10-Q 1 cohu20240330_10q.htm FORM 10-Q cohu20240330_10q.htm
0000021535 COHU INC false --12-28 Q1 2024 1 1 1,000 1,000 0 0 1 1 90,000 90,000 49,429 49,429 49,429 49,429 2,351 2,253 30 40 5 15 3 10 7 0.7 3 1 1 2 http://www.cohu.com/20240330#LondonInterbankOfferedRateLibor1Member http://fasb.org/us-gaap/2024#SecuredOvernightFinancingRateSofrMember 10.1 9.5 3.4 5.2 0.9 1 0 1 4 10 0 1 4 http://fasb.org/us-gaap/2024#ForeignCurrencyTransactionGainLossBeforeTax http://www.cohu.com/20240330#LeaseLiabilityNoncurrent http://www.cohu.com/20240330#LeaseLiabilityNoncurrent 0.3 0.4 false false false false 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. Derived from December 30, 2023 audited financial statements Excludes amortization of $7,522 and $6,891 for the three months ended March 30, 2024 and April 1, 2023, respectively. As of March 30, 2024, the cost and fair value of investments with loss positions was approximately $44.7 million and $44.6 million, respectively. As of December 30, 2023, the cost and fair value of investments with loss positions was approximately $38.5 million and $38.4 million, respectively. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if a credit loss exists. We have the ability and intent to hold these investments to maturity. Finance lease assets are recorded net of accumulated amortization of $0.3 million as of March 30, 2024 and December 30, 2023. During the first quarter of fiscal 2024, we executed an agreement to purchase our leased facility in Malaysia for $8.8 million, with the expectation that the title will transfer during 2024. We treated this transaction as a lease modification, and changed the classification to a finance lease, reducing our operating lease assets and liabilities by $0.4 million and increasing our finance lease assets and current lease liabilities by $8.8 million and $7.9 million, respectively. 7,522 6,891 00000215352023-12-312024-03-30 xbrli:shares 00000215352024-04-24 thunderdome:item iso4217:USD 00000215352024-03-30 00000215352023-12-30 iso4217:USDxbrli:shares 00000215352023-01-012023-04-01 0000021535us-gaap:CommonStockMember2022-12-31 0000021535us-gaap:AdditionalPaidInCapitalMember2022-12-31 0000021535us-gaap:RetainedEarningsMember2022-12-31 0000021535us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-31 0000021535us-gaap:TreasuryStockCommonMember2022-12-31 00000215352022-12-31 0000021535us-gaap:CommonStockMember2023-01-012023-04-01 0000021535us-gaap:AdditionalPaidInCapitalMember2023-01-012023-04-01 0000021535us-gaap:RetainedEarningsMember2023-01-012023-04-01 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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 30, 2024

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number 001-04298

 

COHU, INC.

(Exact name of registrant as specified in its charter)

 

Delaware95-1934119

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)
  
12367 Crosthwaite Circle, Poway, California          92064-6817
(Address of principal executive offices)        (Zip Code)

 

Registrants telephone number, including area code (858) 848-8100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Common Stock, $1.00 par value

COHU

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑      Accelerated filer ☐      Non-accelerated filer ☐

 

Smaller reporting company       Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No ☑

 

As of April 24, 2024, the Registrant had 47,085,873 shares of its $1.00 par value common stock outstanding.

 



 

 

COHU, INC.

INDEX

FORM 10-Q

MARCH 30, 2024

 

 

Part I

Financial Information

Page Number

     

Item 1.

Financial Statements:

 
     
 

Condensed Consolidated Balance Sheets March 30, 2024 (unaudited) and December 30, 2023

3
 

 

 
 

Condensed Consolidated Statements of Operations (unaudited) Three Months Ended March 30, 2024 and April 1, 2023

4
     
 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended March 30, 2024 and April 1, 2023

5
 

 

 
 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) Three Months Ended March 30, 2024 and April 1, 2023

6
     
 

Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 30, 2024 and April 1, 2023

7
     
 

Notes to Unaudited Condensed Consolidated Financial Statements

8
     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36
     

Item 4.

Controls and Procedures

37
     

Part II

Other Information

 
     

Item 1.

Legal Proceedings

38
     

Item 1A.

Risk Factors

38
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38
     

Item 3.

Defaults Upon Senior Securities

38
     

Item 4.

Mine Safety Disclosures

38
     

Item 5.

Other Information

39
     

Item 6.

Exhibits

40
     

Signatures

 

41

 

 

 

 

Item 1.

COHU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amounts)

 

  

March 30,

  

December 30,

 
  

2024

  

2023 *

 
  (Unaudited)     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $191,065  $245,524 

Short-term investments

  80,257   90,174 

Accounts receivable, net

  115,994   124,624 

Inventories

  151,587   155,793 

Prepaid expenses

  23,948   17,696 

Other current assets

  10,066   5,007 

Total current assets

  572,917   638,818 
         

Property, plant and equipment, net

  76,414   69,085 

Goodwill

  238,322   241,658 

Intangible assets, net

  140,932   151,770 

Other assets

  29,928   32,243 

Operating lease right of use assets

  15,935   16,778 
  $1,074,448  $1,150,352 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Short-term borrowings

 $1,652  $1,773 

Current installments of long-term debt

  1,151   4,551 

Accounts payable

  30,088   33,600 

Customer advances

  4,591   4,748 

Accrued compensation and benefits

  23,074   31,897 

Deferred profit

  3,021   3,586 

Accrued warranty

  3,802   4,653 

Income taxes payable

  2,456   4,024 

Other accrued liabilities

  21,260   14,589 

Total current liabilities

  91,095   103,421 
         

Long-term debt

  8,024   34,303 

Deferred income taxes

  23,397   23,154 

Noncurrent income tax liabilities

  5,310   7,065 

Accrued retirement benefits

  10,580   10,802 

Long-term lease liabilities

  12,520   13,175 

Other accrued liabilities

  8,165   8,262 
         

Stockholders’ equity

        

Preferred stock, $1 par value; 1,000 shares authorized, none issued

  -   - 

Common stock, $1 par value; 90,000 shares authorized, 49,429 shares issued and outstanding in 2024 and 49,429 shares in 2023

  49,429   49,429 

Paid-in capital

  679,012   686,146 

Treasury stock, at cost; 2,351 shares in 2024 and 2,253 shares in 2023

  (72,720)  (69,184)

Retained earnings

  303,923   318,558 

Accumulated other comprehensive loss

  (44,287)  (34,779)

Total stockholders’ equity

  915,357   950,170 
  $1,074,448  $1,150,352 

 

* Derived from December 30, 2023 audited financial statements 

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

   

Three Months Ended

 
   

March 30,

   

April 1,

 
   

2024

   

2023

 
                 

Net sales

  $ 107,614     $ 179,371  

Cost and expenses:

               

Cost of sales (1)

    58,365       93,153  

Research and development

    22,336       22,510  

Selling, general and administrative

    35,082       34,189  

Amortization of purchased intangible assets

    9,795       8,754  

Restructuring charges

    9       888  
      125,587       159,494  

Income (loss) from operations

    (17,973 )     19,877  

Other (expense) income:

               

Interest expense

    (289 )     (1,128 )

Interest income

    2,709       2,718  

Foreign transaction loss

    (541 )     (440 )

Loss on extinguishment of debt

    (241 )     (369 )

Income (loss) before taxes

    (16,335 )     20,658  

Income tax provision (benefit)

    (1,700 )     4,973  

Net income (loss)

  $ (14,635 )   $ 15,685  
                 

Income (loss) per share:

               

Basic

  $ (0.31 )   $ 0.33  

Diluted

  $ (0.31 )   $ 0.33  
                 

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

               

Basic

    47,134       47,343  

Diluted

    47,134       48,171  

 

(1)

Excludes amortization of $7,522 and $6,891 for the three months ended March 30, 2024 and April 1, 2023, respectively.

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

   

Three Months Ended

 
   

March 30,

   

April 1,

 
   

2024

   

2023

 
                 

Net income (loss)

  $ (14,635 )   $ 15,685  

Other comprehensive income (loss), net of tax:

               

Foreign currency translation adjustments

    (9,407 )     2,701  

Adjustments related to postretirement benefits

    (5 )     29  

Change in unrealized gain/loss on investments

    (96 )     273  

Other comprehensive income (loss), net of tax

    (9,508 )     3,003  

Comprehensive income (loss)

  $ (24,143 )   $ 18,688  

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

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

 

              

Accumulated

         
  

Common

          

other

         
  

stock

  

Paid-in

  

Retained

  

comprehensive

  

Treasury

     

Three Months Ended April 1, 2023

 

$1 par value

  

capital

  

earnings

  

loss

  

stock

  

Total

 

Balance at December 31, 2022

 $49,276  $687,218  $290,402  $(40,012) $(58,043) $928,841 

Net income

  -   -   15,685   -   -   15,685 

Changes in cumulative translation adjustment

  -   -   -   2,701   -   2,701 

Adjustments related to postretirement benefits, net of tax

  -   -   -   29   -   29 

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

  -   -   -   273   -   273 

Shares issued for restricted stock units vested

  7   (18,067)  -   -   18,060   - 

Repurchase and retirement of stock

  -   (1,861)  -   -   (7,322)  (9,183)

Common stock repurchases

  -   -   -   -   (3,481)  (3,481)

Share-based compensation expense

  -   3,914   -   -   -   3,914 

Balance at April 1, 2023

 $49,283  $671,204  $306,087  $(37,009) $(50,786) $938,779 

 

Three Months Ended March 30, 2024

                        

Balance at December 30, 2023

 $49,429  $686,146  $318,558  $(34,779) $(69,184) $950,170 

Net loss

  -   -   (14,635)  -   -   (14,635)

Changes in cumulative translation adjustment

  -   -   -   (9,407)  -   (9,407)

Adjustments related to postretirement benefits, net of tax

  -   -   -   (5)  -   (5)

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

  -   -   -   (96)  -   (96)

Shares issued for restricted stock units vested

  -   (11,677)  -   -   11,677   - 

Repurchase and retirement of stock

  -   (85)  -   -   (4,449)  (4,534)

Common stock repurchases

  -   -   -   -   (10,764)  (10,764)

Share-based compensation expense

  -   4,628   -   -   -   4,628 

Balance at March 30, 2024

 $49,429  $679,012  $303,923  $(44,287) $(72,720) $915,357 

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Three Months Ended

 
   

March 30,

   

April 1,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net income (loss)

  $ (14,635 )   $ 15,685  

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

               

Loss on extinguishment of debt

    241       369  

Net accretion on investments

    (321 )     (289 )

Loss from sale of property, plant and equipment

    1       43  

Depreciation and amortization

    13,224       12,091  

Share-based compensation expense

    4,628       3,914  

Non-cash inventory related charges

    1,674       1,993  

Deferred income taxes

    818       872  

Changes in accrued retiree medical benefits

    (26 )     (181 )

Changes in other accrued liabilities

    (35 )     (128 )

Changes in other assets

    159       208  

Amortization of cloud-based software implementation costs

    709       700  

Impairment charge related to equity investment

    966       -  

Amortization of debt discounts and issuance costs

    8       49  

Operating lease right-of-use assets

    1,858       1,316  

Changes in assets and liabilities, excluding effects from acquisitions:

               

Customer advances

    (7 )     6,192  

Accounts receivable

    6,817       5,364  

Inventories

    1,524       (5,164 )

Other current assets

    (11,422 )     756  

Accounts payable

    (3,488 )     75  

Deferred profit

    (527 )     (2,300 )

Income taxes payable

    (3,449 )     (8,180 )

Accrued compensation, warranty and other liabilities

    (10,849 )     (15,545 )

Current and long-term operating lease liabilities

    (1,832 )     (1,355 )

Net cash provided by (used in) operating activities

    (13,964 )     16,485  

Cash flows from investing activities, excluding effects from acquisitions:

               

Purchases of short-term investments

    (21,855 )     (16,816 )

Sales and maturities of short-term investments

    31,999       62,989  

Purchases of property, plant and equipment

    (3,327 )     (5,075 )

Cash received from sale of property, plant and equipment

    -       120  

Payment for purchase of MCT, net of cash received

    -       (26,933 )

Net cash provided by investing activities

    6,817       14,285  

Cash flows from financing activities:

               

Payments on current and long-term finance lease liabilities

    (8 )     (24 )

Repurchases of common stock, net

    (4,104 )     (8,578 )

Repayments of long-term debt

    (29,617 )     (35,290 )

Acquisition of treasury stock

    (10,698 )     (3,481 )

Net cash used in financing activities

    (44,427 )     (47,373 )

Effect of exchange rate changes on cash and cash equivalents

    (2,885 )     911  

Net decrease in cash and cash equivalents

    (54,459 )     (15,692 )

Cash and cash equivalents at beginning of period

    245,524       242,341  

Cash and cash equivalents at end of period

  $ 191,065     $ 226,649  

Supplemental disclosure of cash flow information:

               

Cash paid for income taxes

  $ 6,101     $ 3,760  

Inventory capitalized as property, plant and equipment

  $ 396     $ 317  

Property, plant and equipment purchases included in accounts payable

  $ 232     $ 235  

Cash paid for interest

  $ 735     $ 1,784  

 

The accompanying notes are an integral part of these statements.

 

 

7

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024

 

 

1.

Summary of Significant Accounting Policies

 

Basis of Presentation

 

Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. The condensed consolidated balance sheet at December 30, 2023, has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of March 30, 2024, (also referred to as “the first quarter of fiscal 2024” and “the first three months of fiscal 2024”) and April 1, 2023, (also referred to as “the first quarter of fiscal 2023” and “the first three months of fiscal 2023”) are unaudited. However, in management’s opinion, these financial statements reflect all adjustments (consisting only of normal, recurring items) necessary to provide a fair presentation of our financial position, results of operations and cash flows for the periods presented. The first quarter of fiscal 2024 and 2023 were both comprised of 13 weeks.

 

Our interim results are not necessarily indicative of the results that should be expected for the full year. The condensed consolidated financial statements presented herein reflect estimates and assumptions made by management at March 30, 2024 and for the three-month period ended March 30, 2024. For a better understanding of Cohu, Inc. and our financial statements, we recommend reading these interim condensed consolidated financial statements in conjunction with our audited financial statements for the year ended December 30, 2023, which are included in our 2023 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”). In the following notes to our interim condensed consolidated financial statements, Cohu, Inc. is referred to as “Cohu”, “we”, “our” and “us”.

 

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

 

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.

 

Our trade accounts receivable are presented net of an allowance for credit losses, which is determined in accordance with the guidance provided by Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments-Credit Losses, (“ASC 326”). At March 30, 2024 and December 30, 2023, our allowance for credit losses was $0.4 million and $0.3 million, respectively. Our customers include semiconductor manufacturers and semiconductor test subcontractors and other customers located throughout the world. While we believe that our allowance for credit losses is adequate and represents our best estimate at March 30, 2024, we will continue to monitor customer liquidity and other economic conditions, 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 net realizable 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 net realizable values are below our costs.

 

Inventories by category were as follows (in thousands):

 

  

March 30,

  

December 30,

 
  

2024

  

2023

 

Raw materials and purchased parts

 $97,661  $103,118 

Work in process

  28,931   26,820 

Finished goods

  24,995   25,855 

Total inventories

 $151,587  $155,793 

 

8

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

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 and three to ten years for machinery, equipment and software. Land is not depreciated.

 

Property, plant and equipment, at cost, consisted of the following (in thousands):

 

  

March 30,

  

December 30,

 
  

2024

  

2023

 

Land and land improvements

 $7,114  $7,301 

Buildings and building improvements

  46,193   39,677 

Machinery and equipment

  110,271   108,831 
   163,578   155,809 

Less accumulated depreciation and amortization

  (87,164)  (86,724)

Property, plant and equipment, net

 $76,414  $69,085 

 

Cloud-based Enterprise Resource Planning Implementation Costs

 

We have capitalized certain costs associated with the implementation of our cloud-based Enterprise Resource Planning (“ERP”) system in accordance with ASC Topic 350, IntangiblesGoodwill and Other, (“ASC 350”). 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.

 

Unamortized capitalized cloud computing implementation costs totaled $11.4 million and $12.2 million at March 30, 2024, and December 30, 2023, respectively. These amounts are recorded within other current assets and other assets in our condensed consolidated balance sheets. Implementation costs are amortized using the straight-line method over seven years and we recorded $0.7 million in amortization expense during both the three months ended March 30, 2024, and April 1, 2023.

 

Segment Information

 

We apply 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. Under ASC 280, 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 three identified operating segments are: Test Handler Group (“THG”), Semiconductor Tester Group (“STG”) and Interface Solutions Group (“ISG”). 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 one segment, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”).

 

Goodwill, 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 first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and its carrying value, not to exceed the carrying value of goodwill. We estimate the fair values of our reporting units using a weighting of the income and market approaches. Under the income approach, we use a discounted cash flow methodology to derive an indication of value, which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, we use the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance metrics of the reporting unit being tested, in order to obtain an indication of value. We then apply a 50/50 weighting to the indicated values from the income and market approaches to derive the fair values of the reporting units. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.

 

9

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

We conduct our annual impairment test as of October 1st of each year and have determined there was no impairment as of October 1, 2023, as the estimated fair values of our reporting units and indefinite-lived intangible assets 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 March 30, 2024, 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 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.

 

During the first quarter of fiscal 2024, no events or conditions occurred suggesting an impairment in our goodwill, other intangible assets and long-lived assets.

 

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.

 

Restructuring Costs

 

We record restructuring activities including costs for one-time termination benefits in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). 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. See Note 4, “Restructuring Charges” for additional information.

 

Debt Issuance Costs

 

We capitalize costs related to the issuance of debt. Debt issuance costs that were directly related to our Term Loan Credit Facility were presented within noncurrent liabilities as a reduction of long-term debt in our condensed consolidated balance sheets. The amortization of such costs was 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 $49,000 for the three months ended April 1, 2023. On February 9, 2024, we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility and recognized the remaining capitalized debt issuance costs. See Note 3, “Borrowings and Credit Agreements” for additional information.

 

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 three months ended March 30, 2024, we recognized foreign exchange losses of $0.5 million, in our condensed consolidated statements of operations. During the three months ended April 1, 2023, we recognized foreign exchange losses of $0.4 million.

 

10

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

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. To minimize foreign exchange volatility, we enter 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 held at our subsidiaries whose functional currency is the local currency. 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 condensed consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our condensed consolidated statements of operations for both realized and unrealized gains and losses. See Note 7, “Derivative Financial Instruments” for additional information.

 

Share-Based Compensation

 

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

 

Reported share-based compensation is classified, in the condensed consolidated interim financial statements, as follows (in thousands):

 

  

Three Months Ended

 
  

March 30,

  

April 1,

 
  

2024

  

2023

 

Cost of sales

 $227  $180 

Research and development

  834   866 

Selling, general and administrative

  3,567   2,868 

Total share-based compensation

  4,628   3,914 

Income tax effect

  203   (2,776)

Total share-based compensation, net

 $4,831  $1,138 

 

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 three months ended March 30, 2024, approximately 5,000 shares of common stock were excluded from the computation. For the three months ended April 1, 2023, 112,000 shares were excluded from the computation. All shares repurchased and held as treasury stock are reflected as a reduction to our basic weighted average shares outstanding based on the trade date of the share repurchase.

 

11

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

The following table reconciles the denominators used in computing basic and diluted income (loss) per share (in thousands):

 

  

Three Months Ended

 
  

March 30,

  

April 1,

 
  

2024

  

2023

 

Weighted average common shares

  47,134   47,343 

Effect of dilutive securities

  -   828 
   47,134   48,171 

 

Leases

 

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 condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease liabilities on our condensed consolidated balance sheets.

 

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 condensed consolidated balance sheet but recognized in our condensed 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 standard warranties. 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.

 

12

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At March 30, 2024, we had $6.1 million of revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) for contracts with original expected durations of over one year. As allowed under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we have opted to not disclose unsatisfied performance obligations for contracts with original expected durations of less than one year.

 

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 Topic 460, Guarantees (“ASC 460”), and not as a separate performance obligation.

 

The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. 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 customer. Payment 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 or contract liabilities recorded on our condensed 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 condensed consolidated balance sheet, representing the difference between the receivable recorded and the inventory shipped. At March 30, 2024, we had deferred revenue totaling approximately $8.2 million, current deferred profit of $3.0 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $4.8 million. At December 30, 2023, we had deferred revenue totaling approximately $8.8 million, current deferred profit of $3.6 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $4.9 million.

 

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

 

  

Three Months Ended

 

Disaggregated Net Sales

 

March 30, 2024

  

April 1, 2023

 

Systems

 $37,311  $102,984 

Non-systems

  70,303   76,387 

Total net sales

 $107,614  $179,371 

 

13

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

Revenue by geographic area based upon product shipment destination (in thousands):

 

  

Three Months Ended

 

Disaggregated Net Sales

 

March 30, 2024

  

April 1, 2023

 

Malaysia

 $16,899  $31,895 

United States

  14,642   18,743 

Singapore

  12,064   10,706 

Philippines

  11,842   31,790 

China

  11,744   21,110 

Rest of the World

  40,423   65,127 

Total net sales

 $107,614  $179,371 

 

A small number of customers historically have been responsible for a significant portion of our net sales. Significant customer concentration information is as follows:

 

  

Three Months Ended

 
  

March 30,

  

April 1,

 
  

2024

  

2023

 

Customers individually accounting for more than 10% of net sales

 

one

  

two

 

Percentage of net sales

 10%  24% 

 

Accumulated Other Comprehensive Loss

 

Our accumulated other comprehensive loss balance totaled approximately $44.3 million and $34.8 million at March 30, 2024 and December 30, 2023, respectively, and was attributed to all non-owner changes in stockholders’ equity and consists of, on an after-tax basis where applicable, foreign currency adjustments resulting from the translation of certain of our subsidiary accounts where the functional currency is not the U.S. Dollar, unrealized loss on investments and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during the three months of fiscal 2024 and 2023 were not significant.

 

Retiree Medical Benefits

 

We provide post-retirement health benefits to certain retired executives, one director (who is a former executive) and their eligible dependents under a noncontributory plan. These benefits are no longer offered to any other retired Cohu employees. The net periodic benefit cost incurred during the three months of fiscal 2024 and 2023 was not significant.

 

Recent Accounting Pronouncements

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. We are currently evaluating the impact of the adoption of this standard.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This ASU is effective for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. We are currently evaluating the impact of the adoption of this standard.

 

14

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 
 

2.

Business Acquisitions, Goodwill and Purchased Intangible Assets

 

EQT

 

On October 2, 2023, we completed the acquisition of Equiptest Engineering Pte. Ltd. (“EQT”), a provider of semiconductor test contactors and other consumables. (“the EQT Acquisition”). EQT is a Singapore-based company with its principal manufacturing site located there. EQT provides test interface products including high performance thermal, MEMS, Infrared, Coaxial and Kelvin Contactors that expand our interface products in mid- to high-power contactors. The EQT Acquisition was a cash-free debt-free transaction and was subject to a working capital adjustment for the difference between the actual and estimated net working capital. We made a cash payment of SGD 66.0 million ($48.3 million) on October 2, 2023 and set up a retention sum liability for potential adjustments to working capital, future tax or insurance claims in the amount of SGD 2.2 million ($1.6 million) resulting in an initial purchase price of SGD 68.3 million ($49.9 million). The working capital adjustment was finalized in January 2024 and an additional cash payment was made to EQT owners of SGD 0.8 million (approximately $0.6 million) resulting in a purchase price of SGD 68.8 million ($50.3 million). The retention liability for remaining tax, insurance and other claims as of March 30, 2024 was SGD 1.7 million ($1.3 million) and is accrued in long term other liabilities on our condensed consolidated balance sheet. The EQT Acquisition has been accounted for in conformity with ASC 805.

 

We have not finalized the purchase price allocation. Accordingly, the preliminary purchase price allocation shown below could materially change as we are still in the process of finalizing the fair values of the tangible and intangible assets acquired and liabilities assumed, and the related income tax effects may still be adjusted as they are finalized during the remainder of the measurement period (which will not exceed 12 months from the acquisition closing date). The EQT Acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. The acquired assets and liabilities of EQT were recorded at their respective fair values including an amount for goodwill representing the difference between the Acquisition consideration and the fair value of the identifiable net assets. We expect to finalize the purchase accounting for EQT in the second quarter of 2024.

 

The table below summarizes the assets acquired and liabilities assumed as of October 2, 2023 (in thousands):

 

Current assets, including cash received

  $ 10,135  

Property, plant and equipment

    538  

Intangible assets

    34,500  

Goodwill

    15,377  

Total assets acquired

    60,550  

Liabilities assumed

    (10,203 )

Net assets acquired

  $ 50,347  

 

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

 

   

Estimated

Fair Value

   

Weighted

Average

Useful Life

(years)

 

Developed technology

  $ 20,600       8.0  

Customer relationships

    12,900       10.0  

Product backlog

    100       1.0  

Trademarks and trade names

    900       5.0  

Total intangible assets

  $ 34,500          

 

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.

 

15

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

The preliminary value assigned to developed technology was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates. Developed technology, which comprises products that have reached technological feasibility, includes the products in EQT’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 EQT and competitors. The estimated after-tax cash flows were based on a hypothetical royalty rate applied to the revenues for the developed technology. 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 preliminary value assigned to customer relationships was determined by using the multi-period excess earnings method under the income approach. The estimated cash flows were based on revenues from the existing customers net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the customer relationships to present value was based on the respective cash flows taking into consideration the perceived risks.

 

The preliminary value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 2, 2023, using the multi-period excess earnings method under the income approach to discount back to present value the cash flows attributable to the backlog at a discount rate commensurate with the expected risks of the backlog cash flows.

 

The preliminary value assigned to trademarks and trade names acquired was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates.

 

EQT’s results of operations have been included starting October 2, 2023. The impact of EQT on our condensed consolidated statements of operations and comprehensive income (loss) was not material.

 

Goodwill and Intangible Assets

 

Changes in the carrying value of goodwill during the year ended December 30, 2023, and the three-month period ended March 30, 2024 were as follows (in thousands):

 

   

Goodwill

 

Balance December 31, 2022

  $ 213,539  

Additions

    24,132  

Impact of currency exchange

    3,987  

Balance, December 30, 2023

    241,658  

Impact of currency exchange

    (3,336 )

Balance, March 30, 2024

  $ 238,322  

 

16

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

Purchased intangible assets subject to amortization are as follows (in thousands):

 

   

March 30, 2024

   

December 30, 2023

 
                   

Remaining

                 
                   

Weighted

                 
   

Gross

           

Average

   

Gross

         
   

Carrying

   

Accum.

   

Amort.

   

Carrying

   

Accum.

 
   

Amount

   

Amort.

   

Period (in years)

   

Amount

   

Amort.

 

Developed technology

  $ 231,681     $ 143,340       4     $ 233,623     $ 137,168  

Customer relationships

    73,285       30,431       6.8       73,759       28,932  

Trade names

    21,139       11,516       5.2       21,569       11,231  

Product backlog

    100       50       0.5       100       25  

Covenant not-to-compete

    233       169       2.8       250       175  

Total intangible assets

  $ 326,438     $ 185,506             $ 329,301     $ 177,531  

 

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

 

Amortization expense related to intangible assets in the first quarter of fiscal 2024 and 2023 was $9.8 million and $8.8 million, respectively.

 

 

3.

Borrowings and Credit Agreements

 

The following table is a summary of our borrowings (in thousands):

 

  

March 30,

  

December 30,

 
  

2024

  

2023

 

Bank Term Loan under Credit Agreement

 $-  $29,327 

Bank Term Loans-Kita

  1,905   2,095 

Construction Loan- Cohu GmbH

  7,270   7,681 

Lines of Credit

  1,652   1,773 

Total debt

  10,827   40,876 

Less: financing fees and discount

  -   (249)

Less: current portion

  (2,803)  (6,324)

Total long-term debt

 $8,024  $34,303 

 

Credit Agreement

 

On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Term Loan Credit Facility and borrowed the full amount to finance a portion of the Xcerra acquisition. Loans under the Term Loan 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 Term Loan Credit Facility would have been due on or before October 1, 2025. The loans under the Term Loan Credit Facility bore interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. On June 16, 2023, in connection with the discontinuation of LIBOR, we entered into an amendment to our Term Loan Credit Facility, which provided for the transition of the benchmark interest rate from LIBOR to SOFR. Effective with the interest period beginning July 1, 2023, LIBOR was replaced with Adjusted Term SOFR, a floating annual rate equal to SOFR plus a margin of 3.0%. At December 30, 2023, the outstanding loan balance, net of discount and deferred financing costs, was $29.1 million and $3.4 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets.

 

On February 9, 2024, we made a cash payment of $29.3 million to repay the remaining outstanding amounts owed under our Term Loan Credit Facility. We accounted for the transaction as a debt extinguishment, and in the first quarter of fiscal 2024 we recognized a loss of $0.2 million due to the recognition of the remaining debt discount and deferred financing costs. During the first three months of 2023, we repurchased $34.1 million in principal of our Term Loan Credit Facility for $34.1 million in cash. This resulted in a loss of $0.4 million reflected in other expense in our condensed consolidated statement of operations and a $0.4 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets.

 

17

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

Kita Term Loans

 

We have a series of term loans with Japanese financial institutions primarily related to the expansion of our facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest at rates ranging from 0.05% to 0.54%, and expire at various dates through 2034. At March 30, 2024, the outstanding loan balance was $1.9 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023, the outstanding loan balance was $2.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The fair value of the debt approximates the carrying value at March 30, 2024.

 

The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

 

Construction Loans

 

In July 2019 and June 2020, one of our wholly owned subsidiaries located in Germany entered into a series of construction loans (“Loan Facilities”) with a German financial institution initially providing it with total borrowings of up to €10.1 million. In May 2022, one of the construction loans was amended, reducing total borrowings provided under the loans to up to €9.5 million. The Loan Facilities were utilized to finance the expansion of our facility in Kolbermoor, Germany and are secured by the land and the existing building on the site. The Loan Facilities bear interest at agreed upon rates based on the facility amounts as discussed below.

 

The first facility totaling €3.4 million has been fully drawn and is payable over 10 years at a fixed annual interest rate of 0.8%. Principal and interest payments are due each quarter over the duration of the facility ending in September 2029. The second facility totaling €5.2 million has been fully drawn and is payable over 15 years at an annual interest rate of 1.05%, which is fixed until April 2027. Principal and interest payments are due each month over the duration of the facility ending in January 2034. The third facility totaling €0.9 million has been fully drawn and is payable over 10 years at an annual interest rate of 1.2%. Principal and interest payments are due each month over the duration of the facility ending in May 2030.

 

At March 30, 2024, total outstanding borrowings under the Loan Facilities was $7.3 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023, total outstanding borrowings under the Loan Facilities was $7.7 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at March 30, 2024.

 

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 960 million Japanese Yen of which 250 million Japanese Yen was drawn as of March 30, 2024. At March 30, 2024, total borrowings outstanding under the revolving lines of credit were $1.7 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our condensed consolidated balance sheets.

 

The revolving lines of credit are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

 

Our wholly owned subsidiary in Switzerland has one line of credit which provides borrowings of up to a total of 2.0 million Swiss Francs, a portion of which is reserved for tax guarantees. At March 30, 2024 and December 30, 2023 no amounts were outstanding under this line of credit.

 

18

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 
 

4.

Restructuring Charges

 

MCT Integration Program

 

During the first quarter of 2023, in connection with the acquisition of MCT Worldwide, LLC (“MCT”), we began a strategic restructuring and integration program in connection with the acquisition of MCT (“MCT Integration Program”). As part of the MCT Integration Program, we consolidated MCT’s Penang, Malaysia manufacturing operations into Cohu’s Malacca, Malaysia manufacturing operations during 2023. Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program and the facility consolidation and the reduction in force program were implemented as part of a comprehensive review of our operations and were intended to reduce our operating cost structure and capitalize on acquisition synergies. As of March 30, 2024, restructuring activities associated with the MCT Integration Program were materially complete.

 

As a result of the activities described above, we recognized total pretax charges of $0.9 million during the three months ended April 1, 2023, that are within the scope of ASC 420. Total pretax charges for the three months ended March 30, 2024 were not material.

 

The following table summarizes the activity within the restructuring related accounts for the MCT Integration Program during the three months ended April 1, 2023 (in thousands):

 

   

Severance and

   

Other Exit

         
   

Other Payroll

   

Costs

   

Total

 

Balance, December 31, 2022

  $ -     $ -     $ -  

Costs accrued

    878       10       888  

Amounts paid or charged

    (707 )     (10 )     (717 )

Balance, April 1, 2023

  $ 171     $ -     $ 171  

 

 

5.

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 in 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.

 

We assess whether unrealized loss positions on available-for-sale debt securities are due to credit-related factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in earnings through an allowance account. Unrealized gains and losses that are not due to credit-related factors are included in accumulated other comprehensive income (loss). 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.

 

19

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

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

 

   

March 30, 2024

 
           

Gross

   

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses (1)

   

Value

 

Corporate debt securities (2)

  $ 44,509     $ 60     $ 28     $ 44,541  

U.S. treasury securities

    18,458       4       62       18,400  

Bank certificates of deposit

    10,290       7       -       10,297  

Asset-backed securities

    5,953       7       3       5,957  

Foreign government security

    730       -       -       730  

Municipal securities

    330       2       -       332  
    $ 80,270     $ 80     $ 93     $ 80,257  

 

 

           

December 30, 2023

 
            Gross    

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses (1)

   

Value

 

Corporate debt securities (2)

  $ 45,105     $ 147     $ 15     $ 45,237  

U.S. treasury securities

    20,439       26       116       20,349  

Bank certificates of deposit

    15,468       20       -       15,488  

Asset-backed securities

    8,017       17       10       8,024  

Foreign government security

    741       -       -       741  

Municipal securities

    330       5       -       335  
    $ 90,100     $ 215     $ 141     $ 90,174  
 

 

 

(1)

As of March 30, 2024, the cost and fair value of investments with loss positions was approximately $44.7 million and $44.6 million, respectively. As of December 30, 2023, the cost and fair value of investments with loss positions was approximately $38.5 million and $38.4 million, respectively. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if a credit loss exists. We have the ability and intent to hold these investments to maturity.

 

 

(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 are as follows (in thousands):

 

   

March 30, 2024

   

December 30, 2023

 
   

Amortized

   

Estimated

   

Amortized

   

Estimated

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Due in one year or less

  $ 51,055     $ 50,992     $ 57,981     $ 57,887  

Due after one year through five years

    28,485       28,535       31,378       31,546  

Due after five years through ten years

    730       730       741       741  
    $ 80,270     $ 80,257     $ 90,100     $ 90,174  

 

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, and they are included in Level 2.

 

20

Cohu, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 30, 2024
 

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 March 30, 2024 using:

 
                           

Total estimated

 
   

Level 1

   

Level 2

   

Level 3

   

fair value

 

Cash

  $ 135,293     $ -     $ -     $ 135,293  

Corporate debt securities

    -       52,611       -       52,611  

Money market funds

    -       47,703       -       47,703  

U.S. treasury securities

    -       18,399       -       18,399  

Bank certificates of deposit

    -       10,297       -       10,297  

Asset-backed securities

    -       5,957       -       5,957  

Foreign government security

    -       730       -