COHU INC 10-K

Item 9A. Controls and Procedures.   Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures - Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 26, 2020, the end of the period covered by this annual report.   Changes in Internal Control over Financial Reporting - During the three months ended December 26, 2020, certain of our wholly owned subsidiaries implemented an integrated finance/accounting and manufacturing software system. The implementations involved changes in systems that included internal controls, and accordingly, these changes have required changes to our system of internal controls.   We reviewed the systems as they were being implemented and the controls affected by the implementation of the new systems and made appropriate changes to affected internal controls during the implementation process. We believe that the controls as modified are appropriate and functioning effectively. This change was not in response to any identified deficiency or weakness in our internal control over financial reporting.   Other than those described above, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.   Management ’ s Annual Report on Internal Control Over Financial Reporting - Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 26, 2020.   Ernst & Young LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of December 26, 2020, as stated in their report which is included herein.   42 Table of Contents   Report of Independent Registered Public Accounting Firm   To the Shareholders and the Board of Directors of Cohu, Inc.   Opinion on Internal Control over Financial Reporting   We have audited Cohu, Inc.’s internal control over financial reporting as of December 26, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cohu, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 26, 2020, based on the COSO criteria.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28, 2019, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 26, 2021, expressed an unqualified opinion thereon.   Basis for Opinion   The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.   Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and Limitations of Internal Control Over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   /s/ Ernst & Young LLP   San Diego, California February 26, 2021   43 Table of Contents   Item 9B. Other Information.   None.   PART III   Item 10. 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 Cohu’s definitive proxy statement, which will be filed with the Securities and Exchange Commission (SEC) within 120 days after the close of fiscal 2020.   Code of Business Conduct and Code of Ethics Cohu has adopted a code of business conduct and ethics for directors, officers and employees. The code is available on the Investor Relations section of our website at www.cohu.com. We intend to make all required disclosures concerning any amendments to, or waivers from, our code of ethics on our website, within four business days of such amendment or waiver.   Corporate Governance Guidelines and Certain Committee Charters Cohu has adopted Corporate Governance Guidelines as well as charters for its Audit, Compensation and Nominating and Governance Committees. These documents are available on the Investor Relations section of our website at www.cohu.com .   The information on our website is not incorporated by reference in or considered to be a part of this Annual Report on Form 10-K.   Item 11. Executive Compensation.   Information regarding Executive Compensation is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2020.   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   Information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2020.   Item 13. Certain Relationships and Related Transactions, and Director Independence.   Information regarding Certain Relationships and Related Transactions, and Director Independence is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2020.   Item 14. Principal Accounting Fees and Services.   Information regarding the Principal Accounting Fees and Services is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2020.   44 Table of Contents   PART IV   Item 15. Exhibits , Financial Statement Schedules.   (a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.     (1) Financial Statements   The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 46:     Form 10-K   Description Page Number     Consolidated Balance Sheets at December 26, 2020 and December 28, 2019 46     Consolidated Statements of Operations for each of the three years in the period ended December 26, 2020 47     Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 26, 2020 48     Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 26, 2020 49     Consolidated Statements of Cash Flows for each of the three years in the period ended December 26, 2020 50     Notes to Consolidated Financial Statements 51     Report of Independent Registered Public Accounting Firm 84     (2) Financial Statement Schedule   Schedule II – Valuation and Qualifying Accounts 91   All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the notes thereto.     (3) Exhibits   The exhibits listed under Item 15(b) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K.   45 Table of Contents       COHU, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value)       December 26,     December 28,       2020     2019   ASSETS                 Current assets:                 Cash and cash equivalents   $ 149,358     $ 155,194   Short-term investments     20,669       904   Accounts receivable, net     151,919       127,921   Inventories     142,500       130,706   Prepaid expenses     18,773       17,483   Other current assets     1,827       3,158   Assets held for sale     -       827   Current assets of discontinued operations (Note 14)     -       3,503   Total current assets     485,046       439,696                     Property, plant and equipment, net     66,916       70,912   Goodwill     252,304       238,669   Intangible assets, net     233,685       275,019   Other assets     23,192       20,030   Operating lease right of use assets     29,203       33,269   Noncurrent assets of discontinued operations (Note 14)     -       115       $ 1,090,346     $ 1,077,710                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Short-term borrowings   $ 5,314     $ 3,195   Current installments of long-term debt     3,075       3,322   Accounts payable     67,923       48,697   Customer advances     14,410       12,160   Accrued compensation and benefits     34,862       23,741   Accrued warranty     6,066       5,893   Deferred profit     8,671       7,645   Income taxes payable     3,857       3,894   Other accrued liabilities     30,275       39,739   Current liabilities of discontinued operations (Note 14)     -       599   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     21,663       21,930   Noncurrent income tax liabilities     6,888       8,438   Other accrued liabilities     8,900       8,656   Noncurrent liabilities of discontinued operations (Note 14)     -       24                     Stockholders' equity:                 Preferred stock, $ 1 par value; 1,000 shares authorized, none issued     -       -   Common stock, $ 1 par value; 60,000 shares authorized, 42,190 shares issued and outstanding in 2020 and 41,395 shares in 2019     42,190       41,395   Paid-in capital     448,194       433,190   Retained earnings     26,230       42,517   Accumulated other comprehensive loss     ( 4,326 )     ( 34,030 ) Total stockholders' equity     512,288       483,072       $ 1,090,346     $ 1,077,710     The accompanying notes are an integral part of these statements. 46 Table of Contents       COHU, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)       Years ended       December 26,     December 28,     December 29,       2020     2019     2018   Net sales   $ 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)     7,623       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     3,260       ( 52,328 )     ( 29,781 ) Other (expense) income:                         Interest expense     ( 13,759 )     ( 20,556 )     ( 4,977 ) Interest income     224       764       1,187   Foreign transaction gain (loss)     ( 3,170 )     43       1,659   Gain on extinguishment of debt     268       -       -   Loss from continuing operations before taxes     ( 13,177 )     ( 72,077 )     ( 31,912 ) Income tax provision (benefit)     666       ( 3,082 )     631   Loss from continuing operations     ( 13,843 )     ( 68,995 )     ( 32,543 ) Income (loss) from discontinued operations, net of tax     42       ( 697 )     119   Net loss   $ ( 13,801 )   $ ( 69,692 )   $ ( 32,424 ) Net income (loss) attributable to noncontrolling interest   $ -     $ 8     $ ( 243 ) Net loss attributable to Cohu   $ ( 13,801 )   $ ( 69,700 )   $ ( 32,181 )                           Income (loss) per share:                         Basic:                         Loss from continuing operations before noncontrolling interest   $ ( 0.33 )   $ ( 1.68 )   $ ( 1.02 ) Income (loss) from discontinued operations     0.00       ( 0.01 )     0.00   Net income (loss) attributable to noncontrolling interest     -       0.00       ( 0.01 ) Net loss attributable to Cohu   $ ( 0.33 )   $ ( 1.69 )   $ ( 1.01 )                           Diluted:                         Loss from continuing operations before noncontrolling interest   $ ( 0.33 )   $ ( 1.68 )   $ ( 1.02 ) Income (loss) from discontinued operations     0.00       ( 0.01 )     0.00   Net income (loss) attributable to noncontrolling interest     -       0.00       ( 0.01 ) Net loss attributable to Cohu   $ ( 0.33 )   $ ( 1.69 )   $ ( 1.01 )                           Weighted average shares used in computing                                                   Basic     41,854       41,159       31,776   Diluted     41,854       41,159       31,776     (1) Excludes amortization of $29,510, $30,126, and $13,586 for the years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.   The accompanying notes are an integral part of these statements. 47 Table of Contents     COHU, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands)       Years ended       December 26,     December 28,     December 29,       2020     2019     2018   Net loss   $ ( 13,801 )   $ ( 69,692 )   $ ( 32,424 ) Income (loss) from continuing operations before noncontrolling interest     -       8       ( 243 ) Net income (loss) attributable to Cohu     ( 13,801 )     ( 69,700 )     ( 32,181 ) Other comprehensive income (loss), net of tax                         Foreign currency translation adjustments     27,321       ( 7,522 )     ( 8,905 ) Adjustments related to postretirement benefits     2,383       ( 628 )     805   Change in unrealized gain/loss on investments     -       -       7   Other comprehensive income (loss), net of tax     29,704       ( 8,150 )     ( 8,093 ) Other comprehensive income (loss) attributable to noncontrolling interest     -       ( 4 )     ( 5 ) Other comprehensive income (loss) attributable to Cohu     29,704       ( 8,146 )     ( 8,088 )                           Comprehensive income (loss)     15,903       ( 77,842 )     ( 40,517 ) Comprehensive income (loss) attributable to noncontrolling interest     -       4       ( 248 ) Comprehensive income (loss) attributable to Cohu   $ 15,903     $ ( 77,846 )   $ ( 40,269 )   The accompanying notes are an integral part of these statements. 48 Table of Contents     COHU, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except par value and per share amounts)                               Accumulated                       Common                     other                       stock     Paid-in     Retained     comprehensive     Noncontrolling               $1 par value     capital     earnings     loss     Interest     Total   Balance at December 30, 2017   $ 28,489     $ 127,663     $ 150,726     $ ( 17,787 )   $ -     $ 289,091   Cumulative effect of accounting change (a)     -       -       1,057       -       -       1,057   Net loss     -       -       ( 32,424 )     -       -       ( 32,424 ) Changes in cumulative translation adjustment     -       -       -       ( 8,905 )     -       ( 8,905 ) Adjustments related to postretirement benefits, net of tax     -       -       -       805       -       805   Changes in unrealized gains and losses on investments, net of tax     -       -       -       7       -       7   Cash dividends - $ 0.24 per share     -       -       ( 7,689 )     -       -       ( 7,689 ) Exercise of stock options     67       613       -       -       -       680   Shares issued under ESPP     85       1,438       -       -       -       1,523   Shares issued for restricted stock units vested     541       ( 541 )     -       -       -       -   Repurchase and retirement of stock     ( 195 )     ( 11,405 )     -       -       -       ( 11,600 ) Noncontrolling interest     -       -       -       -       ( 299 )     ( 299 ) Share-based compensation expense     -       18,280       -       -       -       18,280   Shares issued for acquisition of Xcerra     11,776       283,642       -       -       -       295,418   Balance at December 29, 2018     40,763       419,690       111,670       ( 25,880 )     ( 299 )     545,944   Cumulative effect of accounting change (b)     -       -       10,352       -       -       10,352   Net loss     -       -       ( 69,692 )     -       -       ( 69,692 ) Changes in cumulative translation adjustment     -       -       -       ( 7,522 )     ( 4 )     ( 7,526 ) Adjustments related to postretirement benefits, net of tax     -       -       -       ( 628 )     -       ( 628 ) Cash dividends - $ 0.24 per share     -       -       ( 9,866 )     -       -       ( 9,866 ) Exercise of stock options     42       367       -       -       -       409   Shares issued under ESPP     187       2,159       -       -       -       2,346   Shares issued for restricted stock units vested     599       ( 599 )     -       -       -       -   Repurchase and retirement of stock     ( 196 )     ( 2,575 )     -       -       -       ( 2,771 ) Noncontrolling interest     -       -       53       -       ( 53 )     -   Share-based compensation expense     -       14,148       -       -       -       14,148   Divestiture of interest in consolidated entity     -       -       -       -       356       356   Balance at December 28, 2019     41,395       433,190       42,517       ( 34,030 )     -       483,072   Net loss     -       -       ( 13,801 )     -       -       ( 13,801 ) Changes in cumulative translation adjustment     -       -       -       27,321       -       27,321   Adjustments related to postretirement benefits, net of tax     -       -       -       2,383       -       2,383   Cash dividends - $ 0.06 per share     -       -       ( 2,486 )     -       -       ( 2,486 ) Exercise of stock options     101       1,001       -       -       -       1,102   Shares issued under ESPP     243       3,026       -       -       -       3,269   Shares issued for restricted stock units vested     660       ( 660 )     -       -       -       -   Repurchase and retirement of stock     ( 209 )     ( 2,597 )     -       -       -       ( 2,806 ) Share-based compensation expense     -       14,234       -       -       -       14,234   Balance at December 26, 2020   $ 42,190     $ 448,194     $ 26,230     $ ( 4,326 )   $ -     $ 512,288     (a) Cumulative effect of accounting change relates to our adoption of ASU 2014-09. (b) Cumulative effect of accounting change relates to our adoption of ASU 2016-02. Please refer to Note 1 of the Consolidated Financial Statements for further detail on the adoption of this accounting standard.   The accompanying notes are an integral part of these statements. 49 Table of Contents     COHU, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       Years ended       December 26,     December 28,     December 29,       2020     2019     2018   Cash flows from operating activities:                         Net loss attributable to Cohu   $ ( 13,801 )   $ ( 69,700 )   $ ( 32,181 ) Net income (loss) from noncontrolling interest     -       8       ( 243 ) Adjustments to reconcile net loss to net cash provided by operating activities:                         (Gain) loss on disposal of discontinued operations (Note 14)     ( 35 )     1,138       -   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     3,731       8,347       24,179   Amortization of debt discounts and issuance costs     1,177       1,110       -   Accrued retiree benefits     1,675       1,017       ( 560 ) Deferred income taxes     ( 5,305 )     ( 5,385 )     ( 8,207 ) Adjustment to contingent consideration liability     -       -       657   Changes in other assets     285       ( 3,044 )     ( 2,961 ) Amortization of cloud-based software implementation costs     1,191       -       -   (Gain) loss from sale of property, plant and equipment     ( 4,170 )     173       293   Changes in other accrued liabilities     91       5,348       198   Changes in current assets and liabilities, excluding effects from acquisitions and divestitures:                         Customer advances     2,188       11,548       2,513   Accounts receivable     ( 20,210 )     21,150       5,785   Inventories     ( 14,982 )     26       2,043   Accrued compensation, warranty and other liabilities     4,678       ( 9,405 )     1,472   Accounts payable     15,058       ( 3,122 )     ( 7,103 ) Deferred profit     871       997       37   Other current assets     1,150       ( 5,996 )     148   Income taxes payable     ( 2,089 )     ( 10,719 )     4,041   Operating lease right-of-use assets     6,831       7,159       -   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 )     ( 4,967 ) Net cash received from sale of land, facility and assets     17,025       1,767       1,005   Purchases of short-term investments     ( 19,703 )     ( 315 )     ( 38,700 ) Payment for purchase of Xcerra, net of cash received     -       -       ( 339,115 ) Sales and maturities of short-term investments     -       -       59,469   Net cash received from sale of fixtures services business     2,975       -       -   Net cash used in investing activities     ( 18,363 )     ( 16,548 )     ( 322,308 ) Cash flows from financing activities:                         Cash dividends paid     ( 4,971 )     ( 9,827 )     ( 6,949 ) Proceeds from revolving line of credit and construction loans     5,878       5,477       -   Repayments of long-term debt     ( 41,056 )     ( 3,817 )     ( 2,323 ) Net issuance (repurchases) of stock, including awards settled in cash     2,077       ( 16 )     ( 8,978 ) Proceeds from Term Loan B     -       -       348,250   Payment of debt issuance costs     -       -       ( 7,072 ) Payment of contingent consideration     -       -       ( 823 ) Net cash provided by (used in) financing activities     ( 38,072 )     ( 8,183 )     322,105   Effect of exchange rate changes on cash and cash equivalents     129       ( 1,529 )     ( 3,599 ) 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 )     ( 461 ) 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 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     $ 599   Inventory capitalized as capital assets   $ 1,050     $ 300     $ 857       The accompanying notes are an integral part of these statements. 50           Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     1 .      Summary of Significant Accounting Policies   Basis of Presentation – Cohu, Inc. (“Cohu”, “we”, “our”, “us” and the “Company”), through our wholly owned subsidiaries, is a provider of semiconductor test equipment and services. Our Consolidated Financial Statements include the accounts of Cohu and our wholly owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. We evaluate the need to consolidate affiliates based on standards set forth in ASC Topic 810, Consolidation (“ASC 810” ).   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.   Our fiscal years are based on a 52 - or 53 -week period ending on the last Saturday in December. Our current fiscal year, which ended on December 26, 2020, consisted of 52 weeks. Our fiscal years ended on December 28, 2019, and December 29, 2018, each consisted of 52 weeks.   Principles of Consolidation for Variable Interest Entities – We follow ASC Topic 810 - 10 - 15 guidance with respect to accounting for VIEs. On December 28, 2019, we divested our entire 20 % interest in ALBS Solutions Sdn Bhd (“ALBS”), our only VIE. As a result of the divestment, we no longer had a controlling interest in ALBS and stopped consolidating ALBS as of that date. Divestment of our ownership in ALBS resulted in a gain of $ 0.1  million which is included in restructuring charges for the year ended December 28, 2019.   Discontinued Operations – On October 1, 2018, we acquired a fixtures services business as part of our acquisition of Xcerra. Our management determined that this business did not align with Cohu’s core business and was not a strategic fit within our organization. As a result, the fixtures services business was marketed for sale shortly after the acquisition and the assets of our fixtures business were considered “held for sale” and the operations of our fixtures business are considered “discontinued operations”. In February 2020, we completed the sale of this business. See Note 14, “Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.   Income (Loss ) Per Share – Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of outstanding restricted stock and performance stock units and issuance of stock under our employee stock purchase plan using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share computations due to their anti-dilutive effect. For purposes of computing diluted income (loss) per share, stock options with exercise prices that exceed the average fair market value of our common stock for the period are excluded. For the years ended December 26, 2020, December 28, 2019 and December 29, 2018, approximately 113,000 , 422,000 and 146,000 shares, respectively, of our common stock were excluded from the computation.   The following table reconciles the denominators used in computing basic and diluted income (loss) per share:   (in thousands)   2020     2019     2018   Weighted average common shares outstanding     41,854       41,159       31,776   Effect of dilutive stock options and restricted stock units     -       -       -         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.   Cash, Cash Equivalents and Short-term Investments – Highly liquid investments with insignificant interest rate risk and original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months are classified as short-term investments. All of our short-term investments are classified as available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded in the statement of comprehensive income (loss). We manage our cash equivalents and short-term investments as a single portfolio of highly marketable securities. We have the ability and intent, if necessary, to liquidate any of our investments in order to meet the liquidity needs of our current operations during the next 12 months. Accordingly, investments with contractual maturities greater than one year have been classified as current assets in the accompanying consolidated balance sheets.   51 Table of Contents     COHU, INC. 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.   We adopted ASU 2016 - 13 , Financial Instruments-Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments , on December 29, 2019 the first day of our fiscal 2020. The ASU required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented for comparative purposes are not adjusted. Based on our analysis of historical and anticipated collections of trade receivables the impact of adoption of Topic 326 was insignificant. Our trade accounts receivable are presented net of allowance for credit losses, which were insignificant at December 26, 2020 and December 28, 2019. Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit losses is adequate and represents our best estimate at December 26, 2020, we will continue to monitor customer liquidity and other economic conditions, including the impact of the COVID- 19 pandemic, which may result in changes to our estimates regarding expected credit losses.   Inventories – Inventories are stated at the lower of cost, determined on a first -in, first -out basis, or net realizable value. Cost includes labor, material and overhead costs. Determining market value of inventories involves numerous estimates and judgments including projecting average selling prices and sales volumes for future periods and costs to complete and dispose of inventory. As a result of these analyses, we record a charge to cost of sales in advance of the period when the inventory is sold when estimated market values are below our costs. Charges to cost of sales for excess and obsolete inventories totaled $ 8.1  million in 2020. Included in this amount is $ 2.1  million of inventory charges related to the decision to end manufacturing of certain of our semiconductor test handler products associated with the integration of Xcerra. Charges to cost of sales for excess and obsolete inventories totaled $ 4.8  million in 2019. Included in this amount is $ 0.7  million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products. Charges to cost of sales for excess and obsolete inventories totaled $ 10.8  million in 2018. Included in this amount is $ 9.4  million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products.   Inventories by category were as follows (in thousands) :       December 26,     December 28,       2020     2019   Raw materials and purchased parts   $ 83,755     $ 69,665   Work in process     44,315       46,591   Finished goods     14,430       14,450   Total inventories   $ 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.   52 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Property, plant and equipment, at cost, consisted of the following (in thousands) :       December 26,     December 28,       2020     2019   Land and land improvements (1)   $ 8,141     $ 11,659   Buildings and building improvements  (1)     41,153       41,474   Machinery and equipment     65,342       61,006         114,636       114,139   Less accumulated depreciation and amortization     ( 47,720 )     ( 43,227 ) Property, plant and equipment, net   $ 66,916     $ 70,912       ( 1 ) Includes assets under financing leases acquired with Xcerra totaling $ 2.6 million as of December 28, 2019.   Depreciation expense was $ 14.0  million in 2020, $ 19.3  million in 2019 and $ 8.8  million in 2018. The decrease in depreciation expense recognized in 2020 was a result of assets becoming fully depreciated and facility sales.   Cloud Computing Implementation Costs – We have capitalized certain costs associated with the implementation of our new cloud-based Enterprise Resource Planning (“ERP”) system in accordance with ASU 2018 - 15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350 - 40 ) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . Capitalized costs include only external direct costs of materials and services consumed in developing the system and interest costs incurred, when material, while developing the system.   Total unamortized capitalized cloud computing implementation costs totaled $ 13.5  million and $ 10.3  million at December 26, 2020 and December 28, 2019, respectively. These amounts are recorded within other assets in our consolidated balance sheets and the year-over-year increase is due to costs capitalized in the current year. We began amortizing some of these costs when our new ERP system was placed into service during the first quarter of 2020. Implementation costs are amortized using the straight-line method over seven years and we recorded $ 1.2  million in amortization expense during the year ended December 26, 2020.   Segment Information – We applied the provisions of ASC Topic 280, Segment Reporting , (“ASC 280” ), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We have determined that our four identified operating segments are: Test Handler Group (“THG”), Semiconductor Tester Group (“STG”), Interface Solutions Group (“ISG”) and PCB Test Group (“PTG”). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in two segments, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”) and PCB Test Equipment (“PCB Test”).   Goodwill, Purchased Intangible Assets and Other Long-lived Assets  – We evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value, an impairment charge is recognized as the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value, not to exceed the carrying amount of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions.   53 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October  1, 2020, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of December 26, 2020, we do not believe that circumstances have occurred that indicate impairment of our goodwill is more-likely-than- not. In the event we determine that an interim goodwill impairment review is required, in a future period, the review may result in an impairment charge, which would have a negative impact on our results of operations.   Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.   Product Warranty – Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from 12 to 36 months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations, the revenue relating to the extended warranty is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.   Income Taxes – We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized and recorded, net of federal and state tax benefits, in income tax expense.   The Tax Act was enacted on December 22, 2017. The accounting for the tax effects of the enactment of the Tax Act was completed in 2018. The accounting for the CARES Act, enacted on March 27, 2020, was incorporated in 2020.   Contingencies and Litigation – We assess the probability of adverse judgments in connection with current and threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is probable, and we can reasonably estimate the ultimate cost.   Leases – We adopted ASU 2016 - 02, Leases (Topic 842 ) , as of December 30, 2018, using the optional transition method which allowed us to record existing leases at adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We had previously recorded a sale and operating leaseback transaction in accordance with Topic 840 and as a result of the adoption of the new standard, recognized $ 10.2  million of deferred gain as an adjustment to retained earnings. In addition, we had previously recognized assets and liabilities related to a build-to-suit designation under Topic 840 and, as a result of the adoption of the new standard, derecognized assets and liabilities of $ 0.5  million and $ 0.6  million, respectively, with the difference recorded as an adjustment to retained earnings. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings.   We determine if a contract contains a lease at inception. Operating leases are included in operating lease right of use (“ROU”) assets, current other accrued liabilities, and long-term lease liabilities on our consolidated balance sheets. Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease liabilities on our consolidated balance sheets.   54 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the adoption date or the commencement date for leases entered into after the adoption date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rates for the remaining lease terms based on the information available at the adoption date or commencement date in determining the present value of future payments.   The operating lease ROU asset also includes any lease payments made, lease incentives, favorable and unfavorable lease terms recognized in business acquisitions and excludes initial direct costs incurred and variable lease payments. Variable lease payments include estimated payments that are subject to reconciliations throughout the lease term, increases or decreases in the contractual rent payments, as a result of changes in indices or interest rates and tax payments that are based on prevailing rates. Our lease terms may include renewal options to extend the lease when it is reasonably certain that we will exercise those options. In addition, we include purchase option amounts in our calculations when it is reasonably certain that we will exercise those options. Rent expense for minimum payments under operating leases is recognized on a straight-line basis over the term.   Leases with an initial term of 12 months or less are not recorded on the balance sheet but recognized in our consolidated statements of operations on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component and include both in our calculation of the ROU assets and lease liabilities.   We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities. None of our subleases contain extension options. Variable lease payments in our subleases include tax payments that are based on prevailing rates. We account for lease and non-lease components as a single lease component.   Revenue Recognition – Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur.   Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as we transfer control to our customer for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment.   Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.   Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At December 26, 2020 and December 28, 2019, we had $ 17.1  million and $ 16.1  million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied), respectively.   We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, Guarantees ( “ ASC 460 ” ) , and not as a separate performance obligation.   55 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration that does not meet revenue recognition criteria is deferred.    Our contracts are typically less than one year in duration and we have elected to use the practical expedient available in ASC 606 to expense cost to obtain contracts as they are incurred because they would be amortized over less than one year.   Accounts receivable represents our unconditional right to receive consideration from our customers. Payments terms do not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets recorded on the consolidated balance sheet in any of the periods presented.   On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances. At December 26, 2020, we had deferred revenue totaling approximately $ 17.1  million, current deferred profit of $ 8.7  million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $ 6.7  million. At December 28, 2019, we had deferred revenue totaling approximately $ 16.1  million, current deferred profit of $ 7.6  million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $ 7.2  million.   Disaggregated net sales by segment are as follows:   (in thousands)   2020     2019     2018   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       6,565   Non-systems-PCB Test     17,474       16,523       1,952   Net sales   $ 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. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to employees. Employee termination benefits covered by existing benefit arrangements are recorded in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. These costs are recognized when management has committed to a restructuring plan and the severance costs are probable and estimable.   Debt Issuance Costs – We capitalize costs related to the issuance of debt. Debt issuance costs directly related to our Term Loan B are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance sheets. The amortization of such costs is recognized as interest expense using the effective interest method over the term of the respective debt issue. Amortization related to deferred debt issuance costs and original discount costs was $ 1.2  million, $ 1.1  million and insignificant for the years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively.   56 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Share-based Compensation – We measure and recognize all share-based compensation under the fair value method. Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options) and related tax effects. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.   Foreign Remeasurement and Currency Translation – Assets and liabilities of our wholly owned foreign subsidiaries that use the U.S. Dollar as their functional currency are re-measured using exchange rates in effect at the end of the period, except for nonmonetary assets, such as inventories and property, plant and equipment, which are re-measured using historical exchange rates. Revenues and costs are re-measured using average exchange rates for the period, except for costs related to those balance sheet items that are re-measured using historical exchange rates. Gains and losses on foreign currency transactions are recognized as incurred. During the year ended December 26, 2020, in our consolidated statement of operations we recognized foreign exchange losses totaling $ 3.2  million. During the years ended December 28, 2019 and December 29, 2018, foreign exchange gains were insignificant and $ 1.7  million, respectively.   Certain of our foreign subsidiaries have designated the local currency as their functional currency and, as a result, their assets and liabilities are translated at the rate of exchange at the balance sheet date, while revenue and expenses are translated using the average exchange rate for the period. Cumulative translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’ equity.   Foreign Exchange Derivative Contracts – We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. During the fourth quarter of 2020, we began entering into foreign currency forward contracts with a financial institution to hedge against future movements in foreign exchange rates that affect certain existing U.S. Dollar denominated assets and liabilities at our subsidiaries whose functional currency is the local currency. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses. Additional information related to our foreign exchange derivative contracts is included in Note 8, “ Derivative Financial Instruments ”.   Accumulated Other Comprehensive Loss – Our accumulated other comprehensive loss totaled approximately $ 4.3  million at December 26, 2020, and $ 34.0  million at December 28, 2019, and was attributed to, net of income taxes where applicable: foreign currency adjustments resulting from the translation of certain accounts into U.S. Dollars and adjustments to accumulated postretirement benefit obligations. The U.S. Dollar weakened relative to certain foreign currencies in countries where we have operations as of December 26, 2020, compared to December 28, 2019 and consequently, our accumulated other comprehensive loss decreased by $ 27.3  million. In the previous year, the U.S. Dollar strengthened relative to certain foreign currencies in countries where we have operations and, as a result, our accumulated other comprehensive loss increased by $ 7.5  million. Additional information related to accumulated other comprehensive loss, on an after-tax basis is included in Note 15, “ Accumulated Other Comprehensive Loss ”.   Recent Accounting Pronouncements   Recently Adopted Accounting Pronouncements – In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments-Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments . ASU 2016 - 13 was subsequently amended by ASU 2019 - 04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses , ASU 2019 - 05, Financial Instruments-Credit Losses (Topic 326 ): Targeted Transition Relief , ASU 2019 - 10, Financial Instruments—Credit Losses (Topic 326 ), Derivatives and Hedging (Topic 815 ), and Leases (Topic 842 ): Effective Dates and ASU 2019 - 11 , Codification Improvements to Topic 326, Financial Instruments—Credit Losses . ASU 2016 - 13, as amended, affects trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. The adoption of ASU 2016 - 13 did not have a material impact on our consolidated financial statements.   57 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   In August 2018, the FASB issued ASU 2018 - 13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity can choose to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The adoption of ASU 2018 - 13 did not have a material impact on our disclosures.   In August 2018, the FASB issued ASU 2018 - 14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans , which improves defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. Adoption of ASU 2018 - 14 resulted in the elimination of disclosures regarding the effects of a one -percentage-point change in the assumed health care cost trend rates on the aggregate projected service and interest cost and accumulated postretirement benefit obligation; and the addition of disclosures explaining the reasons for significant gains and losses related to the change in benefit obligations for the period. See Note 6, “Employee Benefit Plans” for further discussion of our defined benefit pension plans.   In December 2019, the FASB issued ASU No. 2019 - 12, Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by eliminating certain exceptions for investments, intraperiod allocations and interim calculations. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The amendments did not create new accounting requirements. We adopted the standard as of December 29, 2019. The adoption of this standard did not have a significant impact on our consolidated financial statements.   Recently Issued Accounting Pronouncements – In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. Our Term Loan Credit Facility bears interest at fluctuating interest rates based on LIBOR. If LIBOR ceases to exist, we may need to renegotiate our loan and we cannot predict what alternative index would be negotiated with our lenders. ASU 2020 - 04 was effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.   All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.     2 .      Business Acquisitions   On October 1, 2018, pursuant to the Agreement and Plan of Merger dated as of May 7, 2018, we merged with Xcerra, a Massachusetts-based company. At the time of the merger each share of Xcerra common stock issued and outstanding immediately (other than dissenting shares and shares held by Cohu, Xcerra or any direct or indirect wholly owned subsidiary of Cohu or Xcerra), were converted into the right to receive, in the aggregate for all shares of Xcerra common stock, consideration totaling $ 794.4  million.   Xcerra, formerly known as LTX-Credence Corporation, is a global provider of test and handling capital equipment, interface products and related services to the semiconductor and electronics manufacturing industries. Xcerra was comprised of four businesses in the semiconductor and electronics manufacturing test markets: atg-Luther & Maelzer, Everett Charles Technologies, LTX-Credence and Multitest. The acquisition of Xcerra was a strategic transaction to expand our total available market, extend our market leadership and broaden our product offerings.   58 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Cohu financed the merger, including all related fees and expenses, with the following:     ● $ 160.5  million cash from our combined balance sheets;     ● The incurrence of $ 350.0  million from the Credit Facility, as defined below;     ● The issuance of 11,776,149 shares of Cohu common stock; and     ● The issuance of 529,995 assumed RSUs to Xcerra employees, of which $ 0.8  million of the fair value of the assumed RSUs was attributed to pre-merger services.   On October 1, 2018, Cohu entered into a credit agreement with Cohu, as borrower, certain of its subsidiaries as guarantor subsidiaries, the financial institutions party thereto from time to time as lenders, and Deutsche Bank AG New York Branch, as administrative agent and collateral agent, providing for a $ 350.0 million Credit Facility (the “Credit Facility”), and borrowed the full amount. Loans under the Credit Facility amortize in equal quarterly installments equal to 0.25 % of the original principal amount thereof, with the balance payable at maturity. Subject to certain exceptions and thresholds, the Credit Facility will also require mandatory prepayments in connection with (i) excess cash flow, (ii) non-ordinary course asset sales and other dispositions and (iii) the issuance of certain debt obligations, among other things. Cohu has the right to prepay loans under the Credit Agreement in whole or in part at any time, without premium or penalty. Amounts repaid in respect of loans under the Credit Facility may not be reborrowed. All outstanding principal and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00 %. The lender may accelerate the payment terms of the Credit Agreement upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement or to provide required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu.   The acquisition method of accounting is based on ASC 805, Business Combinations (“ASC 805” ), and uses the fair value concepts defined in ASC 820, Fair Value Measurement (“ASC 820” ). The purchase price allocation described herein contains adjustments made during the post-acquisition measurement period, which were made as a result of obtaining new facts and circumstances related to certain assets acquired and liabilities assumed as of the date of acquisition. The net impact of the measurement period adjustments was offset against goodwill.   The acquisition was nontaxable to Cohu and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. The acquired assets and liabilities of Xcerra were recorded at their respective fair values including an amount for goodwill which represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of Xcerra. Goodwill has been allocated to our THG, STG, ISG and PTG operating segments.   We recorded a $ 19.6  million step-up of inventory to its fair value as of the acquisition date based on the valuation which was fully amortized to cost of sales as of December 28, 2019.   59 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The allocation of the intangible assets subject to amortization is as follows ( in thousands ):       Estimated Fair Value     Weighted Average Useful Life (years)   Developed technology   $ 194,600       7.8   Customer relationships     65,890       10.6   In-process research and development     36,360     indefinite   Product backlog     6,410       0.8   Trademarks and trade names     16,800       11.0   Favorable leases     1,100       5.5   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. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry.   The value assigned to developed technology was determined by using the multi-period excess earnings method under the income approach. Developed technology, which comprises products that have reached technological feasibility, includes the products in Xcerra’s product line. The revenue estimates used to value the developed technology were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by Xcerra and competitors. The estimated cash flows were based on revenues for the developed technology net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the developed technology to present value was based on the risk associated with the respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets, the weighted average cost of capital, the internal rate of return, and the weighted average return on assets.   The value assigned to customer relationships was determined by using the with and without method under the income approach, which analyzes the difference in discounted cash flows generated with the customer relationships in place compared to the discounted cash flows generated without the customer relationships in place.   In-process research and development (“IPR&D”) represents the estimated fair value assigned to research and development projects acquired in a business combination that have not been completed at the date of acquisition and which have no alternative future use. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility amounts capitalized related to the project are reclassified to developed technology and the intangible asset begins to be amortized over its estimated useful life. For the IPR&D, additional research and development will be required to assess technological feasibility.   The value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 1, 2018, using the income approach to discount back to present value the cash flows attributable to the backlog.   The value assigned to trademarks and trade names was estimated using the relief-from-royalty method of the income approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of this intangible asset.   In our estimate of the fair value of Xcerra’s net assets, Cohu identified leases that appear to be at both favorable and unfavorable rates compared to current market rates. As a result, Cohu has recorded both favorable and unfavorable lease assets, which are being amortized to rent expense over the terms of the related lease. As of December 29, 2018, favorable leases were reclassified from intangible assets, net to operating lease right of use assets as a result of our adoption of ASU 2016 - 2, Leases (Topic 842 ) .   60 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     3 . Goodwill and Purchased Intangible Assets   Changes in the carrying value of our goodwill during the years ended December 26, 2020, and December 28, 2019, were as follows ( in thousands ):       Semiconductor Test & Inspection     PCB Test     Total Goodwill   Balance December 29, 2018   $ 220,808     $ 21,319     $ 242,127   Additions     2,117       ( 983 )     1,134   Impairments (1)     ( 715 )     -       ( 715 ) Impact of currency exchange     ( 3,435 )     ( 442 )     ( 3,877 ) Balance December 28, 2019     218,775       19,894       238,669   Impact of currency exchange     11,949       1,686       13,635   Balance December 26, 2020   $ 230,724     $ 21,580     $ 252,304     ( 1 )  Impairment of goodwill associated with our FSG segment that is presented as discontinued operations. This amount was not pushed down in the consolidated financial statements and was included within the balance of our Semiconductor Test & Inspection segment.   Purchased intangible assets, subject to amortization, are as follows (in thousands) :       December 26, 2020     December 28, 2019                       Remaining                       Gross Carrying     Accumulated     Useful Life     Gross Carrying     Accumulated       Amount     Amortization     (years)     Amount     Amortization   Developed technology   $ 239,250     $ 83,246       5.7     $ 227,619     $ 49,805   Customer relationships     74,933       22,751       8.5       72,251       14,824   Trade names     23,756       6,279       8.7       22,612       3,892   Covenant not-to-compete     340       136       6.0       322       96       $ 338,279     $ 112,412             $ 322,804     $ 68,617     The table above excludes $ 7.8  million and $ 20.8  million of in-process technology in 2020 and 2019, respectively, which has an indefinite life and is subject to impairment or future amortization as developed technology when the projects are completed. During the current year $ 1.8  million of in-process technology was completed and transferred to developed technology and began being amortized. Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates.   We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable. We completed our required annual goodwill and indefinite-lived intangible impairment testing as of October 1, 2019, the first day of our fourth quarter and concluded there were no impairments of goodwill within our reporting units or our indefinite-lived intangible assets at that time. Other events and changes in circumstances may also require goodwill and our indefinite-lived intangible assets to be tested for impairment between annual measurement dates. During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID- 19 pandemic led us to determine that there was a triggering event related to goodwill and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and concluded there was no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID- 19 pandemic, changes to future project roadmaps and an increase in the discount rate used in developing our interim fair value estimate resulted in a $ 3.9  million impairment to IPR&D as the carrying value exceeded fair value. During the third quarter of 2020, we became aware of additional delays in customer adoption of these new products under development leading us to re-evaluate the fair value of these projects and we determined that the carrying value exceeded the fair value and, as a result, we recorded an additional $ 7.3  million impairment to IPR&D. For the twelve months ended December 26, 2020 total impairments recorded to IPR&D projects was $ 11.2  million.   The forecasts utilized in the interim impairment tests were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and may not be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required, we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.   61 Table of Contents     COHU, INC. 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.     4 . Borrowings and Credit Agreements   The following table is a summary of our borrowings as of December 26, 2020 and December 28, 2019:       Fiscal year ended   (in thousands)   December 26, 2020     December 28, 2019   Bank term loan under credit agreement   $ 306,630     $ 346,500   Bank term loans-Kita     3,662       3,830   Bank term loan-Xcerra     -       1,475   Construction loan-Cohu GmbH     9,902       5,476   Lines of credit     5,314       3,195   Total debt     325,508       360,476   Less: financing fees and discount     ( 5,568 )     ( 7,441 ) Less: current portion     ( 8,389 )     ( 6,517 ) Total long-term debt   $ 311,551     $ 346,518     The debt principal payments, excluding financing lease obligations, for the next five years and thereafter are as follows:   (in thousands)         2021   $ 9,512   2022     4,720   2023     4,725   2024     4,730   2025     293,864   Thereafter     7,957   Total   $ 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 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. As of December 26, 2020, the fair value of the debt was $ 303.1  million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of December 26, 2020 and is considered a Level 2 fair value measurement.   Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. As of December 26, 2020, we believe no such events of default have occurred.   62 Table of Contents     COHU, INC. 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 26, 2020, the outstanding loan balance was $ 3.6  million and $ 0.3  million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. The fair value of the debt approximates the carrying value at December 26, 2020.   The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.   Xcerra Term Loan   As a result of our acquisition of Xcerra, we assumed a term loan related to the purchase of Xcerra’s facility in Rosenheim, Germany. The loan was payable over 10 years at an annual interest rate of 2.35 %. Principal plus accrued interest was due quarterly over the duration of the term loan ending in March 2024. At December 28, 2019, the outstanding loan balance was $ 1.5  million and $ 0.3  million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. During 2020 the term loan was fully repaid using proceeds received from the sale of our facility located in Rosenheim, Germany.   Construction Loan s   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.   63 Table of Contents     COHU, INC. 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.   Lines of Credit   As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $ 9.3  million. At December 26, 2020, total borrowings outstanding under the revolving lines of credit were $ 5.3  million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our consolidated balance sheet.   The revolving lines of credit are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.   Our wholly owned Ismeca subsidiary has one available line of credit which provides it with borrowings of up to a total of 2.0  million Swiss Francs. At December 26, 2020, and December 28, 2019, no amounts were outstanding under this line of credit.     5 .      Restructuring Charges   Subsequent to the acquisition of Xcerra, during the fourth quarter of 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding the recently acquired Xcerra (“Integration Program”). See Note 2, “Business Acquisitions, Goodwill and Purchased Intangible Assets” for additional information regarding this transaction. As part of the Integration Program we consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in Penang, Malaysia and Fontana, California in 2019.   In the second quarter of 2019, we began the Integration Program of our German operations and entered a social plan with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH. During the fourth quarter of 2020 we implemented a voluntary program and termination agreements with certain employees of our wholly owned subsidiary, Cohu GmbH. These programs will collectively reduce headcount, enable us to consolidate the facilities of our multiple operations located near Kolbermoor and Rosenheim, Germany, as well as transition certain manufacturing to other lower cost regions. The facility consolidations and reduction in force programs are being implemented as part of a comprehensive review of our operations and are intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.   As a result of the activities described above, we recognized total pretax charges of $ 11.4  million, $ 16.2  million and $ 37.8  million for the years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively, that are within the scope of ASC 420, Exit or Disposal Cost Obligations (“ASC 420” ). Severance and other separation payments made to certain executive officers of Xcerra related to change-in-control with double trigger provisions in their existing employment agreements totaled $ 6.9  million in the year ended December 29, 2018. Additionally, in the year ended December 29, 2018, we incurred $ 8.2  million of compensation costs related to the acceleration of RSUs held by certain executive officers and the Board of Directors of Xcerra because of the change in control. This non-cash expense is included in restructuring in our consolidated statements of operations.   All costs of the Integration Program were, and are expected to be, incurred by our Semiconductor Test & Inspection segment.   64 Table of Contents     COHU, INC. 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)   2020     2019     2018   Employee severance costs   $ 6,485     $ 12,170     $ 17,791   Inventory related charges     3,731       2,729       19,053   Other restructuring costs     1,138       1,314       913   Total   $ 11,354     $ 16,213     $ 37,757     Costs associated with restructuring activities are presented in our consolidated statements of operations as restructuring charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, which are classified within cost of sales. Other restructuring costs include expenses for professional fees associated with employee severance, impairments of fixed assets and facility closure costs.   The following table summarizes the activity within the restructuring related accounts for the Integration Program during the years ended December 26, 2020 and December 28, 2019 (in thousands) :       Employee Severance     Other Exit Costs     Total                             Balance, December 29, 2018   $ 4,026       -       4,026   Costs accrued     12,170       1,314       13,484   Amounts paid or charged     ( 14,909 )     ( 1,314 )     ( 16,223 ) Impact of currency exchange     ( 51 )     -       ( 51 ) Balance, December 28, 2019     1,236       -       1,236   Costs accrued     6,485       1,138       7,623   Amounts paid or charged     ( 2,055 )     ( 1,138 )     ( 3,193 ) Impact of currency exchange     160       -       160   Balance, December 26, 2020   $ 5,826     $ -     $ 5,826     At December 26, 2020, our total accrual for restructuring related items is reflected within current liabilities in our consolidated balance sheets as these amounts are expected to be paid out in 2021. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash. All amounts accrued related to inventory will remain in our consolidated balance sheet until it is scrapped.     6.      Employee Benefit Plans   Defined Contribution Retirement Plans – Cohu and Xcerra each maintained defined contribution 401 (k) retirement savings plans covering all their respective salaried and hourly U.S. employees. At the beginning of 2020 the legacy Xcerra plan were merged into Cohu’s. Participation is voluntary and participants’ contributions are based on their eligible 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.   65 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Net periodic benefit cost of the Swiss Plan was as follows:   (in thousands)   2020     2019     2018   Service cost   $ 1,310     $ 920     $ 925   Interest cost     67       267       207   Expected return on assets     ( 200 )     ( 168 )     ( 124 ) Settlements     292       -       -   Net periodic costs   $ 1,469     $ 1,019     $ 1,008     The following table sets forth the projected benefit obligation, the fair value of plan assets, the funded status and the liability we have recorded in our consolidated balance sheets related to the Swiss Plan:   (in thousands)   2020     2019   Change in projected benefit obligation:                 Benefit obligation at beginning of year   $ ( 32,241 )   $ ( 29,910 ) Service cost     ( 1,310 )     ( 920 ) Interest cost     ( 67 )     ( 267 ) Actuarial gain (loss)     1,916       ( 1,456 ) Participant contributions     ( 1,136 )     ( 1,434 ) Benefits paid     419       2,313   Plan change     944       -   Settlements     3,446       -   Foreign currency exchange adjustment     ( 3,010 )     ( 567 ) Benefit obligation at end of year     ( 31,039 )     ( 32,241 ) Change in plan assets:                 Fair value of plan assets at beginning of year     18,705       18,088   Return on assets, net of actuarial loss     129       281   Employer contributions     886       882   Participant contributions     1,136       1,434   Benefits paid     ( 419 )     ( 2,313 ) Settlements     ( 3,446 )     -   Foreign currency exchange adjustment     1,765       333   Fair value of plan assets at end of year     18,756       18,705   Net liability at end of year   $ ( 12,283 )   $ ( 13,536 )   At December 26, 2020 and December 28, 2019, the Swiss Plan’s net liability is included in noncurrent accrued retirement benefits. Amounts recognized in accumulated other comprehensive loss net of tax related to the Swiss Plan consisted of an unrecognized net actuarial loss totaling $ 1.3 million at December 26, 2020, and $ 4.1 million at December 28, 2019.   Actuarial gain of $ 1.9 million for the year ended December 26, 2020, was primarily due to plan experience. The actuarial loss of $ 1.5 million for the year ended December 28, 2019, was due to assumption changes, partially offset by plan experience.   66 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Weighted-average actuarial assumptions used to determine the projected benefit obligation under the Swiss Plan are as follows:       2020     2019   Discount rate     0.2 %       0.2 %   Compensation increase     1.1 %       1.1 %     Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows:       2020     2019     2018   Discount rate     0.2 %       0.9 %       0.7 %   Rate of return on assets     1.0 %       0.9 %       0.7 %   Compensation increase     1.1 %       1.8 %       1.8 %     During  2021 employer and employee contributions to the Swiss Plan are expected to total $ 0.9  million. Estimated benefit payments are expected to be as follows: 2021 - $ 1.3  million; 2022 - $ 1.1  million; 2023 - $ 1.8  million; 2024 - $ 1.3  million; 2025 - $ 1.1  million; and $ 6.5  million thereafter through 2030.   As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple employers. We have no investment authority over the assets of the plan that are held and invested by a Swiss insurance company. Investment holdings are made with respect to Swiss laws and target allocations for plan assets are 58 % debt securities and cash, 20 % real estate investments, 10 % alternative investments and 12 % equity securities. The valuation of the collective fund assets as a whole is a Level 3 measurement; however, the individual investments of the fund are generally Level 1 (equity securities), Level 2 (fixed income) and Level 3 (real estate and alternative) investments. We determine the fair value of the plan assets based on information provided by the collective fund, through review of the collective fund’s annual financial statements. See Note 7, “Financial Instruments Measured at Fair Value” for additional information on the three -tier fair value hierarchy.   We maintain other defined benefit plans for employees located outside the U.S. for which the majority of the obligations and net periodic benefit cost were determined to be immaterial for all periods presented.   Retiree Medical Benefits – We provide post-retirement health benefits to certain executives and directors under a noncontributory plan. The net periodic benefit cost was $ 0.1  million in 2020, 2019, and 2018. We fund benefits as costs are incurred and as a result there are no plan assets.   The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 2.1 % in 2020, 3.0 % in 2019 and 4.1 % in 2018. The annual rates of increase of the cost of health benefits was assumed to be 6.8 % in 2021. This rate was then assumed to decrease 0.27 % per year to 4.4 % in 2030 and remain level thereafter.   Contributions to the post-retirement health benefit plan are expected to total $ 0.1 million in  2021. Estimated benefit payments are expected to be as follows: 2021 - $ 0.1 million; 2022 - $ 0.1 million; 2023 - $ 0.1 million; 2024 - $ 0.1 million; 2025 - $ 0.1 million and $ 0.6 million thereafter through 2030.   The following table sets forth the post-retirement benefit obligation, funded status and the liability we have recorded in our consolidated balance sheets:   (in thousands)   2020     2019   Accumulated benefit obligation at beginning of year   $ ( 2,571 )   $ ( 2,880 ) Interest cost     ( 75 )     ( 115 ) Actuarial gain     134       258   Benefits paid     114       166   Accumulated benefit obligation at end of year     ( 2,398 )     ( 2,571 ) Plan assets at end of year     -       -   Funded status   $ ( 2,398 )   $ ( 2,571 )   67 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Deferred Compensation – The Cohu, Inc. Deferred Compensation Plan allows certain of our officers to defer a portion of their current compensation. We have purchased life insurance policies on the participants with Cohu as the named beneficiary. Participant contributions, distributions and investment earnings and losses are accumulated in a separate account for each participant. At December 26, 2020, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $ 1.8  million and the cash surrender value of the related life insurance policies included in other current assets was approximately $ 1.8  million. At December 28, 2019, the liability totaled $ 2.0  million and the corresponding assets were $ 1.7  million.   Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 2,650,000 shares of our common stock. Under the Plan, eligible employees may purchase shares of common stock through payroll deductions. The price paid for the common stock is equal to 85 % of the fair market value of our common stock on specified dates. During the last three years we issued shares under the Plan as follows: 2020 - 242,633; 2019 - 187,273 and 2018 - 84,678 . At December 26, 2020, there were 668,704  shares reserved for issuance under the Plan.   Stock Options – At December 26, 2020, a total of 1,671,053  shares were available for future equity grants under the Cohu, Inc. 2005 Equity Incentive Plan (“the 2005 Plan”). Under the 2005 Plan stock options may be granted to employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not less than 100 % of the fair market value at the date of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire ten years from the grant date. We have historically issued new shares of Cohu common stock upon share option exercise.   During 2020, 2019 and 2018 no stock options were granted and the activity under our share-based compensation plans was as follows:       2020     2019     2018               Wt. Avg.             Wt. Avg.             Wt. Avg.   (in thousands, except per share data)   Shares     Ex. Price     Shares     Ex. Price     Shares     Ex. Price   Outstanding, beginning of year     363     $ 10.27       405     $ 10.22       472     $ 10.20   Exercised     ( 101 )   $ 10.95       ( 42 )   $ 9.82       ( 67 )   $ 10.10   Outstanding, end of year     262     $ 10.01       363     $ 10.27       405     $ 10.22                                                     Options exercisable at year end     262     $ 10.01       363     $ 10.27       405     $ 10.22     The aggregate intrinsic value of options exercised was $ 1.3  million in 2020, $ 0.2  million in 2019, and $ 0.9  million in 2018. At December 26, 2020, the aggregate intrinsic value of options outstanding, vested and expected to vest and exercisable was $ 7.5  million.   Information about stock options outstanding at December 26, 2020 is as follows (options in thousands) :             Options Outstanding     Options Exercisable                     Approximate                                             Wt. Avg.                           Range of     Number     Remaining     Wt. Avg.     Number     Wt. Avg.   Exercise Prices     Outstanding     Life (Years)     Ex. Price     Exercisable     Ex. Price   $ 9.44 - $ 10.54       159       2.2     $ 9.50       159     $ 9.50   $ 10.55 - $ 10.58       92       1.2     $ 10.58       92     $ 10.58   $ 10.59 - $ 12.58       11       3.5     $ 12.44       11     $ 12.44               262       1.9     $ 10.01       262     $ 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. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock units are not considered issued and outstanding. New shares of our common stock will be issued on the date the restricted stock units vest net of the statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at December 26, 2020.   68 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Restricted stock unit activity under our share-based compensation plans was as follows:       2020     2019     2018               Wt. Avg.             Wt. Avg.             Wt. Avg.   (in thousands, except per share data)   Units     Fair Value     Units     Fair Value     Units     Fair Value   Outstanding, beginning of year     1,328     $ 17.05       1,265     $ 19.48       981     $ 12.50   Granted     779     $ 14.02       694     $ 14.32       822     $ 23.70   Released     ( 621 )   $ 17.48       ( 563 )   $ 19.08       ( 500 )   $ 13.10   Cancelled     ( 72 )   $ 17.59       ( 68 )   $ 17.60       ( 38 )   $ 14.67   Outstanding, end of year     1,414     $ 15.16       1,328     $ 17.05       1,265     $ 19.48     RSUs granted in 2018 in the table above include the issuance of 529,995 assumed RSUs to Xcerra employees, based on a conversion formula.   Equity-Based Performance Stock Units – We grant performance stock units (“PSUs”) to certain senior executives as a part of our long-term equity compensation program. The number of shares of common stock that will ultimately be issued to settle PSUs granted ranges from  25 % to  200 % of the number granted and is determined based on certain performance criteria over a three -year measurement period. The performance criteria for the PSUs are based on a combination of our annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR compared with the annualized TSR of certain peer companies for the performance period. PSUs granted vest 100 % on the third anniversary of their grant, assuming achievement of the applicable performance criteria.   We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the requisite service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.   PSU activity under our share-based compensation plans was as follows:       2020     2019     2018               Wt. Avg.             Wt. Avg.             Wt. Avg.   (in thousands, except per share data)   Units     Fair Value     Units     Fair Value     Units     Fair Value   Outstanding, beginning of year     364     $ 18.72       340     $ 17.89       334     $ 14.31   Granted     200     $ 13.18       167     $ 14.11       89     $ 24.32   Released     ( 39 )   $ 21.40       ( 36 )   $ 11.35       ( 41 )   $ 9.92   Cancelled     ( 100 )   $ 20.25       ( 107 )   $ 11.35       ( 42 )   $ 10.69   Outstanding, end of year     425     $ 15.51       364     $ 18.72       340     $ 17.89     Share-based Compensation – We estimate the fair value of stock options and RSUs on the grant date using the Black-Scholes valuation model. The estimated fair value of PSUs is determined on the grant date using the Monte Carlo simulation valuation model. Option valuation models require the input of highly subjective assumptions and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions for the Black-Scholes model include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date. Expected dividends are based primarily on historical factors related to our common stock. Expected volatility is based on historic weekly stock price observations of our common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term. We believe that historical volatility is the best estimate of future volatility. Expected life of the award is based on historical option exercise data. The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu and the selected peer group price volatility, the correlation between Cohu and the selected index, and dividend yields. Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. As a result of the COVID- 19 pandemic, Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of May 5, 2020. All awards granted in 2020 exclude the assumption of dividend payments and the estimated fair value awards granted in prior years, when dividends were being paid, are unchanged.   69 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The following weighted average assumptions were used to value share-based awards granted:   Employee Stock Purchase Plan   2020   2019   2018 Dividend yield     0.5 %     1.3 %     1.1 % Expected volatility     67.1 %     46.4 %     39.0 % Risk-free interest rate     1.1 %     2.2 %     1.7 % Expected term (years)     0.5       0.5       0.5   Weighted-average grant date fair value per share   $ 6.01     $ 5.35     $ 5.90     Restricted Stock Units   2020   2019   2018 Dividend yield     0.0 %     1.6 %     1.0 %   Reported share-based compensation is classified in the consolidated financial statements as follows:   (in thousands)   2020     2019     2018   Cost of sales   $ 893     $ 736     $ 546   Research and development     3,245       2,994       1,717   Selling, general and administrative     10,096       10,418       7,790   Share-based compensation of continuing operations     14,234       14,148       10,053   Income tax benefit     ( 963 )     ( 587 )     ( 993 ) 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.   At December 26, 2020, we had approximately $ 17.6  million of pre-tax unrecognized compensation cost related to unvested restricted stock units and performance stock units which is expected to be recognized over a weighted-average period of approximately 2.2  years.     7 . Financial Instruments Measured at Fair Value   Our cash, cash equivalents, and short-term investments consisted primarily of cash and other investment grade securities. We do not hold investment securities for trading purposes. All short-term investments, which are comprised entirely of short-term debt securities, are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality investments and through investment diversification.   Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on sales of short-term investments are included in interest income. Realized gains and losses for the periods presented were not significant.   70 Table of Contents     COHU, INC. 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               Gross     Gross     Estimated       Amortized     Unrealized     Unrealized     Fair       Cost     Gains     Losses (1)     Value   Corporate debt securities (2)   $ 14,943     $  2     $ 1     $ 14,944   U.S. treasury securities     2,012       -       -       2,012   Government-sponsored enterprise securities     1,998       -       -       1,998   Bank certificates of deposit     750       -       -       750   Foreign government security     965       -       -       965       $ 20,668     $ 2     $ 1     $ 20,669         At December 28, 2019               Gross     Gross     Estimated       Amortized     Unrealized     Unrealized     Fair       Cost     Gains     Losses (1)     Value   Foreign government security   $ 904     $ -     $ -     $ 904     ( 1 ) As of December 26, 2020, the cost and fair value of investments with loss positions were approximately $ 8.7  million. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity. As of December 28, 2019, we had no investments with loss positions.     ( 2 ) Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio.   Effective maturities of short-term investments at December 26, 2020, were as follows:       Amortized     Estimated   (in thousands)   Cost     Fair Value   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. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. When available, we use quoted market prices to determine the fair value of our investments, and they are included in Level 1. When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information.   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) :       Fair value measurements at December 26, 2020 using:                               Total Estimated       Level 1     Level 2     Level 3     Fair Value   Cash   $ 128,874     $ -     $ -     $ 128,874   Money market funds     -       19,734       -       19,734   Foreign government security     -       965       -       965   Corporate debt securities     -       15,694       -       15,694   U.S. treasury securities     -       2,012       -       2,012   Government-sponsored enterprise securities     -       1,998       -       1,998   Bank certificates of deposit     -       750       -       750       $ 128,874     $ 41,153     $ -     $ 170,027     71 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       Fair value measurements at December 28, 2019 using:                               Total Estimated       Level 1     Level 2     Level 3     Fair Value   Cash   $ 147,523     $ -     $ -     $ 147,523   Money market funds     -       7,671       -       7,671   Foreign government security     -       904       -       904       $ 147,523     $ 8,575     $ -     $ 156,098       8.      Derivative Financial Instruments   Foreign Exchange Derivative Contracts   We operate and sell our products in various global markets and, as a result, we are exposed to changes in foreign currency exchange rates. In the fourth quarter of 2020, we began utilizing foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses.   We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our consolidated statements of operations for both realized and unrealized gains and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash provided by operating activities in our consolidated statements of cash flows.   The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All our foreign exchange derivative contracts outstanding at December 26, 2020 will mature during the first quarter of fiscal 2021.   The following table provides information about our foreign currency forward contracts outstanding as of December 26, 2020 (in thousands) :   Currency Contract Position   Contract Amount (Local Currency)     Contract Amount (U.S. Dollars)   Swiss Franc Buy     13,349     $ 15,000   Euro Buy     9,424       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)   Fiscal Year   as Hedging Instruments Recognized on Derivatives   2020   Foreign exchange forward contracts Foreign transaction gain (loss)   $ 756     72 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     9.      Income Taxes   Significant components of the provision (benefit) for income taxes for continuing operations are as follows:   (in thousands)   2020     2019     2018   Current:                         U.S. Federal   $ -     $ -     $ -   U.S. State     21       130       51   Foreign     5,950       2,173       8,787   Total current     5,971       2,303       8,838   Deferred:                         U.S. Federal     8       98       56   U.S. State     -       1       -   Foreign     ( 5,313 )     ( 5,484 )     ( 8,263 ) Total deferred     ( 5,305 )     ( 5,385 )     ( 8,207 )     $ 666     $ ( 3,082 )   $ 631     Income (loss) before income taxes from continuing operations consisted of the following:   (in thousands)   2020     2019     2018   U.S.   $ ( 25,005 )   $ ( 72,669 )   $ ( 42,682 ) Foreign     11,828       592       10,770   Total   $ ( 13,177 )   $ ( 72,077 )   $ ( 31,912 )   The Tax Act was enacted on December 22, 2017, and introduced significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and related-party payments, which are referred to as the global intangible low-taxed income (“GILTI”) tax and the base erosion and anti-abuse tax, respectively. In addition, in 2017 we were subject to a one -time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The Tax Act also repealed the alternative minimum tax (AMT) effective January 1, 2018, and made changes to net operating loss provisions, expensing of certain assets and capitalization of research and development expense with such changes effective for 2018 and later years.   Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 30, 2017 by applying the guidance in SAB 118 because we had not completed our accounting for these effects. During 2018, we completed the accounting for these effects. Except as described below under “One-time transition tax”, due to the valuation allowance against our deferred tax assets, there was no net change made in 2018 to our 2017 enactment-date provisional income tax.   Under GAAP, we are allowed to make an accounting policy election to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred or (ii) factor such amounts into a company’s measurement of its deferred taxes. We have elected to account for GILTI as a period cost.   One-time transition tax   The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. Foreign tax credits and net operating losses may be used to reduce this tax which is referred to as a transition or deemed repatriation tax.   In 2017 we recorded a provisional amount for our one -time transition tax liability of $ 16.6  million and used foreign tax credits and net operating losses to fully offset this liability. In 2018 the IRS and U.S. Treasury issued Notice 2018 - 29 that addresses certain aspects of the calculation of the transition tax (“Notice 2018 - 29” ). Application of Notice 2018 - 29 resulted in an increase to our transition tax liability of approximately $ 5.1  million that was fully offset by net operating losses resulting in no net increase to income tax expense.   73 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Deferred tax effects   The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we remeasured our deferred taxes as of December 30, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $ 4.0  million in 2017, net of a reduction in the related valuation allowance, to reflect the reduced U.S. tax rate and other effects of the Tax Act including the change in the life of NOL carryforwards from 20 years to indefinite.   Beginning in 2018, the Tax Act provides a 100% deduction for dividends received from 10 -percent owned foreign corporations by U.S. corporate shareholders, subject to a one -year holding period. Although dividend income is now exempt from U.S. federal tax in the hands of U.S. corporate shareholders, we must still apply the guidance of ASC 740 - 30 - 25 - 18 to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries.   Except for working capital requirements in certain foreign jurisdictions, we provide for all taxes, including withholding and other residual taxes, related to unremitted earnings of our foreign subsidiaries.   Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of our deferred tax assets and liabilities were as follows:   (in thousands)   2020     2019   Deferred tax assets:                 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     5,306       4,274   Stock-based compensation     2,210       2,372   Lease liabilities     5,146       5,804   Other     4,221       9,390   Gross deferred tax assets     122,773       138,656   Less valuation allowance     ( 86,124 )     ( 93,494 ) Total deferred tax assets     36,649       45,162   Deferred tax liabilities:                 Intangible assets and other acquisition basis differences     52,012       63,866   Operating lease right-of-use assets     4,706       5,258   Unremitted earnings of foreign subsidiaries     3,119       2,462   Total deferred tax liabilities     59,837       71,586   Net deferred tax liabilities   $ ( 23,188 )   $ ( 26,424 )   Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, ( 1 ) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); ( 2 ) taxable income in prior carryback years, if carryback is permitted under the tax law; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carryforwards.   In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs each reporting period, including an assessment of our cumulative income or loss over the prior three -year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cohu’s three -year cumulative loss history at the end of various fiscal periods including 2020.   As a result of our cumulative, three -year U.S. GAAP pretax loss from continuing operations at the end of 2020 we were unable to conclude that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the realizability of our DTAs at the end of each quarterly reporting period in 2021 and should circumstances change it is possible an additional valuation allowance will be recorded or the remaining valuation allowance, or a portion thereof, will be reversed in a future period.   74 Table of Contents     COHU, INC. 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.   As the realization of DTAs is determined by tax jurisdiction, the deferred tax liabilities recorded by our non-U.S. subsidiaries were not a source of taxable income in assessing the realization of our DTAs in the U.S.   The CARES Act was signed into law on March 27,2020. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”) and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, suspend the excess business loss rules, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest limitation under IRC section 163 (j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions. Due to our overall loss position in the US, the CARES Act did not have a significant impact on Company’s financial position or statement of operations.   The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for income taxes for continuing operations is as follows:   (in thousands)   2020     2019     2018   Tax provision at U.S. 21% statutory rate   $ ( 2,757 )   $ ( 15,136 )   $ ( 6,702 ) Impact of Tax Act, before reduction in valuation allowance     -       -       5,095   State income taxes, net of federal tax benefit     ( 1,160 )     ( 1,097 )     ( 663 ) Settlements, adjustments and releases from statute expirations     ( 118 )     ( 1,204 )     ( 783 ) Federal tax credits     ( 46 )     ( 1,458 )     ( 864 ) Stock-based compensation     727       587       ( 838 ) Executive compensation limited by Section 162(m)     491       190       3,456   Change in valuation allowance     ( 1,691 )     11,270       ( 2,015 ) Non-deductible transaction related costs     -       -       1,106   Deemed dividend     1,224       1,453       470   GILTI     4,191       2,480       3,531   Foreign rate differential     ( 1,512 )     ( 1,266 )     ( 904 ) Other, net     1,317       1,099       ( 258 )     $ 666     $ ( 3,082 )   $ 631     At December 26, 2020, including carryforwards from the Xcerra acquisition as described below, we had federal, state and foreign net operating loss carryforwards of approximately $ 200.9  million, $ 130.1  million and $ 22.5  million, respectively, that expire in various tax years beginning in 2021 through 2040 or have no expiration date. We also have federal and state tax credit carryforwards at December 26, 2020 of approximately $ 11.5  million and $ 32.8  million, respectively, certain of which expire in various tax years beginning in 2021 through 2040 or have no expiration date. The federal and state loss and credit carryforwards are subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code and applicable state tax law. We believe the state tax credit is not likely to be realized in the foreseeable future.   We have completed a Section  382 and 383 analysis of the Internal Revenue Code and applicable state law, regarding the limitation of its net operating loss and business tax credit carryforwards as of December 26, 2020. As a result of the analysis, we concluded that the acquisition of Xcerra on October 1, 2018, triggered a limitation in the utilization of Xcerra’s net operating loss and research credit carryforwards. We reduced our deferred tax assets related to the Xcerra U.S. net operating loss and credit carryforwards that are anticipated to expire unused as a result of ownership changes. These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on the income tax provision or effective tax rate. We will continue to assess the realizability of these carryforwards in subsequent periods. Future changes in the ownership of Cohu could further limit the utilization of these carryforwards.   We have certain tax holidays with respect to our operations in Malaysia and the Philippines. These holidays require compliance with certain conditions and expire at various dates through 2027. The impact of these holidays was an increase in net income of approximately $ 3.6  million or $ 0.09  per share in 2020, $ 2.1  million, or $ 0.05  per share, in 2019 and $ 2.4  million, or $ 0.08  per share, in fiscal 2018.   75 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:   (in thousands)   2020     2019     2018   Balance at beginning of year   $ 34,740     $ 34,873     $ 10,321   Additions for tax positions of current year     817       1,231       524   Additions (reductions) for tax positions of prior years     ( 425 )     ( 484 )     191   Reductions due to lapse of the statute of limitations     ( 304 )     ( 957 )     ( 645 ) Additions related to Xcerra acquisition     -       -       24,524   Reductions due to settlements     ( 1,134 )     ( 30 )     -   Foreign exchange rate impact     2       107       ( 42 ) Balance at end of year   $ 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 $ 5.7  million ($ 7.0  million at December 28, 2019 and $ 8.2 million at December 29, 2018) would result in a reduction in our income tax expense and effective tax rate. It is reasonably possible that our gross unrecognized tax benefits as of December 26, 2020, could decrease in 2021 by approximately $ 0.6  million as a result of the expiration of certain statutes of limitations.   We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately $ 1.0  million and $ 1.3  million accrued for the payment of interest and penalties at December  26,   2020, and December 28, 2019, respectively. Interest expense, net of accrued interest reversed, was $( 0.3 ) million in 2020, $( 0.3 ) million in 2019 and $ 0.6  million in 2018.   Our U.S. federal and state income tax returns for years after 2016 and 2015, respectively, remain open to examination, subject to the statute of limitations. Net operating loss and credit carryforwards arising prior to these years are also open to examination if and when utilized. The statute of limitations for the assessment and collection of income taxes related to our foreign tax returns varies by country. In the foreign countries where we have significant operations these time periods generally range from four to ten years after the year for which the tax return is due or the tax is assessed. While the examination of several of our German subsidiaries income tax returns for 2012 through 2017 were concluded in 2020, our other German subsidiaries income tax returns for 2015 to 2017 are currently under routine examination by tax authorities in Germany. Similarly, our Philippines subsidiary income tax return for 2017 is currently under routine examination by the Bureau of Internal Revenue, and the audit for the 2018 income tax year was concluded in 2020. Subsequent to December 26, 2020, we were notified by the taxing authority in Malaysia of its intent to perform an audit for 2014 to 2019 for one of our Malaysian subsidiaries.   76 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     10.   Segment and Geographic Information   We applied the provisions of ASC Topic 280, Segment Reporting , (“ASC 280” ), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We determined that our four identified operating segments are: Test Handler Group (THG), Semiconductor Tester Group (STG), Interface Solutions Group (ISG) and PCB Test Group (PTG). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in two segments, Semiconductor Test & Inspection and PCB Test.   (in thousands)   2020     2019     2018   Net sales by segment:                         Semiconductor Test & Inspection   $ 585,240     $ 540,878     $ 443,276   PCB Test     50,767       42,451       8,492   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   PCB Test     6,971       2,635       ( 5,154 ) Profit (loss) for reportable segments     4,474       ( 42,437 )     ( 2,665 ) Other unallocated amounts:                         Corporate expenses     ( 4,384 )     ( 9,848 )     ( 25,457 ) Interest expense     ( 13,759 )     ( 20,556 )     ( 4,977 ) Interest income     224       764       1,187   Gain on extinguishment of debt     268       -       -   Loss from continuing operations before taxes   $ ( 13,177 )   $ ( 72,077 )   $ ( 31,912 )   (in thousands)   2020     2019     2018   Depreciation and amortization by segment deducted in arriving at profit (loss):   Semiconductor Test & Inspection   $ 51,548     $ 56,621     $ 24,634   PCB Test     1,198       2,250       1,413   Total depreciation and amortization   $ 52,746     $ 58,871     $ 26,047   Capital expenditures by segment:                         Semiconductor Test & Inspection   $ 18,616     $ 17,831     $ 4,957   PCB Test     44       169       10   Total consolidated capital expenditures   $ 18,660     $ 18,000     $ 4,967     (in thousands)   2020     2019     2018   Total assets by segment:                         Semiconductor Test & Inspection   $ 968,028     $ 998,756     $ 1,038,053   PCB Test     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     -       3,618       3,820   Total consolidated assets   $ 1,090,346     $ 1,077,710     $ 1,134,002     77 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   During the last three years, the following customers of our Semiconductor Test & Inspection segment that comprised 10% or greater of our consolidated net sales were as follows:       2020     2019     2018   Intel     *       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)   2020     2019     2018   China   $ 143,360     $ 118,213     $ 90,255   United States     108,694       71,963       61,177   Taiwan     83,685       75,725       25,074   Malaysia     57,893       61,826       61,793   Philippines     56,272       51,683       46,421   Rest of the world     186,103       203,919       167,048   Total, net   $ 636,007     $ 583,329     $ 451,768     Geographic location of our property, plant and equipment and other long-lived assets was as follows:   (in thousands)   2020     2019   Property, plant and equipment:                 Germany   $ 19,817     $ 25,234   United States     17,800       16,671   Japan     13,231       9,964   Malaysia     3,986       7,151   Philippines     9,333       8,637   Rest of the world     2,749       3,255   Total, net   $ 66,916     $ 70,912                     Goodwill and other intangible assets:                 Germany   $ 232,925     $ 228,476   United States     177,585       207,642   Malaysia     45,435       44,140   Singapore     13,469       13,915   Switzerland     5,006       8,190   Japan     3,703       3,872   Rest of the world     7,866       7,453   Total, net   $ 485,989     $ 513,688     78 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     11 . Leases   We lease certain of our facilities, equipment and vehicles under non-cancelable operating and finance leases. Leases with initial terms with 12 months or less are not recorded in the consolidated balance sheet, but we recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Lease and non-lease 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. Our lease term includes renewal terms when we are reasonably certain that we will exercise the renewal options. We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities.   Supplemental balance sheet information related to leases was as follows:         December 26,     December 28,   (in thousands) Classification   2020     2019   Assets:                   Operating lease assets Operating lease right-of-use assets   $ 29,203     $ 33,269   Finance lease assets Property, plant and equipment, net (1)     486       2,515   Total lease assets   $ 29,689     $ 35,784   Liabilities:                   Current:                   Operating Other accrued liabilities   $ 5,287     $ 5,458   Finance Other accrued liabilities     179       2,574   Noncurrent:                   Operating Long-term lease liabilities     25,565       28,877   Finance Long-term lease liabilities     222       -   Total lease liabilities   $ 31,253     $ 36,909                       Weighted-average remaining lease term (years):                 Operating leases     7.3       7.9   Finance leases     2.3       0.5                       Weighted-average discount rate:                 Operating leases     6.3 %     6.3 % Finance leases     0.0 %     4.5 %   ( 1 )  Finance lease assets are recorded net of accumulated amortization of $ 48,000 and $ 0.1 million in 2020 and 2019, respectively.   The components of lease expense were as follows:       December 26,     December 28,   (in thousands)   2020     2019   Operating leases (1)   $ 8,374     $ 8,525   Variable lease expense     2,110       2,318   Short-term operating leases     93       256   Finance leases:                 Amortization of leased assets     84       102   Interest on lease liabilities     57       146   Sublease income     ( 113 )     ( 133 ) Net lease cost   $ 10,605     $ 11,214     ( 1 )  Operating lease cost excludes impairment expense of $ 0.2 million related to the write-down of the Fontana facility right-of-use asset recognized in 2019.   79 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Future minimum lease payments at December 26, 2020, are as follows:       Operating     Finance           (in thousands)   leases (1)     leases     Total   2021   $ 7,015     $ 179     $ 7,194   2022     6,187       179       6,366   2023     5,297       43       5,340   2024     4,766       -       4,766   2025     4,428       -       4,428   Thereafter     11,942       -       11,942   Total lease payments     39,635       401       40,036   Less: Interest     ( 8,783 )     -       ( 8,783 ) Present value of lease liabilities   $ 30,852     $ 401     $ 31,253     ( 1 )  Excludes sublease income of $ 0.1 million in 2021.   Supplemental cash flow information related to leases was as follows:       December 26,     December 28,   (in thousands)   2020     2019   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows from operating leases   $ 8,079     $ 6,932   Operating cash flows from finance leases   $ 57     $ 117   Financing cash flows from finance leases   $ 146     $ 34   Leased assets obtained in exchange for new finance lease liabilities   $ 489     $ -   Leased assets obtained in exchange for new operating lease liabilities   $ 2,403     $ 40,844       12. Commitments and Contingencies   From time-to-time we are involved in various legal proceedings, examinations by various tax authorities and claims that have arisen in the ordinary course of our business. The outcome of any litigation is inherently uncertain. While there can be no assurance, we do not believe at the present time that the resolution of these matters will have a material adverse effect on our assets, financial position or results of operations.     13 . Guarantees   Accrued Warranty   Changes in accrued warranty during the three -year period ended December 26, 2020, was as follows:   (in thousands)   2020     2019     2018   Beginning balance   $ 6,155     $ 8,014     $ 4,849   Warranty accruals     6,173       6,714       7,154   Warranty payments     ( 5,946 )     ( 8,573 )     ( 8,358 ) Warranty liability assumed     -       -       4,369   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 at both December 26, 2020 and December 28, 2019.   80 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     14. Discontinued Operations   Fixtures Services Business (“FSG”)   On October 1, 2018, we acquired a fixtures services business as part of Xcerra. At the time of the acquisition our management determined that this business did not align with Cohu’s core business and was not a strategic fit within our organization. As a result, the fixtures services business was marketed for sale since we acquired Xcerra on October 1, 2018 and it has been presented as discontinued operations. For financial statement purposes, the results of operations for this business have been segregated from those of continuing operations and are presented in our consolidated financial statements as discontinued operations for all periods presented.   During the fourth quarter of 2019, we recorded a charge of $ 1.1  million to impair goodwill and purchased intangible assets associated with this operating segment as the estimated fair value less cost to sell exceeded the carrying value. We completed the sale of this business in February 2020 which resulted in an immaterial gain that that was recorded in our statement of operations for the twelve months ended December 26, 2020, as noted below.   Balance sheet information for our fixtures services business presented as discontinued operations is summarized as follows (in thousands) :       December 28,       2019   Assets:         Cash   $ 736   Accounts receivable, net     1,316   Inventories     1,411   Other current assets     40   Total current assets     3,503   Property, plant and equipment, net     33   Other noncurrent assets     82   Total assets   $ 3,618             Liabilities:         Other accrued current liabilities   $ 599   Total current liabilities     599   Noncurrent liabilities     24   Total liabilities   $ 623     Operating results of our discontinued operations are summarized as follows (in thousands) :       December 26,     December 28,     December 29,       2020     2019     2018   Net sales   $ 432     $ 6,136     $ 1,593                             Operating income   $ 11     $ 478     $ 157   Loss from impairment of FSG     -       ( 1,086 )     -   Gain on sale of FSG     35       -       -   Income (loss) before taxes     46       ( 608 )     157   Income tax provision     4       89       38   Income (loss), net of tax   $ 42     $ ( 697 )   $ 119     81 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     15 . Accumulated Other Comprehensive Loss   Components of other comprehensive loss, on an after-tax basis, were as follows:   (in thousands)   Before Tax Amount     Tax (Expense) Benefit     Net of Tax Amount   Year ended December 29, 2018                         Foreign currency translation adjustments   $ ( 8,905 )   $ -     $ ( 8,905 ) Adjustments related to postretirement benefits     865       ( 60 )     805   Change in unrealized gain/loss on investments     7       -       7   Other comprehensive income (loss)   $ ( 8,033 )   $ ( 60 )   $ ( 8,093 ) Year ended December 28, 2019                         Foreign currency translation adjustments   $ ( 7,522 )   $ -     $ ( 7,522 ) Adjustments related to postretirement benefits     ( 856 )     228       ( 628 ) Other comprehensive income (loss)   $ ( 8,378 )   $ 228     $ ( 8,150 ) Year ended December 26, 2020                         Foreign currency translation adjustments   $ 27,321     $ -     $ 27,321   Adjustments related to postretirement benefits     2,599       ( 216 )     2,383   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:   (in thousands)   2020     2019   Accumulated net currency translation adjustments   $ ( 2,877 )   $ ( 30,198 ) Accumulated net adjustments related to postretirement benefits     ( 1,449 )     ( 3,832 ) Total accumulated other comprehensive loss   $ ( 4,326 )   $ ( 34,030 )     16 . Related Party Transactions   At December 26, 2020 certain of our cash and short-term investments were held and managed by BlackRock, Inc. which owns 15.2 % of our outstanding common stock as reported in its Form 13 -G filing made with the Securities and Exchange Commission on January 26, 2021.   As part of Xcerra, we gained ownership interests in two companies that supply components and provide services to wholly owned subsidiaries of Xcerra. Multitest elektronische Systeme GmbH and atg-Luther & Maelzer GmbH of FTZ Fraes-und Technologiezentrum GmbH Frasdorf (“FTZ”) and ETZ Elektrisches Testzentrum fuer Leiterplatten GmbH (“ETZ”), respectively. FTZ, based in Germany, provides milling services and ETZ, which is also based in Germany, provides certain component parts. These investments are accounted for under the equity method and are not material to our consolidated balance sheets. During 2020, 2019 and 2018, purchases of products from FTZ and ETZ were not material.   82 Table of Contents     COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     17 . Quarterly Financial Data (Unaudited)   Quarter     First (a)     Second (a)     Third (a)     Fourth (a)     Year   (in thousands, except per share data)                                                                                 Net sales: 2020   $ 138,921     $ 144,084     $ 150,647     $ 202,355     $ 636,007     2019   $ 147,809     $ 150,011     $ 143,498     $ 142,011     $ 583,329                                                 Cost of sales: 2020 (b)   $ 82,837     $ 83,127     $ 87,147     $ 111,114     $ 364,225     2019 (b)   $ 93,394     $ 87,605     $ 84,565     $ 87,936     $ 353,500                                                 Income (loss) from continuing operations 2020   $ ( 17,318 )   $ ( 4,740 )   $ ( 6,646 )   $ 14,861     $ ( 13,843 )   2019   $ ( 22,851 )   $ ( 19,383 )   $ ( 10,480 )   $ ( 16,281 )   $ ( 68,995 )                                               Net income (loss) 2020   $ ( 17,276 )   $ ( 4,740 )   $ ( 6,646 )   $ 14,861     $ ( 13,801 )   2019   $ ( 22,687 )   $ ( 19,359 )   $ ( 10,326 )   $ ( 17,320 )   $ ( 69,692 )                                               Net income (loss) attributable to Cohu 2020   $ ( 17,276 )   $ ( 4,740 )   $ ( 6,646 )   $ 14,861     $ ( 13,801 )   2019   $ ( 22,643 )   $ ( 19,323 )   $ ( 10,468 )   $ ( 17,266 )   $ ( 69,700 )                                               Income (loss) per share attributable to Cohu (c):                                   Basic:                                             Income (loss) from continuing operations 2020   $ ( 0.42 )   $ ( 0.11 )   $ ( 0.16 )   $ 0.35     $ ( 0.33 )   2019   $ ( 0.56 )   $ ( 0.47 )   $ ( 0.25 )   $ ( 0.39 )   $ ( 1.68 )                                               Net income (loss) 2020   $ ( 0.42 )   $ ( 0.11 )   $ ( 0.16 )   $ 0.35     $ ( 0.33 )   2019   $ ( 0.55 )   $ ( 0.47 )   $ ( 0.25 )   $ ( 0.42 )   $ ( 1.69 )                                               Diluted:                                             Income (loss) from continuing operations 2020   $ ( 0.42 )   $ ( 0.11 )   $ ( 0.16 )   $ 0.34     $ ( 0.33 )   2019   $ ( 0.56 )   $ ( 0.47 )   $ ( 0.25 )   $ ( 0.39 )   $ ( 1.68 )                                               Net income (loss) 2020   $ ( 0.42 )   $ ( 0.11 )   $ ( 0.16 )   $ 0.34     $ ( 0.33 )   2019   $ ( 0.55 )   $ ( 0.47 )   $ ( 0.25 )   $ ( 0.42 )   $ ( 1.69 )   (a) All quarters presented above were comprised of 13 weeks. (b) Cost of sales is shown exclusive of the amortization of purchased intangible assets. (c) 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.     83 Table of Contents     Report of Independent Registered Public Accounting Firm   To the Shareholders and the Board of Directors of Cohu, Inc.   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of Cohu, Inc. (the Company) as of December 26, 2020, and December 28, 2019, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 26, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 26, 2020, and December 28, 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 26, 2020, in conformity with U.S. generally accepted accounting principles.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 26, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matters   The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.     Valuation of inventories Description of the Matter 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.   84 Table of Contents   How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory valuation process, including management's assessment of the assumptions stated above and data underlying the excess and obsolete inventory valuation.   To test the valuation of inventories, our audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used by management in the analysis of excess and obsolete inventory. We evaluated adjustments to inventory reserves for specific product life cycles, compared the balance of on-hand inventories to usage forecasts and historical usage, and assessed the historical accuracy of management’s estimates by performing a retrospective analysis comparing prior period forecasted demand to actual historical sales.       Impairment evaluation of goodwill and indefinite-lived intangible assets     Description of the Matter As of December 26, 2020, the Company’s goodwill balance was $252.3 million and indefinite-lived intangibles balance, consisting of in-process research and development (IPR&D), was $7.8 million. As described in Note 1 to the consolidated financial statements, goodwill and indefinite-lived intangibles are evaluated by the Company for impairment annually and when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level.   Auditing management’s impairment tests was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting units for goodwill and the fair value of IPR&D assets. For goodwill, significant assumptions used in management’s evaluation included revenue and margin forecasts, the selection of the discount rates, and the estimation of the long-term growth rates. For IPR&D assets, significant assumptions used in management’s evaluation included estimated revenues from the products, royalty rates, and discount rates. These assumptions are affected by expectations about future market or economic conditions that materially impact the fair value of the reporting units and the IPR&D assets.     How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and indefinite-lived intangible asset impairment review processes. For example, we tested controls over the quantitative impairment analyses of goodwill and IPR&D, including management’s review of the prospective financial information, valuation models and underlying assumptions used to develop such estimates.   Our audit procedures included, among others, evaluating the Company’s valuation methodology used, evaluating the prospective financial information utilized in the valuations, evaluating the Company’s estimates relating to the development of its IPR&D assets, and involving our valuation specialists to assist in testing certain significant assumptions described above, such as discount rates and long-term growth rates. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses on significant assumptions to evaluate the changes in the fair value that would result from changes in the assumptions.   /s/ Ernst & Young LLP   We have served as the Company’s auditor since 1956.   San Diego, California February 26, 2021   85 Table of Contents   Index to   Exhibits           15. (b) The following exhibits are filed as part of, or incorporated into, the 2020 Cohu, Inc. Annual Report on Form 10-K:         Exhibit No.   Description           3.1   Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to Exhibit 3.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on May 17, 2018           3.2   Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on May 17, 2018           4.1   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           10.1   Credit and Guaranty Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018           10.2   Pledge and Security Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018           10.3   Amended Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Appendix A from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*           10.4   Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, herein by reference to Appendix B from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*           10.5   Cohu, Inc. Deferred Compensation Plan (as amended and restated) incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on December 29, 2008*           10.6   Form of employee restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*           10.7   Form of non-employee director restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*           10.8   Form of non-employee director restricted stock unit deferral election form for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*   86 Table of Contents     10.9   Non-employee director fee deferral election form incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*           10.10   Form of deferred stock agreement for shares granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*           10.11   Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*           10.12   Intel Corporation Purchase Agreement Capital Equipment, Goods and Services, dated April 30, 2012, by and between Delta Design, Inc. and Intel Corporation incorporated herein by reference to Exhibit 99.1 from the Cohu, Inc. Current Report on Form 8-K/A (file no. 001-04298) filed August 1, 2012           10.13   Form of Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed December 13, 2018*           10.14   Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on December 29, 2008*           10.15   Lease agreement dated December 4, 2015 by and between CT Crosthwaite I, LLC and Cohu, Inc. incorporated herein by reference to Exhibit 10.14 from the Cohu, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2016           10.16   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 *           10.17   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 *           10.18   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 *           10.19   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 *           10.20   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 *           10.21   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 *   87 Table of Contents     10.22   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 *           10.23   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 *           10.24   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 *           21   Subsidiaries of Cohu, Inc.           23   Consent of Independent Registered Public Accounting Firm           31.1               Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Luis A. Müller           31.2               Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones           32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Luis A. Müller           32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones           101.INS   Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)           101.SCH   Inline XBRL Taxonomy Extension Schema Document           101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document           101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document           101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document           101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document           104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)             * Management contract or compensatory plan or arrangement   88 Table of Contents   Item 16. Form 10-K Summary.   None.   89 Table of Contents   SIGNATURES         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.             COHU, INC.           Date: February 26, 2021 By: /s/ Luis A. Müller       Luis A. Müller       President and Chief Executive Officer   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.     Signature     Title Date         /s/ James A. Donahue   Chairman of the Board, February 26, 2021 James A. Donahue   Director           /s/ Luis A. Müller   President and Chief Executive Officer, Director February 26, 2021 Luis A. Müller   (Principal Executive Officer)           /s/ Jeffrey D. Jones   Vice President, Finance and CFO February 26, 2021 Jeffrey D. Jones   (Principal Financial and Accounting Officer)           /s/ William E. Bendush   Director February 26, 2021 William E. Bendush               /s/ Steven J. Bilodeau   Director February 26, 2021 Steven J. Bilodeau               /s/ Andrew M. Caggia   Director February 26, 2021 Andrew M. Caggia               /s/ Lynne J. Camp   Director February 26, 2021 Lynne J. Camp               /s/ Nina L. Richardson   Director February 26, 2021 Nina L. Richardson               /s/ Jorge L. Titinger   Director February 26, 2021 Jorge L. Titinger         90 Table of Contents     SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)               Additions     Additions                               (Reductions)     (Reductions)                       Balance at     Not     Charged             Balance       Beginning     Charged     (Credited)     Deductions/     at End   Description   of Year     to Expense     to Expense     Write-offs     of Year                                             Allowance for doubtful accounts:                                                                             Year ended December 30, 2018   $ 200     $ ( 20 ) (1)   $ ( 109 )   $ 31     $ 40                                             Year ended December 28, 2019   $ 40     $ 24 (1)   $ ( 28 )   $ 27     $ 9                                             Year ended December 26, 2020   $ 9     $ ( 1 ) (1)   $ 79     $ ( 41 )   $ 128                                                                                       Reserve for excess and obsolete inventories:                                                                             Year ended December 30, 2018   $ 17,362     $ ( 300 ) (1)   $ 10,783     $ 3,907     $ 23,938                                             Year ended December 28, 2019   $ 23,938     $ 1,285 (1)   $ 4,792     $ 9,057     $ 20,958                                             Year ended December 26, 2020   $ 20,958     $ 4,611 (1)   $ 8,117     $ 6,749     $ 26,937       All amounts presented above have been restated to exclude the impact of our discontinued operations.   ( 1 )  Changes in reserve balances resulting from foreign currency impact and reclassifications from other reserves.     91