Cohu: Dialogue and evaluation by administration of the monetary place and working outcomes

March 27, 2021

Level 2. Dialogue and evaluation by administration of the monetary state of affairs and working outcomes



This Kind 10-Q accommodates sure forward-looking statements together with
expectations of market circumstances, challenges and plans, inside the which means of
Part 21E of the Securities Alternate Act of 1934, as amended, and is topic
to the Protected Harbor provisions created by that statute. Such forward-looking
statements are based mostly on administration's present expectations and beliefs, together with
estimates and projections about our enterprise and embrace, however will not be restricted
to, statements regarding monetary place, enterprise technique, our business
setting, market development expectations, and plans or targets for future
operations. Ahead-looking statements will not be ensures of future efficiency,
and are topic to sure dangers, uncertainties, and assumptions which are
tough to foretell and will trigger precise outcomes to vary materially from
administration's present expectations. Such dangers and uncertainties embrace these
set forth on this Quarterly Report on Kind 10-Q and our 2020 Annual Report on
Kind 10-Okay underneath the heading "Merchandise 1A. Threat Components". The forward-looking
statements on this report communicate solely as of the time they're made, and don't
essentially replicate administration's outlook at every other cut-off date. We
undertake no obligation to publicly replace any forward-looking statements,
whether or not because of new info, future occasions, or for every other cause,
nevertheless, readers ought to fastidiously overview the chance elements set forth in different
stories or paperwork we file infrequently with the SEC after the date of
this Quarterly Report. This Kind 10-Q additionally accommodates estimates, projections and
different info regarding our business, our enterprise, and the markets for
sure of our merchandise. Info that's based mostly on estimates, forecasts,
projections, market analysis or related methodologies is inherently topic to
uncertainties and precise occasions or circumstances could differ materially from
occasions and circumstances mirrored on this info. Until in any other case
expressly said, we obtained this business, enterprise, market, and different information
from stories, analysis surveys, research, and related information ready by market
analysis companies and different third events, business, and basic publications,
authorities information, and related sources.



OVERVIEW



Cohu is a number one provider of semiconductor take a look at and inspection handlers,
micro-electromechanical system (MEMS) take a look at modules, take a look at contactors and thermal
subsystems, semiconductor automated take a look at tools and bare-board printed
circuit board (PCB) take a look at methods utilized by world semiconductor and electronics
producers and take a look at subcontractors. We provide a variety of merchandise and
providers and our income from capital tools merchandise is pushed by the
capital expenditure budgets and spending patterns of our prospects, who usually
abruptly delay or speed up purchases in response to variations of their
enterprise. The extent of capital expenditures by these corporations will depend on the
present and anticipated market demand for semiconductor gadgets and printed
circuit boards and the merchandise that incorporate them. Our consumable merchandise
are pushed by the variety of semiconductor gadgets and printed circuit boards
which are examined and by the continual introduction of recent merchandise and new
applied sciences by our prospects. Because of this, our consumable merchandise present a
extra steady recurring income and customarily would not have the identical
diploma of cyclicality as our capital tools merchandise.



For the three-months ended March 27, 2021, our internet gross sales elevated 62.3%
year-over-year to $225.5 million. Throughout 2021 our internet gross sales had been favorably
impacted by sturdy automotive demand, pushed by xEV and ADAS applied sciences, and
continued mobility growth with 5G proliferation. Demand for tools testing
5G, Wi-Fi 6 and Extremely-Wideband gadgets, information facilities, private computer systems and
automotive semiconductor and sensors had been at close to document ranges. Through the
first quarter of 2020 our internet gross sales had been impacted by disruptions attributable to the
COVID-19 pandemic and motion management orders carried out by the governments of
Malaysia and the Philippines. These motion management orders resulted in provide
disruptions and impacted our skill to ship product on the finish of the quarter.
Based mostly on improved enterprise circumstances and utilizing a portion of the proceeds of the
just lately accomplished underwritten public providing, in the course of the first quarter of
2021, we took motion to scale back excellent principal, by $100.0 million, underneath
our Time period Mortgage B debt related to the financing of the Xcerra acquisition in
October 2018.



Whereas our whole gross sales for fiscal 12 months 2020 had been negatively impacted by the
world financial downturn attributable to the COVID-19 pandemic, we started seeing sturdy
demand for our merchandise within the second half of 2020 and that power has
continued into the primary quarter of 2021. Our long-term market drivers and
market technique stay intact and we're inspired by optimistic order momentum
throughout our primary market segments, and buyer traction with our new merchandise. We
stay optimistic in regards to the long-term prospects for our enterprise as a result of
growing ubiquity of semiconductors, the long run rollout of 5G networks,
growing semiconductor complexity, growing high quality calls for from
semiconductor prospects, growing take a look at depth and continued proliferation
of electronics in a wide range of merchandise throughout the automotive, mobility and
industrial markets. We're targeted on cross-selling alternatives and supporting
our prospects' deployment of 5G RF capabilities on subsequent technology smartphones
and rising our gross sales to semiconductor and electronics producers and take a look at
subcontractors.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021

Software of crucial accounting estimates and strategies



Our dialogue and evaluation of our monetary situation and outcomes of operations
is predicated upon our consolidated monetary statements, which have been ready in
accordance with accounting ideas usually accepted in america of
America. The preparation of those monetary statements requires us to make
estimates and judgments that have an effect on the reported quantities of belongings, liabilities,
revenues and bills and associated disclosure of contingent belongings and
liabilities. COVID-19 continues to unfold all through america and different
nations around the globe, and the period and severity of the results are
presently unknown. We base our estimates on historic expertise, forecasts and
on varied different assumptions which are believed to be affordable underneath the
present circumstances, nevertheless precise outcomes could differ from these estimates
underneath completely different assumptions or circumstances. The strategies, estimates and judgments
we use in making use of our accounting insurance policies have a big affect on the
outcomes we report in our monetary statements. A few of our accounting insurance policies
require us to make tough and subjective judgments, usually because of the
have to make estimates of issues which are inherently unsure.



Our crucial accounting estimates that we imagine are an important to an
investor's understanding of our monetary outcomes and situation and that require
advanced administration judgment embrace:



? recognition of turnover, together with the deferral of turnover to gross sales to prospects,

what impacts our outcomes of operations;

? estimate of provisions for depreciation and accrued liabilities, specifically

product guarantee, stock reserves and provision for dangerous money owed, which have an effect

gross margin or working bills;

? the popularity and measurement of present and deferred tax belongings and

liabilities, unrecognized tax advantages and the valuation allowance on

tax belongings, which have an effect on our tax provision;

? assessing the recoverability of long-lived belongings, together with goodwill and

different intangible belongings, which primarily affect the gross margin or

bills if we have to document asset write-downs or speed up

their depreciation or amortization; and

? the valuation and recognition of compensation in shares, which impacts the gross

    margin, analysis and growth expense, and promoting, basic and
    administrative expense.




Under, we focus on these insurance policies additional, in addition to the estimates and judgments
concerned. We additionally produce other insurance policies that we think about key accounting insurance policies;
nevertheless, these insurance policies sometimes don't require us to make estimates or
judgments which are tough or subjective.



Income Recognition: Our internet gross sales are derived from the sale of merchandise and
providers and are adjusted for estimated returns and allowances, which
traditionally have been insignificant. We acknowledge income when the obligations
underneath the phrases of a contract with our prospects are glad; usually, this
happens with the switch of management of our methods, non-system merchandise or
providers. In circumstances the place management is just not transferred till vacation spot or
acceptance, we defer income recognition till such occasions happen. Income for
established merchandise which have beforehand glad a buyer's acceptance
necessities is mostly acknowledged upon cargo. In instances the place a previous
historical past of buyer acceptance can't be demonstrated or from gross sales the place
buyer fee dates will not be determinable and within the case of recent merchandise,
income and value of gross sales are deferred till buyer acceptance has been
obtained. Our post-shipment obligations sometimes embrace set up and
commonplace warranties. The estimated honest worth of set up associated income is
acknowledged within the interval the set up is carried out. Service income is
acknowledged over time because the switch of management is accomplished for the associated
contract or upon completion of the providers if they're short-term in nature.
Spares, contactor and package income is mostly acknowledged upon cargo. Sure
of our tools gross sales have a number of efficiency obligations. These preparations
contain the supply or efficiency of a number of efficiency obligations, and
switch of management of efficiency obligations could happen at completely different factors in
time or over completely different intervals of time. For preparations containing a number of
efficiency obligations, the income regarding the undelivered efficiency
obligation is deferred utilizing the relative standalone promoting value technique
using estimated gross sales costs till satisfaction of the deferred efficiency
obligation. Unhappy efficiency obligations primarily symbolize contracts
for merchandise with future supply dates. At March 27, 2021, we've $8.2 million
of income anticipated to be acknowledged sooner or later associated to efficiency
obligations which are unhappy (or partially unhappy) for contracts with
unique anticipated durations of over one 12 months. As allowed underneath ASC 606, we've
opted to not disclose unhappy efficiency obligations as these contracts
have unique anticipated durations of lower than one 12 months. We usually promote our
tools with a product guarantee. The product guarantee gives assurance to
prospects that delivered merchandise are as specified within the contract (an
"assurance-type guarantee"). Due to this fact, we account for such product warranties
underneath ASC 460, Ensures (ASC 460), and never as a separate efficiency
obligation. The transaction value displays our expectations in regards to the
consideration we will likely be entitled to obtain from the client and will embrace
fastened or variable quantities. Mounted consideration primarily consists of gross sales to
prospects which are generally known as of the top of the reporting interval. Variable
consideration consists of gross sales wherein the quantity of consideration that we'll
obtain is unknown as of the top of a reporting interval. Such consideration
primarily consists of gross sales made to sure prospects with cumulative tier quantity
reductions supplied. Variable consideration preparations are uncommon; nevertheless, when
they happen, we estimate variable consideration because the anticipated worth to which we
count on to be entitled. Included within the transaction value estimate are quantities in
which it's possible {that a} important reversal of cumulative income
acknowledged won't happen when the uncertainty related to the variable
consideration is subsequently resolved. The estimate is predicated on info
accessible for projected future gross sales. Variable consideration that doesn't meet
income recognition standards is deferred. Accounts receivable represents our
unconditional proper to obtain consideration from our buyer. Funds phrases
don't exceed one 12 months from the bill date and due to this fact don't embrace a
important financing part. To this point, there have been no materials impairment
losses on accounts receivable. There have been no materials contract belongings or
contract liabilities recorded on the condensed consolidated stability sheet in any
of the intervals offered. On shipments the place gross sales will not be acknowledged, gross
revenue is mostly recorded as deferred revenue in our condensed consolidated
stability sheet representing the distinction between the receivable recorded and
the stock shipped.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



Accounts Receivable: We preserve an allowance for credit score losses for estimated
losses ensuing from the shortcoming of our prospects to make required funds.
If the monetary situation of our prospects deteriorates, leading to an
impairment of their skill to make funds, extra allowances could also be
required.



We adopted ASU 2016-13, Monetary Devices-Credit score Losses (Matter 326):
Measurement of Credit score Losses on Monetary Devices, on December 29, 2019 the
first day of our fiscal 2020. The ASU required a cumulative-effect adjustment to
the assertion of economic place as of the date of adoption. Durations previous to
the adoption which are offered for comparative functions will not be adjusted. Based mostly
on our evaluation of historic and anticipated collections of commerce receivables,
the affect of adoption of Matter 326 was insignificant.



Stock: The valuation of stock requires us to estimate out of date or extra
stock in addition to stock that's not of saleable high quality. The
willpower of out of date or extra stock requires us to estimate the long run
demand for our merchandise. The demand forecast is a direct enter within the
growth of our short-term manufacturing plans. We document valuation reserves
on our stock for estimated extra and out of date stock and decrease of price
or internet realizable worth issues equal to the distinction between the price of
stock and the estimated realizable worth based mostly upon assumptions about future
product demand, market circumstances and product promoting costs. If future product
demand, market circumstances or product promoting costs are lower than these
projected by administration or if continued modifications to merchandise are required
to satisfy specs or different buyer necessities, will increase to stock
reserves could also be required which might have a detrimental affect on our gross margin.



Revenue Taxes: We estimate our legal responsibility for revenue taxes based mostly on the assorted
jurisdictions the place we conduct enterprise. This requires us to estimate our (i)
present taxes; (ii) momentary variations that end result from differing remedy
of sure objects for tax and accounting functions and (iii) unrecognized tax
advantages. Momentary variations lead to deferred tax belongings and liabilities
which are mirrored within the consolidated stability sheet. The deferred tax belongings
are decreased by a valuation allowance if, based mostly upon all accessible proof, it
is extra seemingly than not that some or the entire deferred tax belongings won't be
realized. Establishing, lowering or growing a valuation allowance in an
accounting interval usually leads to a rise or lower in tax expense in
the assertion of operations. We should make important judgments to find out the
provision for revenue taxes, deferred tax belongings and liabilities, unrecognized
tax advantages and any valuation allowance to be recorded towards deferred tax
belongings. Our deferred tax belongings consist primarily of reserves and accruals that
will not be but deductible for tax and tax credit score and internet working loss
carryforwards.



Section Info: We utilized the provisions of ASC Matter 280, Section
Reporting, ("ASC 280"), which units forth a administration method to section
reporting and establishes necessities to report chosen section info
quarterly and to report yearly entity-wide disclosures about merchandise, main
prospects and the geographies wherein the entity holds materials belongings and
stories income. An working section is outlined as a part that engages in
enterprise actions whose working outcomes are reviewed by the chief working
choice maker and for which discrete monetary info is obtainable. After
the acquisition of Xcerra on October 1, 2018, we've decided that our 4
recognized working segments are: Take a look at Handler Group ("THG"), Semiconductor
Take a look at Group ("STG"), Interface Options Group ("ISG") and PCB Take a look at Group
("PTG"). Our THG, STG and ISG working segments qualify for aggregation underneath
ASC 280 attributable to similarities of their prospects, their financial traits,
and the character of services supplied. Because of this, we report in two
segments, Semiconductor Take a look at & Inspection and PCB Take a look at.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021Goodwill and Indefinite-Lived Intangibles, Different Intangible Property and
Lengthy-lived Property: We consider goodwill and different indefinite-lived intangible
belongings, that are solely comprised of in-process analysis and growth
("IPR&D"), for impairment yearly and when an occasion happens or circumstances
change that point out that the carrying worth is probably not recoverable. We take a look at
goodwill for impairment by first evaluating the e book worth of internet belongings to the
honest worth of the reporting unit or asset, within the case of in-process analysis
and growth. If the honest worth is decided to be lower than the e book worth,
a second step is carried out to compute the quantity of impairment because the distinction
between the honest worth of the reporting unit and its carrying worth of goodwill.
We estimated the honest values of our reporting models primarily utilizing the revenue
method valuation methodology that features the discounted money move technique,
making an allowance for the market method and sure market multiples as a
validation of the values derived utilizing the discounted money move methodology.
Forecasts of future money flows are based mostly on our greatest estimate of future internet
gross sales and working bills, based mostly totally on buyer forecasts, business
commerce group information and basic financial circumstances. Honest worth
determinations require appreciable judgment and are delicate to adjustments in
underlying assumptions and elements.



We carry out our annual impairment take a look at from October 1st of every 12 months and decided that there was no depreciation at October 1, 2020, on condition that the estimated honest values ​​of our enterprise models and indefinite life intangible belongings exceeded their carrying values ​​at that date. Different occasions and adjustments in circumstances may require a goodwill impairment take a look at between the annual valuation dates.



Through the first quarter of 2020, the volatility in Cohu's inventory value, the
world financial downturn and enterprise interruptions related to the COVID-19
pandemic led us to find out that there was a triggering occasion associated to
goodwill inside all of our recognized reporting models and our indefinite-lived
intangible belongings. We carried out an interim evaluation as of March 28, 2020 and
decided that the honest values of our recognized reporting models all exceeded
their carrying values and we concluded there was no impairment of goodwill
inside our reporting models. Anticipated delays in buyer adoption of sure
new merchandise underneath growth because of the COVID-19 pandemic, adjustments to
future mission roadmaps and a rise within the low cost price used within the
creating our interim honest worth estimate resulted in a $3.9 million impairment
to IPR&D recorded in the course of the first quarter because the carrying worth exceeded honest
worth.



Lengthy-lived belongings, aside from goodwill, are reviewed for impairment at any time when
occasions or adjustments in circumstances point out that the carrying quantity of the
belongings may not be recoverable. Circumstances that will necessitate an impairment
evaluation embrace a big decline within the observable market worth of an
asset, a big change within the extent or method wherein an asset is used,
or every other important hostile change that will point out that the carrying
quantity of an asset or group of belongings is probably not recoverable. For long-lived
belongings, impairment losses are solely recorded if the asset's carrying quantity is
not recoverable via its undiscounted, probability-weighted future money
flows. We measure the impairment loss based mostly on the distinction between the
carrying quantity and estimated honest worth.



Through the first quarter of 2021, no occasion or situation occurred suggesting an impairment of our goodwill, indefinite life intangibles, different intangibles and long-lived belongings.



Guarantee: We offer for the estimated prices of product warranties within the interval
gross sales are acknowledged. Our guarantee obligation estimates are affected by
historic product cargo ranges, product efficiency and materials and labor
prices incurred in correcting product efficiency issues. Ought to product
efficiency, materials utilization or labor restore prices differ from our estimates,
revisions to the estimated guarantee legal responsibility can be required.



Contingencies: We're topic to sure contingencies that come up within the
atypical course of our companies which require us to evaluate the probability that
future occasions will verify the existence of a loss or an impairment of an asset.
If a loss or asset impairment is possible and the quantity of the loss or
impairment in all fairness estimable, we accrue a cost to operations within the
interval such circumstances change into identified.



Share-based Compensation: Share-based compensation expense associated to restricted
inventory unit awards is calculated based mostly in the marketplace value of our widespread inventory on
the grant date, decreased by the current worth of dividends anticipated to be paid on
our widespread inventory previous to vesting of the restricted inventory unit. Share-based
compensation on efficiency inventory models with market-based targets is calculated
utilizing a Monte Carlo simulation mannequin on the date of the grant. Share-based
compensation expense associated to inventory choices is recorded based mostly on the honest
worth of the award on its grant date, which we estimate utilizing the Black-Scholes
valuation mannequin.


Current accounting statements



For an outline of accounting adjustments and up to date accounting pronouncements,
together with the anticipated dates of adoption and estimated results, if any, on our
consolidated monetary statements, see "Current Accounting Pronouncements", in
Be aware 1 positioned in Half I, Merchandise 1 of this Kind 10-Q.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



RESULTS OF OPERATIONS


Current Transactions Affecting Working Outcomes



As mentioned herein, administration decided that the fixtures providers enterprise,
that was acquired as a part of Xcerra, didn't align with Cohu's long-term
strategic plan and administration divested this enterprise within the first quarter of
2020. The operations of our fixtures enterprise had been thought of "discontinued
operations" for all intervals offered and except in any other case indicated, the
dialogue under covers the comparative outcomes from persevering with operations.



The next desk summarizes sure working information as a share of internet
gross sales:



                                                   Three Months Ended
                                              March 27,         March 28,
                                                 2021             2020
Internet gross sales                                          100.0 %           100.0 %
Price of gross sales                                      (54.7 )%          (59.6 )%
Gross margin                                        45.3 %            40.4 %
Analysis and growth                           (10.3 )%          (16.2 )%
Promoting, basic and administrative                (14.4 )%          (24.0 

)%

Amortization of bought intangible belongings         (4.1 )%           (6.9 )%
Restructuring costs                               (0.6 )%           (0.3 )%
Impairment costs                                     - %            (2.8 )%
Revenue (loss) from operations                       15.9 %            (9.8 )%



First quarter of fiscal 2021 in comparison with the primary quarter of fiscal 2020


Internet Gross sales



Our consolidated internet gross sales elevated 62.3% to $225.5 million in 2021, in contrast
to internet gross sales of $138.9 million in 2020. Through the first three months of 2021
our internet gross sales had been favorably impacted by sturdy automotive demand, pushed by xEV
and ADAS applied sciences, and continued mobility growth with 5G proliferation.
Demand for tools testing 5G, Wi-Fi 6 and Extremely-Wideband gadgets, information
facilities, private computer systems and automotive semiconductor and sensors had been at
close to document ranges. Through the first quarter of 2020, our internet gross sales had been
impacted by disruptions attributable to the COVID-19 pandemic and motion management
orders carried out by the governments of Malaysia and the Philippines. These
motion management orders resulted in provide disruptions and impacted our skill
to ship product on the finish of the quarter.



Gross margin (excluding amortization of intangible belongings associated to the acquisition described under)



Gross margin consists of internet gross sales much less price of gross sales. Price of gross sales consists
primarily of the price of supplies, meeting and take a look at labor, and overhead from
operations. Our gross margin can fluctuate attributable to a lot of elements,
together with, however not restricted to, the combination of merchandise bought, product help prices,
stock reserve changes, and utilization of producing capability. Our
gross margin, as a share of internet gross sales, was 45.3% in 2021 and 40.4% in 2020.
As in comparison with the prior 12 months, gross margin within the first quarter of 2021
benefitted from a big enhance in enterprise quantity which enabled us to
higher leverage our fastened prices.



Our gross margin may be impacted by costs to price of gross sales associated to extra,
out of date and decrease of price or internet realizable worth stock points. We compute
the vast majority of our extra and out of date stock reserve necessities utilizing a
one-year stock utilization forecast. Through the first quarter of fiscal 2021 and
2020, we recorded costs to price of gross sales of roughly $0.7 million and
$1.2 million for extra and out of date stock, respectively. As a part of the
integration and restructuring actions associated to Xcerra, we recorded
$0.4 million and $1.6 million of stock associated costs associated to the
choice to finish manufacturing of sure semiconductor take a look at handler merchandise in
2021 and 2020, respectively. Whereas we imagine our reserves for extra and
out of date stock and decrease of price or market issues are ample to cowl
identified exposures at March 27, 2021, reductions in buyer forecasts or continued
modifications to merchandise, because of our failure to satisfy specs or
different buyer necessities, could lead to extra costs to operations that
might negatively affect our outcomes of operations and gross margin in future
intervals.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021

Analysis and growth prices (“R&D prices”)



R&D expense consists primarily of salaries and associated prices of staff
engaged in ongoing analysis, product design and growth actions, prices of
engineering supplies and provides, {and professional} consulting bills. R&D
expense was $23.2 million or 10.3% of internet gross sales in 2021, in comparison with
$22.5 million or 16.2% of internet gross sales in 2020. The rise in R&D expense in 2021
was primarily a results of greater labor and materials prices related to
growth as a result of elimination of price management measures carried out throughout
2020 in response to the financial uncertainty attributable to the COVID-19 pandemic.



Promoting, basic and administrative bills (“promoting, basic and administrative bills”)



SG&A expense consists primarily of salaries and profit prices of staff,
fee expense for unbiased gross sales representatives, product promotion and
prices {of professional} providers. SG&A expense was $32.7 million or 14.4% of internet
gross sales in 2021, in comparison with $33.4 million or 24.0% of internet gross sales in 2020. Throughout
2021 SG&A expense benefitted from decrease exterior gross sales commissions and reductions
in journey and sure different administrative spending because of the worldwide
restrictions in place as a result of COVID-19 pandemic.



Amortization of bought intangible belongings



Amortization of bought intangibles is the method of expensing the price of an
intangible asset acquired via a enterprise mixture over the projected life
of the asset. Amortization of acquisition-related intangible belongings was
$9.2 million and $9.5 million for the primary three months of 2021 and 2020,
respectively. The lower in expense recorded in the course of the present 12 months was a
results of fluctuations in alternate charges.



Restructuring Expenses



Subsequent to the acquisition of Xcerra on October 1, 2018, in the course of the fourth
quarter of 2018, we started a strategic restructuring program designed to
reposition our group and enhance our price construction as a part of our
focused integration plan concerning Xcerra. We recorded restructuring costs,
unique of the precise stock associated costs described above totaling
$1.3 million and $0.4 million in 2021 and 2020, respectively. The rise in
restructuring costs in 2021 is a results of a voluntary and involuntary
discount in pressure program we started implementing within the fourth quarter of 2020
at our wholly owned subsidiary, Cohu GmbH. These packages will collectively
cut back headcount, enabling us to finish the consolidation of our a number of
operations and services positioned close to Kolbermoor and Rosenheim, Germany, as
effectively as transition sure manufacturing to different decrease price areas.



See Be aware 4, “Restructuring prices” in Half I, level 1 of this Kind 10-Q for extra info on restructuring prices.


Impairment Expenses



Through the first quarter of 2020, the volatility in Cohu's inventory value, the
world financial downturn and enterprise interruptions related to the COVID-19
pandemic led us to find out that there was a triggering occasion associated to
goodwill inside all of our recognized reporting models and our indefinite-lived
intangible belongings. We carried out an interim evaluation as of March 28, 2020 and
decided that the honest values of our recognized reporting models all exceeded
their carrying values and, at the moment, we concluded there have been no impairment
of goodwill inside our reporting models. Through the three months ended March 28,
2020, anticipated delays in buyer adoption of sure new merchandise underneath
growth because of the COVID-19 pandemic, adjustments to future mission
roadmap and a rise within the low cost price used within the creating our interim
honest worth estimate resulted in a $3.9 million impairment to IPR&D because the
carrying worth exceeded honest worth. No impairment costs had been recorded throughout
the primary three months of 2021.



Curiosity Expense and Revenue



Curiosity expense was $2.6 million within the first three months of 2021 as in contrast
to $4.4 million within the corresponding interval of 2020. The lower in curiosity
expense in 2021 resulted from a big discount in our Time period Mortgage B debt
excellent because of funds made to scale back our excellent debt and
decrease LIBOR charges pushed by world financial uncertainty attributable to the COVID-19
pandemic.


Curiosity revenue was $ 0.1 million in the course of the first three months of 2021 and 2020.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



Revenue Taxes



For the three months ended March 27, 2021, we used the estimated annual
efficient tax price ("ETR") anticipated to be relevant for the total fiscal 12 months in
computing our tax provision. The ETR on revenue from persevering with operations for
the three months ended March 27, 2021 was 11.5% and displays a partial launch
of our home valuation allowance on deferred tax belongings to offset tax
liabilities on present 12 months earnings, and an extra profit regarding
stock-based compensation. For the three months ended March 28, 2020, we
decided {that a} dependable estimate of the annual ETR can't be made, since
comparatively small adjustments in our projected revenue produce a big variation
in our ETR, and as a substitute used the precise ETR for the year-to-date interval to
calculate our tax provision. The ETR on loss from persevering with operations for the
three months ended March 28, 2020 was 5.4% and primarily mirrored the dearth of a
tax profit on our home losses because of our valuation allowance on
deferred tax belongings, and non-deductible bills regarding stock-based
compensation.



We conduct enterprise globally and because of this, Cohu or a number of of its
subsidiaries information revenue tax returns within the US and varied state and overseas
jurisdictions. Within the regular course of enterprise, we're topic to examinations
by taxing authorities all through the world and are presently underneath examination
in Germany, Malaysia and Philippines. We imagine our monetary assertion
accruals for revenue taxes are applicable.



In accordance with the disclosure necessities as described in ASC Matter 740,
Revenue Taxes, we've labeled unrecognized tax advantages as non-current revenue
tax liabilities, or a discount in non-current deferred tax belongings, except
anticipated to be paid inside one 12 months. Our persevering with apply is to acknowledge
curiosity and/or penalties associated to revenue tax issues in revenue tax expense.
There have been no materials adjustments to our unrecognized tax advantages and curiosity
accrued associated to unrecognized tax advantages in the course of the three months ended March
27, 2021 and March 28, 2020.



In response to the COVID-19 pandemic, the Coronavirus Assist, Reduction and Financial
Safety Act (CARES Act) was signed into legislation in March 2020. The CARES Act lifts
sure deduction limitations initially imposed by the Tax Cuts and Jobs Act of
2017 (2017 Tax Act). Company taxpayers could carryback internet working losses
(NOLs) originating throughout 2018 via 2020 for as much as 5 years, which was not
beforehand allowed underneath the 2017 Tax Act. The CARES Act additionally eliminates the 80%
of taxable revenue limitations by permitting company entities to totally make the most of
NOL carryforwards to offset taxable revenue in 2018, 2019 or 2020. Taxpayers could
usually deduct curiosity as much as the sum of fifty% of adjusted taxable revenue plus
enterprise curiosity revenue (30% restrict underneath the 2017 Tax Act) for tax years
starting January 1, 2019 and 2020. The CARES Act permits taxpayers with
different minimal tax credit to say a refund in 2020 for your complete quantity
of the credit as a substitute of recovering the credit via refunds over a interval
of years, as initially enacted by the 2017 Tax Act.



As well as, the CARES Act raises the company charitable deduction restrict to
25% of taxable revenue and makes certified enchancment property usually
eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of
the CARES Act didn't lead to any materials changes to our revenue tax
provision for the three months ended March 28, 2020, or to our internet deferred tax
belongings as of March 28, 2020.


Revenue from persevering with operations and internet revenue

Because of the elements set out above, our end result from persevering with operations and our internet revenue had been $ 27.6 million in the course of the three months ended March 27, 2021. In 2020, the loss from persevering with operations and the online loss had been
$ 17.3 million in the course of the three months ended March 28, 2020.

LIQUIDITY AND CAPITAL RESOURCES



Our major enterprise relies on capital expenditures by semiconductor
producers and take a look at subcontractors which are, in flip, depending on the
present and anticipated market demand for semiconductors. The seasonal and
unstable nature of demand for semiconductor tools, our major business,
makes estimates of future revenues, outcomes of operations and internet money flows
tough.



Our major historic supply of liquidity and capital assets has been money
move generated by our operations and we handle our companies to maximise
working money flows as our major supply of liquidity. We use money to fund
development in our working belongings and to fund new merchandise and product enhancements
primarily via analysis and growth. As of March 27, 2021, $77.7 million
or 54.3% of our money and money equivalents was held by our overseas subsidiaries.
If these funds are wanted for our operations within the U.S., we could also be required to
accrue and pay overseas withholding taxes if we repatriate these funds. Besides
for working capital necessities in sure jurisdictions, we offer for all
withholding and different residual taxes associated to unremitted earnings of our
overseas subsidiaries.



At March 27, 2021, our whole indebtedness, internet of low cost and deferred
financing prices, was $220.0 million, which included $201.3 million excellent
underneath the Time period Mortgage B, $3.4 million excellent underneath Kita's time period loans,
$10.3 million excellent underneath Cohu GmbH's development mortgage and $5.0 million
excellent underneath Kita's traces of credit score. In March 2021, we closed an
underwritten public providing totaling 5,692,500 shares of our widespread inventory at
$41.00 per share, elevating internet proceeds of roughly $223.1 million, after
deducting underwriting reductions and commissions and providing bills. We used
$100.0 million of the online proceeds of this providing to repay excellent
principal on our time period mortgage facility and we intend to to be used the remaining for
basic company functions, together with to fund future development initiatives.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



Liquidity


Working capital: The next summarizes our money, money equivalents, short-term investments and dealing capital:


                                         March 27,       December 26,                     Proportion
(in hundreds)                             2021              2020           Improve        Change
Money, money equivalents and short-term
investments                             $   291,045$      170,027$  121,018            71.2 %
Working capital                         $   467,685$      310,593$  157,092            50.6 %




Money Flows



Working Actions: Working money flows for the primary three months of fiscal
2021 consisted of our internet revenue, adjusted for non-cash bills and adjustments in
working belongings and liabilities. These changes embrace depreciation expense
on property, plant and tools, share-based compensation expense, amortization
of intangible belongings, deferred revenue taxes, amortization of cloud-based
software program implementation prices, loss on extinguishment of debt, curiosity
capitalized related to cloud computing implementation, amortization of debt
reductions and issuance prices and positive factors from sale of property, plant and
tools. Our internet money supplied by working actions within the three months of
fiscal 2021 totaled $6.1 million. Internet money supplied by working actions was
impacted by adjustments in present belongings and liabilities and included will increase in
accounts receivable of $47.2 million, inventories of $20.8 million, accounts
payable of $28.5 million, deferred revenue of $4.4 million, revenue taxes payable
of $5.1 million, different present belongings of $6.6 million and reduces in accrued
compensation, guarantee and different liabilities of $5.5 million. Our accounts
receivable and accounts payable balances elevated attributable to elevated enterprise
quantity within the first quarter of 2021 and the timing of money collections from
prospects and funds made by us to our suppliers. The rise in stock
was pushed by purchases from suppliers made to meet anticipated future
shipments of merchandise. The rise in different present belongings resulted from
advance funds for providers that will likely be utilized all through 2021. Deferrals
of income in accordance with our income recognition coverage resulted in an
enhance in deferred revenue and the rise in revenue taxes payable is pushed
by taxable revenue generated within the first quarter of 2021. Accrued compensation,
guarantee and different liabilities decreased attributable to funds of incentive
compensation associated to the prior 12 months in the course of the first quarter of 2021.



Investing Actions: Financing money flows consist primarily of internet proceeds
from the issuance of widespread inventory in our March 2021 providing, internet proceeds from
the issuance of widespread inventory underneath our inventory possibility and worker inventory buy
plans, and repayments of debt, internet of recent borrowings. Internet money utilized in investing
actions within the first three months of fiscal 2021 totaled $129.9 million.
Throughout 2021 we used $129.7 million in money for purchases of short-term
investments and generated $2.5 million from gross sales and maturities. We make investments our
extra money, in an try to hunt the very best accessible return whereas preserving
capital, in short-term investments since extra money could also be required for a
business-related goal. Additions to property, plant and tools of
$2.7 million had been made to help the working and growth actions of
our enterprise actions of our Semiconductor Take a look at & Inspection section.



Financing Actions: Financing money flows consist primarily of internet proceeds
from the issuance of widespread inventory underneath our inventory possibility and worker inventory
buy plans and repayments of debt, internet of recent borrowings. In March 2021, we
closed an underwritten public providing totaling 5,692,500 shares of our widespread
inventory at $41.00 per share, elevating internet proceeds of roughly $223.1 million,
after deducting underwriting reductions and commissions and providing bills. We
used $100.0 million of the online proceeds of this providing to repay excellent
principal on our time period mortgage facility and we intend to to be used the remaining for
basic company functions, together with to fund future development initiatives. We
situation restricted inventory models and inventory choices and preserve an worker inventory
buy plan as parts of our total worker compensation. Within the three
months of fiscal 2021, money used to settle the minimal statutory tax withholding
necessities on behalf of our staff upon vesting of restricted and
efficiency inventory awards, internet of proceeds from the train of worker inventory
choices was $5.4 million. Repayments of short-term borrowings and long-term debt
in the course of the three months of fiscal 2021 totaled $101.9 million and included a
$100.0 million early settlement of our Time period Mortgage B debt in the course of the first quarter
of 2021 made to deleverage our stability sheet. We obtained proceeds underneath a
revolving line of credit score and development mortgage totaling $0.8 million. Proceeds
from the development mortgage are getting used to broaden our facility in Kolbermoor,
Germany, enabling us to consolidate the German operations of our Semiconductor
Take a look at & Inspection section in 2020.



Capital Sources



We have now entry to credit score facilitates and different borrowings supplied by monetary
establishments to finance acquisitions, capital expenditures and our operations if
wanted. A abstract of our borrowings and accessible credit score is as follows.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



Credit score Settlement



On October 1, 2018, we entered right into a Credit score Settlement offering for a
$350.0 million Credit score Facility and borrowed the total quantity to finance a portion
of the Xcerra acquisition. Loans underneath the Credit score Facility amortize in equal
quarterly installments of 0.25% of the unique principal quantity, with the
stability payable at maturity. All excellent principal and curiosity in respect
of the Credit score Facility should be repaid on or earlier than October 1, 2025. The loans
underneath the Time period Mortgage Facility bear curiosity, at Cohu's possibility by way of the
time-based curiosity interval, at a floating annual price equal to the chosen
LIBOR curiosity interval plus a margin of three.00%. At March 27, 2021, the excellent
mortgage stability, internet of low cost and deferred financing prices, was $201.3 million
and $2.7 million of the excellent stability is offered as present installments
of long-term debt in our condensed consolidated stability sheets. At December 26,
2020, the excellent mortgage stability, internet of low cost and deferred financing
prices, was $301.1 million and $2.4 million of the excellent stability is
offered as present installments of long-term debt in our condensed
consolidated stability sheets.



Below the phrases of the Credit score Settlement, the lender could speed up the fee
phrases upon the prevalence of sure occasions of default set forth therein, which
embrace: the failure of Cohu to make well timed funds of quantities due underneath the
Credit score Settlement, the failure of Cohu to stick to the representations and
covenants set forth within the Credit score Settlement, the failure to offer discover of
any occasion that causes a cloth hostile impact or to offer different required
notices, upon the occasion that associated collateral agreements change into ineffective,
upon the occasion that sure authorized judgments are entered towards Cohu, the
insolvency of Cohu, or upon the change of management of Cohu. As of March 27, 2021,
we imagine no such occasions of default have occurred.



Through the first quarter of 2021, we repurchased $100.0 million in principal of
our Time period Mortgage Facility for $100.0 million in money. This resulted in a lack of
$1.8 million mirrored in different expense in our consolidated assertion of
operations and a corresponding $1.8 million discount in debt reductions and
deferred financing prices in our consolidated stability sheets. After the
repurchase, roughly $204.9 million in principal of the Time period Mortgage Facility
stays excellent as of March 27, 2021.



Kita Time period Loans



Because of our acquisition of Kita, we assumed time period loans from a collection of
Japanese monetary establishments primarily associated to the growth of Kita's
facility in Osaka, Japan. The loans are collateralized by the ability and land,
carry rates of interest starting from 0.05% to 0.43%, and expire at varied dates
via 2034. At March 27, 2021, the excellent mortgage stability was $3.4 million
and $0.3 million of the excellent stability is offered as present installments
of long-term debt in our consolidated stability sheets. At December 26, 2020, the
excellent mortgage stability was $3.6 million and $0.3 million of the excellent
stability is offered as present installments of long-term debt in our
consolidated stability sheets. The time period loans are denominated in Japanese Yen and,
because of this, quantities disclosed herein will fluctuate due to adjustments in
foreign money alternate charges.



Development Loans



In July 2019 and June 2020, one among our wholly owned subsidiaries positioned in
Germany entered right into a collection of development loans ("Mortgage Amenities") with a
German monetary establishment offering it with whole borrowings of
€10.1 million. The Mortgage Amenities have phrases of 10 years and 15 years. The Mortgage
Amenities are being utilized to finance the growth of our facility in
Kolbermoor, Germany, enabling us to mix the operations of a number of
subsidiaries in a single location as a part of our beforehand introduced strategic
restructuring program. The Mortgage Amenities are secured by the land and the
current constructing on the positioning and bear curiosity at agreed upon charges based mostly on
the ability quantities as mentioned under.



In August 2019, the preliminary €3.4 million was drawn underneath the primary facility,
which is payable over 10 years at a set annual rate of interest of 0.8%. Curiosity
solely funds are required to be made every quarter beginning in September 2019
with principal and curiosity funds due every quarter beginning within the month of
December 2021. Principal repayments will likely be revamped 8 years beginning on the
finish of December 2021.



As of March 2021, the total €5.2 million was drawn underneath the second facility,
which is payable over 15 years at an annual rate of interest of 1.05%, which is
fastened till April 2027. Curiosity solely funds are required to be made every
month beginning in December 2019 with principal and curiosity funds due every
month beginning within the month of Could 2020. Principal repayments will likely be revamped
15 years beginning on the finish of Could 2020.



As of March 27, 2021, we've drawn €0.4 million underneath the third facility, which
is payable over 10 years at an annual rate of interest of 1.2%, which is fastened
till Could 2030. Curiosity funds are required to be made every month beginning in
March 2021 with principal and curiosity funds due every month beginning within the
month of Could 2021. Principal repayments will likely be revamped 10 years beginning at
the top of Could 2021.



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                                   Cohu, Inc.

   Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
                                   Operations

                                 March 27, 2021



At March 27, 2021 and December 26, 2020, whole excellent borrowings underneath the
Mortgage Amenities was $10.3 million and $9.9 million with $0.8 million and
$0.4 million of the overall excellent stability being offered as present
installments of long-term debt in our consolidated stability sheets based mostly on
contractual due dates, respectively. The loans are denominated in Euros and, as
a end result, quantities disclosed herein will fluctuate due to adjustments in foreign money
alternate charges.



Strains of Credit score



Because of our acquisition of Kita, we assumed a collection of revolving credit score
services with varied monetary establishments in Japan. The credit score services
renew month-to-month and supply Kita with entry to working capital totaling as much as
$8.8 million. At March 27, 2021, whole borrowings excellent underneath the
revolving traces of credit score had been $5.0 million. As these credit score facility agreements
renew month-to-month, they've been included in short-term borrowings in our condensed
consolidated stability sheets.



The revolving traces of credit score are denominated in Japanese Yen and, because of this,
quantities disclosed herein will fluctuate due to adjustments in foreign money alternate
charges.


Our wholly-owned subsidiary Ismeca has an accessible line of credit score which permits it to borrow as much as a complete of 2.0 million Swiss francs, a part of which is reserved for tax ensures. AT March 27, 2021 and December 26, 2020, no quantity was excellent underneath this line of credit score.



We even have a letter of credit score facility ("LC Facility") underneath which Financial institution of
America, N.A., has agreed to manage the issuance of letters of credit score on our
behalf. The LC Facility requires us to take care of deposits of money or different
accepted investments in quantities that approximate our excellent letters of
credit score and accommodates customary restrictive covenants. As well as, our wholly
owned subsidiary, Xcerra, has preparations with varied monetary establishments
for the issuance of letters of credit score and financial institution ensures. As of March 27, 2021,
$0.8 million was excellent underneath standby letters of credit score and financial institution
ensures.



We anticipate that we’ll proceed to incur capital expenditures to help our operations and we anticipate that the present working capital will likely be ample to satisfy our working wants for not less than the following twelve months.

Contractual obligations and off-balance sheet preparations



Contractual Obligations: Our important contractual obligations include
liabilities for debt, working leases, unrecognized tax advantages, pensions,
post-retirement advantages and warranties. Through the first quarter of 2021, we
repaid $100.0 million in excellent principal of our Time period Mortgage Facility. Apart
from this compensation, there have been no materials adjustments to those obligations exterior
the atypical course of enterprise from these disclosed in our Annual Report on
Kind 10-Okay for the 12 months ended December 26, 2020.



Commitments to contract producers and suppliers: Occasionally, we enter
into commitments with our distributors and outsourcing companions to buy stock
at fastened costs or in assured portions. We're not in a position to decide the
combination quantity of such buy orders that symbolize contractual obligations,
as buy orders could symbolize authorizations to buy quite than binding
agreements. Our buy orders are based mostly on our present manufacturing wants and
are fulfilled by our distributors inside comparatively quick time horizons. We sometimes
would not have important agreements for the acquisition of uncooked supplies or different
items specifying minimal portions or set costs that exceed our anticipated
necessities for the following three months.



Off-Stability Sheet Preparations: Within the regular course of enterprise, we offer letters of credit score instrument help to sure events as required. From March 27, 2021, $ 0.8 million was overdue underneath standby letters of credit score.

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