Quarterly Report (10-q)

Date : 05/09/2019 @ 9:14PM
Source : Edgar (US Regulatory)
Stock : Cohu, Inc. (COHU)
Quote : 16.1  0.0 (0.00%) @ 2:30PM
Cohu share price Chart

Quarterly Report (10-q)

 

 

Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

 

[ √ ]

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

 

For the quarterly period ended March 30, 2019

 

OR

 

[   ]

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

 

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

 

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

None

 

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 23, 2019 the Registrant had 41,016,916 shares of its $1.00 par value common stock outstanding.

 



 

 

 

COHU, INC.

INDEX

FORM 10-Q

MARCH 30, 2019

 

 

Part I

Financial Information

Page Number

     

Item 1.

Financial Statements:

 
     

 

Condensed Consolidated Balance Sheets March 30, 2019 (unaudited) and December 29, 2018

3

     

 

Condensed Consolidated Statements of Operations (unaudited) Three Months Ended March 30, 2019 and March 31, 2018

4

     

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended March 30, 2019 and March 31, 2018

5

     

 

Condensed Consolidated Statements of Stockholders' Equity (unaudited) Three Months Ended March 30, 2019 and March 31, 2018

6

     
  Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 30, 2019 and March 31, 2018 7
     

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

     

Item 2.

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

29
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

     

Item 4.

Controls and Procedures

37

     

Part II

Other Information

 
     

Item 1.

Legal Proceedings

38

     

Item 1A.

Risk Factors

38

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

     

Item 3.

Defaults Upon Senior Securities

50

     

Item 4.

Mine Safety Disclosures

50

     

Item 5.

Other Information

50

     

Item 6.

Exhibits

51

     

Signatures

 

52

 

 

 

Item 1.

COHU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

   

March 30,

   

December 29,

 
   

2019

      2018 *  

 

 

(Unaudited)

         
ASSETS                

Current assets:

               

Cash and cash equivalents

  $ 159,521     $ 164,460  

Short-term investments

    565       560  

Accounts receivable, net

    131,133       149,276  

Inventories

    130,744       139,314  

Prepaid expenses

    18,503       26,206  

Other current assets

    258       1,682  

Current assets of discontinued operations (Note 10)

    4,122       3,741  

Total current assets

    444,846       485,239  
                 

Property, plant and equipment, net

    71,792       74,332  

Goodwill

    239,270       242,127  

Intangible assets, net

    305,306       318,961  

Other assets

    15,107       13,264  

Operating lease right-of-use assets

    29,782       -  

Noncurrent assets of discontinued operations (Note 10)

    94       79  

 

  $ 1,106,197     $ 1,134,002  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Short-term borrowings

  $ 3,160     $ 3,115  

Current installments of long-term debt

    3,422       3,672  

Accounts payable

    46,999       48,117  

Accrued compensation and benefits

    21,988       29,402  

Accrued warranty

    6,859       7,769  

Deferred profit

    8,268       6,896  

Income taxes payable

    7,831       11,055  

Other accrued liabilities

    38,966       50,045  

Current liabilities of discontinued operations (Note 10)

    596       518  

Total current liabilities

    138,089       160,589  
                 

Accrued retirement benefits

    19,918       19,740  

Noncurrent deferred gain on sale of facility

    -       8,776  

Deferred income taxes

    36,378       38,942  

Noncurrent income tax liabilities

    9,847       9,711  

Long-term debt

    342,632       346,041  

Other accrued liabilities

    4,624       4,259  

Long-term lease liabilities

    26,395       -  
                 

Stockholders' equity:

               

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

    -       -  

Common stock, $1 par value; 60,000 shares authorized, 41,015 shares issued and outstanding in 2019 and 40,763 shares in 2018

    41,015       40,763  

Paid-in capital

    421,381       419,690  

Retained earnings

    96,938       111,670  

Accumulated other comprehensive loss

    (30,664 )     (25,880 )

Total Cohu stockholders' equity

    528,670       546,243  

Noncontrolling interest

    (356 )     (299 )

Total equity

    528,314       545,944  

 

  $ 1,106,197     $ 1,134,002  
                 
* Derived from December 29, 2018 audited financial statements                

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

   

Three Months Ended

 
   

March 30,

   

March 31,

 
   

2019

   

2018

 
                 

Net sales

  $ 147,809     $ 95,150  

Cost and expenses:

               

Cost of sales (1)

    93,394       54,923  

Research and development

    22,733       11,775  

Selling, general and administrative

    38,286       15,786  

Amortization of purchased intangible assets

    10,019       1,074  

Restructuring charges

    1,361       -  
      165,793       83,558  

Income (loss) from operations

    (17,984 )     11,592  

Other (expense) income:

               

Interest expense

    (5,507 )     (11 )

Interest income

    222       247  

Foreign transaction gain (loss) and other

    218       (1,579 )

Income (loss) from continuing operations before taxes

    (23,051 )     10,249  

Income tax provision (benefit)

    (200 )     2,127  

Income (loss) from continuing operations

    (22,851 )     8,122  

Income (loss) from discontinued operations, net of tax

    164       -  

Net income (loss)

  $ (22,687 )   $ 8,122  

Net loss attributable to noncontrolling interest

  $ (44 )   $ -  

Net income (loss) attributable to Cohu

  $ (22,643 )   $ 8,122  
                 

Income (loss) per share:

               

Basic:

               

Income (loss) from continuing operations before noncontrolling interest

  $ (0.56 )   $ 0.28  

Income from discontinued operations

    0.01       -  

Net income (loss) attributable to noncontrolling interest

    0.00       -  

Net income (loss) attributable to Cohu

  $ (0.55 )   $ 0.28  
                 

Diluted:

               

Income (loss) from continuing operations before noncontrolling interest

  $ (0.56 )   $ 0.28  

Income from discontinued operations

    0.01       -  

Net income (loss) attributable to noncontrolling interest

    0.00       -  

Net income (loss) attributable to Cohu

  $ (0.55 )   $ 0.28  
                 

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

               

Basic

    40,872       28,602  

Diluted

    40,872       29,531  
                 

Cash dividends declared per share

  $ 0.06     $ 0.06  

 

(1)  Excludes amortization of $7,641 and $676 for the three months ended March 30, 2019 and March 31, 2018, respectively.

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

   

Three Months Ended

 
   

March 30,

   

March 31,

 
   

2019

   

2018

 
                 

Net income (loss)

  $ (22,687 )   $ 8,122  

Net loss attributable to noncontrolling interest

    (44 )     -  

Net income (loss) attributable to Cohu

    (22,643 )     8,122  

Other comprehensive income (loss), net of tax:

               

Foreign currency translation adjustments

    (5,262 )     3,854  

Adjustments related to postretirement benefits

    474       (73 )

Change in unrealized gain/loss on investments

    -       (10 )

Other comprehensive income (loss), net of tax

    (4,788 )     3,771  

Other comprehensive loss attributable to noncontrolling interest

    (4 )     -  

Other comprehensive income (loss) attributable to Cohu

    (4,784 )     3,771  
                 

Comprehensive income (loss)

    (27,475 )     11,893  

Comprehensive loss attributable to noncontrolling interest

    (48 )     -  

Comprehensive income (loss) attributable to Cohu

  $ (27,427 )   $ 11,893  

 

The accompanying notes are an integral part of these statements.

 

 

 

COHU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

 

                           

Accumulated

                 
   

Common

                   

other

                 
   

stock

   

Paid-in

   

Retained

   

comprehensive

   

Noncontrolling

         

Three Months Ended March 31, 2018

 

$1 par value

   

capital

   

earnings

   

loss

   

interest

   

Total

 

Balance at December 30, 2017

  $ 28,489     $ 127,663     $ 150,726     $ (17,787 )   $ -     $ 289,091  

Cumulative effect of accounting change (a)

    -       -       1,057       -       -       1,057  

Net income

    -       -       8,122       -       -       8,122  

Changes in cumulative translation adjustment

    -       -       -       3,854       -       3,854  

Adjustments related to postretirement benefits, net of tax

    -       -       -       (73 )     -       (73 )

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

    -       -       -       (10 )     -       (10 )

Cash dividends - $0.06 per share

    -       -       (1,781 )     -       -       (1,781 )

Exercise of stock options

    19       184       -       -       -       203  

Shares issued for restricted stock units vested

    448       (448 )     -       -       -       -  

Repurchase and retirement of stock

    (160 )     (3,620 )     -       -       -       (3,780 )

Share-based compensation expense

    -       1,669       -       -       -       1,669  

Balance at March 31, 2018

  $ 28,796     $ 125,448     $ 158,124     $ (14,016 )   $ -     $ 298,352  
                                                 

Three Months Ended March 30, 2019

                                               

Balance at December 29, 2018

  $ 40,763     $ 419,690     $ 111,670     $ (25,880 )   $ (299 )   $ 545,944  

Cumulative effect of accounting change (b)

    -       -       10,352       -       -       10,352  

Net loss

    -       -       (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  

 

 

(a)

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

 

(b)

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

 

The accompanying notes are an integral part of these statements.

 

 

COHU, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Three Months Ended

 
   

March 30,

   

March 31,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net income (loss) attributable to Cohu

  $ (22,643 )   $ 8,122  

Net loss attributable to noncontrolling interest

    (44 )     -  

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

               

Loss on disposal of assets

    378       -  

Depreciation and amortization

    15,044       2,457  

Share-based compensation expense

    3,693       1,669  

Amortization of inventory step-up and inventory related charges

    6,504       -  

Deferred income taxes

    (2,494 )     506  

Increase in accrued retiree medical benefits

    192       -  

Changes in other accrued liabilities

    1,589       (762 )

Changes in other assets

    313       265  

Adjustment to contingent consideration liability

    -       (147 )

Changes in current assets and liabilities, excluding effects from acquisitions:

               

Accounts receivable

    17,657       (13,152 )

Other current assets

    (4,022 )     (1,242 )

Inventories

    2,475       (338 )

Deferred profit

    1,374       (2,465 )

Accounts payable

    (3,480 )     2,920  

Income taxes payable

    (2,214 )     (861 )

Accrued compensation, warranty and other liabilities

    (9,602 )     (6,249 )

Net cash provided by (used in) operating activities

    4,720       (9,277 )

Cash flows from investing activities, excluding effects from acquisitions:

               

Purchases of property, plant and equipment

    (3,526 )     (1,074 )

Purchases of short-term investments

    -       (18,801 )

Sales and maturities of short-term investments

    -       15,536  

Cash received from sale of fixed assets

    5       20  
Net cash used in investing activities     (3,521 )     (4,319 )

Cash flows from financing activities:

               

Cash dividends paid

    (2,443 )     (1,772 )

Repurchases of common stock, net

    (1,750 )     (3,577 )

Payment of contingent consideration for Kita

    -       (823 )

Repayments of long-term debt

    (1,098 )     (355 )
Net cash used in financing activities     (5,291 )     (6,527 )

Effect of exchange rate changes on cash and cash equivalents

    (488 )     973  

Net decrease in cash and cash equivalents

    (4,580 )     (19,150 )

Cash and cash equivalents including discontinued operations at beginning of period

    164,921       134,286  

Cash and cash equivalents including discontinued operations at end of period

    160,341       115,136  

Cash held by discontinued operations at end of period (Note 10)

    (820 )     -  
Cash and cash equivalents at end of period from continuing operations   $ 159,521     $ 115,136  
                 

Supplemental disclosure of cash flow information:

               
Cash paid for interest   $ 5,130     $ -  

Cash paid for income taxes

  $ 3,797     $ 2,498  

Inventory capitalized as property, plant and equipment

  $ 116     $ 84  

Dividends declared but not yet paid

  $ 2,449     $ 1,713  

Property, plant and equipment purchases included in accounts payable

  $ 873     $ 247  

Capitalized cloud computing service costs included in accounts payable

  $ 1,844     $ -  

 

The accompanying notes are an integral part of these statements.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

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 29, 2018, has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of March 30, 2019, (also referred to as “the first quarter of fiscal 2019” and “the first three months of fiscal 2019”) and March 31, 2018, (also referred to as “the first quarter of fiscal 2018” and “the first three months of fiscal 2018”) 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 2019 and 2018 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 29, 2018, which are included in our 2018 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”.

 

The condensed consolidated financial statements include the accounts of Cohu and a variable interest entity (“VIE”) that was acquired as part of our acquisition of Xcerra Corporation (“Xcerra”) and in which we have determined we are the primary beneficiary. The non-controlling interest in ALBS Solutions Sdn Bhd (“ALBS”) represents the 80% equity interest that is not held by Cohu. ALBS is a privately held corporation which provides high-tech semiconductor automation systems to different industrial users. All significant consolidated transactions and balances have been eliminated in consolidation.

 

Principles of Consolidation for Variable Interest Entities

 

We follow ASC Topic 810-10-15 guidance with respect to accounting for VIEs. These entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances.

 

As of March 30, 2019 and December 29, 2018, we consolidated one VIE. Cohu is the primary beneficiary of ALBS which qualifies as a VIE that meets the definition of a business. As such, the assets, liabilities, and noncontrolling interest of ALBS were measured at fair value in accordance with ASC 805. The assets and liabilities and revenues and expenses of this VIE are included in the financial statements of ALBS and are further included in the consolidated financial statements. As of March 30, 2019 and December 29, 2018, the assets and liabilities of ALBS are immaterial to Cohu and, therefore, not shown separately on our condensed consolidated balance sheets. The owner’s equity and net loss of ALBS are considered attributable to non-controlling interest.

 

Reclassifications

In conjunction with the acquisition of Xcerra the Company assessed the need to realign its financial statement presentation and certain income statement classifications were adjusted with prior periods reclassified to conform with current period presentation. The changes made were as follows:

 

 

Amortization of intangibles previously were presented in cost of sales and SG&A. These amounts are now presented as a separate line item “Amortization of purchased intangibles” within operating expenses.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

Gains and losses associated with foreign currency translation and remeasurement were included within SG&A. These amounts are now being presented as “Foreign transaction gain (loss) and other”.

 

A summary of the reclassifications described above and the impact on our Condensed Consolidated Statements of Operations is as follows:

 

Three Months Ended
March 31, 2018

 

As Presented

   

Amortization

of Purchased

Intangibles

   

Foreign

Transaction

Gains and

Losses

   

As Adjusted

 

Cost of Sales

  $ 55,599       (676 )     -     $ 54,923  

SG&A Expense

  $ 17,763       (398 )     (1,579 )   $ 15,786  

 

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.

 

Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million at both March 30, 2019 and December 29, 2018. Our customers include semiconductor manufacturers and semiconductor test subcontractors and other customers located throughout the world. While we believe that our allowance for doubtful accounts is adequate and represents our best estimate at March 30, 2019, 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 30,

   

December 29,

 
   

2019

   

2018

 

Raw materials and purchased parts

  $ 63,352     $ 60,112  

Work in process

    51,705       57,953  

Finished goods

    15,687       21,249  

Total inventories

  $ 130,744     $ 139,314  

 

Property, Plant and Equipment

 

Depreciation and amortization of property, plant and equipment, both owned and under capital lease, is calculated principally on the straight-line method based on estimated useful lives of thirty to forty years for buildings, five to fifteen years for building improvements and three to ten years for machinery, equipment and software. Land is not depreciated.

 

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

 

   

March 30,

   

December 29,

 
   

2019

   

2018

 

Land and land improvements

  $ 12,260     $ 11,905  

Buildings and building improvements

    36,126       37,265  

Machinery and equipment

    64,707       64,791  
      113,093       113,961  

Less accumulated depreciation and amortization

    (41,301 )     (39,629 )

Property, plant and equipment, net

  $ 71,792     $ 74,332  

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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. Subsequent to 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 and Inspection Equipment (“Semiconductor Test & Inspection”) and PCB Test Equipment (“PCB Test”).

 

Goodwill, Other Intangible Assets and Long-lived Assets

 

We evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. 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 estimated fair value of goodwill and the carrying value. 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.

 

We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October 1, 2018, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of March 30, 2019, we do not believe there have been any events or circumstances that would require us to perform an interim goodwill impairment review. In the event we determine that an interim goodwill impairment review is required, in a future period, the review may result in an impairment charge, which would have a negative impact on our results of operations.

 

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.

 

Product Warranty

 

Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from 12- to 36-months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations the revenue relating to the extended warranty is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.

 

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.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

Debt Issuance Costs

 

We capitalize costs related to the issuance of debt. Debt issuance costs directly related to our Term Loam B are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance sheets. The amortization of such costs is recognized as interest expense using the effective interest method over the term of the respective debt issue. Amortization related to deferred debt issuance costs and original discount costs was $0.3 million for the three months ended March 30, 2019. We obtained the Term B Loan on October 1, 2018, so there were no debt issuance costs amortized during the three months ended March 31, 2018.

 

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 30, 2019, we recognized foreign exchange gains of $0.2 million, in our consolidated statements of operations. During the three months ended March 31, 2018, we recognized foreign exchange losses of $1.6 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 30,

   

March 31,

 
   

2019

   

2018

 

Cost of sales

  $ 125     $ 121  

Research and development

    638       349  

Selling, general and administrative

    2,930       1,199  

Total share-based compensation

    3,693       1,669  

Income tax benefit

    (280 )     (314 )

Total share-based compensation, net

  $ 3,413     $ 1,355  

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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 31, 2018, approximately 34,000 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 30,

   

March 31,

 
   

2019

   

2018

 

Weighted average common shares

    40,872       28,602  

Effect of dilutive securities

    -       929  
      40,872       29,531  

 

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. We determine if a contract contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other accrued liabilities, and long-term lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and long-term lease liabilities on our 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. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

Leases with an initial term of 12 months or less are not recorded on the balance sheet, but recognized in the 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 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.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

Revenue Recognition

 

Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur.

 

Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as we transfer control to our customer for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment.

 

Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.

 

Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At March 30, 2019, we have $16.8 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. 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 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. At March 30, 2019, we had deferred revenue totaling approximately $13.9 million, current deferred profit of $8.3 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $3.1 million. At December 29, 2018, we had deferred revenue totaling approximately $10.8 million, current deferred profit of $6.9 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $2.0 million.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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

 

   

Three Months Ended

 

Disaggregrated Net Sales (1)

 

March 30, 2019

   

March 31, 2018

 

Systems:

               

Semiconductor Test & Inspection

  $ 79,940     $ 54,905  

PCB Test

    6,972       N/A  

Non-systems:

               

Semiconductor Test & Inspection

    56,753       40,245  

PCB Test

    4,144       N/A  

Total net sales

  $ 147,809     $ 95,150  

 

 

(1)

After the acquisition of Xcerra on October 1, 2018 we report in two segments, Semiconductor Test & Inspection and PCB Test. Cohu’s historical reported net sales would have been reported in our Semiconductor Test & Inspection segment and have been presented accordingly.

 

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

 

   

Three Months Ended

 

Disaggregrated Net Sales

 

March 30, 2019

   

March 31, 2018

 

China

  $ 23,551     $ 20,243  

United States

    17,101       14,478  

Malaysia

    17,714       11,809  

Taiwan

    14,970       2,941  

Philippines

    14,541       10,546  

Rest of the World

    59,932       35,133  

Total net sales

  $ 147,809     $ 95,150  

 

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 30,

   

March 31,

 
   

2019

   

2018

 

Semiconductor Test & Inspection (1)

               

Customers individually accounting for more than 10% of net sales

 

one

   

one

 

Percentage of net sales

    11 %     12 %
                 

PCB Test

               

Customers individually accounting for more than 10% of net sales

    *       N/A  

Percentage of net sales

    *       N/A  
 

*

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

 

 

(1)

After the acquisition of Xcerra on October 1, 2018 we report in two segments, Semiconductor Test & Inspection and PCB Test. Cohu’s historical reported net sales would have been reported in our Semiconductor Test & Inspection segment and have been presented accordingly.

 

Accumulated Other Comprehensive Loss

 

Our accumulated other comprehensive loss balance totaled approximately $30.7 million and $25.9 million at March 30, 2019 and December 29, 2018, 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 2019 and 2018 were not significant.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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 2019 and 2018 was not significant.

 

Discontinued Operations

 

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 is in the process of divesting this portion of the business. 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 29, 2018. See Note 10, “Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements  

 

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 rather than in the earliest period presented. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification.

 

We made an accounting policy election to not record ROU assets and lease liabilities for leases with an initial term of 12 months or less. We recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We also made an accounting policy election to use the practical expedient allowed in the standard to not separate lease and non-lease components when calculating the ROU asset and lease liability under ASU 2016-02. Related to adoption of the new standard, we have implemented internal controls and a lease accounting technology system to track the ROU asset and lease liability balances and prepare the related footnote disclosures.

 

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $30.7 million and $29.9 million, respectively, as of December 30, 2018. 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. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

 

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 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. We are currently assessing and have not yet determined the impact that the adoption of ASU 2018-13 will have on the consolidated financial statements.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

2.

Business Acquisitions, Goodwill and Purchased Intangible Assets

 

Xcerra

 

Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of May 7, 2018, among Cohu, Inc., a Delaware corporation (“Cohu”), Xcerra Corporation, a Massachusetts corporation (“Xcerra”), and Xavier Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Cohu (“Merger Sub”), Merger Sub merged with and into Xcerra (the “Merger”), with Xcerra surviving such merger as a wholly owned subsidiary of Cohu. The Merger was effective on October 1, 2018 (“the Effective Time”). At the Effective Time, each share of Xcerra Common Stock issued and outstanding immediately prior to the Effective Time (other than dissenting shares and shares held by Cohu, Merger Sub, Xcerra or any direct or indirect wholly owned subsidiary of Cohu or Xcerra) was converted into the right to receive, in the aggregate for all shares of Xcerra Common Stock, consideration, which totaled approximately $794.4 million as of the Effective Time.

 

Cohu financed the Merger, including all related fees and expenses, with the following: 

 

 

$160.5 million cash from our combined balance sheets;

 

The incurrence of $350.0 million from the Credit Facility, as described below;

 

The issuance of 11,776,149 shares of Cohu common stock; and

 

The issuance of 529,995 converted RSUs to Xcerra employees, of which $0.8 million of the fair value of the converted RSUs was attributed to pre-merger services.

 

On October 1, 2018, Cohu entered into a Credit Agreement with Cohu, as borrower, certain of its subsidiaries as guarantor subsidiaries, the financial institutions party(ies) thereto as may from time to time be lenders, and Deutsche Bank AG New York Branch, as administrative agent and collateral agent, providing for a $350.0 million Credit Facility (the “Credit Facility”), and borrowed the full amount. Loans under the Credit Facility amortize in equal quarterly installments of 0.25% of the original principal amount thereof, with the balance payable at maturity. Subject to certain exceptions and thresholds, the Credit Facility will also require mandatory prepayments in connection with (i) excess cash flow, (ii) non-ordinary course asset sales and other dispositions and (iii) the issuance of certain debt obligations, among other things. Cohu has the right to prepay loans under the Credit Agreement in whole or in part at any time, without premium or penalty.  Amounts repaid in respect of loans under the Credit Facility may not be reborrowed. All outstanding principal and interest in respect of the Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. The lender(s) may accelerate the payment terms of the Credit Agreement upon the occurrence of certain events of default as 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.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

Immediately prior to the Effective Time, each Xcerra RSU that was vested was cancelled and the holder received cash and share consideration for the outstanding shares. Each unvested RSU held by employees of Xcerra were assumed by Cohu and converted into an RSU representing the number of whole shares of Cohu common stock based on a conversion formula resulting in the number of assumed RSUs described above.

 

The acquisition method of accounting is based on ASC 805, Business Combinations (“ASC 805”) , and uses the fair value concepts defined in ASC 820, Fair Value Measurement (“ASC 820”) . The purchase price allocation described herein is preliminary and is based on the information that was available to make estimates of the fair value and may change as further information becomes available and additional analyses are completed. While we believe such information provides a reasonable basis for estimating the fair values, we may obtain more information and evidence during the measurement period that result in changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the acquisition date or the date we receive the information about the facts and circumstances that existed at the acquisition date. Subsequent adjustments, if necessary, will be recognized during the period in which the amounts are determined. These refinements include: (1) changes in the estimated fair value of certain intangible assets acquired; and (2) changes in deferred tax assets and liabilities related to the fair value estimates.

 

The acquisition was nontaxable to Cohu and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. The acquired assets and liabilities of Xcerra were recorded at their respective fair values including an amount for goodwill which represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of Xcerra. Goodwill has been allocated to our THG, STG, ISG and PTG operating segments.

 

ASC 805 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In addition, ASC 805 requires that the consideration transferred be measured at the date the merger is completed at the then-current market price. The market price of the shares of Cohu Common Stock at the Effective Time was $25.10 which was based upon the closing price of shares of Cohu Common Stock on the NASDAQ Global Select Market on Friday, September 28, 2018, the last day of trading prior to the Effective Time.

 

ASC 820 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, Cohu may be required to record the fair value of assets which are not intended to be used or sold and/or to value assets at fair values that do not reflect Cohu’s intended use of those assets. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

 

Under ASC 805, acquisition-related transaction costs (e.g., advisory, legal, investment banking and other professional fees) are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. Total Merger-related transaction costs, that exclude other costs related to employee termination and restructuring, incurred by Cohu were $0.2 million and $0.3 million in the three months ended March 30, 2019 and March 31, 2018, respectively.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

The table below summarizes the preliminary assets acquired and liabilities assumed as of October 1, 2018 ( in thousands ):

 

Current assets, including cash received

  $ 375,990  

Property, plant and equipment

    40,729  

Other assets

    2,109  

Intangible assets

    321,160  

Goodwill

    179,263  

Total assets acquired

    919,251  

Liabilities assumed

    (124,821 )

Net assets acquired

  $ 794,430  

 

We recorded a $19.6 million step-up of inventory to its fair value as of the acquisition date based on the preliminary valuation.

 

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

 

   

Estimated

Fair Value

   

Weighted

Average

Useful Life

(years)

 

Developed technology

  $ 194,600       7.8  

Customer relationships

    65,890       10.6  

In-process technology

    36,360    

 

indefinite  

Product backlog

    6,410       0.8  

Trade names

    16,800       11.0  

Favorable leases

    1,100       5.5  

Total intangible assets

  $ 321,160          

 

Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful lives which approximates the pattern of how the economic benefit is expected to be used. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry.

 

The value assigned to developed technology was determined by using the multi-period excess earnings method under the income approach. Developed technology, which comprises products that have reached technological feasibility, includes the products in Xcerra’s product line. The revenue estimates used to value the developed technology were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by Xcerra and competitors. The estimated cash flows were based on revenues for the developed technology net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the developed technology to present value was based on the risk associated with the respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets, the weighted average cost of capital, the internal rate of return, and the weighted average return on assets.

 

The value assigned to customer relationships was determined by using the with and without method under the income approach, which analyzes the difference in discounted cash flows generated with the customer relationships in place compared to the discounted cash flows generated without the customer relationships in place.

 

In-process research and development (“IPR&D”) represents the estimated fair value assigned to research and development projects acquired in a business combination that have not been completed at the date of acquisition and which have no alternative future use. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility amounts capitalized related to the project are reclassified to developed technology and the intangible asset begins to be amortized over its estimated useful life. For the IPR&D, additional research and development will be required to assess technological feasibility.

 

The value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 1, 2018, using the income approach to discount back to present value the cash flows attributable to the backlog.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

The value assigned to trademarks and trade names was estimated using the relief-from-royalty method of the income approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of this intangible asset.

 

In our preliminary estimate of the fair value of Xcerra’s net assets, Cohu identified leases that appear to be at both favorable and unfavorable rates compared to current market rates. As a result, Cohu has recorded both favorable and unfavorable lease assets, which are being amortized to rent expense over the terms of the related lease. As of March 30, 2019, we have completed the analysis of all material lease agreements but are still in the process of gathering market rate data for other lease agreements and, as a result the preliminary net favorable lease asset presented above may change.

 

Goodwill and Intangible Assets

 

Changes in the carrying value of goodwill during the year ended December 29, 2018, and the three-month period ended March 30, 2019, by segment, were as follows ( in thousands ):

 

   

Semiconductor Test

                 
   

& Inspection (1)

   

PCB Test

   

Total

 

Balance, December 30, 2017

  $ 65,613     $ -     $ 65,613  

Additions, net

    157,661       21,602       179,263  

Impact of currency exchange

    (2,466 )     (283 )     (2,749 )

Balance, December 29, 2018

    220,808       21,319       242,127  

Impact of currency exchange

    (1,827 )     (1,030 )     (2,857 )

Balance, March 30, 2019

  $ 218,981     $ 20,289     $ 239,270  

 

 

(1)

After the acquisition of Xcerra on October 1, 2018 we report in two segments, Semiconductor Test & Inspection and PCB Test. Prior year amounts would have been reported in our Semiconductor Test & Inspection segment and have been presented accordingly.

 

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

 

   

March 30, 2019

   

December 29, 2018

 
                   

Remaining

                 
                   

Weighted

                 
   

Gross

           

Average

   

Gross

         
   

Carrying

   

Accum.

   

Amort.

   

Carrying

   

Accum.

 
   

Amount

   

Amort.

   

Period (years)

   

Amount

   

Amort.

 

Developed technology

  $ 212,238     $ 27,975       7.2     $ 214,266     $ 21,197  

Customer relationships

    72,575       9,198       9.9       73,104       7,378  

Trade names

    22,569       2,317       10.3       22,701       1,807  

Backlog

    6,342       5,433       0.3       6,372       4,696  

Favorable leases

    -       -       5.1       1,100       62  

Covenant not-to-compete

    318       72       7.8       314       63  

Total intangible assets

  $ 314,042     $ 44,995             $ 317,857     $ 35,203  

 

The table above excludes $36.3 million of in-process technology, at both March 30, 2019 and December 29, 2018, which has an indefinite life and is subject to impairment or future amortization as developed technology when the projects are completed. Amounts associated with favorable leases were reclassified to the capitalized right of use assets upon adoption of ASC 842 on December 30, 2018. Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates.

 

Amortization expense related to intangible assets in the first quarter of fiscal 2019 and 2018 was $10.0 million and $1.1 million, respectively. The increase in amortization expense in the current year is the result of amortization of assets acquired in the Xcerra transaction.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

3.

Borrowings and Credit Agreements

 

The following table is a summary of our borrowings as of March 30, 2019 and December 29, 2018 ( in thousands) :

 

      March 30,       December 29,  
      2019       2018  

Bank Term Loan under Credit Agreement

  $ 348,250     $ 349,125  

Bank Term Loans-Kita

    4,354       4,576  

Bank Term Loan-Xcerra

    1,729       1,839  

Lines of Credit

    3,161       3,115  

Total debt

    357,494       358,655  

Less: financing fees and discount

    (8,280 )     (8,551 )

Less: current portion

    (6,582 )     (6,676 )

Total long-term debt

  $ 342,632     $ 343,428  

 

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. 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 30, 2019, the outstanding loan balance, net of discount and deferred financing costs, was $340.0 million and $2.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. As of March 30, 2019, the fair value of the debt was $337.8 million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of March 30, 2019 and is considered a Level 2 fair value measurement. See Note 2, “Business Acquisitions, Goodwill and Purchased Intangible Assets” for additional information on the Credit Facility.

 

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 30, 2019, the outstanding loan balance was $4.3 million and $0.7 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. The fair value of the debt approximates the carrying value at March 30, 2019.

 

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 30, 2019, the outstanding loan balance was $1.7 million and $0.3 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. The fair value of the debt approximates the carrying value at March 30, 2019.

 

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

 

Lines of Credit

 

As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to $6.3 million. At March 30, 2019, 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 consolidated balance sheet.

 

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

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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 30, 2019, and December 29, 2018., no amounts were outstanding under this line of credit.

 

 

4.

Restructuring Charges

 

Subsequent to the acquisition of Xcerra on October 1 st , during the fourth quarter of 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding the recently acquired Xcerra (“Integration Program”). See Note 2, “Business Acquisitions, Goodwill and Purchased Intangible Assets” for additional information regarding the acquisition of Xcerra. As part of the Integration Program we will consolidate our global handler and contactor manufacturing operations and expect to close our manufacturing operations in Penang, Malaysia and Fontana, California by the end of calendar year 2019. Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program. 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 $1.4 million for the three months ended March 30, 2019, 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 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 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   $ 0   $ 3,754  

 

At March 30, 2019, our total accrual for restructuring related items is reflected within current liabilities of our consolidated balance sheets as these amounts are expected to be paid out in 2019. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash, with the exception of the amortization of leasehold improvements which is non-cash. All amounts accrued related to inventory will remain in our consolidated balance sheet until they are scrapped.

 

 

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 are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality investments and through investment diversification.

 

Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on sales of short-term investments are included in interest income. Realized gains and losses for the periods presented were not significant.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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

 

   

March 30, 2019

 
           

Gross

   

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses (1)

   

Value

 

Foreign government security

  $ 565     $ -     $ -     $ 565  

 

   

December 29, 2018

 
           

Gross

   

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses (1)

   

Value

 

Foreign government security

  $ 560     $ -     $ -     $ 560  

 

 

(1)

As of March 30, 2019 and December 29, 2018, there were no investments in our portfolio in a loss position.

 

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

 

   

March 30, 2019

   

December 29, 2018

 
   

Amortized

   

Estimated

   

Amortized

   

Estimated

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Due after one year through three years

  $ 565     $ 565     $ 560     $ 560  

 

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 30, 2019 using:

 
                           

Total estimated

 
   

Level 1

   

Level 2

   

Level 3

   

fair value

 

Cash

  $ 139,640     $ -     $ -     $ 139,640  

Money market funds

    -       19,881       -       19,881  

Foreign government security

    -       565       -       565  
    $ 139,640     $ 20,446     $ -     $ 160,086  

 

   

Fair value measurements at December 29, 2018 using:

 
                           

Total estimated

 
   

Level 1

   

Level 2

   

Level 3

   

fair value

 

Cash

  $ 144,696     $ -     $ -     $ 144,696  

Money market funds

    -       19,764       -       19,764  

Foreign government security

    -       560       -       560  
    $ 144,696     $ 20,324     $ -     $ 165,020  

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

6.

Employee Stock Benefit Plans

 

Our 2005 Equity Incentive Plan (the “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 30, 2019, there were 575,850 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 2019 we did not grant any stock options and we issued 9,650 shares of our common stock on the exercise of options that were granted previously.

 

At March 30, 2019, we had 395,276 stock options exercisable and outstanding. These options had a weighted-average exercise price of $10.27 per share, an aggregate intrinsic value of approximately $2.7 million and the weighted average remaining contractual term was approximately 3.4 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 30, 2019.

 

In the first three months of fiscal 2019 we awarded 558,780 RSUs and we issued 335,041 shares of our common stock on vesting of previously granted awards. At March 30, 2019, we had 1,477,121 RSUs outstanding with an aggregate intrinsic value of approximately $25.2 million and the weighted average remaining vesting period was approximately 1.7 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 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 2019, 2018 and 2017 vest 100% on the third anniversary of their grant.

 

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 30, 2019.

 

In the first three months of fiscal 2019, we awarded 167,226 PSUs and we issued 29,603 shares of our common stock on vesting of previously granted awards. At March 30, 2019, we had 388,569 PSUs outstanding with an aggregate intrinsic value of approximately $6.6 million and the weighted average remaining vesting period was approximately 2.0 years.

 

Employee Stock Purchase Plan

 

The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the 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 first three months of fiscal 2019, no shares of our common stock were sold to our employees under the ESPP leaving 598,610 shares available for future issuance.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

 

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 30, 2019, we used the actual year-to-date ETR in computing our tax provision, as a reliable estimate of the 2019 annual ETR cannot be made, since relatively small changes in our projected income produce a significant variation in our ETR. In computing the tax provision for the three months ended March 31, 2018 we used the ETR expected to be applicable for the full fiscal year. The ETR on income or loss from continuing operations for the three months ended March 30, 2019 and March 31, 2018 was 0.9% and 20.8%, respectively. The tax provision on income or loss from continuing operations in 2019 and 2018 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, changes in our deferred tax asset valuation allowance, state taxes and interest related 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.

 

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 periods ended March 30, 2019 and March 31, 2018.

 

 

8.

Segment and Geographic Information

 

We applied the provisions of ASC Topic 280, Segment Reporting , (“ASC 280”), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. 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. The summary below presents our current segments, Semiconductor Test & Inspection and PCB Test, for the three months ended March 30, 2019 and March 31, 2018.

 

Prior to the acquisition of Xcerra on October 1, 2018, historical amounts of Cohu’s semiconductor equipment segment would have been reported in our Semiconductor Test & Inspection segment and have been presented accordingly.

 

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

 

   

Three Months Ended

 
   

March 30,

   

March 31,

 

 

 

2019

   

2018

 
Net sales by segment:                

Semiconductor Test & Inspection

  $ 136,694     $ 95,150  

PCB Test

    11,115       -  

Total consolidated net sales for reportable segments

  $ 147,809     $ 95,150  

Segment profit (loss) before tax:

               

Semiconductor Test & Inspection

  $ (15,044 )   $ 12,135  

PCB Test

    1,019       -  

Profit (loss) for reportable segments

    (14,025 )     12,135  

Other unallocated amounts:

               

Corporate expenses

    (3,741 )     (2,122 )

Interest expense

    (5,507 )     (11 )

Interest income

    222       247  

Income (loss) from continuing operations

  $ (23,051 )   $ 10,249  

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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

 

   

March 30,

   

December 29,

 
   

2019

   

2018

 

Semiconductor Test & Inspection

  $ 1,018,515     $ 1,038,053  

PCB Test

    60,925       57,762  

Total assets for reportable segments

    1,079,440       1,095,815  

Corporate, principally cash and investments

    22,541       34,367  

Discontinued operations

    4,216       3,820  

Total consolidated assets

  $ 1,106,197     $ 1,134,002  

 

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

 

 

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

 

Our leases have remaining lease terms of 1 year to 39 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 30, 2019

 

Assets

         

Operating lease assets

Operating lease right-of-use assets

  $ 29,782  

Finance lease assets

Property, plant and equipment, net (1)

    2,597  

Total lease assets

  $ 32,379  

Liabilities

         

Current

         

Operating

Other accrued liabilities

  $ 5,498  

Finance

Other accrued liabilities

    34  

Noncurrent

         

Operating

Long-term lease liabilities

    23,818  

Finance

Long-term lease liabilities

    2,577  

Total lease liabilities

  $ 31,927  
           

Weighted-average remaining lease term (years)

       

Operating leases

    6.7  

Finance leases

    1.3  
           

Weighted-average discount rate

       

Operating leases

    5.9 %

Finance leases

    4.5 %

 

 

(1)

Finance lease assets are recorded net of accumulated amortization of $0.1 million.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

The components of lease expense were as follows:

 

   

Three months

ended

 

(in thousands)

 

March 30, 2019

 

Operating leases

  $ 2,122  

Variable leases

    566  

Short-term operating leases

    78  

Finance leases

       

Amortization of leased assets

    41  

Interest on lease liabilities

    59  

Sublease income

    (36 )

Net lease cost

  $ 2,830  

 

Future minimum lease payments at March 30, 2019, are as follows:

 

   

Operating

   

Finance

         

(in thousands)

 

leases (1)

   

leases

   

Total

 

2019

  $ 5,232     $ 113     $ 5,345  

2020

    6,476       2,643       9,119  

2021

    5,218       -       5,218  

2022

    4,154       -       4,154  

2023

    3,714       -       3,714  

Thereafter

    11,708       -       11,708  

Total lease payments

    36,502       2,756       39,258  

Less: Interest

    (7,186 )     (145 )     (7,331 )

Present value of lease liabilities

  $ 29,316     $ 2,611     $ 31,927  

 

 

(1)

Excludes sublease income of $0.1 million and $0.1 million for 2019 and 2020, respectively and also excludes $0.3 million of legally binding minimum lease payments for lease signed but not yet commenced.

 

Supplemental cash flow information related to leases was as follows:

 

   

Three months

ended

 

(in thousands)

 

March 30, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

       

Operating cash flows from operating leases

  $ 1,881  

Operating cash flows from finance leases

  $ 37  

Financing cash flows from finance leases

  $ 9  

Leased assets obtained in exchange for new operating lease liabilities

  $ 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. We expect to complete the sale of this business within 12 months and it qualifies to be reported 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.

 

 

Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 30, 2019

 

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

 

   

March 30,

   

December 29,

 
   

2019

   

2018

 

Assets:

               

Cash and cash equivalents

  $ 820     $ 461  

Accounts receivable, net

    1,816       1,718  

Inventories

    1,460       1,388  

Other current assets

    26       174  

Total current assets

    4,122       3,741  

Property, plant and equipment, net

    70       66  

Other noncurrent assets

    24       13  

Total assets

  $ 4,216     $ 3,820  
                 

Liabilities:

               

Other accrued current liabilities

  $ 596     $ 518  

Total current liabilities

    596       518  

Noncurrent liabilities

    -       -  

Total liabilities

  $ 596     $ 518  

 

Operating results of our discontinued segment are summarized as follows (in thousands) :

 

    Three Months  
   

Ended

 
   

March 30,