildings, and fixed assets as part of facility consolidation program and $3.0 million from the sale of our fixtures services business.   37 Table of Contents   Financing Activities: In fiscal 2020, our cash used in financing activities totaled $38.1 million. During 2020, we paid dividends totaling $5.0 million, or $0.06 per common share. As a result of the COVID-19 pandemic, we are proactively managing cash flow and Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of May 5, 2020. The dividend suspension will result in approximately $10 million of annualized cash savings, which we expect to utilize for deleveraging and strengthening our balance sheet. Repayments of short-term borrowings and long-term debt during fiscal 2020 totaled $41.1 million and included a $35.4 million repurchase and retirement of our Term Loan B debt during the third and fourth quarters of 2020 made to deleverage our balance sheet. We received proceeds under a revolving line of credit and construction loan totaling $5.9 million. Proceeds from the construction loan are being used to expand our facility in Kolbermoor, Germany, enabling us to consolidate the German operations of our Semiconductor Test & Inspection segment. Proceeds from the revolving line of credit are being used to increase the manufacturing capacity of our Semiconductor Test & Inspection segment facility located in Osaka, Japan. Net proceeds from the issuance of our common stock under our equity incentive and employee stock purchase plans, totaled $2.1 million during 2020. We issue share-based awards and maintain an employee stock purchase plan as components of our overall employee compensation.   Capital Resources   We have access to credit facilitates and other borrowings provided by financial institutions to finance acquisitions, capital expenditures and our operations if needed. A summary of our borrowings and available credit is as follows.   Credit Agreement   On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Credit Facility and borrowed the full amount to finance a portion of the Xcerra acquisition. Loans under the Credit Facility amortize in equal quarterly installments of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At December 26, 2020, the outstanding loan balance, net of discount and deferred financing costs, was $301.1 million and $2.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. At December 28, 2019, the outstanding loan balance, net of discount and deferred financing costs, was $339.1 million and $2.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets.   Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. As of December 26, 2020, we believe no such events of default have occurred.   In the second half of 2020, we repurchased $36.4 million in principal of our Term Loan Facility for $35.4 million in cash. We accounted for the repurchase as a debt extinguishment, which resulted in a gain of $0.3 million reflected in other expense, net, in our consolidated statement of operations, as well as a $0.7 million reduction in debt discounts and deferred financing costs in our consolidated balance sheets. After the repurchase, approximately $306.6 million in principal of the Term Loan Facility remains outstanding as of December 26, 2020.   38 Table of Contents   Kita Term Loans   As a result of our acquisition of Kita, we assumed term loans from a series of Japanese financial institutions primarily related to the expansion of Kita’s facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest rates ranging from 0.05% to 0.44%, and expire at various dates through 2034. At December 26, 2020, the outstanding loan balance was $3.6 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. At December 28, 2019, the outstanding loan balance was $3.8 million and $0.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.   Xcerra Term Loan   As a result of our acquisition of Xcerra, we assumed a term loan related to the purchase of Xcerra’s facility in Rosenheim, Germany. The loan was payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest was due quarterly over the duration of the term loan ending in March 2024. At December 28, 2019, the outstanding loan balance was $1.5 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. During the third quarter of 2020 the term loan was fully repaid using proceeds received from the sale of our facility located in Rosenheim, Germany.   Construction Loans   On July 26, 2019, one of our wholly owned subsidiaries located in Germany entered into two construction loans (“Loan Facilities”) with a German financial institution providing total borrowing of €8.6 million. The Loan Facilities have 10-year and 15-year terms, which commenced on August 1, 2019, the initial draw-down date. Additionally, on June 16, 2020, a third construction loan with the same financial institution was entered into providing total borrowing of €1.5 million. This loan facility has a 10-year term, which has not commenced. The Loan Facilities are being utilized to finance the expansion of our facility in Kolbermoor, Germany, enabling us to combine the operations of multiple subsidiaries in one location as part of our previously announced strategic restructuring program. The Loan Facilities are secured by the land and the existing building on the site and bear interest at agreed upon rates based on separate €3.4 million, €5.2 million and €1.5 million facility amounts.   On August 1, 2019, the full €3.4 million was drawn under the first facility, which is payable over 10 years at an annual interest rate of 0.8%. Interest only payments are required to be made each quarter starting in September 2019 with principal and interest payments due each quarter starting in the month of December 2021. Principal repayments will be made over 8 years starting at the end of 2021.   Through December 26, 2020, we drew €4.9 million under the second facility, which is payable over 15 years at an annual interest rate of 1.05%. Interest only payments are required to be made each month starting in December 2019 with principal and interest payments due each month starting in the month of May 2020. Principal repayments will be made over 15 years starting at the end of May 2020. As of December 26, 2020, €0.3 million had not been drawn under the second facility.   Through December 26, 2020, no amounts have been drawn under the third facility. Future amounts, if drawn, will be payable over 10 years at an annual interest rate of 1.2%. Interest payments are required to be made each month starting in the month following the first draw-down date with principal and interest payments due each month starting in the month of May 2021. Principal repayments will be made over 10 years starting at the end of May 2021.   At December 26, 2020 and December 28, 2019, total outstanding borrowings under the Loan Facilities was $9.9 million and $5.5 million with $0.4 million and $0.3 million of the total outstanding balance being presented as current installments of long-term debt in our consolidated balance sheets based on contractual due dates, respectively. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.   Lines of Credit   As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $9.3 million. At December 26, 2020, total borrowings outstanding under the revolving lines of credit were $5.3 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our consolidated balance sheets.   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.   39 Table of Contents   Our wholly owned Ismeca subsidiary has one available line of credit which provides it with borrowings of up to a total of 2.0 million Swiss Francs, a portion of which is reserved for tax guarantees. At December 26, 2020 and December 28, 2019, no amounts were outstanding under this line of credit.   We also have a letter of credit facility (“LC Facility”) under which Bank of America, N.A., has agreed to administer the issuance of letters of credit on our behalf. The LC Facility requires us to maintain deposits of cash or other approved investments in amounts that approximate our outstanding letters of credit and contains customary restrictive covenants. In addition, our wholly owned subsidiary, Xcerra, has arrangements with various financial institutions for the issuance of letters of credit and bank guarantees. As of December 26, 2020, $0.8 million was outstanding under standby letters of credit and bank guarantees.   We expect that we will continue to make capital expenditures to support our business and we anticipate that present working capital will be sufficient to meet our operating requirements for at least the next twelve months.   Contractual Obligations   The following table summarizes our significant contractual obligations at December 26, 2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. Amounts excluded include our liability for unrecognized tax benefits that totaled approximately $33.7 million at December 26, 2020. We are currently unable to provide a reasonably reliable estimate of the amount or period(s) the cash settlement of this liability may occur.       Fiscal year-end   (in thousands)   Total     2021       2022-2023       2024-2025     Thereafter   Operating leases (1)   $ 39,635     $ 7,015     $ 11,484     $ 9,194     $ 11,942   Finance leases     401       179       222       -       -   Bank term loans principal and interest     367,572       14,195       29,075       316,167       8,135   Revolving credit facilities     5,314       5,314       -       -       -   Total contractual obligations   $ 412,922     $ 26,703     $ 40,781     $ 325,361     $ 20,077     (1) Excludes an insignificant amount of short-term lease obligations.   The table above does not include pension, post-retirement benefit and warranty obligations because it is not certain when these liabilities will be funded. For additional information regarding our pension and post-retirement benefits obligations see Note 6, “Employee Benefit Plans” and for more information on our contractual obligations, see Note 13, “Guarantees” in Part IV, Item 15(a) of this Form 10-K.   Commitments to contract manufacturers and suppliers. From time-to-time, we enter into commitments with our vendors and outsourcing partners to purchase inventory at fixed prices or in guaranteed quantities. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within relatively short time horizons. We typically do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements for the next three months.   Off-Balance Sheet Arrangements. During the ordinary course of business, we provide standby letters of credit instruments to certain parties as required. As of December 26, 2020, $0.8 million was outstanding under standby letters of credit.