10-Q

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 28, 2020

OR

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

For the transition period from to

Commission file number 001-04298

COHU, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-1934119
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
12367 Crosthwaite Circle, Poway, California	92064-6817
(Address of principal executive offices)	(Zip Code)

Registrant's 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 29, 2020 the Registrant had 41,703,274 shares of its $1.00 par value common stock outstanding.

COHU, INC.

INDEX

FORM 10-Q

MARCH 28, 2020

Part I	Financial Information	Page Number
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets March 28, 2020 (unaudited) and December 28, 2019	3
	Condensed Consolidated Statements of Operations (unaudited) Three Months Ended March 28, 2020 and March 30, 2019	4
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) Three Months Ended March 28, 2020 and March 30, 2019	5
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) Three Months Ended March 28, 2020 and March 30, 2019	6
	Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 28, 2020 and March 30, 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
Part II	Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
Signatures		55

Item 1.

COHU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	March 28,			December 28,
	2020				2019 *
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	171,474		$	155,194
Short-term investments		901			904
Accounts receivable, net		111,456			127,921
Inventories		134,859			130,706
Assets held for sale		8,346			827
Prepaid expenses		20,765			17,483
Other current assets		5,998			3,158
Current assets of discontinued operations (Note 10)		-			3,503
Total current assets		453,799			439,696
Property, plant and equipment, net		64,688			70,912
Goodwill		237,997			238,669
Intangible assets, net		261,316			275,019
Other assets		21,756			20,030
Operating lease right of use assets		32,599			33,269
Noncurrent assets of discontinued operations (Note 10)		-			115
	$	1,072,155		$	1,077,710
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	3,244		$	3,195
Current installments of long-term debt		3,322			3,322
Accounts payable		53,457			48,697
Customer advances		26,594			12,160
Accrued compensation and benefits		20,837			23,741
Deferred profit		9,313			7,645
Accrued warranty		6,066			5,893
Income taxes payable		11,795			3,894
Other accrued liabilities		29,089			39,739
Current liabilities of discontinued operations (Note 10)		-			599
Total current liabilities		163,717			148,885
Accrued retirement benefits		22,285			21,930
Deferred income taxes		29,297			31,310
Noncurrent income tax liabilities		8,203			8,438
Long-term debt		346,877			346,518
Long-term lease liabilities		28,352			28,877
Other accrued liabilities		8,540			8,656
Noncurrent liabilities of discontinued operations (Note 10)		-			24
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares authorized, none issued		-			-
Common stock, $1 par value; 60,000 shares authorized, 41,686 shares issued and outstanding in 2020 and 41,395 shares in 2019		41,686			41,395
Paid-in capital		435,402			433,190
Retained earnings		22,755			42,517
Accumulated other comprehensive loss		(34,959	)		(34,030	)
Total stockholders’ equity		464,884			483,072
	$	1,072,155		$	1,077,710

* Derived from December 28, 2019 audited financial statements

The accompanying notes are an integral part of these statements.

3

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net sales	$	138,921		$	147,809
Cost and expenses:
Cost of sales (1)		82,837			93,394
Research and development		22,468			22,733
Selling, general and administrative		33,352			38,286
Amortization of purchased intangible assets		9,538			10,019
Restructuring charges		403			1,361
Impairment charges		3,949			-
		152,547			165,793
Loss from operations		(13,626	)		(17,984	)
Other (expense) income:
Interest expense		(4,427	)		(5,507	)
Interest income		147			222
Foreign transaction gain (loss)		(404	)		218
Loss from continuing operations before taxes		(18,310	)		(23,051	)
Income tax benefit		(992	)		(200	)
Loss from continuing operations		(17,318	)		(22,851	)
Income from discontinued operations		42			164
Net loss	$	(17,276	)	$	(22,687	)
Net loss attributable to noncontrolling interest	$	-		$	(44	)
Net loss attributable to Cohu	$	(17,276	)	$	(22,643	)
Income (loss) per share:
Basic:
Loss from continuing operations before noncontrolling interest	$	(0.42	)	$	(0.56	)
Income from discontinued operations		0.00			0.01
Net loss attributable to noncontrolling interest		-			(0.00	)
Net loss attributable to Cohu	$	(0.42	)	$	(0.55	)
Diluted:
Loss from continuing operations before noncontrolling interest	$	(0.42	)	$	(0.56	)
Income from discontinued operations		0.00			0.01
Net loss attributable to noncontrolling interest		-			(0.00	)
Net loss attributable to Cohu	$	(0.42	)	$	(0.55	)
Weighted average shares used in computing income (loss) per share:
Basic		41,502			40,872
Diluted		41,502			40,872
Cash dividends declared per share	$	0.06		$	0.06

(1) Excludes amortization of $7,266 and $7,641 for the three months ended March 28, 2020 and March 30, 2019, respectively. 

The accompanying notes are an integral part of these statements.

4

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net loss	$	(17,276	)	$	(22,687	)
Net loss attributable to noncontrolling interest		-			(44	)
Net loss attributable to Cohu		(17,276	)		(22,643	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(929	)		(5,262	)
Adjustments related to postretirement benefits		-			474
Other comprehensive loss, net of tax		(929	)		(4,788	)
Other comprehensive loss attributable to noncontrolling interest		-			(4	)
Other comprehensive loss attributable to Cohu		(929	)		(4,784	)
Comprehensive loss		(18,205	)		(27,475	)
Comprehensive loss attributable to noncontrolling interest		-			(48	)
Comprehensive loss attributable to Cohu	$	(18,205	)	$	(27,427	)

The accompanying notes are an integral part of these statements.

5

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			Noncontrolling
Three Months Ended March 30, 2019	$1 par value			capital			earnings			loss			interest			Total
Balance at December 29, 2018	$	40,763		$	419,690		$	111,670		$	(25,880	)	$	(299	)	$	545,944
Cumulative effect of accounting change (a)		-			-			10,352			-			-			10,352
Net loss		-			-			(22,687	)		-			-			(22,687	)
Changes in cumulative translation adjustment		-			-			-			(5,258	)		(4	)		(5,262	)
Adjustments related to postretirement benefits, net of tax		-			-			-			474			-			474
Changes in unrealized gains and losses on cash dividends - $0.06 per share		-			-			(2,450	)		-			-			(2,450	)
Exercise of stock options		10			68			-			-			-			78
Shares issued for restricted stock units vested		365			(365	)		-			-			-			-
Repurchase and retirement of stock		(123	)		(1,705	)		-			-			-			(1,828	)
Noncontrolling interest		-			-			53			-			(53	)		-
Share-based compensation expense		-			3,693			-			-			-			3,693
Balance at March 30, 2019	$	41,015		$	421,381		$	96,938		$	(30,664	)	$	(356	)	$	528,314
Three Months Ended March 28, 2020
Balance at December 28, 2019	$	41,395		$	433,190		$	42,517		$	(34,030	)	$	-		$	483,072
Net loss		-			-			(17,276	)		-			-			(17,276	)
Changes in cumulative translation adjustment		-			-			-			(929	)		-			(929	)
Cash dividends - $0.06 per share		-			-			(2,486	)		-			-			(2,486	)
Exercise of stock options		22			267			-			-			-			289
Shares issued for restricted stock units vested		403			(403	)		-			-			-			-
Repurchase and retirement of stock		(134	)		(1,263	)		-			-			-			(1,397	)
Share-based compensation expense		-			3,611			-			-			-			3,611
Balance at March 28, 2020	$	41,686		$	435,402		$	22,755		$	(34,959	)	$	-		$	464,884

(a) Cumulative effect of accounting change relates to our adoption of ASU 2016-02. Please refer to Note 1 of the Condensed Consolidated Financial Statements for further detail on the adoption of this accounting standard.

The accompanying notes are an integral part of these statements.

6

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cash flows from operating activities:
Net loss attributable to Cohu	$	(17,276	)	$	(22,643	)
Net loss attributable to noncontrolling interest		-			(44	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposal of discontinued operation		(35	)		-
Impairment charges related to indefinite lived intangibles		3,949			-
Loss on disposal of assets		88			378
Depreciation and amortization		12,956			15,044
Share-based compensation expense		3,611			3,693
Amortization of inventory step-up and inventory related charges		1,603			6,504
Deferred income taxes		(2,706	)		(2,494	)
Increase in accrued retiree medical benefits		254			192
Changes in other accrued liabilities		(106	)		1,589
Changes in other assets		810			313
Interest capitalized associated with cloud computing implementation		(45	)		-
Amortization of debt discounts and issuance costs		290			-
Changes in current assets and liabilities:
Customer advances		14,434			(600	)
Accounts receivable		17,078			17,657
Inventories		(6,067	)		2,475
Other current assets		(5,888	)		(4,022	)
Accounts payable		55			(3,480	)
Deferred profit		1,619			1,374
Income taxes payable		7,454			(2,214	)
Accrued compensation, warranty and other liabilities		(14,313	)		(9,002	)
Operating lease right-of-use assets		1,843			-
Current and long-term operating lease liabilities		(1,795	)		-
Net cash provided by operating activities		17,813			4,720
Cash flows from investing activities:
Net cash received from sale of Fixtures Services business		2,975			-
Cash received from sale of fixed assets		74			5
Purchases of property, plant and equipment		(1,584	)		(3,526	)
Net cash provided by (used in) investing activities		1,465			(3,521	)
Cash flows from financing activities:
Cash dividends paid		(2,483	)		(2,443	)
Issuance (repurchases) of common stock, net		253			(1,750	)
Proceeds from construction loan		1,117			-
Repayments of long-term debt		(1,133	)		(1,098	)
Net cash used in financing activities		(2,246	)		(5,291	)
Effect of exchange rate changes on cash and cash equivalents		(1,488	)		(488	)
Net increase (decrease) in cash and cash equivalents		15,544			(4,580	)
Cash and cash equivalents including discontinued operations at beginning of period		155,930			164,921
Cash and cash equivalents including discontinued operations at end of period		171,474			160,341
Cash held by discontinued operations at end of period (Note 10)		-			(820	)
Cash and cash equivalents from continuing operations at end of period	$	171,474		$	159,521
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	690		$	3,797
Inventory capitalized as property, plant and equipment	$	238		$	116
Dividends declared but not yet paid	$	2,488		$	2,449
Property, plant and equipment purchases included in accounts payable	$	3,370		$	873
ST Capitalized cloud computing service costs included in accounts payable	$	182		$	329
LT Capitalized cloud computing service costs included in accounts payable	$	1,370		$	1,515
Cash paid for interest	$	7,308		$	5,130

The accompanying notes are an integral part of these statements.

7

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

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 28, 2019, has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of March 28, 2020, (also referred to as “the first quarter of fiscal 2020” and “the first three months of fiscal 2020”) and March 30, 2019, (also referred to as “the first quarter of fiscal 2019” and “the first three months of fiscal 2019”) 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 2020 and 2019 were both comprised of 13 weeks.

Our interim results are not necessarily indicative of the results that should be expected for the full year. 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 28, 2019, which are included in our 2019 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”.

On December 28, 2019, we divested our entire 20% interest in ALBS Solutions Sdn Bhd (“ALBS”), our only consolidated VIE. As a result of the divestment, we no longer had a controlling interest in ALBS and no longer consolidate ALBS as of that date.

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

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on our reported results of operations, stockholder’s equity or cash flows.

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 Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on December 29, 2019, the first day of our fiscal 2020. The ASU required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented for comparative purposes are not adjusted. Based on our analysis of historical and anticipated collections of trade receivables the impact of adoption of Topic 326 was insignificant. Our trade accounts receivable are presented net of allowance for credit losses, which were insignificant at March 28, 2020 and December 28, 2019. 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 28, 2020, we will continue to monitor customer liquidity and other economic conditions, which may result in changes to our estimates regarding collectability.

Inventories

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

8

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Inventories by category were as follows (in thousands):

	March 28,		December 28,
	2020		2019
Raw materials and purchased parts	$	73,222	$	69,665
Work in process		44,381		46,591
Finished goods		17,256		14,450
Total inventories	$	134,859	$	130,706

Assets Held for Sale

As part of our previously announced strategic restructuring program we are implementing certain facility consolidation actions. We expect to complete the sales of our facilities located in Penang, Malaysia in the second quarter of 2020 and Rosenheim, Germany in the third quarter of 2020. As a result, these facilities are being presented as held for sale at March 28, 2020. See Note 4, “Restructuring Charges” for additional information on this program.

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 28,			December 28,
	2020			2019
Land and land improvements	$	8,650		$	11,659
Buildings and building improvements		40,593			41,474
Machinery and equipment		59,029			61,006
		108,272			114,139
Less accumulated depreciation and amortization		(43,584	)		(43,227	)
Property, plant and equipment, net	$	64,688		$	70,912

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 Test 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 and Indefinite-Lived Intangibles, Other Intangible Assets and Long-lived Assets

We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and its carrying value, not to exceed the carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.

9

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

We conduct our annual impairment test as of October 1st of each year and have determined there was no impairment as of October 1, 2019, as 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. While a decline in stock price and market capitalization is not specifically cited as an impairment indicator, a company’s stock price and market capitalization should be considered in determining whether it is more likely than not that the fair value of a reporting unit is less than its book value. The financial and credit market volatility caused by the COVID-19 pandemic directly impacts our fair value measurement through our stock price that we use to determine our market capitalization. During times of volatility, significant judgment must be applied to determine whether stock price changes are a short-term swing or a longer-term trend.

During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and may not be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value. We evaluated the expected undiscounted cashflows of these assets as of March 28, 2020 and determined there was no impairment.

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 (“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.

10

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Debt Issuance Costs

We capitalize costs related to the issuance of debt. Debt issuance costs that were directly related to our Term B Loan 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 $0.3 million for both the three months ended March 28, 2020 and March 30, 2019.

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. 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. During the three months ended March 28, 2020, we recognized foreign exchange losses of $0.4 million, in our consolidated statements of operations. During the three months ended March 30, 2019, we recognized foreign exchange gains of $0.2 million.

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.

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.

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

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cost of sales	$	212		$	125
Research and development		833			638
Selling, general and administrative		2,566			2,930
Total share-based compensation		3,611			3,693
Income tax benefit		(172	)		(280	)
Total share-based compensation, net	$	3,439		$	3,413

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 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 28, 2020, stock options and awards to issue approximately 58,000 shares of common stock were excluded from the computation. For the three months ended March 30, 2019, stock options and awards to issue approximately 393,000 shares of common stock were excluded from the computation.

11

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

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

	Three Months Ended
	March 28,		March 30,
	2020		2019
Weighted average common shares		41,502		40,872
Effect of dilutive securities		-		-
		41,502		40,872

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.

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 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 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.

12

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

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 relative standalone selling price 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 March 28, 2020, we have $9.6 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) for contracts with original expected durations of over one year. As allowed under 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 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. 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 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 28, 2020, we had deferred revenue totaling approximately $18.0 million, current deferred profit of $9.3 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $7.1 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.

13

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Net sales of our reportable segments, by type, are as follows (in thousands):

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
Systems:
Semiconductor Test & Inspection	$	70,539	$	79,940
PCB Test		6,840		6,972
Non-systems:
Semiconductor Test & Inspection		57,474		56,753
PCB Test		4,068		4,144
Total net sales	$	138,921	$	147,809

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

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
China	$	30,811	$	23,551
United States		19,078		17,101
Malaysia		15,174		17,714
Taiwan		13,881		14,970
Philippines		10,022		14,541
Rest of the World		49,955		59,932
Total net sales	$	138,921	$	147,809

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

	Three Months Ended
	March 28,			March 30,
	2020			2019
Semiconductor Test & Inspection
Customers individually accounting for more than 10% of net sales		two			one
Percentage of net sales		26	%		11	%
PCB Test
Customers individually accounting for more than 10% of net sales		*			*
Percentage of net sales		*			*

* No single customer represented more than 10% of consolidated net sales.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately $35.0 million and $34.0 million at March 28, 2020 and December 28, 2019, 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 and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during the first three months of fiscal 2020 and 2019 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 first three months of fiscal 2020 and 2019 was not significant.

Discontinued Operations

Management determined that the fixtures services business, that was acquired as part of Xcerra, did not align with Cohu’s long-term strategic plan and divested this portion of the business in February 2020. As a result, the assets of our fixtures business are considered “held for sale” and the operations of our fixtures business are considered “discontinued operations” as of December 28, 2019. See Note 10, “Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.

14

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

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 condensed 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 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 August 2018, the FASB issued ASU 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which improves defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. We are currently assessing and have not yet determined the impact that the adoption of ASU 2018-14 will have on the disclosures to our consolidated financial statements.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

15

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

2. Goodwill and Purchased Intangible Assets

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended December 28, 2019, and the three-month period ended March 28, 2020, by segment, were as follows (in thousands):

	Semiconductor Test
	& Inspection			PCB Test			Total
Balance, December 30, 2018	$	220,808		$	21,319		$	242,127
Adjustments		2,117			(983	)		1,134
Impairments		(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		(575	)		(97	)		(672	)
Balance, March 28, 2020	$	218,200		$	19,797		$	237,997

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

	March 28, 2020						December 28, 2019
					Remaining
					Weighted
					Average
	Gross				Amort.		Gross
	Carrying		Accum.		Period		Carrying		Accum.
	Amount		Amort.		(in years)		Amount		Amort.
Developed technology	$	228,061	$	57,557		6.4	$	227,619	$	49,805
Customer relationships		71,778		16,332		9.1		72,251		14,824
Trade names		22,704		4,443		9.3		22,612		3,892
Covenant not-to-compete		327		106		6.8		322		96
Total intangible assets	$	322,870	$	78,438			$	322,804	$	68,617

The table above excludes $16.9 million and $20.8 million of in-process technology, at March 28, 2020 and December 28, 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 first quarter of 2020 no in-process technology was completed and transferred to developed technology. 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 previously 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.

Other events and changes in circumstances may also require goodwill 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 within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test 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.

16

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Amortization expense related to intangible assets in the first quarter of fiscal 2020 and 2019 was $9.5 million and $10.0 million, respectively.

3. Borrowings and Credit Agreements

The following table is a summary of our borrowings as of March 28, 2020 and December 28, 2019 (in thousands):

	March 28,			December 28,
	2020			2019
Bank Term Loan under Credit Agreement	$	345,625		$	346,500
Bank Term Loans-Kita		3,745			3,830
Bank Term Loan-Xcerra		1,392			1,475
Construction Loan-Rasco		6,588			5,476
Lines of Credit		3,244			3,195
Total debt		360,594			360,476
Less: financing fees and discount		(7,151	)		(7,441	)
Less: current portion		(6,566	)		(6,517	)
Total long-term debt	$	346,877		$	346,518

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 March 28, 2020, the outstanding loan balance, net of discount and deferred financing costs, was $338.5 million and $2.3 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets at both March 28, 2020 and December 28, 2019. As of March 28, 2020, the fair value of the debt was $259.2 million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of March 28, 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 March 28, 2020, we believe no such events of default have occurred.

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 0.43%, and expire at various dates through 2034. At March 28, 2020, the outstanding loan balance was $3.7 million and $0.3 million and $0.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at March 28, 2020 and December 28, 2019, respectively. The fair value of the debt approximates the carrying value at March 28, 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 is payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly over the duration of the term loan ending in March 2024. At March 28, 2020, the outstanding loan balance was $1.4 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at both March 28, 2020 and December 28, 2019. The fair value of the debt approximates the carrying value at March 28, 2020.

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

17

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Construction Loans

On July 26, 2019, one of our wholly owned subsidiaries located in Germany entered into two construction loans (“Loan Facilities”) with a German financial institution providing total borrowing of €8.6 million. The Loan Facilities have 10-year and 15-year terms, which commenced on August 1, 2019, the initial draw-down date. The Loan Facilities are being utilized to finance the expansion of our facility in Kolbermoor, Germany, enabling us to combine the operations of multiple subsidiaries in one location as part of our previously announced strategic restructuring program. The Loan Facilities are secured by the land and the existing building on the site and bear interest at agreed upon rates based on separate €3.4 million and €5.2 million facility amounts.

On August 1, 2019, the full €3.4 million was drawn under the first facility, which is payable over 10 years at an annual interest rate of 0.8%. Interest payments only are required to be made each quarter starting in September 2019 with principal and interest payments due each quarter starting in the month of December 2021. Principal repayments will be made over 8 years starting at the end of 2021.

Through March 28, 2020, we drew €2.5 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 March 28, 2020, €2.7 million had not been drawn under the second facility and is expected to be drawn in the first half of 2020.

At March 28, 2020 and December 28, 2019, total outstanding borrowings under the Loan Facilities was $6.6 million and $5.5 million with $0.4 million and $0.3 million of the total outstanding balance being presented as current installments of long-term debt in our consolidated balance sheets based on contractual due dates, respectively. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at March 28, 2020.

Lines of Credit

As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $8.9 million. At March 28, 2020, total borrowings outstanding under the revolving lines of credit were $3.2 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 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 March 28, 2020 and December 28, 2019 no amounts were outstanding under this line of credit.

4. Restructuring Charges

Subsequent to the acquisition of Xcerra on October 1, 2018, 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”). As part of the Integration Program we consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in Penang, Malaysia and Fontana, California in 2019. Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program. In the second quarter of 2019, we entered into a social plan (“Plan”) with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH, as part of our Integration Program. The Plan will reduce headcount, enable us to consolidate the facilities of our multiple operations located near Rosenheim, Germany, as well as transition certain manufacturing to other lower cost regions. The facility consolidation and reduction in force programs are being implemented as part of a comprehensive review of our operations and are intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.

As a result of the activities described above, we recognized total pretax charges of $2.0 million and $1.4 million for the three months ended March 28, 2020 and March 30, 2019, respectively, that are within the scope of ASC 420, Exit or Disposal Cost Obligations (“ASC 420”). All costs of the Integration Program were, and are expected to be, incurred by our Semiconductor Test & Inspection segment.

18

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Costs associated with restructuring activities are presented in our condensed consolidated statements of operations as restructuring charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, which are classified within cost of sales. Other restructuring costs include expenses for professional fees associated with employee severance and impairments of fixed assets.

The following table summarizes the activity within the restructuring related accounts for the Integration Program during the three months ended March 28, 2020 and March 30, 2019 (in thousands):

	Severance and			Other Exit
	Other Payroll			Costs			Total
Balance, December 29, 2018	$	4,026		$	-		$	4,026
Costs accrued		753			608			1,361
Amounts paid or charged		(1,029	)		(608	)		(1,637	)
Impact of currency exchange		4			-			4
Balance, March 30, 2019	$	3,754		$	-		$	3,754
Balance, December 28, 2019	$	1,236		$	-		$	1,236
Costs accrued		234			169			403
Amounts paid or charged		(1,218	)		(169	)		(1,387	)
Impact of currency exchange		(33	)		-			(33	)
Balance, March 28, 2020	$	219		$	-		$	219

At March 28, 2020, our total accrual for restructuring related items is reflected within current liabilities of our condensed consolidated balance sheets as these amounts are expected to be paid out within a year. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash.

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.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

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

	March 28, 2020
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	901	$	-	$	-	$	901

	December 28, 2019
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	904	$	-	$	-	$	904

(1) As of March 28, 2020 and December 28, 2019, there were no investments in our portfolio in a loss position.

Effective maturities of short-term investments are as follows (in thousands):

	March 28, 2020				December 28, 2019
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	901	$	901	$	-	$	-
Due after one year through three years		-		-		904		904
	$	901	$	901	$	904	$	904

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.

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 28, 2020 using:
							Total estimated
	Level 1		Level 2		Level 3		fair value
Cash	$	163,780	$	-	$	-	$	163,780
Money market funds		-		7,694		-		7,694
Foreign government security		-		901		-		901
	$	163,780	$	8,595	$	-	$	172,375

	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

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

6. Employee Stock Benefit Plans

Our 2005 Equity Incentive Plan (“2005 Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that may be granted under the program include, but are not limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At March 28, 2020, there were 1,761,388 shares available for future equity grants under the 2005 Plan.

Stock Options

Stock options may be granted to employees, consultants and non-employee directors to purchase a fixed number of shares of our common stock. The exercise prices of options granted are at least equal to the fair market value of our common stock on the dates of grant and options vest and become exercisable in annual increments that range from one to four years from the date of grant. Stock options granted under the 2005 Plan have a maximum contractual term of ten years. In the first three months of fiscal 2020 we did not grant any stock options and we issued 22,205 shares of our common stock on the exercise of options that were granted previously.

At March 28, 2020, we had 341,071 stock options exercisable and outstanding. These options had a weighted-average exercise price of $10.09 per share, an aggregate intrinsic value of approximately $1.0 million and the weighted average remaining contractual term was approximately 2.6 years.

Restricted Stock Units

We grant restricted stock units (“RSUs”) to certain employees, consultants and directors. RSUs vest in annual increments that range from one to four years from the date of grant. Prior to vesting, RSUs do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued and outstanding. New shares of our common stock will be issued on the date the RSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at March 28, 2020.

In the three months of fiscal 2020 we awarded 622,764 RSUs and we issued 369,132 shares of our common stock on vesting of previously granted awards. At March 28, 2020, we had 1,575,014 RSUs outstanding with an aggregate intrinsic value of approximately $20.6 million and the weighted average remaining vesting period was approximately 1.8 years.

Performance Stock Units

We also grant performance stock units (“PSUs”) to 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 in 2020, 2019, 2018 and 2017 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 in 2020, 2019 2018 and 2017 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 ratably over the derived service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number outstanding at March 28, 2020.

In the first three months of fiscal 2020, we awarded 200,249 PSUs and we issued 34,080 shares of our common stock on vesting of previously granted awards. At March 28, 2020, we had 465,167 PSUs outstanding with an aggregate intrinsic value of approximately $6.1 million and the weighted average remaining vesting period was approximately 2.2 years.

Employee Stock Purchase Plan

The Cohu, Inc. 1997 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of shares of our common stock. Under the ESPP, eligible employees may purchase shares of Cohu common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Cohu common stock at the beginning or end of each 6-month purchase period, subject to certain limits. During the three months of fiscal 2020, no shares of our common stock were sold to our employees under the ESPP leaving 911,337 shares available for future issuance.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

7. Income Taxes

Ordinarily, interim tax provisions are calculated using the estimated effective tax rate (“ETR”) expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual ETR cannot be made, the actual ETR for the year-to-date period may be the best estimate of the annual ETR. For the three months ended March 28, 2020, we used the actual year-to-date ETR in computing our tax provision, as a reliable estimate of the 2020 annual ETR cannot be made, since relatively small changes in our projected income produce a significant variation in our ETR. The ETR on loss from continuing operations for the three months ended March 28, 2020 and March 30, 2019 was 5.4% and 0.9%, respectively. The tax benefit on loss from continuing operations in 2020 and 2019 differs from the U.S. federal statutory rate primarily due to the lack of a tax benefit on our domestic losses as a result of our valuation allowance on deferred tax assets, foreign income taxed at different rates, taxes on unremitted earnings and changes to unrecognized tax benefits.

Our German subsidiaries income tax returns for 2012 to 2016 are currently under routine examination by tax authorities in Germany. We believe our financial statement accruals for income taxes are appropriate.

During the three-month period ended March 28, 2020, our unrecognized tax benefits decreased by $0.2 million due to expiration of the statute of limitations, foreign currency exchange rate changes, offset by accrued interest. Other than for foreign currency exchange rate changes, there was no material change to our unrecognized tax benefits and related accrued interest and penalties during the three-month period ended March 30, 2019.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three months ended March 28, 2020, or to our net deferred tax assets as of March 28, 2020.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

8. Segment and Geographic Information

The summary below presents our current segments, Semiconductor Test & Inspection and PCB Test, for the three-month periods ended March 28, 2020 and March 30, 2019.

Financial information by reportable segment is as follows (in thousands):

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net sales by segment:
Semiconductor Test & Inspection	$	128,013		$	136,694
PCB Test		10,908			11,115
Total consolidated net sales for reportable segments	$	138,921		$	147,809
Segment profit (loss) before tax:
Semiconductor Test & Inspection	$	(11,573	)	$	(15,044	)
PCB Test		994			1,019
Profit (loss) for reportable segments		(10,579	)		(14,025	)
Other unallocated amounts:
Corporate expenses		(3,451	)		(3,741	)
Interest expense		(4,427	)		(5,507	)
Interest income		147			222
Loss from continuing operations before taxes	$	(18,310	)	$	(23,051	)

The following table summarizes our total assets by reportable business segment (in thousands):

	March 28,		December 28,
	2020		2019
Semiconductor Test & Inspection	$	966,562	$	998,756
PCB Test		58,883		56,938
Total assets for reportable segments		1,025,445		1,055,694
Corporate, principally cash and investments		46,710		18,398
Discontinued operations		-		3,618
Total consolidated assets	$	1,072,155	$	1,077,710

For revenues by geography and information on customer concentration, see Note 1, “Summary of Significant Accounting Policies”.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

9. 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 on the condensed consolidated balance sheet, but we recognized those lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. Lease and non-lease components are included in the calculation of the ROU asset and lease liabilities.

Our leases have remaining lease terms of 1 year to 38 years, some of which include one or more options to extend the leases for up to 25 years. Our lease term includes renewal terms when we are reasonably certain we will exercise the renewal options.

We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities. Supplemental balance sheet information related to leases was as follows:

(in thousands)	Classification	March 28, 2020			December 28, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	32,599		$	33,269
Finance lease assets	Property, plant and equipment, net (1)		2,865			2,515
Total lease assets		$	35,464		$	35,784
Liabilities
Current
Operating	Other accrued liabilities	$	5,592		$	5,458
Finance	Other accrued liabilities		2,688			2,574
Noncurrent
Operating	Long-term lease liabilities		28,103			28,877
Finance	Long-term lease liabilities		249			-
Total lease liabilities		$	36,632		$	36,909
Weighted-average remaining lease term (years)
Operating leases			7.7			7.9
Finance leases			0.6			0.5
Weighted-average discount rate
Operating leases			6.3	%		6.3	%
Finance leases			3.9	%		4.5	%

(1) Finance lease assets are recorded net of accumulated amortization of $0.1 million as of March 28, 2020 and December 28, 2019.

The components of lease expense were as follows:

	Three Months Ended
(in thousands)	March 28, 2020			March 30, 2019
Operating leases	$	2,151		$	2,122
Variable lease expense		532			566
Short-term operating leases		19			78
Finance leases
Amortization of leased assets		20			41
Interest on lease liabilities		28			59
Sublease income		(32	)		(36	)
Net lease cost	$	2,718		$	2,830

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Future minimum lease payments at March 28, 2020, are as follows:

	Operating			Finance
(in thousands)	leases (1)			leases			Total
2020	$	5,690		$	2,687		$	8,377
2021		6,536			124			6,660
2022		5,686			124			5,810
2023		4,992			31			5,023
2024		4,679			-			4,679
Thereafter		16,177			-			16,177
Total lease payments		43,760			2,966			46,726
Less: Interest		(10,065	)		(29	)		(10,094	)
Present value of lease liabilities	$	33,695		$	2,937		$	36,632

(1) Excludes sublease income of $0.1 million in both 2020 and 2021.

Supplemental cash flow information related to leases was as follows:

	Three Months Ended
(in thousands)	March 28, 2020		March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,133	$	1,881
Operating cash flows from finance leases	$	28	$	37
Financing cash flows from finance leases	$	9	$	9
Leased assets obtained in exchange for new finance lease liabilities	$	373	$	-
Leased assets obtained in exchange for new operating lease liabilities	$	1,062	$	31,508

10. Discontinued Operations

On October 1, 2018, we acquired a fixtures services business as part of Xcerra. In the fourth quarter of 2018, our management determined that this business did not align with our core business and was not a strategic fit within our organization. As a result, the fixtures services business has been marketed for sale since we acquired Xcerra on October 1, 2018 and it has been presented as discontinued 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.

In 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. In February 2020, we completed the sale of this business with an immaterial impact to the statement of operations for the three months ended March 28, 2020.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

Balance sheet information for our fixtures services business presented as discontinued operations is summarized as follows (in thousands):

	March 28,		December 28,
	2020		2019
Assets:
Cash and cash equivalents	$	-	$	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 segment are summarized as follows (in thousands):

	Three Months Ended
	March 28,		March 30,
	2020		2019
Net sales	$	432	$	1,592
Operating income before income taxes	$	11	$	189
Gain on sale of Fixtures business		35		-
Income before taxes		46		189
Income tax provision		4		25
Income, net of tax	$	42	$	164

11. 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.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 28, 2020

12. Guarantees

Product Warranty

Our products are generally sold with warranty periods that range from 12 to 36 months following sale or acceptance. The product warranty promises customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, and not as a separate performance obligation. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical and projected experience by product and configuration.

Changes in accrued warranty were as follows (in thousands):

	Three Months Ended
	March 28,			March 30,
	2020			2019
Balance at beginning of period	$	6,155		$	8,014
Warranty expense accruals		1,891			1,728
Warranty payments		(1,778	)		(2,654	)
Balance at end of period	$	6,268		$	7,088

Accrued warranty amounts expected to be incurred after one year are included in noncurrent other accrued liabilities in the condensed consolidated balance sheet. These amounts totaled $0.2 million and $0.3 million at March 28, 2020 and December 28, 2019, respectively.

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Cohu, Inc.

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

March 28, 2020

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains certain forward-looking statements including expectations of market conditions, challenges and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the Safe Harbor provisions created by that statute. Such forward-looking statements are based on management’s current expectations and beliefs, including estimates and projections about our business and include, but are not limited to, statements concerning financial position, business strategy, and plans or objectives for future operations. Forward-looking statements are not guarantees of future performance, and are subject to certain risks, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ materially from management’s current expectations. Such risks and uncertainties include those set forth in this Quarterly Report on Form 10-Q and our 2019 Annual Report on Form 10-K under the heading “Item 1A. Risk Factors”. The forward-looking statements in this report speak only as of the time they are made, and do not necessarily reflect management’s outlook at any other point in time. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or for any other reason, however, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the SEC after the date of this Quarterly Report.

OVERVIEW

Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors and thermal subsystems, semiconductor automated test equipment and bare-board printed circuit board test systems used by global semiconductor and electronics manufacturers and test subcontractors. We offer a wide range of products and services and our revenue from capital equipment products is driven by the capital expenditure budgets and spending patterns of our customers, who often delay or accelerate purchases in reaction to variations in their business. The level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor devices and PCBs and the products that incorporate them. Our consumable products are driven by the number of semiconductor devices and printed circuit boards that are tested and by the continuous introduction of new products and new technologies by our customers. As a result, our consumable products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products.

For the three months ended March 28, 2020, our consolidated net sales decreased 6.0% to $138.9 million. During the first quarter of 2020 our net sales were impacted by supply disruptions caused by the rapid and global spread of COVID-19. While our long-term market drivers and market strategy remain intact, we believe our sales will be negatively impacted this year by the global economic downturn caused by the COVID-19 pandemic.

During 2019, the global semiconductor market was impacted by the U.S. and China trade war which impacted our customers’ ability to supply product to certain end users. Throughout 2019, customer test cell utilization was below levels that have historically triggered the need for additional capacity. Despite the near-term weakness, we remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors, the future rollout of 5G networks, the diminishing impact of parallel test, increasing semiconductor complexity, increasing quality demands from semiconductor customers, and continued proliferation of electronics in a variety of products across the automotive, mobility and industrial markets. Our orders in the first quarter of 2020 strengthened, driven by demand for equipment used in testing mobility semiconductor applications, data centers and personal computers. We remain optimistic about our future business prospects and are focused on cross-selling opportunities and supporting our customers’ deployment of 5G RF capabilities on next generation smartphones and we remain focused on growing our sales to semiconductor and electronics manufacturers and test subcontractors.

Application of Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience, forecasts and on various other assumptions that are believed to be reasonable under the circumstances, however actual results may differ from those estimates under different assumptions or conditions. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

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

March 28, 2020

Our critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and that require complex management judgment include:

● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations;

● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses;

● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision;

● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation or amortization; and

● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense.

Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.

Revenue Recognition: Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur. Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as the transfer of control is completed for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment. Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At March 28, 2020, we have $9.6 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) for contracts with original expected durations of over one year. As allowed under ASC 606, we have opted to not disclose unsatisfied performance obligations as these contracts have 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 460, Guarantees (ASC 460), and not as a separate performance obligation. The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The estimate is based on information available for projected future sales. Variable consideration that does not meet revenue recognition criteria is deferred. Accounts receivable represents our unconditional right to receive consideration from our customer. Payments terms do not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the 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 consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped.

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Cohu, Inc.

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

March 28, 2020

Accounts Receivable: We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required.

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.

Inventory: The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. The demand forecast is a direct input in the development of our short-term manufacturing plans. We record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or net realizable value concerns equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future product demand, market conditions and product selling prices. If future product demand, market conditions or product selling prices are less than those projected by management or if continued modifications to products are required to meet specifications or other customer requirements, increases to inventory reserves may be required which would have a negative impact on our gross margin.

Income Taxes: We estimate our liability for income taxes based on the various jurisdictions where we conduct business. This requires us to estimate our (i) current taxes; (ii) temporary differences that result from differing treatment of certain items for tax and accounting purposes and (iii) unrecognized tax benefits. Temporary differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet. The deferred tax assets are reduced by a valuation allowance if, based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Establishing, reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the statement of operations. We must make significant judgments to determine the provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets. Our gross deferred tax asset balance as of March 28, 2020, was approximately $141.2 million, with a valuation allowance of approximately $93.5 million. Our deferred tax assets consist primarily of reserves and accruals that are not yet deductible for tax and tax credit and net operating loss carryforwards.

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. After the acquisition of Xcerra on October 1, 2018, we have determined that our four identified operating segments are: Test Handler Group (“THG”), Semiconductor Test Group (“STG”), Interface Solutions Group (“ISG”) and PCB Test Group (“PTG”). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in two segments, Semiconductor Test & Inspection and PCB Test. 

Goodwill and Indefinite-Lived Intangibles, Other Intangible Assets and Long-lived Assets: We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and it’s carrying value, not to exceed the carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.

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Cohu, Inc.

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

March 28, 2020

We conduct our annual impairment test as of October 1st of each year and have determined there was no impairment as of October 1, 2019, as 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. While a decline in stock price and market capitalization is not specifically cited as an impairment indicator, a company’s stock price and market capitalization should be considered in determining whether it is more likely than not that the fair value of a reporting unit is less than its book value. The financial and credit market volatility caused by the COVID-19 pandemic directly impacts our fair value measurement through our stock price that we use to determine our market capitalization. During times of volatility, significant judgment must be applied to determine whether stock price changes are a short-term swing or a longer-term trend.

During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and may not be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required, we may be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value. We evaluated the expected undiscounted cashflows of these assets as of March 28, 2020 and determined there was no impairment.

Warranty: We provide for the estimated costs of product warranties in the period sales are recognized. Our warranty obligation estimates are affected by historical product shipment levels, product performance and material and labor costs incurred in correcting product performance problems. Should product performance, material usage or labor repair costs differ from our estimates, revisions to the estimated warranty liability would be required.

Contingencies: We are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset. If a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable, we accrue a charge to operations in the period such conditions become known.

Share-based Compensation: Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. Share-based compensation on performance stock units with market-based goals is calculated using a Monte Carlo simulation model on the date of the grant. Share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date, which we estimate using the Black-Scholes valuation model.

Recent Accounting Pronouncements

For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Recent Accounting Pronouncements”, in Note 1 located in Part I, Item 1 of this Form 10-Q.

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Cohu, Inc.

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

March 28, 2020

RESULTS OF OPERATIONS

Recent Transactions Impacting Results of Operations

As discussed herein, management has determined that the fixtures services business, that was acquired as part of Xcerra, does not align with Cohu’s long-term strategic plan and management divested this business in the first quarter of 2020. As a result, the assets of our fixtures business are considered “held for sale” and the operations of our fixtures business are considered “discontinued operations” for all periods presented. Unless otherwise indicated, the discussion below covers the comparative results from continuing operations.

The following table summarizes certain operating data as a percentage of net sales:

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net sales		100.0	%		100.0	%
Cost of sales		(59.6	)%		(63.2	)%
Gross margin		40.4	%		36.8	%
Research and development		(16.2	)%		(15.4	)%
Selling, general and administrative		(24.0	)%		(25.9	)%
Amortization of purchased intangible assets		(6.9	)%		(6.8	)%
Restructuring charges		(0.3	)%		(0.9	)%
Impairment charges		(2.8	)%		-	%
Loss from operations		(9.8	)%		(12.2	)%

First Quarter of Fiscal 2020 Compared to First Quarter of Fiscal 2019

Net Sales

Our consolidated net sales decreased 6.0% to $138.9 million in 2020, compared to net sales of $147.8 million in 2019. During the first quarter of 2020 our net sales were impacted by disruptions caused by the COVID-19 pandemic and movement control orders implemented by the governments of Malaysia and the Philippines. These movement control orders resulted in supply disruptions and impacted our ability to ship product at the end of the quarter.

Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)

Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of the cost of materials, assembly and test labor, and overhead from operations. Our gross margin can fluctuate due to a number of factors, including, but not limited to, the mix of products sold, product support costs, inventory reserve adjustments, and utilization of manufacturing capacity. Our gross margin, as a percentage of net sales, was 40.4% in 2020 and 36.8% in 2019. In 2019, our cost of sales was impacted by the amortization of inventory step-up related to fair value adjustments to inventory acquired in business combinations. During the first three months of 2019, we amortized $6.0 million of inventory step-up related to our acquisition of Xcerra. There was no inventory step-up amortized in the first three months of 2020.

Our gross margin can be impacted by charges to cost of sales related to excess, obsolete and lower of cost or net realizable value inventory issues. We compute the majority of our excess and obsolete inventory reserve requirements using a one-year inventory usage forecast. During the first quarter of fiscal 2020 and 2019, we recorded charges to cost of sales of approximately $1.2 million and $0.3 million for excess and obsolete inventory, respectively. As part of the integration and restructuring activities related to Xcerra, we recorded $1.6 million and $0.5 million of inventory related charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products in 2020 and 2019, respectively. While we believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures at March 28, 2020, reductions in customer forecasts or continued modifications to products, as a result of our failure to meet specifications or other customer requirements, may result in additional charges to operations that could negatively impact our results of operations and gross margin in future periods.

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Cohu, Inc.

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

March 28, 2020

Research and Development Expense (“R&D Expense”)

R&D expense consists primarily of salaries and related costs of employees engaged in ongoing research, product design and development activities, costs of engineering materials and supplies, and professional consulting expenses. R&D expense was $22.5 million or 16.2% of net sales in 2020, compared to $22.7 million or 15.4% in 2019.

Selling, General and Administrative Expense (“SG&A Expense”)

SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for independent sales representatives, product promotion and costs of professional services. SG&A expense was $33.4 million or 24.0% of net sales in 2020, compared to $38.3 million or 25.9% in 2019. The decrease in SG&A expense in 2020 was primarily associated with a $1.0 million reduction in depreciation expense related to a step-up in value of Xcerra assets, lower incentive compensation due to the decrease in business volume and lower salary, travel and other administrative spending as a result of cost control measures implemented in response to the economic uncertainty caused by the COVID-19 pandemic.

Amortization of Purchased Intangible Assets

Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $9.5 million and $10.0 million for the first three months of 2020 and 2019, respectively. The decrease in expense recorded during the current year was a result of fluctuations in exchange rates.

Restructuring Charges

Subsequent to the acquisition of Xcerra on October 1, 2018, 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 Xcerra. In the first three months of 2020, we recorded restructuring charges, exclusive of the $1.6 million of inventory related charges described above, totaling $0.4 million. In the first three months of 2019 we recorded restructuring charges, exclusive of the $0.5 million of inventory related charges described above, totaling $1.4 million.

See Note 4, “Restructuring Charges” in Part I, Item 1 of this Form 10-Q for additional information with respect to restructuring charges.

Impairment Charges

During the first quarter of 2020, the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-19 pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of March 28, 2020 and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were no impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-19 pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a $3.9 million impairment to IPR&D as the carrying value exceeded fair value.

Interest Expense and Income

Interest expense was $4.4 million in the first three months of 2020 as compared to $5.5 million in the corresponding period of 2019. The decrease in interest expense resulted from lower LIBOR rates as a result of global economic uncertainty caused by the COVID-19 pandemic.

Interest income was $0.1 million and $0.2 million in the first three months of 2020 and 2019, respectively.

Income Taxes

Ordinarily, interim tax provisions are calculated using the estimated effective tax rate (“ETR”) expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual ETR cannot be made, the actual ETR for the year-to-date period may be the best estimate of the annual ETR. For the three months ended March 28, 2020, we used the actual year-to-date ETR in computing our tax provision, as a reliable estimate of the 2020 annual ETR cannot be made, since relatively small changes in our projected income produce a significant variation in our ETR. The ETR on loss from continuing operations for the three months ended March 28, 2020 and March 30, 2019 was 5.4% and 0.9%, respectively. The tax benefit on loss from continuing operations in 2020 and 2019 differs from the U.S. federal statutory rate primarily due to the lack of a tax benefit on our domestic losses as a result of our valuation allowance on deferred tax assets, foreign income taxed at different rates, taxes on unremitted earnings and changes to unrecognized tax benefits.

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Cohu, Inc.

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

March 28, 2020

Our German subsidiaries income tax returns for 2012 to 2016 are currently under routine examination by tax authorities in Germany. We believe our financial statement accruals for income taxes are appropriate.

During the three-month period ended March 28, 2020, our unrecognized tax benefits decreased by $0.2 million due to expiration of the statute of limitations, foreign currency exchange rate changes, offset by accrued interest. Other than for foreign currency exchange rate changes, there was no material change to our unrecognized tax benefits and related accrued interest and penalties during the three-month period ended March 30, 2019.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three months ended March 28, 2020, or to our net deferred tax assets as of March 28, 2020.

Loss from Continuing Operations and Net Loss

As a result of the factors set forth above, our loss from continuing operations and including the impact of discontinued operations our net loss was $17.3 million during the three months ended March 28, 2020. In 2019, loss from continuing operations was $22.9 million, and including the impact of discontinued operations our net loss was $22.6 million during the three months ended March 30, 2019.

LIQUIDITY AND CAPITAL RESOURCES

Our primary business is dependent on capital expenditures by semiconductor manufacturers and test subcontractors that are, in turn, dependent on the current and anticipated market demand for semiconductors. The seasonal and volatile nature of demand for semiconductor equipment, our primary industry, makes estimates of future revenues, results of operations and net cash flows difficult.

Our primary historical source of liquidity and capital resources has been cash flow generated by our operations and we manage our businesses to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating assets and to fund new products and product enhancements primarily through research and development. As of March 28, 2020, $78.2 million or 45.6% of our cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay foreign withholding taxes if we repatriate these funds. Except for working capital requirements in certain jurisdictions, we provide for all withholding and other residual taxes related to unremitted earnings of our foreign subsidiaries.

At March 28, 2020, our total indebtedness, net of discount and deferred financing costs, was $353.4 million, which included $338.5 million outstanding under the Term B Loan, $3.7 million outstanding under Kita’s term loans, $6.6 million outstanding under Rasco’s term loan, $3.2 million outstanding under Kita’s lines of credit, and $1.4 million outstanding under Xcerra’s term loan.

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Cohu, Inc.

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

March 28, 2020

Liquidity

Working Capital: The following summarizes our cash, cash equivalents, short-term investments and working capital:

	March 28,		December 28,		Increase			Percentage
(in thousands)	2020		2019		(Decrease)			Change
Cash, cash equivalents and short-term investments	$	172,375	$	156,098	$	16,277			10.4	%
Working capital	$	290,082	$	290,811	$	(729	)		(0.3	)%

Cash Flows

Operating Activities: Operating cash flows for the first three months of fiscal 2020 consisted of our net loss, adjusted for non-cash expenses and changes in operating assets and liabilities. These adjustments include impairment charges, depreciation expense on property, plant and equipment, share-based compensation expense, amortization of intangible assets and deferred income taxes. Our net cash provided by operating activities in the first three months of fiscal 2020 totaled $17.8 million. Net cash provided by operating activities was impacted by changes in current assets and liabilities and included decreases in accounts receivable of $17.1 million, accrued compensation, warranty and other liabilities of $14.3 million and increases in customer advances of $14.4 million, inventory of $6.1 million, other current assets of $5.9 million, income taxes payable of $7.5 million and deferred profit of $1.6 million. The change in our accounts receivable balance resulted from a sequential decrease in product shipments and the timing of the resulting cash conversion cycle. The decrease in accrued compensation, warranty and other liabilities resulted from payments of incentive compensation related to the prior year, decreased accruals for incentive compensation and warranty due to current business conditions, payments of accrued interest related to our Term B loan and a payment of $1.5 million for contingent consideration related to our acquisition of Kita Manufacturing Ltd. in 2017. Customer advances increased as a result of prepayments of equipment orders received and inventory increased due to purchases made to fulfill anticipated future shipments. Other current assets increased due to payments made for software licenses and other services that are being utilized over the next twelve months and the increase in income taxes payable was a result of income generated in certain foreign jurisdictions and deferred profit increased as a result of deferrals of revenue in accordance with our revenue recognition policy.

Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business, purchases of investments, proceeds from investment maturities, business divestitures and asset disposals. Net cash provided by investing activities in the first three months of fiscal 2020 totaled $1.5 million. Additions to property, plant and equipment of $1.6 million were made to support the operating and development activities of our business activities of our Semiconductor Test & Inspection segment. During the first quarter of 2020 we received net proceeds of $3.0 million from the sale of our fixtures services business.

Financing Activities: Financing cash flows consist primarily of net proceeds from the issuance of common stock under our stock option and employee stock purchase plans, cash used to pay dividends to our stockholders and borrowings, net of repayments of debt. We issue restricted stock units and stock options and maintain an employee stock purchase plan as components of our overall employee compensation. In the first three months of fiscal 2020, cash used to settle the minimum statutory tax withholding requirements on behalf of our employees upon vesting of restricted and performance stock awards, net of proceeds from the exercise of employee stock options was $0.3 million. We paid dividends totaling $2.5 million, or $0.06 per common share. As a result of the COVID-19 pandemic, we are proactively managing cash flow and Cohu’s Board of Directors has authorized suspending our quarterly cash dividend. The dividend suspension will result in approximately $10 million of annualized cash savings, which we expect to utilize for deleveraging and strengthening our balance sheet. Repayments of short-term borrowings and long-term debt during the first three months of fiscal 2020 totaled $1.1 million and we received proceeds under a construction loan totaling $1.1 million. Proceeds from the construction loan are being used to expand our facility in Kolbermoor, Germany, enabling us to consolidate the German operations of our Semiconductor Test & Inspection segment in 2020.

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Cohu, Inc.

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

March 28, 2020

Capital Resources

We have access to credit facilitates and other borrowings provided by financial institutions to finance acquisitions, capital expenditures and our operations if needed. A summary of our borrowings and available credit is as follows.

Credit Agreement

On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Credit Facility and borrowed the full amount to finance a portion of the Xcerra acquisition. Loans under the Credit Facility amortize in equal quarterly installments of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At March 28, 2020, the outstanding loan balance, net of discount and deferred financing costs, was $338.5 million and $2.3 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets at both March 28, 2020 and December 28, 2019. 

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 March 28, 2020, we believe no such events of default have occurred.

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 0.45%, and expire at various dates through 2034. At March 28, 2020, the outstanding loan balance was $3.7 million and $0.3 million and $0.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at March 28, 2020 and December 28, 2019, respectively. 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 is payable over 10 years at an annual interest rate of 2.35%. Principal plus accrued interest is due quarterly over the duration of the term loan ending in March 2024. At March 28, 2020, the outstanding loan balance was $1.4 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at both March 28, 2020 and December 28, 2019. The term loan is denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

Construction Loans

On July 26, 2019, one of our wholly owned subsidiaries located in Germany entered into two construction loans (“Loan Facilities”) with a German financial institution providing total borrowing of €8.6 million. The Loan Facilities have 10-year and 15-year terms, which commenced on August 1, 2019, the initial draw-down date. The Loan Facilities are being utilized to finance the expansion of our facility in Kolbermoor, Germany, enabling us to combine the operations of multiple subsidiaries in one location as part of our previously announced strategic restructuring program. The Loan Facilities are secured by the land and the existing building on the site and bear interest at agreed upon rates based on separate €3.4 million and €5.2 million facility amounts.

On August 1, 2019, the full €3.4 million was drawn under the first facility, which is payable over 10 years at an annual interest rate of 0.8%. Interest payments only are required to be made each quarter starting in September 2019 with principal and interest payments due each quarter starting in the month of December 2021. Principal repayments will be made over 8 years starting at the end of 2021.

Through March 28, 2020, we drew €2.5 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 March 28, 2020, €2.7 million had not been drawn under the second facility and is expected to be drawn in the first half of 2020.

At March 28, 2020 and December 28, 2019, total outstanding borrowings under the Loan Facilities was $6.6 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.

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Cohu, Inc.

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

March 28, 2020

Lines of Credit

As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $8.9 million. At March 28, 2020, total borrowings outstanding under the revolving lines of credit were $3.2 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 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 March 28, 2020 and December 28, 2019, no amounts were outstanding under this line of credit.

We also have a letter of credit facility (“LC Facility”) under which Bank of America, N.A., has agreed to administer the issuance of letters of credit on our behalf. The LC Facility requires us to maintain deposits of cash or other approved investments in amounts that approximate our outstanding letters of credit and contains customary restrictive covenants. In addition, our wholly owned subsidiary, Xcerra, has arrangements with various financial institutions for the issuance of letters of credit and bank guarantees. As of March 28, 2020, $0.3 million was outstanding under standby letters of credit and bank guarantees.

We expect that we will continue to make capital expenditures to support our business and we anticipate that present working capital will be sufficient to meet our operating requirements for at least the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations: Our significant contractual obligations consist of liabilities for debt, operating leases, unrecognized tax benefits, pensions, post-retirement benefits and warranties. There were no material changes to these obligations outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2019.

Commitments to contract manufacturers and suppliers: From time to time, we enter into commitments with our vendors and outsourcing partners to purchase inventory at fixed prices or in guaranteed quantities. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within relatively short time horizons. We typically do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements for the next three months.

Off-Balance Sheet Arrangements: During the ordinary course of business, we provide standby letters of credit instruments to certain parties as required. As of March 28, 2020, $0.3 million was outstanding under standby letters of credit.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk.

Investment and Interest Rate Risk.

At March 28, 2020, our investment portfolio included short-term fixed-income investment securities with a fair value of approximately $0.9 million. These securities are subject to interest rate risk and will likely decline in value if interest rates increase. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. As we classify our short-term securities as available-for-sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be credit-related. Due to the relatively short duration of our investment portfolio, an immediate ten percent change in interest rates would have no material impact on our financial condition or results of operations.

We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time sufficient for anticipated recovery of market value. As of March 28, 2020, we held no investments with loss positions.

Our long-term debt is carried at amortized cost and immaterial fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our debt will generally fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. As of March 28, 2020, we have approximately $338.5 million of long-term debt under a Credit Facility that is subject to quarterly interest payments that are based on either a base rate plus a margin of up to 2.0% per annum, or the London Interbank Offered Rate (LIBOR) plus a margin of up to 3.0% per annum. The selection of the interest rate formula is at our discretion. The interest rate otherwise payable under the Credit Facility will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by 2.0% per annum with respect to the overdue principal amount of any loans outstanding and overdue interest payments and other overdue fees and amounts. At March 28, 2020, the interest rate in effect on these borrowings was 4.0%.

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Cohu, Inc.

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

March 28, 2020

In July 2017, the UK’s Financial Conduct Authority, which regulates the LIBOR, announced that it intends to phase out LIBOR by the end of 2021. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee that has been convened by the Federal Reserve Board and the Federal Reserve Bank of New York. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate. Our Term B Loan facility constitutes our most significant exposure to this transition and there is no guarantee that a shift from LIBOR to a new reference rate will not result in increases to our borrowing costs.

Foreign Currency Exchange Risk.

We have operations in several foreign countries and conduct business in the local currency in these countries. As a result, we have risk associated with currency fluctuations as the value of foreign currencies fluctuate against the U.S. dollar, in particular the Swiss Franc, Euro, Malaysian Ringgit, Chinese Yuan, Philippine Peso and Japanese Yen. These fluctuations can impact our reported earnings.

Fluctuations in currency exchange rates also impact the U.S. Dollar amount of our net investment in foreign operations. The assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. Income and expense accounts are translated at an average exchange rate during the period which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. As a result of fluctuations in certain foreign currency exchange rates in relation to the U.S. Dollar as of March 28, 2020, compared to December 28, 2019, our stockholders’ equity decreased by $0.9 million.

Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. Dollar as compared to these currencies as of March 28, 2020 would result in an approximate $39.7 million positive translation adjustment recorded in other comprehensive income within stockholders’ equity. Conversely, a hypothetical 10% appreciation of the U.S. Dollar as compared to these currencies as of March 28, 2020 would result in an approximate $39.7 million negative translation adjustment recorded in other comprehensive income within stockholders’ equity.

Item 4.      Controls and Procedures.

(a) Evaluation 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 evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting. During the three months ended March 28, 2020, certain of our wholly owned subsidiaries implemented an integrated finance/accounting and manufacturing software system and our corporate office implemented a new financial consolidation 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 the 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.

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Part II      OTHER INFORMATION

Item 1.      Legal Proceedings.

The information set forth above under Note 11 contained in the "Notes to Unaudited Condensed Consolidated Financial Statements" of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

The risks described below are not the only risks we face. Additional risks that we are unaware of, or that we currently believe are not material, may also impair our business operations. The risk factors set forth below with an asterisk (*) next to the title contain substantive changes to the description of the risk factors associated with our business as previously disclosed in Item 1A to our 2019 Annual Report on Form 10-K. If any of the events or circumstances described in the following risks occur, our business, financial condition, results of operations or cash flows could suffer, and the trading price of our common stock and our market capitalization could decline.

* The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations.

The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations. As the COVID-19 virus has spread rapidly and globally, and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, including in many of the jurisdictions where we operate. These measures have adversely impacted, and are continuing to adversely impact, our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations in the U.S., Germany, Switzerland, Malaysia, Japan and the Philippines, and each of these countries has been significantly affected by the COVID-19 outbreak. For instance, our primary manufacturing facilities in Malaysia and the Philippines have been partially operating since March 2020 due to government-mandated movement control orders. Although we believe that Cohu qualifies as an “essential business” in the jurisdictions in which we operate, our business has been, and is continuing to be, adversely impacted by evolving and extended public health requirements around the world, government-mandated facility shutdowns, import/export, shipping and logistics disruptions and delays, other supply chain and distribution constraints or delays, rapid changes to business, political or regulatory conditions affecting the semiconductor equipment industry and the overall global economy, availability of employees and lost employee productivity, remote working IT and increased cybersecurity risks, increased internal control risks over financial reporting as key finance staff work remotely, delayed product development programs, customers’ canceling, pushing out orders or refusal to accept product deliveries, delayed collection of receivables, other actions of our customers, suppliers and competitors which may be sudden and inconsistent with our expectations, additional credit rating agency downgrades could occur which would increase the company’s cost of raising capital, and potential additional impairment of goodwill or other intangible assets or inventory writedowns due to lower product demand may become necessary. There is high uncertainty regarding the duration, severity and reoccurrence the COVID-19 virus and associated restrictive measures. Any such restrictions can limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

In addition, the COVID-19 pandemic has significantly increased global economic and demand uncertainty, and we are unable to predict the extent and duration of the global economic slowdown. Such adverse impact on the global economy will adversely affect our performance, financial condition and results of operations. Given the rapid development and fluidity of the outbreak, it is unclear whether the present slowdown in sales will be temporary and whether such sales will be recoverable in the future. If any such lost sales were not recoverable in the future, our business, financial condition and results of operations could be adversely affected. Also, given the market uncertainty, it is difficult to provide forward-looking financial guidance to our investors, and we withdrew first quarter 2020 guidance and may do so again in the future or may not provide financial guidance at all.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, use of telework, cancellation of meetings and more limited access to customer sites), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions could be harmed as a result. While the restrictions and limitations noted above may be relaxed or rolled back if and when COVID-19 abates, the actions may be reinstated as the pandemic continues to evolve. The scope and timing of any such reinstatement is difficult to predict and may materially affect our operations in the future.

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To the extent the COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, operations or financial performance, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the “Risk Factors” set forth in this Item 1A. Further, the COVID-19 pandemic may also affect our business, operations or financial performance in ways that are not presently known to us or that we currently do not expect to present significant risks to our business, operations or financial performance. Any such future developments are dependent upon factors including, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, the size and effectiveness of the compensating measures taken by governments, and how quickly and to what extent normal economic and operating conditions can resume, none of which can be predicted at this time. We are continuing to closely monitor the adverse effects and impact on our operations, businesses and financial performance.

* Cohu cannot provide any assurance that it will reinstate the payment of any regular cash dividends in the future.

On May 5, 2020, we announced that, given the ongoing impact and uncertainty of the COVID-19 pandemic on semiconductor test and inspection demand, our Board of Directors has suspended Cohu’s quarterly cash dividend, which will result in approximately $10 million of annualized cash savings. Cohu may not reinstate the payment of any cash dividends in the future for various reasons, including the following:

● given weak market conditions throughout 2019, followed by the COVID-19 global pandemic, we may continue to determine actions to preserve cash;

● Cohu may continue to prioritize its cash toward paying down its debt, for product development projects, acquisitions and/or making other strategic investments; 

● Cohu may continue to desire to retain cash to maintain or improve its credit ratings;

● as a result of the Merger and the issuance of shares of Cohu Common Stock in connection with the Merger, the total amount of cash required for Cohu to pay dividends increased;

● Cohu’s credit agreement restricts payments of dividends under certain circumstances;

● Cohu may not have enough cash to pay such dividends due to Cohu’s operational cash requirements, capital spending plans, cash flow or financial position;

● should interest rates rise, Cohu’s debt service obligations would increase;

● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses;

● decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Cohu Board, which reserves the right to change Cohu’s dividend practices at any time with no prior notice; and

● the amount of dividends that Cohu’s subsidiaries may distribute to Cohu may be subject to restrictions imposed by state or foreign law, restrictions that may be imposed by state or foreign regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

We may fail to realize all of the anticipated benefits of the Xcerra acquisition or those benefits may take longer to realize than expected.

Cohu acquired Xcerra on October 1, 2018, at which time Xcerra became a wholly owned subsidiary of Cohu (the “Merger”). Our ability to realize the anticipated benefits and synergies of the Merger depends, to a large extent, on our ability to successfully integrate Xcerra, which has been and continues to be a complex, costly and time-consuming process. The integration process may disrupt our business and, if implemented ineffectively or delayed, could restrict the realization of the full expected benefits, and could ultimately be unsuccessful. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Merger in the time frame we initially anticipated could cause an interruption of, or a loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.

In addition, the integration of Xcerra may result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of employees, customers, suppliers and other business relationships. Additional integration challenges and risks include:

● difficulties entering new markets or manufacturing in new geographies where Cohu has no or limited direct prior experience;

● such a new market for Cohu, the automated test equipment market, is intensely competitive with entrenched large competitors who are much larger than Cohu;

● successfully managing relationships with Cohu and Xcerra’s combined supplier and customer base;

● coordinating and integrating independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs;

● coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development;

● difficulties and significant costs in integrating the systems and processes of two companies with complex operations including multiple manufacturing sites;

● difficulties and potential loss of sales in transitioning customers from certain Xcerra products that are being discontinued and to Cohu products;

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● product manufacturing disruptions and delays as we consolidate certain manufacturing sites;

● difficulties and errors that may occur in integrating disparate accounting staffs, processes and systems;

● the increased scale and complexity of Cohu’s operations resulting from the Merger;

● Cohu’s ability to achieve the targeted cost synergies within the expected time frame, and significant costs of integration and restructuring;

● retaining key employees of Cohu and Xcerra;

● obligations that Cohu will have to counterparties of Xcerra that arise as a result of the change in control of Xcerra;

● legal impediments, delays and significant costs to reduce headcounts in various geographies;

● the impact of litigation and potential liabilities we may be inheriting from Xcerra; and

● diversion of management’s attention to integration matters.

Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and energy, which could adversely affect our business, financial condition, and results of operations and result in us becoming subject to litigation. In addition, even if Xcerra is integrated successfully, the full anticipated benefits of the Merger may not be realized, including the synergies, cost savings or sales or growth opportunities that are anticipated. These benefits may not be achieved within the anticipated time frame, or at all. Cohu incurred $16.2 million of restructuring charges for the Xcerra acquisition during fiscal year 2019 and additional restructuring charges or unanticipated costs may be incurred in the integration process. All of these factors could cause reductions in our earnings per share and decrease or delay the expected accretive effect of the Merger. As a result, it cannot be assured that the Merger will result in the realization of the full or any anticipated benefits.

We may underperform relative to our expectations.

Our business and financial performance, especially with our acquisition of Xcerra, are subject to certain risks and uncertainties. We may not be able to maintain the growth rate, levels of revenue, earnings, or operating efficiency that we and Xcerra have achieved or might achieve separately and, in fact, due to weak market conditions in 2019 sales and earnings related to the Xcerra related business declined significantly on a year-over-year basis. In addition, we believe Xcerra’s ATE products have been materially impacted by the Huawei export restrictions and may adversely affect our revenues and operating results in the near term (see risk factor entitled “Global economic and political conditions, including trade tariffs and export restrictions, have impacted our business and may continue to have an impact on our business and financial condition”). Any further underperformance could have a material adverse effect on our financial condition and results of operations.

Uncertainties underlie Cohu’s expectation that, relative to Cohu on a stand-alone basis, the Merger will be accretive to Cohu’s earnings per share.

Cohu currently believes that, relative to Cohu on a stand-alone basis, the Merger will be accretive to Cohu’s earnings per share upon completion of the ongoing restructuring and integration and after the recovery of market conditions. However, Cohu cannot give any assurance that the Merger will actually be accretive to Cohu’s earnings per share.

The use of cash and incurrence of substantial indebtedness in connection with the financing of the Merger may have an adverse impact on Cohu’s liquidity, limit Cohu’s flexibility in responding to other business opportunities and increase Cohu’s vulnerability to adverse economic and industry conditions.

The Merger was financed in part by using Cohu’s and Xcerra’s cash on hand and the incurrence of indebtedness. In connection with the Merger, Cohu entered into a term loan facility, with an aggregate principal amount of $350.0 million (the “Debt Financing” or “Credit Agreement”). Cohu used $160.5 million of Cohu’s and Xcerra’s cash on hand to complete the Merger. After completing the Merger and paying acquisition-related costs, Cohu’s (including Xcerra’s) cash, cash equivalents and short-term investments as of December 29, 2018, were approximately $165.0 million. Total cash, cash equivalents and short-term investments as of March 28, 2020 were approximately $172.4 million. The use of cash on hand and indebtedness to finance the acquisition has reduced Cohu’s liquidity and could cause Cohu to place more reliance on cash generated from operations to pay principal and interest on Cohu’s debt, thereby reducing the availability of Cohu’s cash flow for working capital, dividend and capital expenditure needs or to pursue other potential strategic plans.

Our Credit Agreement contains various representations and negative covenants that limit, subject to certain exceptions and baskets, our ability and/or our subsidiaries’ ability to, among other things:

● incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

● issue redeemable stock and preferred stock;

● pay cash dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock;

● enter into rate, commodity, equity or currency swap, hedging or other similar transactions;

● make loans, investments or acquisitions;

● enter into agreements that restrict distributions from our subsidiaries;

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● create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to guarantee our debt, limit our or any of our subsidiaries’ ability to create liens, or that require the grant of a lien to secure an obligation if a lien is granted to secure another obligation;

● sell assets and capital stock of our subsidiaries;

● enter into certain transactions with affiliates;

● sell, transfer, license, lease or dispose of our or our subsidiaries’ assets; and

● dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us and our subsidiaries, taken as a whole, to, another person.

The restrictions contained in our Credit Agreement could adversely affect our ability to:

● finance our operations;

● make needed capital expenditures;

● make strategic acquisitions or investments or enter into alliances;

● withstand a future downturn in our business or the economy in general;

● engage in business activities, including future opportunities, that may be in our interest; and

● plan for or react to market conditions or otherwise execute our business strategies.

A breach of any of these negative covenants could result in a default under the Credit Agreement. Further, additional indebtedness that we incur in the future may subject us to further covenants. Our failure to comply with these covenants could result in a default under the agreements governing the relevant indebtedness. The lender may accelerate the payment terms of the Credit Agreement upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. Any event that could require us to repay debt prior to its due date could have a material adverse impact on our financial condition and results of operations.

Our ability to comply with covenants contained in such debt agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us. In addition, our obligations under the Credit Agreement are secured, on a first-priority basis, and such security interests could be enforced in the event of default by the collateral agent for the Credit Agreement.

Changes in the method of determining the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates.

Interest rates under our Credit Agreement are calculated using LIBOR. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and it is unclear whether new methods of calculating LIBOR will be established. If LIBOR ceases to exist after 2021, a comparable or successor reference rate must be negotiated and agreed among the Administrative Agent, the Company and certain lenders under the Credit Agreement. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. To the extent these interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and cash flows.

Cohu has total consolidated debt of $353.4 million and because of such high debt levels we may not be able to service our debt obligations in accordance with their terms; the Tax Cuts and Jobs Act severely limits the deductibility of interest expense.

Cohu’s ability to meet its expense and debt service obligations contained in the Debt Financing agreements will depend on Cohu’s future performance, which will be affected by financial, business, economic and other factors, including potential changes in industry conditions, industry supply and demand balance, customer preferences, the success of Cohu’s products, pressure from competitors, and Cohu’s ability to successfully integrate Xcerra in a timely manner. In addition, Cohu is subject to interest rate risks, and continuing increases in interest rates will increase Cohu’s debt service obligations. Should combined Cohu and Xcerra revenues decline after the Merger (on a year-over-year basis), as they did in fiscal year 2019, Cohu may not be able to generate sufficient cash flow to pay its debt service obligations when due. If Cohu is unable to meet its debt service obligations after the Merger or should Cohu fail to comply with the covenants contained in the agreements governing its indebtedness, Cohu may be required to refinance all or part of its debt, sell important strategic assets at unfavorable prices, incur additional indebtedness or issue Cohu Common Stock or other equity securities. Cohu may not be able to, at any given time, refinance its debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to Cohu, in amounts sufficient to meet Cohu’s needs or at all. If Cohu is able to raise additional funds through the issuance of equity or equity-linked securities, such issuance would also result in dilution to Cohu’s stockholders. Cohu’s inability to service its debt obligations or refinance its debt could have a material adverse effect on its business, financial conditions or operating results after the Merger. In addition, Cohu’s debt obligations may limit its ability to make required investments in capacity, technology or other areas of its business, which could have a material adverse effect on its business, financial conditions or operating results. Furthermore, the Tax Cuts and Jobs Act limits the deductibility of interest expense in a given year to 30% of adjusted taxable income, as defined; the CARES Act temporarily increased this limitation to 50% for 2019 and 2020. This resulted in the inability of Cohu to utilize a substantial portion of its interest expense deductions in 2018, 2019 and 2020 and may impact our ability to utilize future deductions. However, the Act permits indefinite carryforward of any disallowed business interest, subject to Internal Revenue Code section 382 limitations on utilization.

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The issuance of shares of our common stock in connection with the Merger, and any future offerings of securities by us, will dilute our shareholders’ ownership interest in the company.

The Merger was financed in part by the issuance of additional shares of our common stock to shareholders of Xcerra, comprised approximately 11.8 million shares of common stock, or approximately 29% of our issued and outstanding shares of common stock immediately after completing the Merger. These issuances of additional shares of our common stock have diluted shareholders’ ownership interest in our company, and shareholders now have a proportionately reduced ownership and voting interest in our company as a result of completion of the Merger.

Because a significant portion of Cohu’s total assets are represented by goodwill, which is subject to mandatory impairment evaluation, and other intangibles, Cohu could be required to write off some or all of this goodwill and other intangibles, which may adversely affect the combined company’s financial condition and results of operations.

Cohu has accounted for the acquisition of Xcerra using the purchase method of accounting. A portion of the purchase price for this business was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of consummation of the merger. Merger, 46.6% of Cohu’s total assets are comprised of goodwill and other intangibles, of which approximately $238.0 million is allocated to goodwill. In accordance with the ASC 350, Intangibles - Goodwill and Other, goodwill and certain other intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment, or more frequently if there are indications of impairment. Significant declines in the price of Cohu’s common stock, as we saw in third fiscal quarter 2019, could increase the risk of an impairment. All other intangible assets are subject to periodic amortization. Cohu evaluates the remaining useful lives of other intangibles each quarter to determine whether events and circumstances warrant a revision to the remaining period of amortization. If we are unable to realize the anticipated benefits of the Merger, when Cohu performs future impairment tests, it is possible that the carrying value of goodwill or other intangible assets could exceed their implied fair value and therefore would require adjustment. Such adjustment would result in a charge to operating income in that period. For example, in first quarter 2020, Cohu recorded an impairment charge of approximately $3.9 million to adjust IPR&D assets obtained in the acquisition of Xcerra to their current fair value. There can be no assurance that there will not be further adjustments for impairment in future periods.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

We are required by the Securities and Exchange Commission to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls.

Completing the Merger has significantly increased the size, number of employees, global operations and complexity of Cohu’s business. Although we believe that we have adequate internal controls in place at this time, we cannot be certain that, with significantly greater global complexity, we will be able to maintain adequate internal control over our financial reporting in future periods. Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the Securities and Exchange Commission and Nasdaq Global Select Market, we could face severe consequences from those authorities. In either case, there could result a material adverse effect on our business. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Cohu has discovered and may discover additional liabilities or deficiencies associated with Xcerra that were not identified in advance.

We may discover liabilities, product return issues or deficiencies associated with Xcerra that were not identified in advance, which may result in significant unanticipated costs, including potential accounting and tax charges. The effectiveness of our due diligence review and our ability to evaluate the results of such due diligence are ultimately dependent upon the accuracy and completeness of statements and disclosures made or actions taken by Xcerra, as well as the limited amount of time in which the acquisition was executed. For example, since closing the Merger, we have incurred material product returns and associated expenses and were required to make material customer pricing concessions in order to resolve various Xcerra product issues. Any further unexpected liabilities, product return issues or deficiencies associated with Xcerra could have a material adverse effect on our financial condition and results of operations.

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We are exposed to other risks associated with other acquisitions, investments and divestitures.

As part of our business strategy, we will continue to regularly evaluate investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies, and we expect that periodically we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including, but not limited to:

● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses;

● increasing the scope, geographic diversity and complexity of our business;

● the cost and risk of having to potentially develop new and unfamiliar sales channels for acquired businesses;

● diversion of management’s attention from other operational matters;

● the potential loss of key employees, customers or suppliers of Cohu or acquired businesses;

● lack of synergy, or the inability to realize expected synergies, resulting from the acquisition;

● potential unknown liabilities associated with the acquired businesses;

● failure to commercialize purchased technology;

● the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results in future periods; and

● challenges caused by distance, language and cultural differences.

We may decide to finance future acquisitions and investments through a combination of borrowings, proceeds from equity or debt offerings and the use of cash, cash equivalents and short-term investments. If we finance acquisitions or investments by issuing equity-linked (such as convertible debt) or equity securities, our existing stockholders may be diluted which would likely affect the market price of our stock. For example, the Merger resulted in significant dilution wherein it was financed in part by the issuance of additional shares of our common stock to shareholders of Xcerra, comprised approximately 11.8 million shares of common stock, or approximately 29% of our issued and outstanding shares of common stock immediately after completing the Merger.

Mergers, acquisitions and investments are inherently risky and the inability to effectively manage these risks could materially and adversely affect our business, financial condition and results of operations. At December 28, 2019, we had goodwill and net purchased intangible assets balances of $238.7 million and $275.0 million, respectively.

Further, as a strategy to pay down long-term debt, we expect to continue to evaluate and pursue divestitures of assets that management determines to be non-core to our overall business strategy. Any such divestitures may distract Cohu’s management team, disrupt employees, may not yield attractive valuations, may incur material restructuring and transaction expenses and tax obligations, and may otherwise be unsuccessful.

We are making investments in new products to enter new markets, which may adversely affect our operating results; these investments may not be successful.

Given the highly competitive and rapidly evolving technology environment in which we operate, we believe it is important to develop new product offerings to meet strategic opportunities as they evolve. This includes developing products that we believe are necessary to meet the future needs of the marketplace. We are currently significantly investing in new product development programs to enable us to compete in the test contactor markets, while also investing in next generation test handlers and automated test equipment. For example, in fiscal year 2019, we incurred $86.1 million in research and development expenses. We expect to continue to make investments and we may at any time, based on product need or marketplace demand, decide to significantly increase our product development expenditures in these or other products. The cost of investments in new product offerings can have a negative impact on our operating results. There can be no assurance that new products we develop will be accepted in the marketplace or generate material revenues for us.

We are exposed to the risks of operating a global business.

We are a global corporation with offices and subsidiaries in certain foreign locations to manufacture our products, support our sales and services to the global semiconductor industry and, as such, we face risks in doing business abroad. Certain aspects inherent in transacting business internationally could negatively impact our operating results, including:

● costs and difficulties in staffing and managing international operations;

● legislative or regulatory requirements and potential changes in or interpretations of requirements in the United States and in the countries in which we manufacture or sell our products;

● trade restrictions, including treaty changes, sanctions and the suspension of export licenses;

● compliance with and changes in import/export tariffs and regulations;

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● complex labor laws and privacy regulations;

● difficulties in enforcing contractual and intellectual property rights;

● longer payment cycles;

● health epidemics; such as the COVID-19 pandemic;

● local political and economic conditions;

● natural disasters and geopolitical instability;

● complex tax laws and potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of “double taxation;” and

● fluctuations in foreign currency exchange rates against the U.S. Dollar, which can affect demand for our products and increase our costs.

To highlight the complexity of foreign labor laws, in 2019, we incurred $9.5 million of severance and related costs to downsize and reduce headcount by approximately 105 employees in our Rosenheim, Germany facility, and we would incur material amounts of additional severance costs in the future should we determine to undertake other headcount reduction activities in foreign locations. Additionally, managing geographically dispersed operations presents difficult challenges associated with organizational alignment and infrastructure, communications and information technology, inventory control, customer relationship management, terrorist threats and related security matters and cultural diversities. If we are unsuccessful in managing such operations effectively, our business and results of operations will be adversely affected.

We continue to monitor global privacy laws and legislation to determine its impact on our business. We do not sell to consumers nor process individual credit card information, but do maintain certain personally identifiable information on our employees. Such employee information may be subject to the EU General Data Protection Regulation and the recently effective California Consumer Protection Act. We believe that we have implemented reasonable procedures and internal controls in compliance with these laws, but should such actions be insufficient, we may be subject to regulatory investigations, fines and legal costs.

* We have manufacturing operations in Asia. Any failure to effectively manage multiple manufacturing sites and to secure raw materials meeting our quality, cost and other requirements, or failures by our suppliers to perform, could harm our sales, service levels and reputation.

Our reliance on overseas manufacturers exposes us to significant risks including complex management, foreign currency, legal, tax and economic risks, which we may not be able to address quickly and adequately. In addition, it is time consuming and costly to qualify overseas supplier relationships. If we should fail to effectively manage overseas manufacturing operations or logistics, or if one or more of them should experience delays, disruptions or quality control problems, or if we had to change or add additional manufacturing sites, our ability to ship products to our customers could be delayed. Also, the addition of overseas manufacturing locations increases the demands on our administrative and operations infrastructure and the complexity of our supply chain management and logistics. Our overseas sites are more susceptible to impacts from natural disasters, health epidemics and geopolitical instability (see risk factors entitled “The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations” and “The occurrence of natural disasters, health epidemics, and geopolitical instability caused by terrorist attacks and other threats may adversely impact our operations and sales”). If our overseas manufacturing locations are unable to meet our manufacturing requirements in a timely manner, our ability to ship products and to realize the related revenues when anticipated could be materially affected.

Our suppliers are subject to the fluctuations in general economic cycles, and global economic conditions may impact their ability to operate their businesses. They may also be impacted by possible import, export, tariff and other trade barriers, increasing costs of raw materials, labor and distribution, resulting in demands for less attractive contract terms or an inability for them to meet our requirements or conduct their own businesses. The performance and financial condition of a supplier may cause us to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices generally, which could in turn adversely affect our own business and financial condition.

Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely impact our operations.

We use numerous vendors to supply parts, components and subassemblies for the manufacture of our products. It is not always possible to maintain multiple qualified suppliers for all of our parts, components and subassemblies. As a result, many key parts may be available only from a single supplier (“sole source”) or a limited number of suppliers. In addition, suppliers may significantly raise prices or cease manufacturing certain components (with or without advance notice to us) that are difficult to replace without significant reengineering of our products. On occasion, we have experienced problems in obtaining adequate and reliable quantities of various parts and components from certain key or sole source suppliers. Our results of operations may be materially and adversely impacted if we do not receive sufficient parts to meet our requirements in a timely and cost-effective manner.

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* The semiconductor industry we serve is seasonal, volatile and unpredictable. 

Visibility into our markets is limited. The semiconductor equipment business is highly dependent on the overall strength of the semiconductor industry. Historically, the semiconductor industry has been seasonal with recurring periods of oversupply and excess capacity, which often have had a significant effect on the semiconductor industry’s demand for capital equipment, including equipment of the type we manufacture and market. We anticipate that the markets for newer generations of semiconductors and semiconductor equipment will also be subject to similar cycles and severe downturns. Any significant reductions in capital equipment investment by semiconductor integrated device manufacturers and test subcontractors will materially and adversely affect our business, financial position and results of operations. In addition, the seasonal, volatile and unpredictable nature of semiconductor equipment demand has in the past and may in the future expose us to significant excess and obsolete and lower of cost or net realizable value inventory write-offs and reserve requirements. In 2019, 2018 and 2017, we recorded pre-tax inventory-related charges of approximately $4.1 million, $1.4 million, and $1.1 million, respectively, primarily as a result of changes in customer forecasts. In the second half of 2018 and throughout 2019, we saw significantly weakened demand in automotive, mobility and consumer market segments, and overall geographic weakness in China and Taiwan. These trends adversely affected our second half 2018 results and full year 2019 results. Such adverse trends have materially impacted all of our business areas, including the businesses conducted by Xcerra. In 2019 and 2018 we incurred $2.7 million and $19.1 million, respectively, of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, and these charges may be insufficient as market conditions and demand changes. More recently, the COVID-19 pandemic and associated lower product demand has increased the risks that excess and obsolete and lower of cost or net realizable value inventory write-offs may be required. 

Due to the nature of our business, we need continued access to capital, which if not available to us or if not available on favorable terms, could harm our ability to operate or expand our business. 

Our business requires capital to finance accounts receivable and product inventory that is not financed by trade creditors when our business is expanding. If cash from available sources is insufficient or cash is used for unanticipated needs, we may require additional capital sooner than anticipated.

We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities will provide sufficient resources to meet our working capital and cash requirements for at least the next twelve months. In the event we are required, or elect, to raise additional funds, we may be unable to do so on favorable terms, or at all, and may incur expenses in raising the additional funds and increase our interest rate exposure, and any future indebtedness could adversely affect our operating results and severely limit our ability to plan for, or react to, changes in our business or industry. Further, under our Credit Agreement, we are significantly limited by financial and other negative covenants in our credit arrangements, including limitations on our borrowing of additional funds and issuing dividends. At any time in the future, we may determine to issue new equity-linked (such as convertible debt) or equity securities in order to pay down long-term debt or for other corporate purposes. In such case, existing stockholders may be diluted which would likely affect the market price of our stock. Any such new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on acceptable terms, we may not be able to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any inability to raise additional capital when required could have an adverse effect on our business and operating results.

The semiconductor equipment industry is intensely competitive.

The semiconductor equipment industry is intensely competitive, and we face substantial competition from numerous companies throughout the world. The test handler industry, while relatively small in terms of worldwide market size compared to other segments of the semiconductor equipment industry, has several participants resulting in intense competitive pricing pressures. Future competition may include companies that do not currently supply test handlers. Some of our competitors are part of larger corporations that have substantially greater financial, engineering, manufacturing and customer support capabilities and provide more extensive product offerings. In addition, there are emerging semiconductor equipment companies that provide or may provide innovative technology incorporated in products that may compete successfully against our products. We expect our competitors to continue to improve the design and performance of their current products and introduce new products with improved performance capabilities. Our failure to introduce new products in a timely manner, the introduction by our competitors of products with perceived or actual advantages, or disputes over rights to use certain intellectual property or technology could result in a loss of our competitive position and reduced sales of, or margins on our existing products. Intense competition has adversely impacted our product average selling prices and gross margins on certain products. If we are unable to reduce the cost of our existing products and successfully introduce new lower cost products, then we expect that these competitive conditions would negatively impact our gross margin and operating results in the foreseeable future.

We have increased investments in our test contactor business and announced significant growth targets for the business over the next several years, but due to weak market conditions we did not achieve our growth goals in 2019. The test contactor market is fragmented, with many entrenched regional players, and subject to intense price competition and high customer support requirements. We believe that customer support and responsiveness and an ability to consistently meet tight deadlines is critical to our success. If we are unable to reduce the cost of our test contactor products, while also meeting customer support requirements and deadlines, then we expect that these competitive conditions would negatively impact our gross margin and operating results in the foreseeable future.

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In addition, with the Xcerra acquisition, Cohu entered the automated test equipment (“ATE”) market. Our ability to increase our ATE sales will depend, in part, on our ability to obtain orders from new customers. Semiconductor and electronics manufacturers typically select a particular vendor’s product for testing new generations of a device and make substantial investments to develop related test program applications and interfaces. Once a manufacturer has selected an ATE vendor for a new generation of a device, that manufacturer is more likely to purchase systems from that vendor for that generation of the device, and, possibly, subsequent generations of that device as well. Further, Cohu has a niche position and relatively low share in the ATE market, and this market is primarily driven by two larger companies with significantly more resources to invest into the ATE market. Therefore, the opportunities to obtain orders from new customers or existing customers may be limited, which may impair our ability to grow our ATE revenue. In fact, as market conditions have weakened, we have seen a material reduction in sales within our ATE business. These developments may materially and adversely affect our current and future target markets and our ability to compete successfully in those markets.

Semiconductor equipment is subject to rapid technological change, product introductions and transitions which may result in inventory write-offs, and our new product development involves numerous risks and uncertainties.

Semiconductor equipment and processes are subject to rapid technological change. We believe that our future success will depend in part on our ability to enhance existing products and develop new products with improved performance capabilities. We expect to continue to invest heavily in research and development and must manage product transitions successfully, as introductions of new products, including the products obtained in our acquisitions, may adversely impact sales and/or margins of existing products. In addition, the introduction of new products by us or by our competitors, the concentration of our revenues in a limited number of large customers, the migration to new semiconductor testing methodologies and the custom nature of our inventory parts increases the risk that our established products and related inventory may become obsolete, resulting in significant excess and obsolete inventory exposure. This exposure resulted in charges to operations during each of the years in the three-year period ended December 28, 2019. Future inventory write-offs and increased inventory reserve requirements could have a material adverse impact on our results of operations and financial condition.

The design, development, commercial introduction and manufacture of new semiconductor equipment is an inherently complex process that involves a number of risks and uncertainties. These risks include potential problems in meeting customer acceptance and performance requirements, integration of the equipment with other suppliers’ equipment and the customers’ manufacturing processes, transitioning from product development to volume manufacturing and the ability of the equipment to satisfy the semiconductor industry’s constantly evolving needs and achieve commercial acceptance at prices that produce satisfactory profit margins. The design and development of new semiconductor equipment is heavily influenced by changes in integrated circuit assembly, test and final manufacturing processes and integrated circuit package design changes. We believe that the rate of change in such processes and integrated circuit packages is accelerating. As a result of these changes and other factors, assessing the market potential and commercial viability of handling, ATE, MEMS, system-level and burn-in test equipment and test contactors is extremely difficult and subject to a great deal of risk. In addition, not all integrated circuit manufacturers employ the same manufacturing processes. Differences in such processes make it difficult to design standard test products that can achieve broad market acceptance. As a result, we might not accurately assess the semiconductor industry’s future equipment requirements and fail to design and develop products that meet such requirements and achieve market acceptance. Failure to accurately assess customer requirements and market trends for new semiconductor test products may have a material adverse impact on our operations, financial condition and results of operations.

The transition from product development to the manufacture of new semiconductor equipment is a difficult process and delays in product introductions and problems in manufacturing such equipment are common. We have in the past and may in the future experience difficulties in manufacturing and volume production of our new equipment. In addition, as is common with semiconductor equipment, after sale support and warranty costs have typically been significantly higher with new products than with our established products. Future technologies, processes and product developments may render our current or future product offerings obsolete and we might not be able to develop, introduce and successfully manufacture new products or make enhancements to our existing products in a timely manner to satisfy customer requirements or achieve market acceptance. Furthermore, we might not realize acceptable profit margins on such products.

The seasonal nature of the semiconductor equipment industry places enormous demands on our employees, operations and infrastructure.

The semiconductor equipment industry is characterized by dramatic and sometimes rapid changes in demand for its products. These are generally dictated by introduction of new consumer products, launch of new model vehicles, implementation of new communications infrastructure, or in response to an increase in industrial equipment and machinery that utilizes semiconductors. A number of other factors including changes in integrated circuit design and packaging may affect demand for our products. Sudden changes in demand for semiconductor equipment commonly occur, and have a significant impact on our operations, and such changes in demand (up or down) are difficult to predict and proactively plan for. We have in the past and may in the future experience difficulties, particularly in manufacturing, in training and recruiting the large number of additions to our workforce. The volatility in headcount and business levels, combined with the seasonal nature of the semiconductor industry, may require that we invest substantial amounts in new operational and financial systems, procedures and controls. We may not be able to successfully adjust our systems, facilities and production capacity to meet our customers’ changing requirements. Any inability to meet such requirements will have an adverse impact on our business, financial position and results of operations. For example, in the second half of 2018 and throughout 2019, we saw significantly weakened demand in automotive, mobility and consumer market segments, and overall geographic weakness in China and Taiwan. These trends adversely affected our second half 2018 results and full year 2019 results.

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Global economic conditions may have an impact on our business and financial condition in ways that we currently cannot predict.

Our operations and financial results depend on worldwide economic conditions and their impact on levels of business spending. Continued uncertainties may reduce future sales of our products and services. While we believe we have a strong customer base and have experienced strong collections in the past, if the current market conditions deteriorate, we may experience increased collection times and greater write-offs, either of which could have a material adverse effect on our cash flow.

In addition, the tightening of credit markets and concerns regarding the availability of credit may make it more difficult for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment, including the products we sell. Delays in our customers’ ability to obtain such financing, or the unavailability of such financing would adversely affect our product sales and revenues and therefore harm our business and operating results. Possible import, export, tariff and other trade barriers, which could be imposed by Asia, the United States, other countries or the European Union might also have a material adverse effect on our operating results. We cannot predict the timing, duration of or effect on our business of an economic slowdown or the timing or strength of a subsequent recovery.

Global economic and political conditions, including trade tariffs and export restrictions, have impacted our business and may continue to have an impact on our business and financial condition.

In fiscal year 2019, 88% of our revenue was from products shipped to customer locations outside the United States. We also purchase a significant portion of components and subassemblies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including Malaysia, Germany, China and Japan.

The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. Higher duties on existing tariffs and further rounds of tariffs have been announced or repeatedly threatened by U.S. and Chinese leaders. Additionally, the U.S. has threatened to impose tariffs on goods imported from other countries, which could also impact our or certain of our customers' operations. If the U.S. were to impose current or additional tariffs on components that we or our suppliers source, our cost for such components would increase. We may also incur increases in manufacturing costs and supply chain risks due to our efforts to mitigate the impact of tariffs on our customers and our operations. Tariffs on our customers' products could also impact their sales of such end products, resulting in lower demand for our products.

We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary components and subassemblies, which could have a material adverse effect on our business, results of operations, or financial condition.

Furthermore, on May 16, 2019, the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce added Huawei to the BIS’s Entity List, which imposes limitations on the supply of certain U.S. items and product support to Huawei (all references to Huawei include its wholly-owned subsidiary HiSilicon). Although our sales directly to Huawei are immaterial, to ensure compliance with the Entity List restrictions, we suspended shipments of all products to Huawei, effective May 16, 2019. We then reviewed our product portfolio to determine whether our products and related support are subject to the Export Administration Regulations (“EAR”), and therefore within the scope of the Entity List restrictions. We have determined that certain products Huawei purchases from us are not subject to the EAR and consequently can be lawfully sold and shipped to Huawei. Accordingly, we have recently resumed shipping certain products to Huawei.

While Huawei remains on the Entity List, and in the absence of a license from the BIS, we may be unable to work with Huawei on future product development, which may have a negative effect on our ability to sell products to Huawei in the future. We believe that Entity List restrictions have encouraged Huawei to actively seek to obtain a greater supply of similar or substitute products from our competitors that are not subject to these restrictions, thereby decreasing our long-term competitiveness as a supplier to Huawei. More broadly, other China-based companies, unrelated to Huawei, may also seek alternative non-U.S. product sources driven by the ongoing unpredictability of U.S.-China trade relations. 

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We believe that the Entity List trade restrictions enacted during second quarter 2019 had, and will continue to have, an adverse effect on our business in that most of our customers’ businesses were disrupted as semiconductor companies evaluated the trade restrictions. We are not aware of any relief from these export restrictions in the U.S.-China “phase 1” trade deal signed on January 15, 2020 and continue to be unable to predict the duration of the export restrictions imposed with respect to Huawei or the long-term effects on our business. Additionally, other companies may be added to the Entity List and/or subject to trade restrictions. Further, there will likely continue to be indirect impacts to our business which we cannot reasonably quantify, including that some of our other customers’ products which utilize our solutions may also be impacted by these and other trade restrictions that may be imposed by the U.S., China, or other countries. Restrictions on our ability (or our customers’ ability) to sell and ship products to Huawei have had, and may continue to have, an adverse effect on our business, results of operations, or financial condition.

A limited number of customers account for a substantial percentage of our net sales. 

A small number of customers have been responsible for a significant portion of our net sales. During the past five years, the percentage of our sales derived from these significant customers has varied greatly. Such variations are due to changes in the customers’ business, consolidation within the semiconductor industry and their purchase of products from our competitors. It is common in the semiconductor equipment industry for customers to purchase products from more than one equipment supplier, increasing the risk that our competitive position with a specific customer may deteriorate. No assurance can be given that we will continue to maintain our competitive position with these or other significant customers. Furthermore, we expect the percentage of our revenues derived from significant customers will vary greatly in future periods. The loss of, or a significant reduction in, orders by these or other significant customers as a result of competitive products, market conditions including end market demand for our customers’ products, outsourcing final semiconductor test to test subcontractors that are not our customers or other factors, would have a material adverse impact on our business, financial condition and results of operations. Furthermore, the concentration of our revenues in a limited number of large customers is likely to cause significant fluctuations in our future annual and quarterly operating results.

If we cannot continue to develop, manufacture and market products and services that meet customer requirements for innovation and quality, our revenue and gross margin may suffer.

The process of developing new high technology products and services and enhancing existing products and services is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly harm our sales and results of operations. In addition, in the course of conducting our business, we must adequately address quality issues associated with our products and services, including defects in our engineering, design and manufacturing processes, as well as defects in third-party components included in our products. To address quality issues, we work extensively with our customers and suppliers and engage in product testing to determine the cause of quality problems and appropriate solutions. Finding solutions to quality issues can be expensive and may result in additional warranty, replacement and other costs, adversely affecting our profits. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our reputation, which could lead to a material adverse effect on our operating results.

Our global Enterprise Resource Management (“ERP”) upgrade may adversely affect our business and results of operations or the effectiveness of internal controls over financial reporting.

We are in final development stages of a phased global replacement of our existing ERP solution and have launched the first phase of such new ERP solution in first quarter 2020. The second phase and rollout is planned throughout 2020. The new solution is being developed as an enterprise solution in partnership with a leading provider of ERP tools. Additional investments in enterprise tools that focus on product life-cycle management, our customer experience, and supply chain management are in process to support our growing business. These implementations are extremely complex and time-consuming projects that involve substantial expenditures on software and implementation activities. If we do not effectively implement the system or if the system does not operate as intended, it could result in the loss or corruption of data, delayed order processing and shipments and increased costs. It could also adversely affect our financial reporting systems and our ability to produce financial reports and process transactions, the effectiveness of internal controls over financial reporting, and our business, financial condition, results of operations and cash flows.

Our business and operations could suffer in the event of cybersecurity breaches.

Attempts by others to gain unauthorized access to information technology systems are becoming more sophisticated and are sometimes successful. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate all cybersecurity incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. The company has been impacted by immaterial “phishing” schemes and is continuing its efforts to train employees on such risks but may still incur damages from such schemes in the future. We believe that extensive employee telework practices, implemented in response to the COVID-19 pandemic, have increased our cybersecurity risks. The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any security breach results in inappropriate disclosure of our customers' or licensees' confidential information, we may incur liability as a result. Further, any attack that disrupted our IT systems could impact our sales, financial results and stock price. In response to these risks, we expect to continue to devote additional resources to the security of our information technology systems.

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* The loss of key personnel could adversely impact our business.

Certain key personnel are critical to our business. Our future operating results depend substantially upon the continued service of our key personnel, many of whom are not bound by employment or non-competition agreements. Our future operating results also depend in significant part upon our ability to attract and retain qualified management, manufacturing, technical, engineering, marketing, sales and support personnel. Competition for qualified personnel, particularly those with technical skills, is intense, and we cannot ensure success in attracting or retaining qualified personnel. In addition, the cost of living in the San Diego and Bay Area, California, Boston, Massachusetts, Rosenheim and Kolbermoor, Germany, La Chaux-de-Fonds, Switzerland and Osaka, Japan areas, where the majority of our engineering personnel are located, is high and we have had difficulty in recruiting prospective employees from other locations. There may be only a limited number of persons with the requisite skills and relevant industry experience to serve in these positions and it may become increasingly difficult for us to hire personnel over time. More recently, the COVID-19 pandemic has increased the risks that our executives and other key employees may be suddenly unable to perform their duties due to health or other personal responsibilities. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees.

Third parties may violate our proprietary rights or accuse us of infringing upon their proprietary rights.

We rely on patent, copyright, trademark and trade secret laws to establish and maintain proprietary rights in our technology and products. Any of our proprietary rights may expire due to patent life, or be challenged, invalidated or circumvented. In addition, from time-to-time, we receive notices from third parties regarding patent or copyright claims. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology or to substitute similar non-infringing technology, our business, financial condition and results of operations could be adversely affected. We are also subject to the theft and misappropriation of intellectual property by others, including incidents relating to former employees. We believe we are taking reasonable actions to protect and improve our security, through strengthened IT infrastructure and internal controls, but if these actions are not successful our business could be adversely affected.

A majority of our revenues are generated from exports to foreign countries, primarily in Asia, that are subject to economic and political instability and we compete against a number of Asian test handling equipment suppliers.

The majority of our export sales are made to destinations in Asia. Political or economic instability, particularly in Asia, may adversely impact the demand for capital equipment, including equipment of the type we manufacture and market. In addition, we face intense competition from a number of Asian suppliers that have certain advantages over United States (U.S.) suppliers, including us. These advantages include, among other things, proximity to customers, lower cost structures, favorable tariffs and affiliation with significantly larger organizations. In addition, changes in the amount or price of semiconductors produced in Asia could impact the profitability or capital equipment spending programs of our foreign and domestic customers.

Unanticipated changes in our tax provisions, enactment of new tax laws, or exposure to additional income tax liabilities could affect our profitability.

We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our tax liabilities are affected by, among other things, the amounts our affiliated entities charge each other for intercompany transactions. Our German subsidiaries income tax returns for 2012 to 2016 are currently under routine examination by tax authorities in Germany. We may be subject to ongoing tax examinations in various jurisdictions. Tax authorities may disagree with our intercompany charges or other matters and assess additional taxes. While we regularly assess the likely outcomes of these examinations to determine the appropriateness of our tax provision, tax audits are inherently uncertain, and an unfavorable outcome could occur. An unanticipated, unfavorable outcome in any specific period could harm our operating results for that period or future periods. The financial cost and management attention and time devoted to defending income tax positions may divert resources from our business operations, which could harm our business and profitability. Tax examinations may also impact the timing and/or amount of our refund claims. In addition, our effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. In particular, the carrying value of our deferred tax assets and the utilization of our net operating loss and credit carryforwards are dependent on our ability to generate future taxable income in the U.S. and other countries. Furthermore, these carryforwards may be subject to annual limitations as a result of changes in Cohu’s ownership. As a result of the acquisition of Xcerra, a greater than 50% cumulative ownership change in Xcerra triggered a significant limitation in the utilization of their net operating loss and research credit carryforwards. Cohu’s ability to use the acquired Xcerra U.S. net operating loss and credit carryforwards is subject to annual limitations as defined in sections 382 and 383 of the Internal Revenue Code.

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On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law in the United States. The changes in the Tax Act are broad and complex and we continue to examine the impact the Tax Act may have on our business and financial results. Among its many provisions, the Tax Act imposed a mandatory one-time transition tax on undistributed foreign earnings regardless of whether they are repatriated, reduced the U.S. corporate income tax rate from 35% to 21%, imposed limitations on the deductibility of interest and certain other corporate deductions, moved from a “worldwide” system of taxation that generally allows deferral of U.S. tax on foreign earnings until repatriated to a “territorial”/dividend exemption system with a minimum tax that will subject foreign earnings to U.S. tax when earned and created new taxes on certain foreign-sourced earnings and related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion and anti-abuse tax, respectively. In accordance with applicable SEC guidance (SAB 118), we recorded provisional amounts as of December 30, 2017, however, these provisional amounts were subject to change in 2018, due to, among other things, changes in estimates, interpretations and assumptions we have made, changes in Internal Revenue Service (IRS) interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related interpretations in response to the Tax Act and future actions by states within the United States that have not currently adopted the Tax Act. During 2018 we completed the accounting for the effects of the Tax Act and recorded an increase in our transition tax liability of approximately $5.1 million that was fully offset by the use of net operating loss carryforwards resulting in no net increase in tax expense. We must continue to address new regulations and interpretations of the Tax Act as they are issued.

Compliance with regulations may impact sales to foreign customers and impose costs.

Certain products and services that we offer require compliance with U.S. and other foreign country export and other regulations. Compliance with complex U.S. and other foreign country laws and regulations that apply to our international sales activities increases our cost of doing business in international jurisdictions and could expose us or our employees to fines and penalties. These laws and regulations include import and export requirements, the U.S. State Department International Traffic in Arms Regulations (“ITAR”) and U.S. and other foreign country laws such as the Foreign Corrupt Practices Act (“FCPA”), and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation. Although we have implemented policies and procedures designed to ensure compliance with these laws, there can be no assurance that our employees, contractors or agents will not violate our policies, or that our policies will be effective in preventing all potential violations. Any such violations could include prohibitions on our ability to offer our products and services to one or more countries, and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Further, defending against claims of violations of these laws and regulations, even if we are successful, could be time-consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses.

In addition to government regulations regarding sale and export, we are subject to other regulations regarding our products. For example, the U.S. Securities and Exchange Commission has adopted disclosure rules for companies that use conflict minerals in their products, with substantial supply chain verification requirements if the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries. These new rules and verification requirements impose additional costs on us and on our suppliers and may limit the sources or increase the cost of materials used in our products. Further, if we are unable to certify that our products are conflict free, we may face challenges with our customers that could place us at a competitive disadvantage, and our reputation may be harmed.

There may be changes in, and uncertainty with respect to, legislation, regulation and governmental policy in the United States.

The change in administration in the United States has resulted and may continue to result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy. Specific legislative and regulatory proposals that could have a material impact on us include, but are not limited to, infrastructure renewal programs; and modifications to international trade policy, such as approvals by the Committee on Foreign Investment in the United States; increased duties, tariffs or other restrictions; public company reporting requirements; environmental regulation and antitrust enforcement.

* The occurrence of natural disasters, health epidemics, and geopolitical instability caused by terrorist attacks and other threats may adversely impact our operations and sales.

Our corporate headquarters is located in San Diego, California, our Asian sales and service headquarters is located in Singapore and the majority of our sales are made to destinations in Asia. In addition, we have Asia-based manufacturing plants in Malaysia, Philippines and Japan. These regions are known for being vulnerable to natural disasters and other risks, such as earthquakes, tsunamis, fires and floods, volcanic eruptions, and geopolitical risks, which at times have disrupted the local economies. For example, a significant earthquake or tsunami could materially affect operating results. We are not insured for most losses and business interruptions of this kind, or for geopolitical or terrorism impacts, and presently have limited redundant, multiple site capacity in the event of a disaster. In the event of such disaster, our business would materially suffer.

51

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, and has been and is continuing to be adversely affected by the COVID-19 global pandemic (see risk factor entitled “The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations"). 

* Our financial and operating results may vary and fall below analysts’ estimates, or credit rating agencies may change their ratings on Cohu, any of which may cause the price of our common stock to decline or make it difficult to obtain other financing.

Our operating results may fluctuate from quarter to quarter due to a variety of factors including, but not limited to:

●     seasonal, volatile and unpredictable nature of the semiconductor equipment industry;

●     timing and amount of orders from customers and shipments to customers;

●     customer decisions to cancel orders or push out deliveries;

●     inability to recognize revenue due to accounting requirements;

●     inventory write-downs;

●     unexpected expenses or cost overruns in the introduction and support of products;

●     inability to deliver solutions as expected by our customers; and

●     intangible and deferred tax asset write-downs.

Due to these factors or other unanticipated events, quarter-to-quarter comparisons of our operating results may not be reliable indicators of our future performance. In addition, from time-to-time our quarterly financial results may fall below the expectations of the securities and industry analysts who publish reports on our company or of investors in general. This could cause the market price of our stock to decline, perhaps significantly.

In addition, as a result of the Credit Facility, we maintain credit ratings with Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings (“S&P”). The current Moody’s and S&P issuer credit ratings for Cohu are B2 and B, respectively. Moody’s and S&P downgraded their outlook on Cohu from B1 (to B2) and BB- (to B) on September 19, 2019 and October 16, 2019, respectively. The changes in outlook were primarily the result of Cohu's high leverage following a significant decline in operating performance year-to-date in fiscal 2019, weakness in the semiconductor industry, particularly in Cohu's mobility and automotive segments, depressed customer capital spending, and assumptions regarding Cohu’s 2019 cash consumption. Subsequently, on March 31, 2020, S&P further downgraded their outlook on Cohu from B to B-, primarily due to weaker credit metrics and the macroeconomic impact from the COVID-19 pandemic.

Any further downgrade of Cohu’s credit ratings or rating outlooks may materially and adversely affect the market price of our equity and the availability, cost or interest rate of other credit or financing. The recent rating downgrades and any further downgrades will make it more costly for Cohu or its subsidiaries to borrow money or enter into new credit facilities and to raise certain other types of capital and/or complete additional financings. Any such negative credit rating actions and the reasons for such actions could materially and adversely affect our cash flows, results of operations and financial condition and our ability to pay the principal of and interest on, our debt.

* We have experienced significant volatility in our stock price.

A variety of factors may cause the price of our stock to be volatile. The stock market in general, and the market for shares of high-technology companies in particular, including ours, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. During the three-year period ended March 28, 2020, the price of our common stock has ranged from $27.83 to $8.89. The price of our stock may be more volatile than the stock of other companies due to, among other factors, the unpredictable, volatile and seasonal nature of the semiconductor industry, our significant customer concentration, intense competition in the test handler and ATE industry, our limited backlog, our debt levels and high leverage, and our relatively low daily stock trading volume. The COVID-19 pandemic has caused significant market volatility which increases the risks of significant and sudden investment losses. The market price of our common stock is likely to continue to fluctuate significantly in the future, including fluctuations related and unrelated to our performance.

52

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.       Defaults Upon Senior Securities.

None.

Item 4.       Mine Safety Disclosures

Not applicable.

Item 5.       Other Information.

None.

53

Item 6.	Exhibits.
10.1	Amendment No. 3 to Pascal Rondé’s Employment Agreement, dated March 17, 2020, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Form 8-K filed with the Securities Exchange Commission on March 19, 2020
31.1	Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

54

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Date: May 7, 2020	/s/ Luis A. Müller
	Luis A. Müller
	President & Chief Executive Officer
Date: May 7, 2020	/s/ Jeffrey D. Jones
	Jeffrey D. Jones
	Vice President, Finance & Chief Financial Officer
	(Principal Financial & Accounting Officer)

55

EX-31.1

Exhibit 31.1

COHU, INC.

SARBANES-OXLEY ACT SECTION 302(a)

CERTIFICATION

I, Luis A. Müller, certify that:

1. I have reviewed this Form 10-Q of Cohu, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ Luis A. Müller     

Luis A. Müller
President & Chief Executive Officer

EX-31.2

Exhibit 31.2

COHU, INC.

SARBANES-OXLEY ACT SECTION 302(a)

CERTIFICATION

I, Jeffrey D. Jones, certify that:

1. I have reviewed this Form 10-Q of Cohu, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ Jeffrey D. Jones

Jeffrey D. Jones
Vice President Finance & Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the accompanying Quarterly Report of Cohu, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended March 28, 2020 (the "Report"), I, Luis A. Müller, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2020

/s/ Luis A. Müller

---------------------------------------------   

Luis A. Müller,

President & Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

      In connection with the accompanying Quarterly Report of Cohu, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended March 28, 2020 (the "Report"), I, Jeffrey D. Jones, Vice President Finance & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2020

/s/ Jeffrey D. Jones

---------------------------------------------------

Jeffrey D. Jones,

Vice President Finance & Chief Financial Officer

XML

Note 2 - Goodwill and Purchased Intangible Assets - Changes in Carrying Value of Goodwill (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 28, 2020		Dec. 28, 2019
Beginning balance		$ 238,669	[1]	$ 242,127
Adjustments				1,134
Impairments	[2]			(715)
Impact of currency exchange		(672)		(3,877)
Ending balance		237,997		238,669	[1]
Semiconductor Test and Inspection [Member]
Beginning balance		218,775		220,808
Adjustments				2,117
Impairments	[2]			(715)
Impact of currency exchange		(575)		(3,435)
Ending balance		218,200		218,775
PCB Test [Member]
Beginning balance		19,894		21,319
Adjustments				(983)
Impairments	[2]
Impact of currency exchange		(97)		(442)
Ending balance		$ 19,797		$ 19,894

[1] Derived from December 28, 2019 audited financial statements

[2] 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.

XML

Note 4 - Restructuring Charges (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Restructuring Charges, Total	$ 403	$ 1,361
Integration Program [Member]
Restructuring Charges, Total	$ 2,000	$ 1,400

XML

Note 5 - Financial Instruments Measured at Fair Value - Effective Maturities of Short-term Investments (Details) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Due in one year or less, amortized cost	$ 901
Due in one year or less, fair value	901
Due after one year through three years, amortized cost		904
Due after one year through three years, fair value		904
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Amortized Cost, Total	901	904
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value, Total	$ 901	$ 904

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 28, 2020	Mar. 30, 2019
Net sales		$ 138,921	$ 147,809
Cost and expenses:
Cost of sales (1)	[1]	82,837	93,394
Research and development		22,468	22,733
Selling, general and administrative		33,352	38,286
Amortization of purchased intangible assets		9,538	10,019
Restructuring charges		403	1,361
Impairment charges related to indefinite lived intangibles		3,949
Costs and Expenses, Total		152,547	165,793
Loss from operations		(13,626)	(17,984)
Other (expense) income:
Interest expense		(4,427)	(5,507)
Interest income		147	222
Foreign transaction gain (loss)		(404)	218
Loss from continuing operations before taxes		(18,310)	(23,051)
Income tax benefit		(992)	(200)
Loss from continuing operations		(17,318)	(22,851)
Income from discontinued operations		42	164
Net loss		(17,276)	(22,687)
Net loss attributable to noncontrolling interest			(44)
Net loss attributable to Cohu		$ (17,276)	$ (22,643)
Weighted average shares used in computing income (loss) per share:
Basic (in shares)		41,502	40,872
Diluted (in shares)		41,502	40,872
Cash dividends declared per share (in dollars per share)		$ 0.06	$ 0.06
Basic:
Loss from continuing operations before noncontrolling interest (in dollars per share)		(0.42)	(0.56)
Income from discontinued operations (in dollars per share)	[1]	0	0.01
Net loss attributable to noncontrolling interest (in dollars per share)			0
Net loss attributable to Cohu (in dollars per share)		(0.42)	(0.55)
Diluted:
Loss from continuing operations before noncontrolling interest (in dollars per share)		(0.42)	(0.56)
Income from discontinued operations (in dollars per share)	[1]	0	0.01
Net loss attributable to noncontrolling interest (in dollars per share)			0
Net loss attributable to Cohu (in dollars per share)		$ (0.42)	$ (0.55)

[1] Excludes amortization of $7,266 and $7,641 for the three months ended March 28, 2020 and March 30, 2019, respectively.

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Retained Earnings [Member]
Cash dividend, per share (in dollars per share)	$ 0.06	$ 0.06
Cash dividend, per share (in dollars per share)	$ 0.06	$ 0.06

XML

Note 9 - Leases (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Leases, Balance Sheet Information [Table Text Block]

(in thousands)	Classification	March 28, 2020			December 28, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	32,599		$	33,269
Finance lease assets	Property, plant and equipment, net (1)		2,865			2,515
Total lease assets		$	35,464		$	35,784
Liabilities
Current
Operating	Other accrued liabilities	$	5,592		$	5,458
Finance	Other accrued liabilities		2,688			2,574
Noncurrent
Operating	Long-term lease liabilities		28,103			28,877
Finance	Long-term lease liabilities		249			-
Total lease liabilities		$	36,632		$	36,909
Weighted-average remaining lease term (years)
Operating leases			7.7			7.9
Finance leases			0.6			0.5
Weighted-average discount rate
Operating leases			6.3	%		6.3	%
Finance leases			3.9	%		4.5	%

Lease, Cost [Table Text Block]

	Three Months Ended
(in thousands)	March 28, 2020			March 30, 2019
Operating leases	$	2,151		$	2,122
Variable lease expense		532			566
Short-term operating leases		19			78
Finance leases
Amortization of leased assets		20			41
Interest on lease liabilities		28			59
Sublease income		(32	)		(36	)
Net lease cost	$	2,718		$	2,830

Lessee, Lease, Liability, Maturity [Table Text Block]

	Operating			Finance
(in thousands)	leases (1)			leases			Total
2020	$	5,690		$	2,687		$	8,377
2021		6,536			124			6,660
2022		5,686			124			5,810
2023		4,992			31			5,023
2024		4,679			-			4,679
Thereafter		16,177			-			16,177
Total lease payments		43,760			2,966			46,726
Less: Interest		(10,065	)		(29	)		(10,094	)
Present value of lease liabilities	$	33,695		$	2,937		$	36,632

Lease, Cash Flow Information [Table Text Block]

	Three Months Ended
(in thousands)	March 28, 2020		March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,133	$	1,881
Operating cash flows from finance leases	$	28	$	37
Financing cash flows from finance leases	$	9	$	9
Leased assets obtained in exchange for new finance lease liabilities	$	373	$	-
Leased assets obtained in exchange for new operating lease liabilities	$	1,062	$	31,508

XML

Note 3 - Borrowings and Credit Agreements (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Schedule of Debt [Table Text Block]

	March 28,			December 28,
	2020			2019
Bank Term Loan under Credit Agreement	$	345,625		$	346,500
Bank Term Loans-Kita		3,745			3,830
Bank Term Loan-Xcerra		1,392			1,475
Construction Loan-Rasco		6,588			5,476
Lines of Credit		3,244			3,195
Total debt		360,594			360,476
Less: financing fees and discount		(7,151	)		(7,441	)
Less: current portion		(6,566	)		(6,517	)
Total long-term debt	$	346,877		$	346,518

XML

Note 12 - Guarantees

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

12. Guarantees

Product Warranty

Our products are generally sold with warranty periods that range from

12

to

36

months following sale or acceptance. The product warranty promises customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC

460,

and

not

as a separate performance obligation. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical and projected experience by product and configuration.

Changes in accrued warranty were as follows (

in thousands

):

	Three Months Ended
	March 28,			March 30,
	2020			2019
Balance at beginning of period	$	6,155		$	8,014
Warranty expense accruals		1,891			1,728
Warranty payments		(1,778	)		(2,654	)
Balance at end of period	$	6,268		$	7,088

Accrued warranty amounts expected to be incurred after

one

year are included in noncurrent other accrued liabilities in the condensed consolidated balance sheet. These amounts totaled

$0.2

 million and

$0.3

million at

March 28, 2020

and

December 28, 2019,

respectively.

XML

Note 8 - Segment and Geographic Information

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

8. Segment and Geographic Information

The summary below presents our current segments, Semiconductor Test & Inspection and PCB Test, for the

three

-month periods ended

March 28, 2020

and

March 30, 2019.

Financial information by reportable segment is as follows

(in thousands)

:

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net sales by segment:
Semiconductor Test & Inspection	$	128,013		$	136,694
PCB Test		10,908			11,115
Total consolidated net sales for reportable segments	$	138,921		$	147,809
Segment profit (loss) before tax:
Semiconductor Test & Inspection	$	(11,573	)	$	(15,044	)
PCB Test		994			1,019
Profit (loss) for reportable segments		(10,579	)		(14,025	)
Other unallocated amounts:
Corporate expenses		(3,451	)		(3,741	)
Interest expense		(4,427	)		(5,507	)
Interest income		147			222
Loss from continuing operations before taxes	$	(18,310	)	$	(23,051	)

The following table summarizes our total assets by reportable business segment

(in thousands)

:

	March 28,		December 28,
	2020		2019
Semiconductor Test & Inspection	$	966,562	$	998,756
PCB Test		58,883		56,938
Total assets for reportable segments		1,025,445		1,055,694
Corporate, principally cash and investments		46,710		18,398
Discontinued operations		-		3,618
Total consolidated assets	$	1,072,155	$	1,077,710

For revenues by geography and information on customer concentration, see Note

1,

“Summary of Significant Accounting Policies”.

XML

Note 4 - Restructuring Charges

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

4. Restructuring Charges

Subsequent to the acquisition of Xcerra on

October 1, 2018,

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”). As part of the Integration Program we consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in Penang, Malaysia and Fontana, California in

2019.

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

second

quarter of

2019,

we entered into a social plan (“Plan”) with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH, as part of our Integration Program. The Plan will reduce headcount, enable us to consolidate the facilities of our multiple operations located near Rosenheim, Germany, as well as transition certain manufacturing to other lower cost regions. The facility consolidation and reduction in force programs are being implemented as part of a comprehensive review of our operations and are intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.

As a result of the activities described above, we recognized total pretax charges of

$2.0

 million and

$1.4

 million for the

three

months ended

March 28, 2020

and

March 30, 2019,

respectively, that are within the scope of ASC

420,

Exit or Disposal Cost Obligations

(“ASC

420”

). All costs of the Integration Program were, and are expected to be, incurred by our Semiconductor Test & Inspection segment.

Costs associated with restructuring activities are presented in our condensed consolidated statements of operations as restructuring charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, which are classified within cost of sales. Other restructuring costs include expenses for professional fees associated with employee severance and impairments of fixed assets.

The following table summarizes the activity within the restructuring related accounts for the Integration Program during the

three

months ended

March 28, 2020

and

March 30, 2019

(in thousands)

:

	Severance and			Other Exit
	Other Payroll			Costs			Total
Balance, December 29, 2018	$	4,026		$	-		$	4,026
Costs accrued		753			608			1,361
Amounts paid or charged		(1,029	)		(608	)		(1,637	)
Impact of currency exchange		4			-			4
Balance, March 30, 2019	$	3,754		$	-		$	3,754
Balance, December 28, 2019	$	1,236		$	-		$	1,236
Costs accrued		234			169			403
Amounts paid or charged		(1,218	)		(169	)		(1,387	)
Impact of currency exchange		(33	)		-			(33	)
Balance, March 28, 2020	$	219		$	-		$	219

At

March 28, 2020,

our total accrual for restructuring related items is reflected within current liabilities of our condensed consolidated balance sheets as these amounts are expected to be paid out within a year. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash.

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Note 10 - Discontinued Operations (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Disposal Groups, Including Discontinued Operations [Table Text Block]

	Three Months Ended
	March 28,		March 30,
	2020		2019
Net sales	$	432	$	1,592
Operating income before income taxes	$	11	$	189
Gain on sale of Fixtures business		35		-
Income before taxes		46		189
Income tax provision		4		25
Income, net of tax	$	42	$	164

Fixtures Services Business FSG [Member]

Notes Tables

Disposal Groups, Including Discontinued Operations [Table Text Block]

	March 28,		December 28,
	2020		2019
Assets:
Cash and cash equivalents	$	-	$	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

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Note 1 - Summary of Significant Accounting Policies - Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Property, plant and equipment	$ 108,272	$ 114,139
Less accumulated depreciation and amortization	(43,584)	(43,227)
Property, plant and equipment, net	64,688	70,912	[1]
Land and Land Improvements [Member]
Property, plant and equipment	8,650	11,659
Building and Building Improvements [Member]
Property, plant and equipment	40,593	41,474
Machinery and Equipment [Member]
Property, plant and equipment	$ 59,029	$ 61,006

[1] Derived from December 28, 2019 audited financial statements

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Note 1 - Summary of Significant Accounting Policies - Customer Concentration (Details) - Revenue Benchmark [Member] - Customer Concentration Risk [Member] - Semiconductor Test and Inspection [Member]	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Customers individually accounting for more than 10% of net sales	2	1
One Customer [Member]
Percentage of net sales	26.00%	11.00%

XML

Note 10 - Discontinued Operations - Balance Sheet Information for Fixture Services Business (Details) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Total current assets		$ 3,503	[1]
Discontinued operations		3,618
Total current liabilities		599	[1]
Noncurrent liabilities		24	[1]
Fixtures Services Business FSG [Member] | Discontinued Operations, Held-for-sale [Member]
Cash and cash equivalents		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
Discontinued operations		3,618
Other accrued current liabilities		599
Total current liabilities		599
Noncurrent liabilities		24
Total liabilities		$ 623

[1] Derived from December 28, 2019 audited financial statements

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Note 9 - Leases - Lease Expense (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 28, 2020	Mar. 30, 2019
Operating leases	[1]	$ 2,151	$ 2,122
Variable lease expense		532	566
Short-term operating leases		19	78
Amortization of leased assets		20	41
Interest on lease liabilities		28	59
Sublease income		(32)	(36)
Net lease cost		$ 2,718	$ 2,830

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

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Note 7 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Effective Income Tax Rate Reconciliation, Percent, Total	5.40%	0.90%
Unrecognized Tax Benefits, Period Increase (Decrease), Total	$ (200)	$ 0

XML

Note 7 - Income Taxes

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7. Income Taxes

Ordinarily, interim tax provisions are calculated using the estimated effective tax rate (“ETR”) expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual ETR cannot be made, the actual ETR for the year-to-date period

may

be the best estimate of the annual ETR. For the

three

months ended

March 28, 2020,

we used the actual year-to-date ETR in computing our tax provision, as a reliable estimate of the

2020

annual ETR cannot be made, since relatively small changes in our projected income produce a significant variation in our ETR. The ETR on loss from continuing operations for the

three

months ended

March 28, 2020

and

March 30, 2019

was

5.4%

and

0.9%,

respectively. The tax benefit on loss from continuing operations in

2020

and

2019

differs from the U.S. federal statutory rate primarily due to the lack of a tax benefit on our domestic losses as a result of our valuation allowance on deferred tax assets, foreign income taxed at different rates, taxes on unremitted earnings and changes to unrecognized tax benefits.

Our German subsidiaries income tax returns for

2012

to

2016

are currently under routine examination by tax authorities in Germany. We believe our financial statement accruals for income taxes are appropriate.

During the

three

-month period ended

March 28, 2020,

our unrecognized tax benefits decreased by

$0.2

 million due to expiration of the statute of limitations, foreign currency exchange rate changes, offset by accrued interest. Other than for foreign currency exchange rate changes, there was

no

material change to our unrecognized tax benefits and related accrued interest and penalties during the

three

-month period ended

March 30, 2019.

In response to the COVID-

19

pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in

March 2020.

The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of

2017

(

2017

Tax Act). Corporate taxpayers

may

carryback net operating losses (NOLs) originating during

2018

through

2020

for up to

five

years, which was

not

previously allowed under the

2017

Tax Act. The CARES Act also eliminates the

80%

of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in

2018,

2019

or

2020.

Taxpayers

may

generally deduct interest up to the sum of

50%

of adjusted taxable income plus business interest income (

30%

limit under the

2017

Tax Act) for tax years beginning

January 1, 2019

and

2020.

The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in

2020

for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the

2017

Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to

25%

of taxable income and makes qualified improvement property generally eligible for

15

-year cost-recovery and

100%

bonus depreciation. The enactment of the CARES Act did

not

result in any material adjustments to our income tax provision for the

three

months ended

March 28, 2020,

or to our net deferred tax assets as of

March 28, 2020.

XML

Note 3 - Borrowings and Credit Agreements

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

3. Borrowings and Credit Agreements

The following table is a summary of our borrowings as of

March 28, 2020

and

December 28, 2019 (

in thousands)

:

	March 28,			December 28,
	2020			2019
Bank Term Loan under Credit Agreement	$	345,625		$	346,500
Bank Term Loans-Kita		3,745			3,830
Bank Term Loan-Xcerra		1,392			1,475
Construction Loan-Rasco		6,588			5,476
Lines of Credit		3,244			3,195
Total debt		360,594			360,476
Less: financing fees and discount		(7,151	)		(7,441	)
Less: current portion		(6,566	)		(6,517	)
Total long-term debt	$	346,877		$	346,518

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

March 28, 2020,

the outstanding loan balance, net of discount and deferred financing costs, was

$338.5

 million and

$2.3

 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets at both

March 28, 2020

and

December 28, 2019.

As of

March 28, 2020,

the fair value of the debt was

$259.2

 million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of

March 28, 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

March 28, 2020,

we believe

no

such events of default have occurred.

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

0.43%,

and expire at various dates through

2034.

At

March 28, 2020,

the outstanding loan balance was

$3.7

 million and

$0.3

 million and

$0.4

 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at

March 28, 2020

and

December 28, 2019,

respectively. The fair value of the debt approximates the carrying value at

March 28, 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 is payable over

10

years at an annual interest rate of

2.35%.

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

March 2024.

At

March 28, 2020,

the outstanding loan balance was

$1.4

 million and

$0.3

 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets at both

March 28, 2020

and

December 28, 2019.

The fair value of the debt approximates the carrying value at

March 28, 2020.

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

Construction Loans

On

July 26, 2019,

one

of our wholly owned subsidiaries located in Germany entered into

two

construction loans (“Loan Facilities”) with a German financial institution providing total borrowing of

€8.6

million. The Loan Facilities have

10

-year and

15

-year terms, which commenced on

August 1, 2019,

the initial draw-down date. The Loan Facilities are being utilized to finance the expansion of our facility in Kolbermoor, Germany, enabling us to combine the operations of multiple subsidiaries in

one

location as part of our previously announced strategic restructuring program. The Loan Facilities are secured by the land and the existing building on the site and bear interest at agreed upon rates based on separate

€3.4

 million and

€5.2

 million facility amounts.

On

August 1, 2019,

the full

€3.4

million was drawn under the

first

facility, which is payable over

10

years at an annual interest rate of

0.8%.

Interest payments only are required to be made each quarter starting in

September 2019

with principal and interest payments due each quarter starting in the month of

December 2021.

Principal repayments will be made over

8

years starting at the end of

2021.

Through

March 28, 2020,

we drew

€2.5

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

March 28, 2020,

€2.7

million had

not

been drawn under the

second

facility and is expected to be drawn in the

first

half of

2020.

At

March 28, 2020

and

December 28, 2019,

total outstanding borrowings under the Loan Facilities was

$6.6

 million and

$5.5

 million with

$0.4

 million and

$0.3

 million of the total outstanding balance being presented as current installments of long-term debt in our consolidated balance sheets based on contractual due dates, respectively. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at

March 28, 2020.

Lines of Credit

As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to

$8.9

million. At

March 28, 2020,

total borrowings outstanding under the revolving lines of credit were

$3.2

 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 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

March 28, 2020

and

December 28, 2019

no

amounts were outstanding under this line of credit.

XML

Note 2 - Goodwill and Purchased Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019	Dec. 28, 2019
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)	$ 3,949
Amortization of Intangible Assets, Total	9,538	$ 10,019
In-process Technology [Member]
Indefinite-lived Intangible Assets (Excluding Goodwill), Ending Balance	16,900		$ 20,800
Indefinite-lived In Process Research and Development [Member]
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)	$ 3,900

XML

Note 12 - Guarantees (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	Three Months Ended
	March 28,			March 30,
	2020			2019
Balance at beginning of period	$	6,155		$	8,014
Warranty expense accruals		1,891			1,728
Warranty payments		(1,778	)		(2,654	)
Balance at end of period	$	6,268		$	7,088

XML

Note 1 - Summary of Significant Accounting Policies - Reported Share-based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Allocated share-based compensation	$ 3,611	$ 3,693
Income tax benefit	(172)	(280)
Total share-based compensation, net	3,439	3,413
Cost of Sales [Member]
Allocated share-based compensation	212	125
Research and Development Expense [Member]
Allocated share-based compensation	833	638
Selling, General and Administrative Expenses [Member]
Allocated share-based compensation	$ 2,566	$ 2,930

XML

Note 9 - Leases - Balance Sheet Information (Details) - USD ($) $ in Thousands		Mar. 28, 2020	Dec. 28, 2019
Operating lease assets		$ 32,599	$ 33,269	[1]
Finance lease assets	[2]	2,865	2,515
Total lease assets		35,464	35,784
Operating, noncurrent		28,103	28,877
Finance, noncurrent		249
Total lease liabilities		$ 36,632	$ 36,909
Operating leases (Year)		7 years 255 days	7 years 328 days
Finance leases (Year)		219 days	182 days
Operating leases		6.30%	6.30%
Finance leases		3.90%	4.50%
Other Accrued Liabilities [Member]
Operating, current		$ 5,592	$ 5,458
Finance, current		$ 2,688	$ 2,574

[1] Derived from December 28, 2019 audited financial statements

[2] Finance lease assets are recorded net of accumulated amortization of $0.1 million as of March 28, 2020 and December 28, 2019.

XML

Note 6 - Employee Stock Benefit Plans (Details Textual) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 28, 2020 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in shares)	22,205
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number (in shares)	341,071
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)	341,071
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share) | $ / shares	$ 10.09
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 10.09
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value | $	$ 1.0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value | $	$ 1.0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term (Year)	2 years 219 days
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	622,764
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)	369,132
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)	1,575,014
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value, Outstanding | $	$ 20.6
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms (Year)	1 year 292 days
Restricted Stock Units (RSUs) [Member] | Vesting Over One Year Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	1 year
Restricted Stock Units (RSUs) [Member] | Vesting Over Four Year Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	4 years
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	200,249
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)	34,080
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)	465,167
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value, Outstanding | $	$ 6.1
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years 73 days
Equity Based Performance Stock Units Granted in 2020, 2019, 2018, and 2017 [Member] | Vest on the Third Anniversary of Awards Grant [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	100.00%
Minimum [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Shares Available for Issue	25.00%
Maximum [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Shares Available for Issue	200.00%
Equity Incentive Plan 2005 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)	1,761,388
Equity Incentive Plan 2005 [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)	10 years
Equity Incentive Plan 2005 [Member] | Minimum [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	1 year
Equity Incentive Plan 2005 [Member] | Maximum [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	4 years
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)	911,337
Percentage of Fair Value to Determine Price of Common Stock	85.00%
Stock Issued During Period, Shares, New Issues (in shares)	0

XML

Note 10 - Discontinued Operations (Details Textual) $ in Millions	12 Months Ended
	Dec. 28, 2019 USD ($)
Fixtures Services Business FSG [Member]
Disposal Group, Including Discontinued Operation, Impairment	$ 1.1

XML

Note 5 - Financial Instruments Measured at Fair Value - Assets Measured at Fair Value on Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Assets, Fair Value Disclosure	$ 172,375	$ 156,098
Debt Security, Government, Non-US [Member]
Short-term investments	901	904
Cash [Member]
Cash and cash equivalents	163,780	147,523
Money Market Funds [Member]
Cash and cash equivalents	7,694	7,671
Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure	163,780	147,523
Fair Value, Inputs, Level 1 [Member] | Debt Security, Government, Non-US [Member]
Short-term investments
Fair Value, Inputs, Level 1 [Member] | Cash [Member]
Cash and cash equivalents	163,780	147,523
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]
Cash and cash equivalents
Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure	8,595	8,575
Fair Value, Inputs, Level 2 [Member] | Debt Security, Government, Non-US [Member]
Short-term investments	901	904
Fair Value, Inputs, Level 2 [Member] | Cash [Member]
Cash and cash equivalents
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member]
Cash and cash equivalents	7,694	7,671
Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure
Fair Value, Inputs, Level 3 [Member] | Debt Security, Government, Non-US [Member]
Short-term investments
Fair Value, Inputs, Level 3 [Member] | Cash [Member]
Cash and cash equivalents
Fair Value, Inputs, Level 3 [Member] | Money Market Funds [Member]
Cash and cash equivalents

XML

Note 2 - Goodwill and Purchased Intangible Assets - Purchased Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Gross Carrying Amount, finite-lived intangible assets	$ 322,870	$ 322,804
Accumulated Amortization	78,438	68,617
Developed Technology Rights [Member]
Gross Carrying Amount, finite-lived intangible assets	228,061	227,619
Accumulated Amortization	$ 57,557	49,805
Remaining Useful Life (Year)	6 years 146 days
Customer Relationships [Member]
Gross Carrying Amount, finite-lived intangible assets	$ 71,778	72,251
Accumulated Amortization	$ 16,332	14,824
Remaining Useful Life (Year)	9 years 36 days
Trade Names [Member]
Gross Carrying Amount, finite-lived intangible assets	$ 22,704	22,612
Accumulated Amortization	$ 4,443	3,892
Remaining Useful Life (Year)	9 years 109 days
Noncompete Agreements [Member]
Gross Carrying Amount, finite-lived intangible assets	$ 327	322
Accumulated Amortization	$ 106	$ 96
Remaining Useful Life (Year)	6 years 292 days

XML

Note 4 - Restructuring Charges - Charges Related to the Wind Down Plan (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Restructuring Charges, Total	$ 403	$ 1,361
Integration Program [Member]
Restructuring Charges, Total	2,000	1,400
Integration Program [Member] | Employee Severance [Member]
Accrued restructuring, beginning balance	1,236	4,026
Restructuring Charges, Total	234	753
Amounts paid or charged	(1,218)	(1,029)
Impact of currency exchange	(33)	4
Accrued restructuring, ending balance	219	3,754
Integration Program [Member] | Other Restructuring [Member]
Accrued restructuring, beginning balance
Restructuring Charges, Total	169	608
Amounts paid or charged	(169)	(608)
Impact of currency exchange
Accrued restructuring, ending balance
Integration Program [Member] | Employee Severance and Other Exit Costs [Member]
Accrued restructuring, beginning balance	1,236	4,026
Restructuring Charges, Total	403	1,361
Amounts paid or charged	(1,387)	(1,637)
Impact of currency exchange	(33)	4
Accrued restructuring, ending balance	$ 219	$ 3,754

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Cash flows from operating activities:
Net loss attributable to Cohu	$ (17,276)	$ (22,643)
Net loss attributable to noncontrolling interest		(44)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposal of discontinued operation	(35)
Impairment charges related to indefinite lived intangibles	3,949
Loss on disposal of assets	88	378
Depreciation and amortization	12,956	15,044
Share-based compensation expense	3,611	3,693
Amortization of inventory step-up and inventory related charges	1,603	6,504
Deferred income taxes	(2,706)	(2,494)
Increase in accrued retiree medical benefits	254	192
Changes in other accrued liabilities	(106)	1,589
Changes in other assets	810	313
Interest capitalized associated with cloud computing implementation	(45)
Amortization of debt discounts and issuance costs	290
Changes in current assets and liabilities:
Customer advances	14,434	(600)
Accounts receivable	17,078	17,657
Inventories	(6,067)	2,475
Other current assets	(5,888)	(4,022)
Accounts payable	55	(3,480)
Deferred profit	1,619	1,374
Income taxes payable	7,454	(2,214)
Accrued compensation, warranty and other liabilities	(14,313)	(9,002)
Operating lease right-of-use assets	1,843
Current and long-term operating lease liabilities	(1,795)
Net cash provided by operating activities	17,813	4,720
Cash flows from investing activities:
Net cash received from sale of Fixtures Services business	2,975
Cash received from sale of fixed assets	74	5
Purchases of property, plant and equipment	(1,584)	(3,526)
Net cash provided by (used in) investing activities	1,465	(3,521)
Cash flows from financing activities:
Cash dividends paid	(2,483)	(2,443)
Issuance (repurchases) of common stock, net	253	(1,750)
Proceeds from construction loan	1,117
Repayments of long-term debt	(1,133)	(1,098)
Net cash used in financing activities	(2,246)	(5,291)
Effect of exchange rate changes on cash and cash equivalents	(1,488)	(488)
Net increase (decrease) in cash and cash equivalents	15,544	(4,580)
Cash and cash equivalents including discontinued operations at beginning of period	155,930	164,921
Cash and cash equivalents including discontinued operations at end of period	171,474	160,341
Cash held by discontinued operations at end of period (Note 10)		(820)
Cash and cash equivalents from continuing operations at end of period	171,474	159,521
Supplemental disclosure of cash flow information:
Cash paid for income taxes	690	3,797
Inventory capitalized as property, plant and equipment	238	116
Dividends declared but not yet paid	2,488	2,449
Property, plant and equipment purchases included in accounts payable	3,370	873
Cash paid for interest	7,308	5,130
ST Capitalized Cloud Computing [Member]
Supplemental disclosure of cash flow information:
Capitalized cloud computing service costs included in accounts payable	182	329
LT Capitalized Cloud Computing [Member]
Supplemental disclosure of cash flow information:
Capitalized cloud computing service costs included in accounts payable	$ 1,370	$ 1,515

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 28, 2020	Apr. 29, 2020
Document Information [Line Items]
Entity Registrant Name	COHU INC
Entity Central Index Key	0000021535
Trading Symbol	cohu
Current Fiscal Year End Date	--12-26
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		41,703,274
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 28, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock, $1.00 par value

XML

Note 12 - Guarantees - Changes in Accrued Warranty (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Balance at beginning of period	$ 6,155	$ 8,014
Warranty expense accruals	1,891	1,728
Warranty payments	(1,778)	(2,654)
Balance at end of period	$ 6,268	$ 7,088

XML

Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Amortization of cost of sales	$ 7,266	$ 7,641

XML

Note 2 - Goodwill and Purchased Intangible Assets (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Schedule of Goodwill [Table Text Block]

	Semiconductor Test
	& Inspection			PCB Test			Total
Balance, December 30, 2018	$	220,808		$	21,319		$	242,127
Adjustments		2,117			(983	)		1,134
Impairments		(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		(575	)		(97	)		(672	)
Balance, March 28, 2020	$	218,200		$	19,797		$	237,997

Schedule of Finite-Lived and Indefinite-Lived Intangible Assets [Table Text Block]

	March 28, 2020						December 28, 2019
					Remaining
					Weighted
					Average
	Gross				Amort.		Gross
	Carrying		Accum.		Period		Carrying		Accum.
	Amount		Amort.		(in years)		Amount		Amort.
Developed technology	$	228,061	$	57,557		6.4	$	227,619	$	49,805
Customer relationships		71,778		16,332		9.1		72,251		14,824
Trade names		22,704		4,443		9.3		22,612		3,892
Covenant not-to-compete		327		106		6.8		322		96
Total intangible assets	$	322,870	$	78,438			$	322,804	$	68,617

XML

Note 11 - Contingencies

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Contingencies Disclosure [Text Block]

11. 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.

XML

Note 8 - Segment and Geographic Information (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended
	March 28,			March 30,
	2020			2019
Net sales by segment:
Semiconductor Test & Inspection	$	128,013		$	136,694
PCB Test		10,908			11,115
Total consolidated net sales for reportable segments	$	138,921		$	147,809
Segment profit (loss) before tax:
Semiconductor Test & Inspection	$	(11,573	)	$	(15,044	)
PCB Test		994			1,019
Profit (loss) for reportable segments		(10,579	)		(14,025	)
Other unallocated amounts:
Corporate expenses		(3,451	)		(3,741	)
Interest expense		(4,427	)		(5,507	)
Interest income		147			222
Loss from continuing operations before taxes	$	(18,310	)	$	(23,051	)

	March 28,		December 28,
	2020		2019
Semiconductor Test & Inspection	$	966,562	$	998,756
PCB Test		58,883		56,938
Total assets for reportable segments		1,025,445		1,055,694
Corporate, principally cash and investments		46,710		18,398
Discontinued operations		-		3,618
Total consolidated assets	$	1,072,155	$	1,077,710

XML

Note 1 - Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Raw materials and purchased parts	$ 73,222	$ 69,665
Work in process	44,381	46,591
Finished goods	17,256	14,450
Total inventories	$ 134,859	$ 130,706	[1]

[1] Derived from December 28, 2019 audited financial statements

XML

Note 1 - Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Net sales	$ 138,921	$ 147,809
Semiconductor Test and Inspection [Member]
Net sales	128,013	136,694
PCB Test [Member]
Net sales	10,908	11,115
Systems [Member] | Semiconductor Test and Inspection [Member]
Net sales	70,539	79,940
Systems [Member] | PCB Test [Member]
Net sales	6,840	6,972
Non-systems [Member] | Semiconductor Test and Inspection [Member]
Net sales	57,474	56,753
Non-systems [Member] | PCB Test [Member]
Net sales	4,068	4,144
CHINA
Net sales	30,811	23,551
UNITED STATES
Net sales	19,078	17,101
Malaysia [Member]
Net sales	15,174	17,714
TAIWAN, PROVINCE OF CHINA
Net sales	13,881	14,970
PHILIPPINES
Net sales	10,022	14,541
Rest of the World [Member]
Net sales	$ 49,955	$ 59,932

XML

Note 9 - Leases

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Lessee, Leases [Text Block]

9. 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 on the condensed consolidated balance sheet, but we recognized those lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. Lease and non-lease components are included in the calculation of the ROU asset and lease liabilities.

Our leases have remaining lease terms of

1

year to

38

years, some of which include

one

or more options to extend the leases for up to

25

years. Our lease term includes renewal terms when we are reasonably certain we will exercise the renewal options.

We sublease certain leased assets to

third

parties, mainly as a result of unused space in our facilities. Supplemental balance sheet information related to leases was as follows:

(in thousands)	Classification	March 28, 2020			December 28, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	32,599		$	33,269
Finance lease assets	Property, plant and equipment, net (1)		2,865			2,515
Total lease assets		$	35,464		$	35,784
Liabilities
Current
Operating	Other accrued liabilities	$	5,592		$	5,458
Finance	Other accrued liabilities		2,688			2,574
Noncurrent
Operating	Long-term lease liabilities		28,103			28,877
Finance	Long-term lease liabilities		249			-
Total lease liabilities		$	36,632		$	36,909
Weighted-average remaining lease term (years)
Operating leases			7.7			7.9
Finance leases			0.6			0.5
Weighted-average discount rate
Operating leases			6.3	%		6.3	%
Finance leases			3.9	%		4.5	%

( 1 ) Finance lease assets are recorded net of accumulated amortization of $0.1 million as of March 28, 2020 and December 28, 2019.

The components of lease expense were as follows:

	Three Months Ended
(in thousands)	March 28, 2020			March 30, 2019
Operating leases	$	2,151		$	2,122
Variable lease expense		532			566
Short-term operating leases		19			78
Finance leases
Amortization of leased assets		20			41
Interest on lease liabilities		28			59
Sublease income		(32	)		(36	)
Net lease cost	$	2,718		$	2,830

Future minimum lease payments at

March 28, 2020,

are as follows:

	Operating			Finance
(in thousands)	leases (1)			leases			Total
2020	$	5,690		$	2,687		$	8,377
2021		6,536			124			6,660
2022		5,686			124			5,810
2023		4,992			31			5,023
2024		4,679			-			4,679
Thereafter		16,177			-			16,177
Total lease payments		43,760			2,966			46,726
Less: Interest		(10,065	)		(29	)		(10,094	)
Present value of lease liabilities	$	33,695		$	2,937		$	36,632

( 1 ) Excludes sublease income of $0.1 million in both 2020 and 2021.

Supplemental cash flow information related to leases was as follows:

	Three Months Ended
(in thousands)	March 28, 2020		March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,133	$	1,881
Operating cash flows from finance leases	$	28	$	37
Financing cash flows from finance leases	$	9	$	9
Leased assets obtained in exchange for new finance lease liabilities	$	373	$	-
Leased assets obtained in exchange for new operating lease liabilities	$	1,062	$	31,508

XML

Note 5 - Financial Instruments Measured at Fair Value

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

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.

Investments that we have classified as short-term, by security type, are as follows

(

in thousands

)

:

	March 28, 2020
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	901	$	-	$	-	$	901

	December 28, 2019
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	904	$	-	$	-	$	904

( 1 ) As of March 28, 2020 and December 28, 2019, there were no investments in our portfolio in a loss position.

Effective maturities of short-term investments are as follows

(in thousands)

:

	March 28, 2020				December 28, 2019
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	901	$	901	$	-	$	-
Due after one year through three years		-		-		904		904
	$	901	$	901	$	904	$	904

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.

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 28, 2020 using:
							Total estimated
	Level 1		Level 2		Level 3		fair value
Cash	$	163,780	$	-	$	-	$	163,780
Money market funds		-		7,694		-		7,694
Foreign government security		-		901		-		901
	$	163,780	$	8,595	$	-	$	172,375

	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

XML

Note 1 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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 28, 2019,

has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of

March 28, 2020, (

also referred to as “the

first

quarter of fiscal

2020”

and “the

first

three

months of fiscal

2020”

) and

March 30, 2019, (

also referred to as “the

first

quarter of fiscal

2019”

and “the

first

three

months of fiscal

2019”

) 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

2020

and

2019

were both comprised of

13

weeks.

Our interim results are

not

necessarily indicative of the results that should be expected for the full year. 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 28, 2019,

which are included in our

2019

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”.

On

December 28, 2019,

we divested our entire

20%

interest in ALBS Solutions Sdn Bhd (“ALBS”), our only consolidated VIE. As a result of the divestment, we

no

longer had a controlling interest in ALBS and

no

longer consolidate ALBS as of that date.

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

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had

no

effect on our reported results of operations, stockholder’s equity or cash flows.

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 Accounting Standards Update (“ASU”)

2016

-

13

, Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

, on

December 29, 2019,

the

first

day of our fiscal

2020.

The ASU required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented for comparative purposes are

not

adjusted. Based on our analysis of historical and anticipated collections of trade receivables the impact of adoption of Topic

326

was insignificant. Our trade accounts receivable are presented net of allowance for credit losses, which were insignificant at

March 28, 2020

and

December 28, 2019.

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 28, 2020,

we will continue to monitor customer liquidity and other economic conditions, which

may

result in changes to our estimates regarding collectability.

Inventories

Inventories are stated at the lower of cost, determined on a

first

-in,

first

-out basis, or net realizable value. 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 28,		December 28,
	2020		2019
Raw materials and purchased parts	$	73,222	$	69,665
Work in process		44,381		46,591
Finished goods		17,256		14,450
Total inventories	$	134,859	$	130,706

Assets Held for Sale

As part of our previously announced strategic restructuring program we are implementing certain facility consolidation actions. We expect to complete the sales of our facilities located in Penang, Malaysia in the

second

quarter of

2020

and Rosenheim, Germany in the

third

quarter of

2020.

As a result, these facilities are being presented as held for sale at

March 28, 2020.

See Note

4,

“Restructuring Charges” for additional information on this program.

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 28,			December 28,
	2020			2019
Land and land improvements	$	8,650		$	11,659
Buildings and building improvements		40,593			41,474
Machinery and equipment		59,029			61,006
		108,272			114,139
Less accumulated depreciation and amortization		(43,584	)		(43,227	)
Property, plant and equipment, net	$	64,688		$	70,912

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 Test 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 and Indefinite-Lived Intangibles, Other Intangible Assets and

Long-lived Assets

We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for impairment annually and when an event occurs or circumstances change that indicate that the carrying value

may

not

be recoverable. We test goodwill for impairment by

first

comparing the book value of net assets to the fair value of the reporting unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value, a

second

step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and its carrying value,

not

to exceed the carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.

We conduct our annual impairment test as of

October 

1st

 of each year and have determined there was

no

impairment as of

October 

1,

2019,

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. While a decline in stock price and market capitalization is

not

specifically cited as an impairment indicator, a company’s stock price and market capitalization should be considered in determining whether it is more likely than

not

that the fair value of a reporting unit is less than its book value. The financial and credit market volatility caused by the COVID-

19

pandemic directly impacts our fair value measurement through our stock price that we use to determine our market capitalization. During times of volatility, significant judgment must be applied to determine whether stock price changes are a short-term swing or a longer-term trend.

During the

first

quarter of

2020,

the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-

19

pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of

March 28, 2020

and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were

no

impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-

19

pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a

$3.9

 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and

may

not

be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required we

may

be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might

not

be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets

may

not

be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is

not

recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value. We evaluated the expected undiscounted cashflows of these assets as of

March 28, 2020

and determined there was

no

impairment.

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

(“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 that were directly related to our Term B Loan 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

$0.3

 million for both the

three

months ended

March 28, 2020

and

March 30, 2019.

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. 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. During the

three

months ended

March 28, 2020,

we recognized foreign exchange losses of

$0.4

 million, in our consolidated statements of operations. During the

three

months ended

March 30, 2019,

we recognized foreign exchange gains of

$0.2

 million.

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.

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.

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

(in thousands)

:

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cost of sales	$	212		$	125
Research and development		833			638
Selling, general and administrative		2,566			2,930
Total share-based compensation		3,611			3,693
Income tax benefit		(172	)		(280	)
Total share-based compensation, net	$	3,439		$	3,413

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 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 28, 2020,

stock options and awards to issue approximately

58,000

shares of common stock were excluded from the computation. For the

three

months ended

March 30, 2019,

stock options and awards to issue approximately

393,000

shares of 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)

:

	Three Months Ended
	March 28,		March 30,
	2020		2019
Weighted average common shares		41,502		40,872
Effect of dilutive securities		-		-
		41,502		40,872

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.

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 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 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 installation and standard warranties. The relative standalone selling price 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

March 28, 2020,

we have

$9.6

 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) for contracts with original expected durations of over

one

year. As allowed under 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

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. 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 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 28, 2020,

we had deferred revenue totaling approximately

$18.0

 million, current deferred profit of

$9.3

 million and deferred profit expected to be recognized after

one

year included in noncurrent other accrued liabilities of

$7.1

 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.

Net sales of our reportable segments, by type, are as follows

(in thousands):

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
Systems:
Semiconductor Test & Inspection	$	70,539	$	79,940
PCB Test		6,840		6,972
Non-systems:
Semiconductor Test & Inspection		57,474		56,753
PCB Test		4,068		4,144
Total net sales	$	138,921	$	147,809

Revenue by geographic area based upon product shipment destination

(

in thousands

):

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
China	$	30,811	$	23,551
United States		19,078		17,101
Malaysia		15,174		17,714
Taiwan		13,881		14,970
Philippines		10,022		14,541
Rest of the World		49,955		59,932
Total net sales	$	138,921	$	147,809

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

	Three Months Ended
	March 28,			March 30,
	2020			2019
Semiconductor Test & Inspection
Customers individually accounting for more than 10% of net sales		two			one
Percentage of net sales		26	%		11	%
PCB Test
Customers individually accounting for more than 10% of net sales		*			*
Percentage of net sales		*			*

* No single customer represented more than 10% of consolidated net sales.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately

$35.0

 million and

$34.0

 million at

March 28, 2020

and

December 28, 2019,

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 and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during the

first

three

months of fiscal

2020

and

2019

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

first

three

months of fiscal

2020

and

2019

was

not

significant.

Discontinued Operations

Management determined that the fixtures services business, that was acquired as part of Xcerra, did

not

align with Cohu’s long-term strategic plan and divested this portion of the business in

February 2020.

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

December 28, 2019.

See Note

10,

“Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.

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 condensed 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

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

August 2018,

the FASB issued ASU

2018

-

14,

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

, which improves defined benefit disclosure requirements by removing disclosures that are

not

cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years ending after

December 15, 2020

and early adoption is permitted. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. We are currently assessing and have

not

yet determined the impact that the adoption of ASU

2018

-

14

will have on the disclosures to our consolidated financial statements.

All other newly issued accounting pronouncements

not

yet effective have been deemed either immaterial or

not

applicable.

XML

Note 9 - Leases - Future Minimum Lease Payments (Details) - USD ($) $ in Thousands		Mar. 28, 2020	Dec. 28, 2019
2020, operating leases	[1]	$ 5,690
2020, finance leases		2,687
2020, total		8,377
2021, operating leases	[1]	6,536
2021, finance leases		124
2021, total		6,660
2022, operating leases	[1]	5,686
2022, finance leases		124
2022, total		5,810
2023, operating leases	[1]	4,992
2023, finance leases		31
2023, total		5,023
2024, operating leases		4,679
2024, finance leases
2024, total		4,679
Thereafter, operating leases	[1]	16,177
Thereafter, finance leases
Thereafter, total		16,177
Total lease payments, operating leases	[1]	43,760
Total lease payments, finance leases		2,966
Total lease payments, total		46,726
Less: Interest, operating leases	[1]	(10,065)
Less: Interest, finance leases		(29)
Less: Interest, total		(10,094)
Present value of lease liabilities, finance leases		2,937
Present value of lease liabilities, total		36,632	$ 36,909
Other Accrued Liabilities and Long-term Lease Liabilities [Member]
Present value of lease liabilities, operating leases	[1]	$ 33,695

[1] Excludes sublease income of $0.1 million in both 2020 and 2021.

XML

Note 8 - Segment and Geographic Information - Summary of Current Segments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019	Dec. 28, 2019
Net sales by segment:
Net sales	$ 138,921	$ 147,809
Segment profit (loss) before tax:
Profit (loss) for reportable segments	(10,579)	(14,025)
Interest expense	(4,427)	(5,507)
Interest income	147	222
Loss from continuing operations before taxes	(18,310)	(23,051)
Total assets for reportable segments	1,072,155		$ 1,077,710	[1]
Discontinued operations			3,618
Corporate, Non-Segment [Member]
Segment profit (loss) before tax:
Corporate expenses	(3,451)	(3,741)
Total assets for reportable segments	46,710		18,398
Semiconductor Test and Inspection [Member]
Net sales by segment:
Net sales	128,013	136,694
Segment profit (loss) before tax:
Profit (loss) for reportable segments	(11,573)	(15,044)
Total assets for reportable segments	966,562		998,756
PCB Test [Member]
Net sales by segment:
Net sales	10,908	11,115
Segment profit (loss) before tax:
Profit (loss) for reportable segments	994	$ 1,019
Total assets for reportable segments	58,883		56,938
Semiconductor Test and Inspection and PCB Test [Member]
Segment profit (loss) before tax:
Total assets for reportable segments	$ 1,025,445		$ 1,055,694

[1] Derived from December 28, 2019 audited financial statements

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares shares in Thousands	Mar. 28, 2020	Dec. 28, 2019	[1]
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, shares authorized (in shares)	1,000	1,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	60,000	60,000
Common stock, shares issued (in shares)	41,686	41,395
Common stock, shares outstanding (in shares)	41,686	41,395

[1] Derived from December 28, 2019 audited financial statements

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands		Cumulative Effect, Period of Adoption, Adjustment [Member] Common Stock [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] Additional Paid-in Capital [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] Retained Earnings [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] AOCI Attributable to Parent [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] Noncontrolling Interest [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
Balance (Accounting Standards Update 2016-02 [Member]) at Dec. 29, 2018	[1]			$ 10,352			$ 10,352
Balance at Dec. 29, 2018								$ 40,763	$ 419,690	$ 111,670	$ (25,880)	$ (299)	$ 545,944
Net income (loss)										(22,687)			(22,687)
Changes in cumulative translation adjustment													(5,262)
Changes in cumulative translation adjustment, attributable to parent											(5,258)		(5,262)
Changes in cumulative translation adjustment, attributable to non-controlling interest												(4)
Adjustments related to postretirement benefits, net of tax											474		474
Cash dividends - $0.06 per share										(2,450)			(2,450)
Exercise of stock options								10	68				78
Shares issued for restricted stock units vested								365	(365)
Repurchase and retirement of stock								(123)	(1,705)				(1,828)
Noncontrolling interest										53		(53)
Share-based compensation expense									3,693				3,693
Balance at Mar. 30, 2019								41,015	421,381	96,938	(30,664)	(356)	528,314
Balance at Dec. 28, 2019								41,395	433,190	42,517	(34,030)		483,072
Net income (loss)										(17,276)			(17,276)
Changes in cumulative translation adjustment											(929)		(929)
Changes in cumulative translation adjustment, attributable to parent													(929)
Adjustments related to postretirement benefits, net of tax
Cash dividends - $0.06 per share										(2,486)			(2,486)
Exercise of stock options								22	267				289
Shares issued for restricted stock units vested								403	(403)
Repurchase and retirement of stock								(134)	(1,263)				(1,397)
Share-based compensation expense									3,611				3,611
Balance at Mar. 28, 2020								$ 41,686	$ 435,402	$ 22,755	$ (34,959)		$ 464,884

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

XML

Note 10 - Discontinued Operations - Summary of Operating Results (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Net sales	$ 432	$ 1,592
Operating income before income taxes	11	189
Gain on sale of Fixtures business	35
Income before taxes	46	189
Income tax provision	4	25
Income, net of tax	$ 42	$ 164

XML

Note 3 - Borrowings and Credit Agreements - Summary of Borrowings (Details) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Lines of Credit	$ 3,244	$ 3,195
Total debt	360,594	360,476
Less: financing fees and discount	(7,151)	(7,441)
Less: current portion	(6,566)	(6,517)
Total long-term debt	346,877	346,518
Secured Term Loan Facility [Member]
Long term Debt	345,625	346,500
Less: current portion	(2,300)	(2,300)
Kita Term Loans [Member]
Long term Debt	3,745	3,830
Less: current portion	(300)	(400)
Xcerra [Member]
Long term Debt	1,392	1,475
Rasco Construction Loan [Member]
Long term Debt	$ 6,588	$ 5,476

XML

Note 5 - Financial Instruments Measured at Fair Value - Short-term Investments by Security Type (Details) - USD ($) $ in Thousands		Mar. 28, 2020	Dec. 28, 2019
Estimated Fair Value		$ 901	$ 904	[1]
Debt Security, Government, Non-US [Member]
Amortized Cost		901	904
Gross Unrealized Gains
Gross Unrealized Losses	[2]
Estimated Fair Value		$ 901	$ 904

[1] Derived from December 28, 2019 audited financial statements

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

XML

Note 4 - Restructuring Charges (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Severance and			Other Exit
	Other Payroll			Costs			Total
Balance, December 29, 2018	$	4,026		$	-		$	4,026
Costs accrued		753			608			1,361
Amounts paid or charged		(1,029	)		(608	)		(1,637	)
Impact of currency exchange		4			-			4
Balance, March 30, 2019	$	3,754		$	-		$	3,754
Balance, December 28, 2019	$	1,236		$	-		$	1,236
Costs accrued		234			169			403
Amounts paid or charged		(1,218	)		(169	)		(1,387	)
Impact of currency exchange		(33	)		-			(33	)
Balance, March 28, 2020	$	219		$	-		$	219

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 28, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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 28, 2019,

has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of

March 28, 2020, (

also referred to as “the

first

quarter of fiscal

2020”

and “the

first

three

months of fiscal

2020”

) and

March 30, 2019, (

also referred to as “the

first

quarter of fiscal

2019”

and “the

first

three

months of fiscal

2019”

) 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

2020

and

2019

were both comprised of

13

weeks.

Our interim results are

not

necessarily indicative of the results that should be expected for the full year. 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 28, 2019,

which are included in our

2019

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”.

On

December 28, 2019,

we divested our entire

20%

interest in ALBS Solutions Sdn Bhd (“ALBS”), our only consolidated VIE. As a result of the divestment, we

no

longer had a controlling interest in ALBS and

no

longer consolidate ALBS as of that date.

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

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had

no

effect on our reported results of operations, stockholder’s equity or cash flows.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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 Accounting Standards Update (“ASU”)

2016

-

13

, Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

, on

December 29, 2019,

the

first

day of our fiscal

2020.

The ASU required a cumulative-effect adjustment to the statement of financial position as of the date of adoption. Periods prior to the adoption that are presented for comparative purposes are

not

adjusted. Based on our analysis of historical and anticipated collections of trade receivables the impact of adoption of Topic

326

was insignificant. Our trade accounts receivable are presented net of allowance for credit losses, which were insignificant at

March 28, 2020

and

December 28, 2019.

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 28, 2020,

we will continue to monitor customer liquidity and other economic conditions, which

may

result in changes to our estimates regarding collectability.

Inventory, Policy [Policy Text Block]

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 28,		December 28,
	2020		2019
Raw materials and purchased parts	$	73,222	$	69,665
Work in process		44,381		46,591
Finished goods		17,256		14,450
Total inventories	$	134,859	$	130,706

Assets Held-for-sale [Policy Text Block]

Assets Held for Sale

As part of our previously announced strategic restructuring program we are implementing certain facility consolidation actions. We expect to complete the sales of our facilities located in Penang, Malaysia in the

second

quarter of

2020

and Rosenheim, Germany in the

third

quarter of

2020.

As a result, these facilities are being presented as held for sale at

March 28, 2020.

See Note

4,

“Restructuring Charges” for additional information on this program.

Property, Plant and Equipment, Policy [Policy Text Block]

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 28,			December 28,
	2020			2019
Land and land improvements	$	8,650		$	11,659
Buildings and building improvements		40,593			41,474
Machinery and equipment		59,029			61,006
		108,272			114,139
Less accumulated depreciation and amortization		(43,584	)		(43,227	)
Property, plant and equipment, net	$	64,688		$	70,912

Segment Reporting, Policy [Policy Text Block]

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 Test 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 and Intangible Assets, Policy [Policy Text Block]

Goodwill and Indefinite-Lived Intangibles, Other Intangible Assets and

Long-lived Assets

We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), for impairment annually and when an event occurs or circumstances change that indicate that the carrying value

may

not

be recoverable. We test goodwill for impairment by

first

comparing the book value of net assets to the fair value of the reporting unit or asset, in the case of in-process research and development. If the fair value is determined to be less than the book value, a

second

step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and its carrying value,

not

to exceed the carrying value of goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.

We conduct our annual impairment test as of

October 

1st

 of each year and have determined there was

no

impairment as of

October 

1,

2019,

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. While a decline in stock price and market capitalization is

not

specifically cited as an impairment indicator, a company’s stock price and market capitalization should be considered in determining whether it is more likely than

not

that the fair value of a reporting unit is less than its book value. The financial and credit market volatility caused by the COVID-

19

pandemic directly impacts our fair value measurement through our stock price that we use to determine our market capitalization. During times of volatility, significant judgment must be applied to determine whether stock price changes are a short-term swing or a longer-term trend.

During the

first

quarter of

2020,

the volatility in Cohu’s stock price, the global economic downturn and business interruptions associated with the COVID-

19

pandemic led us to determine that there was a triggering event related to goodwill within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of

March 28, 2020

and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were

no

impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-

19

pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a

$3.9

 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and

may

not

be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required we

may

be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might

not

be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets

may

not

be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is

not

recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value. We evaluated the expected undiscounted cashflows of these assets as of

March 28, 2020

and determined there was

no

impairment.

Standard Product Warranty, Policy [Policy Text Block]

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.

Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block]

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, Policy [Policy Text Block]

Debt Issuance Costs

We capitalize costs related to the issuance of debt. Debt issuance costs that were directly related to our Term B Loan 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

$0.3

 million for both the

three

months ended

March 28, 2020

and

March 30, 2019.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

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. 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. During the

three

months ended

March 28, 2020,

we recognized foreign exchange losses of

$0.4

 million, in our consolidated statements of operations. During the

three

months ended

March 30, 2019,

we recognized foreign exchange gains of

$0.2

 million.

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.

Share-based Payment Arrangement [Policy Text Block]

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.

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

(in thousands)

:

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cost of sales	$	212		$	125
Research and development		833			638
Selling, general and administrative		2,566			2,930
Total share-based compensation		3,611			3,693
Income tax benefit		(172	)		(280	)
Total share-based compensation, net	$	3,439		$	3,413

Earnings Per Share, Policy [Policy Text Block]

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 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 28, 2020,

stock options and awards to issue approximately

58,000

shares of common stock were excluded from the computation. For the

three

months ended

March 30, 2019,

stock options and awards to issue approximately

393,000

shares of 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)

:

	Three Months Ended
	March 28,		March 30,
	2020		2019
Weighted average common shares		41,502		40,872
Effect of dilutive securities		-		-
		41,502		40,872

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.

Lessee, Leases [Policy Text Block]

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 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 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 [Policy Text Block]

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 relative standalone selling price 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

March 28, 2020,

we have

$9.6

 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) for contracts with original expected durations of over

one

year. As allowed under 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

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. 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 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 28, 2020,

we had deferred revenue totaling approximately

$18.0

 million, current deferred profit of

$9.3

 million and deferred profit expected to be recognized after

one

year included in noncurrent other accrued liabilities of

$7.1

 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.

Net sales of our reportable segments, by type, are as follows

(in thousands):

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
Systems:
Semiconductor Test & Inspection	$	70,539	$	79,940
PCB Test		6,840		6,972
Non-systems:
Semiconductor Test & Inspection		57,474		56,753
PCB Test		4,068		4,144
Total net sales	$	138,921	$	147,809

Revenue by geographic area based upon product shipment destination

(

in thousands

):

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
China	$	30,811	$	23,551
United States		19,078		17,101
Malaysia		15,174		17,714
Taiwan		13,881		14,970
Philippines		10,022		14,541
Rest of the World		49,955		59,932
Total net sales	$	138,921	$	147,809

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

	Three Months Ended
	March 28,			March 30,
	2020			2019
Semiconductor Test & Inspection
Customers individually accounting for more than 10% of net sales		two			one
Percentage of net sales		26	%		11	%
PCB Test
Customers individually accounting for more than 10% of net sales		*			*
Percentage of net sales		*			*

* No single customer represented more than 10% of consolidated net sales.

Comprehensive Income, Policy [Policy Text Block]

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately

$35.0

 million and

$34.0

 million at

March 28, 2020

and

December 28, 2019,

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 and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during the

first

three

months of fiscal

2020

and

2019

were

not

significant.

Pension and Other Postretirement Plans, Policy [Policy Text Block]

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

first

three

months of fiscal

2020

and

2019

was

not

significant.

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations

Management determined that the fixtures services business, that was acquired as part of Xcerra, did

not

align with Cohu’s long-term strategic plan and divested this portion of the business in

February 2020.

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

December 28, 2019.

See Note

10,

“Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.

New Accounting Pronouncements, Policy [Policy Text Block]

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 condensed 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

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

August 2018,

the FASB issued ASU

2018

-

14,

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

, which improves defined benefit disclosure requirements by removing disclosures that are

not

cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years ending after

December 15, 2020

and early adoption is permitted. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. We are currently assessing and have

not

yet determined the impact that the adoption of ASU

2018

-

14

will have on the disclosures to our consolidated financial statements.

All other newly issued accounting pronouncements

not

yet effective have been deemed either immaterial or

not

applicable.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Current assets:
Cash and cash equivalents from continuing operations at end of period	$ 171,474	$ 155,194	[1]
Short-term investments	901	904	[1]
Accounts receivable, net	111,456	127,921	[1]
Inventories	134,859	130,706	[1]
Assets held for sale	8,346	827	[1]
Prepaid expenses	20,765	17,483	[1]
Other current assets	5,998	3,158	[1]
Current assets of discontinued operations (Note 10)		3,503	[1]
Total current assets	453,799	439,696	[1]
Property, plant and equipment, net	64,688	70,912	[1]
Goodwill	237,997	238,669	[1]
Intangible assets, net	261,316	275,019	[1]
Other assets	21,756	20,030	[1]
Operating lease right of use assets	32,599	33,269	[1]
Noncurrent assets of discontinued operations (Note 10)		115	[1]
Assets, Total	1,072,155	1,077,710	[1]
Current liabilities:
Short-term borrowings	3,244	3,195	[1]
Current installments of long-term debt	3,322	3,322	[1]
Accounts payable	53,457	48,697	[1]
Customer advances	26,594	12,160	[1]
Accrued compensation and benefits	20,837	23,741	[1]
Deferred profit	9,313	7,645
Accrued warranty	6,066	5,893	[1]
Income taxes payable	11,795	3,894	[1]
Other accrued liabilities	29,089	39,739	[1]
Current liabilities of discontinued operations (Note 10)		599	[1]
Total current liabilities	163,717	148,885	[1]
Accrued retirement benefits	22,285	21,930	[1]
Deferred income taxes	29,297	31,310	[1]
Noncurrent income tax liabilities	8,203	8,438	[1]
Long-term debt	346,877	346,518	[1]
Long-term lease liabilities	28,352	28,877	[1]
Other accrued liabilities	8,540	8,656	[1]
Noncurrent liabilities		24	[1]
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares authorized, none issued			[1]
Common stock, $1 par value; 60,000 shares authorized, 41,686 shares issued and outstanding in 2020 and 41,395 shares in 2019	41,686	41,395	[1]
Paid-in capital	435,402	433,190	[1]
Retained earnings	22,755	42,517	[1]
Accumulated other comprehensive loss	(34,959)	(34,030)
Total stockholders’ equity	464,884	483,072	[1]
Liabilities and Equity, Total	$ 1,072,155	$ 1,077,710	[1]

[1] Derived from December 28, 2019 audited financial statements

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Net loss	$ (17,276)	$ (22,687)
Net loss attributable to noncontrolling interest		(44)
Net loss attributable to Cohu	(17,276)	(22,643)
Foreign currency translation adjustments	(929)	(5,262)
Adjustments related to postretirement benefits		474
Other comprehensive loss, net of tax	(929)	(4,788)
Other comprehensive loss attributable to noncontrolling interest		(4)
Other comprehensive loss attributable to Cohu	(929)	(4,784)
Comprehensive loss	(18,205)	(27,475)
Comprehensive loss attributable to noncontrolling interest		(48)
Comprehensive loss attributable to Cohu	$ (18,205)	$ (27,427)

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Note 12 - Guarantees (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Non-current Other Accrued Liabilities [Member]
Product Warranty Accrual, Noncurrent	$ 0.2	$ 0.3
Minimum [Member]
Standard Product Warranty Term (Month)	1 year
Maximum [Member]
Standard Product Warranty Term (Month)	3 years

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Note 3 - Borrowings and Credit Agreements (Details Textual) $ in Thousands, € in Millions, SFr in Millions				3 Months Ended
	Aug. 01, 2019 EUR (€)	Jul. 26, 2019 EUR (€)	Oct. 01, 2018 USD ($)	Mar. 28, 2020 USD ($)	Mar. 28, 2020 EUR (€)	Mar. 28, 2020 CHF (SFr)	Dec. 28, 2019 USD ($)
Long-term Debt, Current Maturities, Total				$ 6,566			$ 6,517
Long-term Debt, Fair Value				259,200
Long-term Line of Credit, Total				3,244			3,195
Ismeca [Member]
Line of Credit Facility, Maximum Borrowing Capacity | SFr						SFr 2
Long-term Line of Credit, Total				$ 0			0
Number of Available Lines of Credit				1	1	1
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity				$ 8,900
Long-term Line of Credit, Total				3,200
Secured Term Loan Facility [Member]
Debt Instrument, Face Amount			$ 350,000
Debt Instrument, Amortization, Percentage of Principal Amount			0.25%
Long-term Debt, Total				338,500
Long-term Debt, Current Maturities, Total				2,300			2,300
Secured Term Loan Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			3.00%
Kita Term Loans [Member]
Long-term Debt, Total				3,700
Long-term Debt, Current Maturities, Total				$ 300			400
Kita Term Loans [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage				0.05%	0.05%	0.05%
Kita Term Loans [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage				0.43%	0.43%	0.43%
Xcerra Term Loan [Member]
Long-term Debt, Total				$ 1,400
Long-term Debt, Current Maturities, Total				$ 300			300
Debt Instrument, Interest Rate, Stated Percentage				2.35%	2.35%	2.35%
Debt Instrument, Term (Year)				10 years
Loan Facilities [Member] | Construction Loans [Member]
Debt Instrument, Face Amount | €		€ 8.6
Long-term Debt, Total				$ 6,600			5,500
Long-term Debt, Current Maturities, Total				$ 400			$ 300
First Facility [Member] | Construction Loans [Member]
Debt Instrument, Interest Rate, Stated Percentage	0.80%
Debt Instrument, Term (Year)	10 years	10 years
Debt Instrument, Collateral Amount | €		€ 3.4
Proceeds from Issuance of Long-term Debt, Total | €	€ 3.4
Debt Instrument, Principal Payment Terms (Year)	8 years
Second Facility [Member] | Construction Loans [Member]
Debt Instrument, Interest Rate, Stated Percentage				1.05%	1.05%	1.05%
Debt Instrument, Term (Year)		15 years		15 years
Debt Instrument, Collateral Amount | €		€ 5.2
Proceeds from Issuance of Long-term Debt, Total				$ 2,500
Debt Instrument, Principal Payment Terms (Year)				15 years
Debt Instrument, Unused Borrowing Capacity, Amount | €					€ 2.7

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Note 5 - Financial Instruments Measured at Fair Value (Details Textual) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	$ 0	$ 0

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Note 5 - Financial Instruments Measured at Fair Value (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Available-for-sale Securities [Table Text Block]

	March 28, 2020
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	901	$	-	$	-	$	901

	December 28, 2019
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses (1)		Value
Foreign government security	$	904	$	-	$	-	$	904

Investments Classified by Contractual Maturity Date [Table Text Block]

	March 28, 2020				December 28, 2019
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	901	$	901	$	-	$	-
Due after one year through three years		-		-		904		904
	$	901	$	901	$	904	$	904

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Fair value measurements at March 28, 2020 using:
							Total estimated
	Level 1		Level 2		Level 3		fair value
Cash	$	163,780	$	-	$	-	$	163,780
Money market funds		-		7,694		-		7,694
Foreign government security		-		901		-		901
	$	163,780	$	8,595	$	-	$	172,375

	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

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Note 1 - Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 28, 2020

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 28,		December 28,
	2020		2019
Raw materials and purchased parts	$	73,222	$	69,665
Work in process		44,381		46,591
Finished goods		17,256		14,450
Total inventories	$	134,859	$	130,706

Property, Plant and Equipment [Table Text Block]

	March 28,			December 28,
	2020			2019
Land and land improvements	$	8,650		$	11,659
Buildings and building improvements		40,593			41,474
Machinery and equipment		59,029			61,006
		108,272			114,139
Less accumulated depreciation and amortization		(43,584	)		(43,227	)
Property, plant and equipment, net	$	64,688		$	70,912

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three Months Ended
	March 28,			March 30,
	2020			2019
Cost of sales	$	212		$	125
Research and development		833			638
Selling, general and administrative		2,566			2,930
Total share-based compensation		3,611			3,693
Income tax benefit		(172	)		(280	)
Total share-based compensation, net	$	3,439		$	3,413

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
	March 28,		March 30,
	2020		2019
Weighted average common shares		41,502		40,872
Effect of dilutive securities		-		-
		41,502		40,872

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
Systems:
Semiconductor Test & Inspection	$	70,539	$	79,940
PCB Test		6,840		6,972
Non-systems:
Semiconductor Test & Inspection		57,474		56,753
PCB Test		4,068		4,144
Total net sales	$	138,921	$	147,809

	Three Months Ended
Disaggregated Net Sales	March 28, 2020		March 30, 2019
China	$	30,811	$	23,551
United States		19,078		17,101
Malaysia		15,174		17,714
Taiwan		13,881		14,970
Philippines		10,022		14,541
Rest of the World		49,955		59,932
Total net sales	$	138,921	$	147,809

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended
	March 28,			March 30,
	2020			2019
Semiconductor Test & Inspection
Customers individually accounting for more than 10% of net sales		two			one
Percentage of net sales		26	%		11	%
PCB Test
Customers individually accounting for more than 10% of net sales		*			*
Percentage of net sales		*			*

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Note 1 - Summary of Significant Accounting Policies (Details Textual) $ in Thousands					3 Months Ended
		Dec. 28, 2019 USD ($)		Oct. 01, 2019 USD ($)	Mar. 28, 2020 USD ($) shares	Mar. 30, 2019 USD ($) shares	Dec. 30, 2018 USD ($)	Dec. 29, 2018 USD ($)
Number of Operating Segments					4
Number of Reportable Segments					2
Goodwill and Intangible Asset Impairment, Total				$ 0
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)					$ 3,949
Amortization of Debt Issuance Costs					300	300
Foreign Currency Transaction Gain (Loss), Realized					$ (400)	$ 200
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares					58,000	393,000
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance		$ 483,072			$ 464,884	$ 528,314		$ 545,944
Assets, Total		1,077,710	[1]		1,072,155
Revenue, Remaining Performance Obligation, Amount					9,600
Deferred Income		16,100			18,000
Deferred Profit		7,645			9,313
Deferred Profit Long-term		7,200			7,100
Accumulated Other Comprehensive Income (Loss), Net of Tax, Total		(34,030)			(34,959)
Retained Earnings [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance		$ 42,517			22,755	$ 96,938		111,670
Accounting Standards Update 2016-02 [Member]
Assets, Total							$ (500)
Liabilities, Total							(600)
Accounting Standards Update 2016-02 [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance	[2]							10,352
Accounting Standards Update 2016-02 [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | Retained Earnings [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance							$ 10,200	$ 10,352	[2]
Indefinite-lived In Process Research and Development [Member]
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)					$ 3,900
Minimum [Member]
Standard Product Warranty Term (Month)					1 year
Maximum [Member]
Standard Product Warranty Term (Month)					3 years
Building [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)					30 years
Building [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)					40 years
Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)					5 years
Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)					15 years
Machinery, Equipment and Software [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)					3 years
Machinery, Equipment and Software [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)					10 years
ALBS [Member]
Variable Interest Entity, Ownership Percentage Sold		20.00%

[1] Derived from December 28, 2019 audited financial statements

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

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Note 1 - Summary of Significant Accounting Policies - Computation of Basic and Diluted Income (Loss) Per Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Weighted average common shares (in shares)	41,502	40,872
Effect of dilutive securities (in shares)
Weighted Average Number of Shares Outstanding, Diluted, Total	41,502	40,872

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Note 6 - Employee Stock Benefit Plans

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

6. Employee Stock Benefit Plans

Our

2005

Equity Incentive Plan (

“2005

Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that

may

be granted under the program include, but are

not

limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At

March 28, 2020,

there were

1,761,388

 shares available for future equity grants under the

2005

Plan.

Stock Options

Stock options

may

be granted to employees, consultants and non-employee directors to purchase a fixed number of shares of our common stock. The exercise prices of options granted are at least equal to the fair market value of our common stock on the dates of grant and options vest and become exercisable in annual increments that range from

one

to

four

years from the date of grant. Stock options granted under the

2005

Plan have a maximum contractual term of

ten

years. In the

first

three

months of fiscal

2020

we did

not

grant any stock options and we issued

22,205

shares of our common stock on the exercise of options that were granted previously.

At

March 28, 2020,

we had

341,071

 stock options exercisable and outstanding. These options had a weighted-average exercise price of

$10.09

 per share, an aggregate intrinsic value of approximately

$1.0

 million and the weighted average remaining contractual term was approximately

2.6

 years.

Restricted Stock Units

We grant restricted stock units (“RSUs”) to certain employees, consultants and directors. RSUs vest in annual increments that range from

one

to

four

years from the date of grant. Prior to vesting, RSUs do

not

have dividend equivalent rights, do

not

have voting rights and the shares underlying the RSUs are

not

considered issued and outstanding. New shares of our common stock will be issued on the date the RSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at

March 28, 2020.

In the

three

months of fiscal

2020

we awarded

622,764

 RSUs and we issued

369,132

shares of our common stock on vesting of previously granted awards. At

March 28, 2020,

we had

1,575,014

 RSUs outstanding with an aggregate intrinsic value of approximately

$20.6

 million and the weighted average remaining vesting period was approximately

1.8

 years.

Performance Stock Units

We also grant performance stock units (“PSUs”) to 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 in

2020,

2019,

2018

and

2017

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 in

2020,

2019

2018

and

2017

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 ratably over the derived service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number outstanding at

March 28, 2020.

In the

first

three

months of fiscal

2020,

we awarded

200,249

PSUs and we issued

34,080

shares of our common stock on vesting of previously granted awards. At

March 28, 2020,

we had

465,167

 PSUs outstanding with an aggregate intrinsic value of approximately

$6.1

 million and the weighted average remaining vesting period was approximately

2.2

 years.

Employee Stock Purchase Plan

The Cohu, Inc.

1997

Employee Stock Purchase Plan (“ESPP”) provides for the issuance of shares of our common stock. Under the ESPP, eligible employees

may

purchase shares of Cohu common stock through payroll deductions at a price equal to

85

percent of the lower of the fair market value of Cohu common stock at the beginning or end of each

6

-month purchase period, subject to certain limits. During the

three

months of fiscal

2020,

no

 shares of our common stock were sold to our employees under the ESPP leaving

911,337

 shares available for future issuance.

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Note 2 - Goodwill and Purchased Intangible Assets

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

2. Goodwill and Purchased Intangible Assets

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended

December 28, 2019,

and the

three

-month period ended

March 28, 2020,

by segment, were as follows (

in thousands

):

	Semiconductor Test
	& Inspection			PCB Test			Total
Balance, December 30, 2018	$	220,808		$	21,319		$	242,127
Adjustments		2,117			(983	)		1,134
Impairments		(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		(575	)		(97	)		(672	)
Balance, March 28, 2020	$	218,200		$	19,797		$	237,997

Purchased intangible assets, subject to amortization are as follows (

in thousands

):

	March 28, 2020						December 28, 2019
					Remaining
					Weighted
					Average
	Gross				Amort.		Gross
	Carrying		Accum.		Period		Carrying		Accum.
	Amount		Amort.		(in years)		Amount		Amort.
Developed technology	$	228,061	$	57,557		6.4	$	227,619	$	49,805
Customer relationships		71,778		16,332		9.1		72,251		14,824
Trade names		22,704		4,443		9.3		22,612		3,892
Covenant not-to-compete		327		106		6.8		322		96
Total intangible assets	$	322,870	$	78,438			$	322,804	$	68,617

The table above excludes

$16.9

 million and

$20.8

 million of in-process technology, at

March 28, 2020

and

December 28, 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

first

quarter of

2020

no

in-process technology was completed and transferred to developed technology. 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 previously 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.

Other events and changes in circumstances

may

also require goodwill 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 within all of our identified reporting units and our indefinite-lived intangible assets. We performed an interim assessment as of

March 28, 2020

and determined that the fair values of our identified reporting units all exceeded their carrying values and we have concluded there were

no

impairment of goodwill within our reporting units. Anticipated delays in customer adoption of certain new products under development as a result of the COVID-

19

pandemic, changes to future project roadmap and an increase in the discount rate used in the developing our interim fair value estimate resulted in a

$3.9

 million impairment to IPR&D as the carrying value exceeded fair value.

The forecasts utilized in the interim impairment test were based on known facts and circumstances. We evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual and interim assessments and incorporate them into the analyses as appropriate. These facts and circumstances are subject to change and

may

not

be the same as future analyses. In a future period, should we again determine that an interim goodwill and indefinite-lived intangible asset impairment review is required, we

may

be required to book additional impairment charges which could have a significant negative impact on our results of operations.

Amortization expense related to intangible assets in the

first

quarter of fiscal

2020

and

2019

was

$9.5

 million and

$10.0

 million, respectively.

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Note 10 - Discontinued Operations

3 Months Ended

Mar. 28, 2020

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

10. Discontinued Operations

On

October 1, 2018,

we acquired a fixtures services business as part of Xcerra. In the

fourth

quarter of

2018,

our management determined that this business did

not

align with our core business and was

not

a strategic fit within our organization. As a result, the fixtures services business has been marketed for sale since we acquired Xcerra on

October 1, 2018

and it has been presented as discontinued 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.

In

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. In

February 2020,

we completed the sale of this business with an immaterial impact to the statement of operations for the

three

months ended

March 28, 2020.

Balance sheet information for our fixtures services business presented as discontinued operations is summarized as follows

(in thousands)

:

	March 28,		December 28,
	2020		2019
Assets:
Cash and cash equivalents	$	-	$	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 segment are summarized as follows

(in thousands)

:

	Three Months Ended
	March 28,		March 30,
	2020		2019
Net sales	$	432	$	1,592
Operating income before income taxes	$	11	$	189
Gain on sale of Fixtures business		35		-
Income before taxes		46		189
Income tax provision		4		25
Income, net of tax	$	42	$	164

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Note 9 - Leases - Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Operating cash flows from operating leases	$ 2,133	$ 1,881
Operating cash flows from finance leases	28	37
Financing cash flows from finance leases	9	9
Leased assets obtained in exchange for new finance lease liabilities	373
Leased assets obtained in exchange for new operating lease liabilities	$ 1,062	$ 31,508

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Note 9 - Leases (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Lessee, Operating Lease, Renewal Term (Year)	25 years
Finance Lease, Right-of-Use Asset, Accumulated Amortization	$ 0.1	$ 0.1
Lessee, Sublease Income, Receivable, Remainder of Fiscal Year	0.1
Lessee, Sublease Income, Receivable, Year Two	$ 0.1
Minimum [Member]
Lessee, Lease, Remaining Term of Contract (Year)	1 year
Maximum [Member]
Lessee, Lease, Remaining Term of Contract (Year)	38 years