0000021535 COHU INC false --12-31 Q2 2022 1 1 1,000 1,000 0 0 1 1 90,000 90,000 49,152 49,152 48,756 48,756 924 207 30 40 5 15 3 10 7 7 3 1 2 10.1 9.5 3.4 5.2 0.9 1 0 1 4 10 0 0 1 4 0.1 1 Derived from December 25, 2021 audited financial statements Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio. On June 24, 2021, we completed the sale of our PCB Test business. See Note 12, “Business Divestitures” for additional information. Excludes amortization of $6,544 and $7,043 for the three months ended June 25, 2022 and June 26, 2021, respectively, and $13,240 and $14,144 for the six months ended June 25, 2022 and June 26, 2021, respectively. Excludes sublease income of $0.1 million in 2023. Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of March 26, 2022 and December 25, 2021, respectively. As of June 25, 2022 and December 25, 2021, the cost and fair value of investments with loss positions were approximately $79.7 million and $57.0 million, respectively. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 25, 2022

OR

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

For the transition period from to

Commission file number 001-04298

COHU, INC.

(Exact name of registrant as specified in its charter)

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

Registrant's telephone number, including area code (858) 848-8100

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

Title of Each Class | Trading Symbol(s) | Name of Exchange on Which Registered
Common Stock, $1.00 par value | COHU | The Nasdaq Stock Market LLC

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

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

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

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

Smaller reporting company ☐ Emerging growth company ☐

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

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

As of July 19, 2022, the Registrant had 48,227,211 shares of its $1.00 par value common stock outstanding.

Table of Contents

COHU, INC.

INDEX

FORM 10-Q

JUNE 25, 2022

Part I | Financial Information | Page Number

Item 1. | Financial Statements: |
| Condensed Consolidated Balance Sheets June 25, 2022 (unaudited) and December 25, 2021 | 3
| Condensed Consolidated Statements of Income (unaudited) Three and Six Months Ended June 25, 2022 and June 26, 2021 | 4
| Condensed Consolidated Statements of Comprehensive Income (unaudited) Three and Six Months Ended June 25, 2022 and June 26, 2021 | 5
| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) Three and Six Months Ended June 25, 2022 and June 26, 2021 | 6
| Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 25, 2022 and June 26, 2021 | 8
| Notes to Unaudited Condensed Consolidated Financial Statements | 9
Item 2. | Financial Condition and Results of Operations | 30
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41
Item 4. | Controls and Procedures | 42
Part II | Other Information |
Item 1. | Legal Proceedings | 43
Item 1A. | Risk Factors | 43
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44
Item 3. | Defaults Upon Senior Securities | 44
Item 4. | Mine Safety Disclosures | 44
Item 5. | Other Information | 44
Item 6. | Exhibits | 45
Signatures | 46

Table of Contents

Item 1.
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)

|  | June 25, |  |  | December 25, |
|  | 2022 |  |  | 2021* |
|  | (Unaudited) |  |  |  |  |
ASSETS |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 280,586 |  |  | $ | 290,201 |
Short-term investments |  |  | 87,495 |  |  |  | 89,704 |
Accounts receivable, net |  |  | 212,905 |  |  |  | 192,873 |
Inventories |  |  | 162,666 |  |  |  | 161,053 |
Prepaid expenses |  |  | 19,499 |  |  |  | 16,194 |
Other current assets |  |  | 4,145 |  |  |  | 768 |
Total current assets |  |  | 767,296 |  |  |  | 750,793 |
Property, plant and equipment, net |  |  | 62,147 |  |  |  | 63,957 |
Goodwill |  |  | 211,534 |  |  |  | 219,791 |
Intangible assets, net |  |  | 155,797 |  |  |  | 177,320 |
Other assets |  |  | 19,111 |  |  |  | 22,123 |
Operating lease right of use assets |  |  | 23,519 |  |  |  | 25,060 |
|  | $ | 1,239,404 |  |  | $ | 1,259,044 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Short-term borrowings |  | $ | 1,849 |  |  | $ | 3,059 |
Current installments of long-term debt |  |  | 14,329 |  |  |  | 11,338 |
Accounts payable |  |  | 80,954 |  |  |  | 85,230 |
Customer advances |  |  | 16,499 |  |  |  | 7,300 |
Accrued compensation and benefits |  |  | 34,161 |  |  |  | 39,835 |
Deferred profit |  |  | 10,406 |  |  |  | 13,208 |
Accrued warranty |  |  | 6,260 |  |  |  | 6,614 |
Income taxes payable |  |  | 13,850 |  |  |  | 6,873 |
Other accrued liabilities |  |  | 15,960 |  |  |  | 19,002 |
Total current liabilities |  |  | 194,268 |  |  |  | 192,459 |
Long-term debt |  |  | 75,378 |  |  |  | 103,393 |
Deferred income taxes |  |  | 23,711 |  |  |  | 25,887 |
Noncurrent income tax liabilities |  |  | 5,579 |  |  |  | 6,138 |
Accrued retirement benefits |  |  | 17,600 |  |  |  | 18,037 |
Long-term lease liabilities |  |  | 20,446 |  |  |  | 22,040 |
Other accrued liabilities |  |  | 7,970 |  |  |  | 8,588 |
Stockholders’ equity |  |  |  |  |  |  |  |
Preferred stock, $1 par value; 1,000 shares authorized, none issued |  |  | - |  |  |  | - |
Common stock, $1 par value; 90,000 shares authorized, 49,152 shares issued and outstanding in 2022 and 48,756 shares in 2021 |  |  | 49,152 |  |  |  | 48,756 |
Paid-in capital |  |  | 678,495 |  |  |  | 674,777 |
Treasury stock, at cost; 924 shares in 2022 and 207 shares in 2021 |  |  | (27,702 | ) |  |  | (7,324 | )
Retained earnings |  |  | 243,892 |  |  |  | 193,555 |
Accumulated other comprehensive loss |  |  | (49,385 | ) |  |  | (27,262 | )
Total stockholders’ equity |  |  | 894,452 |  |  |  | 882,502 |
|  | $ | 1,239,404 |  |  | $ | 1,259,044 |

* Derived from December 25, 2021 audited financial statements

The accompanying notes are an integral part of these statements.

3

Table of Contents

COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net sales |  | $ | 217,226 |  |  | $ | 244,803 |  |  | $ | 414,983 |  |  | $ | 470,291 |
Cost and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales (1) |  |  | 116,273 |  |  |  | 140,146 |  |  |  | 222,874 |  |  |  | 263,429 |
Research and development |  |  | 23,160 |  |  |  | 23,423 |  |  |  | 46,266 |  |  |  | 46,575 |
Selling, general and administrative |  |  | 32,531 |  |  |  | 32,834 |  |  |  | 63,777 |  |  |  | 65,458 |
Amortization of purchased intangible assets |  |  | 8,341 |  |  |  | 9,045 |  |  |  | 16,876 |  |  |  | 18,289 |
Restructuring charges |  |  | 7 |  |  |  | 617 |  |  |  | 583 |  |  |  | 1,957 |
Gain on sale of PCB Test business |  |  | - |  |  |  | (75,779 | ) |  |  | - |  |  |  | (75,664 | )
|  |  | 180,312 |  |  |  | 130,286 |  |  |  | 350,376 |  |  |  | 320,044 |
Income from operations |  |  | 36,914 |  |  |  | 114,517 |  |  |  | 64,607 |  |  |  | 150,247 |
Other (expense) income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (919 | ) |  |  | (1,831 | ) |  |  | (1,900 | ) |  |  | (4,406 | )
Interest income |  |  | 308 |  |  |  | 94 |  |  |  | 419 |  |  |  | 144 |
Foreign transaction gain (loss) |  |  | 1,491 |  |  |  | (25 | ) |  |  | 2,635 |  |  |  | (287 | )
Loss on extinguishment of debt |  |  | (128 | ) |  |  | - |  |  |  | (232 | ) |  |  | (1,761 | )
Income from operations before taxes |  |  | 37,666 |  |  |  | 112,755 |  |  |  | 65,529 |  |  |  | 143,937 |
Income tax provision |  |  | 8,898 |  |  |  | 17,659 |  |  |  | 15,192 |  |  |  | 21,234 |
Net income |  | $ | 28,768 |  |  | $ | 95,096 |  |  | $ | 50,337 |  |  | $ | 122,703 |
Income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.59 |  |  | $ | 1.96 |  |  | $ | 1.04 |  |  | $ | 2.66 |
Diluted |  | $ | 0.59 |  |  | $ | 1.92 |  |  | $ | 1.02 |  |  | $ | 2.58 |
Weighted average shares used in computing income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 48,475 |  |  |  | 48,555 |  |  |  | 48,626 |  |  |  | 46,155 |
Diluted |  |  | 48,928 |  |  |  | 49,474 |  |  |  | 49,248 |  |  |  | 47,478 |

(1) | Excludes amortization of $6,544 and $7,043 for the three months ended June 25, 2022 and June 26, 2021, respectively, and $13,240 and $14,144 for the six months ended June 25, 2022 and June 26, 2021, respectively.

The accompanying notes are an integral part of these statements.

4

Table of Contents

COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net income |  | $ | 28,768 |  |  | $ | 95,096 |  |  | $ | 50,337 |  |  | $ | 122,703 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (12,537 | ) |  |  | 2,890 |  |  |  | (21,440 | ) |  |  | (7,356 | )
Adjustments related to postretirement benefits |  |  | (112 | ) |  |  | 151 |  |  |  | (173 | ) |  |  | (29 | )
Change in unrealized gain/loss on investments |  |  | (162 | ) |  |  | (8 | ) |  |  | (510 | ) |  |  | (14 | )
Reclassifications due to sale of PCB Test business |  |  | - |  |  |  | (2,515 | ) |  |  | - |  |  |  | (2,515 | )
Other comprehensive income (loss), net of tax |  |  | (12,811 | ) |  |  | 518 |  |  |  | (22,123 | ) |  |  | (9,914 | )
Comprehensive income |  | $ | 15,957 |  |  | $ | 95,614 |  |  | $ | 28,214 |  |  | $ | 112,789 |

The accompanying notes are an integral part of these statements.

5

Table of Contents

COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except par value and per share amounts)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  | Common |  |  |  |  |  |  |  |  |  |  | other |  |  |  |  |  |  |  |  |
|  | stock |  |  | Paid-in |  |  | Retained |  |  | comprehensive |  |  | Treasury |  |  |  |  |
Three Months Ended June 25, 2022 |  | $1 par value |  |  | capital |  |  | earnings |  |  | loss |  |  | stock |  |  | Total |
Balance at March 26, 2022 |  | $ | 49,025 |  |  | $ | 673,034 |  |  | $ | 215,124 |  |  | $ | (36,574 | ) |  | $ | (13,712 | ) |  | $ | 886,897 |
Net income |  |  | - |  |  |  | - |  |  |  | 28,768 |  |  |  | - |  |  |  | - |  |  |  | 28,768 |
Changes in cumulative translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (12,537 | ) |  |  | - |  |  |  | (12,537 | )
Adjustments related to postretirement benefits, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (112 | ) |  |  | - |  |  |  | (112 | )
Changes in unrealized gains and losses on investments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (162 | ) |  |  | - |  |  |  | (162 | )
Exercise of stock options |  |  | 13 |  |  |  | 105 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 118 |
Shares issued under ESPP |  |  | 77 |  |  |  | 1,669 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,746 |
Shares issued for restricted stock units vested |  |  | 40 |  |  |  | (40 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Repurchase and retirement of stock |  |  | (3 | ) |  |  | (206 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (209 | )
Common stock repurchases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,990 | ) |  |  | (13,990 | )
Share-based compensation expense |  |  | - |  |  |  | 3,933 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,933 |
Balance at June 25, 2022 |  | $ | 49,152 |  |  | $ | 678,495 |  |  | $ | 243,892 |  |  | $ | (49,385 | ) |  | $ | (27,702 | ) |  | $ | 894,452 |
Six Months Ended June 25, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 25, 2021 |  | $ | 48,756 |  |  | $ | 674,777 |  |  | $ | 193,555 |  |  | $ | (27,262 | ) |  | $ | (7,324 | ) |  | $ | 882,502 |
Net income |  |  | - |  |  |  | - |  |  |  | 50,337 |  |  |  | - |  |  |  | - |  |  |  | 50,337 |
Changes in cumulative translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (21,440 | ) |  |  | - |  |  |  | (21,440 | )
Adjustments related to postretirement benefits, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (173 | ) |  |  | - |  |  |  | (173 | )
Changes in unrealized gains and losses on investments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (510 | ) |  |  | - |  |  |  | (510 | )
Exercise of stock options |  |  | 13 |  |  |  | 105 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 118 |
Shares issued under ESPP |  |  | 77 |  |  |  | 1,669 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,746 |
Shares issued for restricted stock units vested |  |  | 466 |  |  |  | (466 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Repurchase and retirement of stock |  |  | (160 | ) |  |  | (4,945 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,105 | )
Common stock repurchases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (20,378 | ) |  |  | (20,378 | )
Share-based compensation expense |  |  | - |  |  |  | 7,355 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,355 |
Balance at June 25, 2022 |  | $ | 49,152 |  |  | $ | 678,495 |  |  | $ | 243,892 |  |  | $ | (49,385 | ) |  | $ | (27,702 | ) |  | $ | 894,452 |

The accompanying notes are an integral part of these statements.

6

Table of Contents

Three Months Ended June 26, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 27, 2021 |  | $ | 48,411 |  |  | $ | 661,984 |  |  | $ | 53,837 |  |  | $ | (14,758 | ) |  | $ | - |  |  | $ | 749,474 |
Net income |  |  | - |  |  |  | - |  |  |  | 95,096 |  |  |  | - |  |  |  | - |  |  |  | 95,096 |
Changes in cumulative translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,890 |  |  |  | - |  |  |  | 2,890 |
Adjustments related to postretirement benefits, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 151 |  |  |  | - |  |  |  | 151 |
Changes in unrealized gains and losses on investments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8 | ) |  |  | - |  |  |  | (8 | )
Exercise of stock options |  |  | 22 |  |  |  | 215 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 237 |
Shares issued under ESPP |  |  | 95 |  |  |  | 1,654 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,749 |
Shares issued for restricted stock units vested |  |  | 94 |  |  |  | (94 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Repurchase and retirement of stock |  |  | (26 | ) |  |  | (951 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (977 | )
Impact of sale of PCB Test business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,515 | ) |  |  | - |  |  |  | (2,515 | )
Share-based compensation expense |  |  | - |  |  |  | 4,134 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,134 |
Balance at June 26, 2021 |  | $ | 48,596 |  |  | $ | 666,942 |  |  | $ | 148,933 |  |  | $ | (14,240 | ) |  | $ | - |  |  | $ | 850,231 |
Six Months Ended June 26, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 26, 2020 |  | $ | 42,190 |  |  | $ | 448,194 |  |  | $ | 26,230 |  |  | $ | (4,326 | ) |  | $ | - |  |  | $ | 512,288 |
Net income |  |  | - |  |  |  | - |  |  |  | 122,703 |  |  |  | - |  |  |  | - |  |  |  | 122,703 |
Changes in cumulative translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (7,356 | ) |  |  | - |  |  |  | (7,356 | )
Adjustments related to postretirement benefits, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (29 | ) |  |  | - |  |  |  | (29 | )
Changes in unrealized gains and losses on investments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (14 | ) |  |  | - |  |  |  | (14 | )
Exercise of stock options |  |  | 214 |  |  |  | 1,945 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,159 |
Shares issued under ESPP |  |  | 95 |  |  |  | 1,654 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,749 |
Shares issued for restricted stock units vested |  |  | 620 |  |  |  | (620 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Repurchase and retirement of stock |  |  | (216 | ) |  |  | (9,314 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (9,530 | )
Impact of sale of PCB Test business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,515 | ) |  |  | - |  |  |  | (2,515 | )
Share-based compensation expense |  |  | - |  |  |  | 7,657 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,657 |
Sale of common stock, net of issuance costs |  |  | 5,693 |  |  |  | 217,426 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 223,119 |
Balance at June 26, 2021 |  | $ | 48,596 |  |  | $ | 666,942 |  |  | $ | 148,933 |  |  | $ | (14,240 | ) |  | $ | - |  |  | $ | 850,231 |

The accompanying notes are an integral part of these statements.

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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

|  | Six Months Ended |
|  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net income |  | $ | 50,337 |  |  | $ | 122,703 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Gain on business divestitures |  |  | - |  |  |  | (75,664 | )
Loss on extinguishment of debt |  |  | 232 |  |  |  | 1,761 |
Gain from sale of property, plant and equipment |  |  | (58 | ) |  |  | (55 | )
Depreciation and amortization |  |  | 23,199 |  |  |  | 24,997 |
Share-based compensation expense |  |  | 7,355 |  |  |  | 7,029 |
Non-cash inventory related charges |  |  | 2,154 |  |  |  | 2,690 |
Deferred income taxes |  |  | 1,056 |  |  |  | 459 |
Changes in accrued retiree medical benefits |  |  | (270 | ) |  |  | 45 |
Changes in other accrued liabilities |  |  | (555 | ) |  |  | (72 | )
Changes in other assets |  |  | (2,243 | ) |  |  | (219 | )
Amortization of cloud-based software implementation costs |  |  | 956 |  |  |  | 748 |
Interest capitalized associated with cloud computing implementation |  |  | (59 | ) |  |  | (85 | )
Amortization of debt discounts and issuance costs |  |  | 180 |  |  |  | 441 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Customer advances |  |  | 9,515 |  |  |  | (3,776 | )
Accounts receivable |  |  | (24,913 | ) |  |  | (80,118 | )
Inventories |  |  | (6,024 | ) |  |  | (25,633 | )
Other current assets |  |  | (7,013 | ) |  |  | (1,852 | )
Accounts payable |  |  | (4,194 | ) |  |  | 39,611 |
Deferred profit |  |  | (2,608 | ) |  |  | 8,912 |
Income taxes payable |  |  | 6,950 |  |  |  | 15,731 |
Accrued compensation, warranty and other liabilities |  |  | (8,408 | ) |  |  | 368 |
Operating lease right-of-use assets |  |  | 2,751 |  |  |  | 3,919 |
Current and long-term operating lease liabilities |  |  | (2,541 | ) |  |  | (6,228 | )
Net cash provided by operating activities |  |  | 45,799 |  |  |  | 35,712 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Cash received from disposition of business, net of cash paid |  |  | - |  |  |  | 120,137 |
Cash received from sale of property, plant and equipment |  |  | 84 |  |  |  | 106 |
Purchases of short-term investments |  |  | (72,433 | ) |  |  | (136,526 | )
Sales and maturities of short-term investments |  |  | 74,150 |  |  |  | 77,014 |
Purchases of property, plant and equipment |  |  | (5,724 | ) |  |  | (5,549 | )
Net cash provided by (used in) investing activities |  |  | (3,923 | ) |  |  | 55,182 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Payments on current and long-term finance lease liabilities |  |  | (86 | ) |  |  | (91 | )
Repurchases of common stock, net |  |  | (3,241 | ) |  |  | (5,622 | )
Proceeds from revolving line of credit and construction loans |  |  | - |  |  |  | 818 |
Proceeds received from issuance of common stock, net of fees |  |  | - |  |  |  | 223,119 |
Repayments of long-term debt |  |  | (25,198 | ) |  |  | (104,811 | )
Acquisition of treasury stock |  |  | (20,378 | ) |  |  | - |
Net cash provided by (used in) financing activities |  |  | (48,903 | ) |  |  | 113,413 |
Effect of exchange rate changes on cash and cash equivalents |  |  | (2,588 | ) |  |  | 231 |
Net increase (decrease) in cash and cash equivalents |  |  | (9,615 | ) |  |  | 204,538 |
Cash and cash equivalents at beginning of period |  |  | 290,201 |  |  |  | 149,358 |
Cash and cash equivalents at end of period |  | $ | 280,586 |  |  | $ | 353,896 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | 10,760 |  |  | $ | 3,747 |
Inventory capitalized as property, plant and equipment |  | $ | 1,116 |  |  | $ | 997 |
Business divestiture expenses included in other liabilities |  | $ | - |  |  | $ | 5,266 |
Property, plant and equipment purchases included in accounts payable |  | $ | 1,153 |  |  | $ | 690 |
Cash paid for interest |  | $ | 1,458 |  |  | $ | 4,180 |

The accompanying notes are an integral part of these statements.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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. Our current fiscal year will end on December 31, 2022 and will be comprised of 53 weeks. The condensed consolidated balance sheet at December 25, 2021, has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of June 25, 2022, (also referred to as “the second quarter of fiscal 2022” and “the first six months of fiscal 2022”) and June 26, 2021, (also referred to as “the second quarter of fiscal 2021” and “the first six months of fiscal 2021”) 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. Both the three- and six-month periods ended June 25, 2022 and June 26, 2021 were comprised of 13 and 26 weeks, respectively.

Our interim results are not necessarily indicative of the results that should be expected for the full year. The condensed consolidated financial statements presented herein reflect estimates and assumptions made by management at June 25, 2022 and for the six-month period ended June 25, 2022. 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 25, 2021, which are included in our 2021 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”). In the following notes to our interim condensed consolidated financial statements, Cohu, Inc. is referred to as “Cohu”, “we”, “our” and “us”.

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

Concentration of Credit Risk

Financial instruments that potentially subject us to significant credit risk consist principally of cash equivalents, short-term investments and trade accounts receivable. We invest in a variety of financial instruments and, by policy, limit the amount of credit exposure with any one issuer.

Our trade accounts receivable are presented net of allowance for credit losses, which is determined in accordance with the guidance provided by Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments-Credit Losses, (“ASC 326”). At June 25, 2022 and December 25, 2021, our allowance for credit losses was $0.2 million and $0.3 million, respectively. Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit losses is adequate and represents our best estimate at June 25, 2022, we will continue to monitor customer liquidity and other economic conditions, including the impact of the COVID-19 pandemic, which may result in changes to our estimates regarding expected credit losses.

Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Cost includes labor, material and overhead costs. Determining 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, which occurs when estimated net realizable values are below our costs.

Inventories by category were as follows (in thousands):

|  | June 25, |  |  | December 25, |
|  | 2022 |  |  | 2021 |
Raw materials and purchased parts |  | $ | 93,648 |  |  | $ | 92,798 |
Work in process |  |  | 41,760 |  |  |  | 40,732 |
Finished goods |  |  | 27,258 |  |  |  | 27,523 |
Total inventories |  | $ | 162,666 |  |  | $ | 161,053 |

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

Property, Plant and Equipment

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

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

|  | June 25, |  |  | December 25, |
|  | 2022 |  |  | 2021 |
Land and land improvements |  | $ | 6,986 |  |  | $ | 7,703 |
Buildings and building improvements |  |  | 30,578 |  |  |  | 31,711 |
Machinery and equipment |  |  | 98,945 |  |  |  | 95,542 |
|  |  | 136,509 |  |  |  | 134,956 |
Less accumulated depreciation and amortization |  |  | (74,362 | ) |  |  | (70,999 | )
Property, plant and equipment, net |  | $ | 62,147 |  |  | $ | 63,957 |

Cloud-based Enterprise Resource Planning Implementation Costs

We have capitalized certain costs associated with the implementation of our new cloud-based Enterprise Resource Planning (“ERP”) system in accordance with ASC Topic 350, Intangibles—Goodwill and Other, (“ASC 350”). Capitalized costs include only external direct costs of materials and services consumed in developing the system and interest costs incurred, when material, while developing the system.

Unamortized capitalized cloud computing implementation costs totaled $14.0 million and $13.5 million at June 25, 2022, and December 25, 2021, respectively. These amounts are recorded within other current assets and other assets in our condensed consolidated balance sheets. The change in the capitalized amount is due to costs capitalized in the current period, offset by amortization recorded. We began amortizing some of these costs when our new ERP system was placed into service during the first quarter of 2020 and we continue to capitalize costs related to implementation projects that are ongoing. Implementation costs are amortized using the straight-line method over seven years and we recorded amortization expense of $0.5 million and $1.0 million during the three and six months ended June 25, 2022, respectively and amortization expense of $0.3 million and $0.7 million during the three and six months ended June 26, 2021, respectively.

Segment Information

We applied the provisions of ASC Topic 280, Segment Reporting, (“ASC 280”), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We have determined that our three identified operating segments are: Test Handler Group ("THG"), Semiconductor Tester Group ("STG") and Interface Solutions Group ("ISG"). Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in one segment, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”). Prior to the sale of our PCB Test Group ("PTG") on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test Equipment (“PCB Test”).

Goodwill and Other Intangible Assets

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

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October 1, 2021 as 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.

Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For other intangible 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 relative standalone selling price and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.

Restructuring Costs

We record restructuring activities including costs for one-time termination benefits in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). The timing of recognition for severance costs accounted for under ASC 420 depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to employees. Employee termination benefits covered by existing benefit arrangements are recorded in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. These costs are recognized when management has committed to a restructuring plan and the severance costs are probable and estimable. See Note 4, “Restructuring Charges” for additional information.

Debt Issuance Costs

We capitalize costs related to the issuance of debt. Debt issuance costs directly related to our Term Loan Credit Facility are presented within noncurrent liabilities as a reduction of long-term debt in our condensed 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 $0.1 million and $0.2 million for the three and six months ended June 25, 2022, respectively. Amortization related to deferred debt issuance costs and original discount costs was $0.2 million and $0.5 million for the three and six months ended June 26, 2021, respectively.

Foreign Remeasurement and Currency Translation

Assets and liabilities of our wholly owned foreign subsidiaries that use the U.S. Dollar as their functional currency are re-measured using exchange rates in effect at the end of the period, except for nonmonetary assets, such as inventories and property, plant and equipment, which are re-measured using historical exchange rates. Revenues and costs are re-measured using average exchange rates for the period, except for costs related to those balance sheet items that are re-measured using historical exchange rates. Gains and losses on foreign currency transactions are recognized as incurred. During the three and six months ended June 25, 2022, we recognized foreign exchange gains of $1.5 million and $2.6 million, respectively, in our condensed consolidated statements of income. During the three and six months ended June 26, 2021, we recognized foreign exchange losses of $25,000 and $0.3 million, respectively, in our condensed consolidated statements of income. 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 foreign currency translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’ equity.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

Foreign Exchange Derivative Contracts

We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We enter into foreign currency forward contracts with a financial institution to hedge against future movements in foreign exchange rates that affect certain existing U.S. Dollar denominated assets and liabilities held at our subsidiaries whose functional currency is the local currency. For accounting purposes, our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our condensed consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our condensed consolidated statements of income for both realized and unrealized gains and losses. See Note 7, “Derivative Financial Instruments” for additional information.

Share-Based Compensation

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

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Cost of sales |  | $ | 172 |  |  | $ | 191 |  |  | $ | 317 |  |  | $ | 453 |
Research and development |  |  | 826 |  |  |  | 763 |  |  |  | 1,578 |  |  |  | 1,544 |
Selling, general and administrative |  |  | 2,935 |  |  |  | 2,552 |  |  |  | 5,460 |  |  |  | 5,032 |
Total share-based compensation |  |  | 3,933 |  |  |  | 3,506 |  |  |  | 7,355 |  |  |  | 7,029 |
Income tax benefit |  |  | (836 | ) |  |  | (180 | ) |  |  | (2,462 | ) |  |  | (414 | )
Total share-based compensation, net |  | $ | 3,097 |  |  | $ | 3,326 |  |  | $ | 4,893 |  |  | $ | 6,615 |

Income Per Share

Basic income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted income 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 and six months ended June 25, 2022, stock options and awards to issue approximately 351,000 and 288,000 shares of common stock were excluded from the computation, respectively. For the three and six months ended June 26, 2021, stock options and awards to issue approximately 240,000 and 120,000 shares of common stock were excluded from the computation, respectively. All shares repurchased and held as treasury stock are reflected as a reduction to our basic weighted average shares outstanding based on the trade date of the share repurchase.

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Weighted average common shares |  |  | 48,475 |  |  |  | 48,555 |  |  |  | 48,626 |  |  |  | 46,155 |
Effect of dilutive securities |  |  | 453 |  |  |  | 919 |  |  |  | 622 |  |  |  | 1,323 |
|  |  | 48,928 |  |  |  | 49,474 |  |  |  | 49,248 |  |  |  | 47,478 |

Leases

We determine if a contract contains a lease at inception. Operating leases are included in operating lease right of use (“ROU”) assets, current other accrued liabilities, and long-term lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease liabilities on our condensed consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the adoption date or the commencement date for leases entered into after the adoption date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rates for the remaining lease terms based on the information available at the adoption date or commencement date in determining the present value of future payments.

The operating lease ROU asset also includes any lease payments made, lease incentives, favorable and unfavorable lease terms recognized in business acquisitions and excludes initial direct costs incurred and variable lease payments. Variable lease payments include estimated payments that are subject to reconciliations throughout the lease term, increases or decreases in the contractual rent payments, as a result of changes in indices or interest rates and tax payments that are based on prevailing rates. Our lease terms may include renewal options to extend the lease when it is reasonably certain that we will exercise those options. In addition, we include purchase option amounts in our calculations when it is reasonably certain that we will exercise those options. Rent expense for minimum payments under operating leases is recognized on a straight-line basis over the term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet but recognized in our condensed consolidated statements of income on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component and include both in our calculation of the ROU assets and lease liabilities.

We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities. None of our subleases contain extension options. Variable lease payments in our subleases include tax payments that are based on prevailing rates. We account for lease and non-lease components as a single lease component.

Revenue Recognition

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

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

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Cohu, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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 June 25, 2022, we had $7.4 million of revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) for contracts with original expected durations of over one year. As allowed under ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), we have opted to not disclose unsatisfied performance obligations for contracts with original expected durations of less than one year.

We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC Topic 460, Guarantees (“ASC 460”), and not as a separate performance obligation.

The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration that does not meet revenue recognition criteria is deferred.

Our contracts are typically less than one year in duration and we have elected to use the practical expedient available in ASC 606 to expense cost to obtain contracts as they are incurred because they would be amortized over less than one year.

Accounts receivable represents our unconditional right to receive consideration from our customer. Payments terms do not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on our condensed consolidated balance sheet in any of the periods presented.

On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our condensed consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped. At June 25, 2022, we had deferred revenue totaling approximately $18.6 million, current deferred profit of $10.4 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $5.8 million. At December 25, 2021, we had deferred revenue totaling approximately $21.9 million, current deferred profit of $13.2 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $6.1 million.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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

|  | Three Months Ended |  |  | Six Months Ended |
Disaggregated Net Sales |  | June 25, 2022 |  |  | June 26, 2021 |  |  | June 25, 2022 |  |  | June 26, 2021 |
Systems: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Semiconductor Test & Inspection |  | $ | 131,951 |  |  | $ | 149,661 |  |  | $ | 249,300 |  |  | $ | 287,820 |
PCB Test |  |  | - |  |  |  | 9,211 |  |  |  | - |  |  |  | 17,831 |
Non-systems: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Semiconductor Test & Inspection |  |  | 85,275 |  |  |  | 81,464 |  |  |  | 165,683 |  |  |  | 155,711 |
PCB Test |  |  | - |  |  |  | 4,467 |  |  |  | - |  |  |  | 8,929 |
Total net sales |  | $ | 217,226 |  |  | $ | 244,803 |  |  | $ | 414,983 |  |  | $ | 470,291 |

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

|  | Three Months Ended |  |  | Six Months Ended |
Disaggregated Net Sales |  | June 25, 2022 |  |  | June 26, 2021 |  |  | June 25, 2022 |  |  | June 26, 2021 |
China |  | $ | 46,585 |  |  | $ | 57,183 |  |  | $ | 85,238 |  |  | $ | 111,448 |
Malaysia |  |  | 28,857 |  |  |  | 19,136 |  |  |  | 48,973 |  |  |  | 42,395 |
Philippines |  |  | 21,562 |  |  |  | 36,533 |  |  |  | 45,947 |  |  |  | 70,287 |
United States |  |  | 19,553 |  |  |  | 21,878 |  |  |  | 43,316 |  |  |  | 41,937 |
Taiwan |  |  | 15,569 |  |  |  | 27,190 |  |  |  | 35,377 |  |  |  | 59,386 |
Rest of the World |  |  | 85,100 |  |  |  | 82,883 |  |  |  | 156,132 |  |  |  | 144,838 |
Total net sales |  | $ | 217,226 |  |  | $ | 244,803 |  |  | $ | 414,983 |  |  | $ | 470,291 |

A small number of customers historically have been responsible for a significant portion of our net sales. However, during the three and six months ended June 25, 2022 and June 26, 2021, no single customer represented more than 10% of consolidated net sales.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately $49.4 million and $27.3 million at June 25, 2022 and December 25, 2021, respectively, and was attributed to all non-owner changes in stockholders’ equity and consists of, on an after-tax basis where applicable, foreign currency adjustments resulting from the translation of certain of our subsidiary accounts where the functional currency is not the U.S. Dollar, unrealized loss on investments and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during the first six months of fiscal 2022 and 2021 were not significant.

Retiree Medical Benefits

We provide post-retirement health benefits to certain retired executives, one director (who is a former executive) and their eligible dependents under a noncontributory plan. These benefits are no longer offered to any other retired Cohu employees. The net periodic benefit cost incurred during the first six months of fiscal 2022 and 2021 was not significant.

Business Divestitures

On June 24, 2021, we completed the sale of our PCB Test Equipment (“PCB Test”) business, which represented our PCB Test segment. As part of the transaction we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. See Note 12, “Business Divestitures” for additional information on this transaction.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

New Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

2. | Goodwill and Purchased Intangible Assets

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended December 25, 2021, and the six-month period ended June 25, 2022, by segment, were as follows (in thousands):

|  | Semiconductor Test |  |  |  |  |  |  |  |  |
|  | & Inspection |  |  | PCB Test |  |  | Total |
Balance, December 26, 2020 |  | $ | 230,724 |  |  | $ | 21,580 |  |  | $ | 252,304 |
Sale of PCB Test Business (1) |  |  | - |  |  |  | (21,899 | ) |  |  | (21,899 | )
Impact of currency exchange |  |  | (10,933 | ) |  |  | 319 |  |  |  | (10,614 | )
Balance, December 25, 2021 |  |  | 219,791 |  |  |  | - |  |  |  | 219,791 |
Impact of currency exchange |  |  | (8,257 | ) |  |  | - |  |  |  | (8,257 | )
Balance, June 25, 2022 |  | $ | 211,534 |  |  | $ | - |  |  | $ | 211,534 |

| (1) | On June 24, 2021, we completed the sale of our PCB Test business. See Note 12, “Business Divestitures” for additional information.

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

|  | June 25, 2022 |  |  | December 25, 2021 |
|  |  |  |  |  |  |  |  |  | Remaining |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  |
|  | Gross |  |  |  |  |  |  | Average |  |  | Gross |  |  |  |  |
|  | Carrying |  |  | Accum. |  |  | Amort. |  |  | Carrying |  |  | Accum. |
|  | Amount |  |  | Amort. |  |  | Period (in years) |  |  | Amount |  |  | Amort. |
Developed technology |  | $ | 222,240 |  |  | $ | 114,503 |  |  |  | 4 |  |  | $ | 229,131 |  |  | $ | 104,855 |
Customer relationships |  |  | 64,027 |  |  |  | 27,939 |  |  |  | 7 |  |  |  | 65,916 |  |  |  | 26,189 |
Trade names |  |  | 20,220 |  |  |  | 8,366 |  |  |  | 6.8 |  |  |  | 20,877 |  |  |  | 7,714 |
Covenant not-to-compete |  |  | 261 |  |  |  | 143 |  |  |  | 4.5 |  |  |  | 308 |  |  |  | 154 |
Total intangible assets |  | $ | 306,748 |  |  | $ | 150,951 |  |  |  |  |  |  | $ | 316,232 |  |  | $ | 138,912 |

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 was approximately $8.3 million in the second quarter of fiscal 2022 and $16.9 million in the first six months of fiscal 2022. Amortization expense related to intangible assets was approximately $9.0 million in the second quarter of fiscal 2021 and $18.3 million in the first six months of fiscal 2021.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

3. | Borrowings and Credit Agreements

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

|  | June 25, |  |  | December 25, |
|  | 2022 |  |  | 2021 |
Bank Term Loan under Credit Agreement |  | $ | 79,330 |  |  | $ | 103,130 |
Bank Term Loans-Kita |  |  | 2,494 |  |  |  | 3,070 |
Construction Loan- Cohu GmbH |  |  | 8,910 |  |  |  | 10,045 |
Lines of Credit |  |  | 1,849 |  |  |  | 3,059 |
Total debt |  |  | 92,583 |  |  |  | 119,304 |
Less: financing fees and discount |  |  | (1,027 | ) |  |  | (1,514 | )
Less: current portion |  |  | (16,178 | ) |  |  | (14,397 | )
Total long-term debt |  | $ | 75,378 |  |  | $ | 103,393 |

Credit Agreement

On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Term Loan Credit Facility and borrowed the full amount to finance a portion of the Xcerra acquisition. Loans under the Term Loan Credit Facility amortize in equal quarterly installments of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal and interest in respect of the Term Loan Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Credit Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At June 25, 2022, the outstanding loan balance, net of discount and deferred financing costs, was $78.3 million and $13.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, the outstanding loan balance, net of discount and deferred financing costs, was $101.6 million and $10.1 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. As of June 25, 2022, the fair value of the debt was $78.1 million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of June 25, 2022 and is considered a Level 2 fair value measurement.

Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. As of June 25, 2022, we believe no such events of default have occurred.

During the first six months of 2022, we prepaid $22.0 million in principal of our Term Loan Credit Facility for $22.0 million in cash. We accounted for the prepayment as a debt extinguishment, which resulted in a loss of $0.2 million reflected in other expense, net, in our condensed consolidated statement of income and a $0.3 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets. During the first half of 2021, we repurchased $100.0 million in principal of our Term Loan Credit Facility for $100.0 million in cash. This resulted in a loss of $1.8 million reflected in other expense in our condensed consolidated statement of operations and a corresponding $1.8 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets. Approximately $79.3 million in principal of the Term Loan Credit Facility remains outstanding as of June 25, 2022.

Kita Term Loans

We have a series of term loans with Japanese financial institutions primarily related to the expansion of our facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest rates ranging from 0.05% to 0.43%, and expire at various dates through 2034. At June 25, 2022, the outstanding loan balance was $2.5 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, the outstanding loan balance was $3.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The fair value of the debt approximates the carrying value at June 25, 2022.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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

Construction Loans

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

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

At June 25, 2022, total outstanding borrowings under the Loan Facilities was $8.9 million with $0.9 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, total outstanding borrowings under the Loan Facilities was $10.0 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at June 25, 2022.

Lines of Credit

As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to 960 million Japanese Yen of which 250 million Japanese Yen is drawn. At June 25, 2022, total borrowings outstanding under the revolving lines of credit were $1.8 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our condensed consolidated balance sheets.

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

Our wholly owned subsidiary in Switzerland has one available line of credit which provides borrowings of up to a total of 2.0 million Swiss Francs, a portion of which is reserved for tax guarantees. At June 25, 2022 and December 25, 2021 no amounts were outstanding under this line of credit.

4. | Restructuring Charges

Subsequent to the acquisition of Xcerra on October 1, 2018, during the fourth quarter of 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding the recently acquired Xcerra (“Integration Program”). As part of the Integration Program we consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in Penang, Malaysia and Fontana, California in 2019.

In the second quarter of 2019, we entered into a social plan (“Plan”) with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH, as part of our Integration Program. During the fourth quarter of 2020 we implemented a voluntary program and termination agreements with certain employees of our wholly owned subsidiary, Cohu GmbH. These programs collectively reduced headcount, enabled us to consolidate the facilities of our multiple operations located near Kolbermoor and Rosenheim, Germany, as well as transitioned certain manufacturing to other lower cost regions. The facility consolidations and reduction in force programs were implemented as part of a comprehensive review of our operations and were intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

As a result of the activities described above, we recognized total pretax charges of $0.2 million and $2.1 million for the first six months ended June 25, 2022, and June 26, 2021, respectively, that are within the scope of ASC 420. All costs of the Integration Program were, and will be, incurred by our Semiconductor Test & Inspection segment.

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

The following table summarizes the activity within the restructuring related accounts for the Integration Program during the first six months ended June 25, 2022 and June 26, 2021 (in thousands):

|  | Severance and |  |  | Other Exit |  |  |  |  |
|  | Other Payroll |  |  | Costs |  |  | Total |
Balance, December 26, 2020 |  | $ | 5,826 |  |  | $ | - |  |  | $ | 5,826 |
Costs accrued |  |  | 1,125 |  |  |  | 832 |  |  |  | 1,957 |
Amounts paid or charged |  |  | (5,321 | ) |  |  | (832 | ) |  |  | (6,153 | )
Impact of currency exchange |  |  | (64 | ) |  |  | - |  |  |  | (64 | )
Balance, June 26, 2021 |  | $ | 1,566 |  |  | $ | - |  |  | $ | 1,566 |
Balance, December 25, 2021 |  | $ | 348 |  |  | $ | - |  |  | $ | 348 |
Costs accrued |  |  | (15 | ) |  |  | 598 |  |  |  | 583 |
Amounts paid or charged |  |  | (269 | ) |  |  | (598 | ) |  |  | (867 | )
Impact of currency exchange |  |  | (4 | ) |  |  | - |  |  |  | (4 | )
Balance, June 25, 2022 |  | $ | 60 |  |  | $ | - |  |  | $ | 60 |

At June 25, 2022, our total accrual for restructuring related items is reflected within current liabilities of our condensed consolidated balance sheets as these amounts are expected to be paid out within a year. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash.

5. | Financial Instruments Measured at Fair Value

Our cash, cash equivalents, and short-term investments consisted primarily of cash and other investment grade securities. We do not hold investment securities for trading purposes. All short-term investments in debt securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality investments and through investment diversification.

We assess whether unrealized loss positions on available-for-sale debt securities are due to credit-related factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in earnings through an allowance account. Unrealized gains and losses that are not due to credit-related factors are included in accumulated other comprehensive income (loss). Factors that could indicate an impairment exists include, but are not limited to earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on sales of short-term investments are included in interest income. Realized gains and losses for the periods presented were not significant.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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

|  | June 25, 2022 |
|  |  |  |  |  | Gross |  |  | Gross |  |  | Estimated |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses (1) |  |  | Value |
Corporate debt securities (2) |  | $ | 63,577 |  |  | $ | 3 |  |  | $ | 365 |  |  | $ | 63,215 |
U.S. treasury securities |  |  | 8,722 |  |  |  | - |  |  |  | 105 |  |  |  | 8,617 |
Bank certificates of deposit |  |  | 10,750 |  |  |  | 1 |  |  |  | 32 |  |  |  | 10,719 |
Foreign government security |  |  | 841 |  |  |  | - |  |  |  | - |  |  |  | 841 |
Asset-backed securities |  |  | 4,138 |  |  |  | - |  |  |  | 35 |  |  |  | 4,103 |
|  | $ | 88,028 |  |  | $ | 4 |  |  | $ | 537 |  |  | $ | 87,495 |

|  | December 25, 2021 |
|  |  |  |  |  | Gross |  |  | Gross |  |  | Estimated |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses (1) |  |  | Value |
Corporate debt securities (2) |  | $ | 84,060 |  |  | $ | 2 |  |  | $ | 31 |  |  | $ | 84,031 |
U.S. treasury securities |  |  | 3,953 |  |  |  | - |  |  |  | 5 |  |  |  | 3,948 |
Bank certificates of deposit |  |  | 800 |  |  |  | - |  |  |  | - |  |  |  | 800 |
Foreign government security |  |  | 925 |  |  |  | - |  |  |  | - |  |  |  | 925 |
|  | $ | 89,738 |  |  | $ | 2 |  |  | $ | 36 |  |  | $ | 89,704 |

| (1) | As of June 25, 2022 and December 25, 2021, the cost and fair value of investments with loss positions were approximately $79.7 million and $57.0 million, respectively. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity.

| (2) | Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio.

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

|  | June 25, 2022 |  |  | December 25, 2021 |
|  | Amortized |  |  | Estimated |  |  | Amortized |  |  | Estimated |
|  | Cost |  |  | Fair Value |  |  | Cost |  |  | Fair Value |
Due in one year or less |  | $ | 71,917 |  |  | $ | 71,636 |  |  | $ | 83,429 |  |  | $ | 83,408 |
Due after one year through three years |  |  | 16,111 |  |  |  | 15,859 |  |  |  | 6,309 |  |  |  | 6,296 |
|  | $ | 88,028 |  |  | $ | 87,495 |  |  | $ | 89,738 |  |  | $ | 89,704 |

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.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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 June 25, 2022 using: |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total estimated |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | fair value |
Cash |  | $ | 221,695 |  |  | $ | - |  |  | $ | - |  |  | $ | 221,695 |
U.S. treasury securities |  |  | - |  |  |  | 8,618 |  |  |  | - |  |  |  | 8,618 |
Corporate debt securities |  |  | - |  |  |  | 70,207 |  |  |  | - |  |  |  | 70,207 |
Asset-backed securities |  |  | - |  |  |  | 4,103 |  |  |  | - |  |  |  | 4,103 |
Money market funds |  |  | - |  |  |  | 51,898 |  |  |  | - |  |  |  | 51,898 |
Bank certificates of deposit |  |  | - |  |  |  | 10,719 |  |  |  | - |  |  |  | 10,719 |
Foreign government security |  |  | - |  |  |  | 841 |  |  |  | - |  |  |  | 841 |
|  | $ | 221,695 |  |  | $ | 146,386 |  |  | $ | - |  |  | $ | 368,081 |

|  | Fair value measurements at December 25, 2021 using: |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total estimated |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | fair value |
Cash |  | $ | 195,297 |  |  | $ | - |  |  | $ | - |  |  | $ | 195,297 |
Corporate debt securities |  |  | - |  |  |  | 86,535 |  |  |  | - |  |  |  | 86,535 |
U.S. treasury securities |  |  | - |  |  |  | 3,948 |  |  |  | - |  |  |  | 3,948 |
Money market funds |  |  | - |  |  |  | 92,400 |  |  |  | - |  |  |  | 92,400 |
Bank certificates of deposit |  |  | - |  |  |  | 800 |  |  |  | - |  |  |  | 800 |
Foreign government security |  |  | - |  |  |  | 925 |  |  |  | - |  |  |  | 925 |
|  | $ | 195,297 |  |  | $ | 184,608 |  |  | $ | - |  |  | $ | 379,905 |

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

6. | Employee Stock Benefit Plans

Our 2005 Equity Incentive Plan (“2005 Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that may be granted under the program include, but are not limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At June 25, 2022, there were 925,334 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 six months of fiscal 2022, we did not grant any stock options and we issued 12,442 shares of our common stock on the exercise of options that were granted previously. At June 25, 2022, we had no stock options exercisable and outstanding.

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 June 25, 2022.

In the first six months of fiscal 2022, we awarded 393,104 RSUs and issued 410,695 shares of our common stock on vesting of previously granted awards and 23,662 shares were forfeited. At June 25, 2022, we had 1,016,555 RSUs outstanding with an aggregate intrinsic value of approximately $28.3 million and the weighted average remaining vesting period was approximately 1.5 years.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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 ranges from 0% 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 or index for the performance period. PSUs granted vest 100% on the third anniversary of their grant, assuming achievement of the applicable performance criteria.

We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized ratably over the explicit 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.

In the first six months of fiscal 2022, we awarded 150,633 PSUs, we issued 55,009 shares of our common stock on vesting of previously granted awards and 68,975 shares were forfeited. At June 25, 2022, we had 411,139 PSUs outstanding with an aggregate intrinsic value of approximately $11.4 million and the weighted average remaining vesting period was approximately 1.6 years.

Employee Stock Purchase Plan

The Cohu, Inc. 1997 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of shares of our common stock. Under the ESPP, eligible employees may purchase shares of Cohu common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Cohu common stock at the beginning or end of each 6-month purchase period, subject to certain limits. During the first six months of fiscal 2022, 77,361 shares of our common stock were sold to our employees under the ESPP leaving 429,992 shares available for future issuance.

7. | Derivative Financial Instruments

Foreign Exchange Derivative Contracts

We operate and sell our products in various global markets and, as a result, we are exposed to changes in foreign currency exchange rates. In the fourth quarter of 2020, we began utilizing foreign currency forward contracts to offset future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our condensed consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our condensed consolidated statements of income for both realized and unrealized gains and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash provided by operating activities in our condensed consolidated statements of cash flows.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All our foreign exchange derivative contracts outstanding at June 25, 2022 will mature during the third quarter of fiscal 2022.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

The following table provides information about our foreign currency forward contracts outstanding as of June 25, 2022 (in thousands):

|  |  | Contract Amount |  |  | Contract Amount |
Currency | Contract Position |  | (Local Currency) |  |  | (U.S. Dollars) |
Euro | Buy |  |  | 59,670 |  |  | $ | 63,000 |
Swiss Franc | Buy |  |  | 29,075 |  |  |  | 30,400 |
South Korean Won | Buy |  |  | 2,597,500 |  |  |  | 2,000 |
Japanese Yen | Buy |  |  | 53,996 |  |  |  | 400 |
|  |  |  |  |  |  | $ | 95,800 |

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs. The fair values of foreign currency contracts outstanding at June 25, 2022 were immaterial.

The location and amount of gains and losses related to non-designated derivative instruments in the condensed consolidated statements of income were as follows (in thousands):

|  |  | Three months ended |  |  | Six months ended |
Derivatives not designated | Location of gain (loss) |  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
as hedging instruments | recognized on derivatives |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Foreign exchange forward contracts | Foreign transaction gain (loss) |  | $ | (2,841 | ) |  | $ | 166 |  |  | $ | (4,251 | ) |  |  | (1,349 | )

8. | Equity

Common Stock Issuance

On March 8, 2021, we closed an underwritten public offering of 4,950,000 shares of our common stock at $41.00 per share. As part of the transaction, the underwriters were also granted a 30-day option to purchase up to an aggregate of 742,500 additional shares of common stock to cover over-allotments which was exercised in full on March 11, 2021. The offering, and the follow-on option to sell additional shares, resulted in net proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately $223.1 million. All of the shares were sold pursuant to an effective shelf registration statement previously filed with the SEC.

Share Repurchase Program

On October 28, 2021, we announced that our Board of Directors authorized a $70 million share repurchase program. This share repurchase program was effective as of November 2, 2021 and has no expiration date, and the timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and may be commenced or suspended from time-to-time at our discretion without prior notice. Repurchases may be made in the open market, through 10b5-1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. During the three months ended June 25, 2022, we repurchased 504,102 shares of our common stock for $14.0 million to be held as treasury stock. During the six months ended June 25, 2022, we repurchased 717,808 shares of our common stock for $20.4 million to be held as treasury stock. As of June 25, 2022, $42.3 million of shares of our common stock remains available for us to repurchase under our share repurchase program.

Common Stock

On May 4, 2022, our stockholders approved an amendment to Cohu’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 60,000,000 to 90,000,000 shares. Accordingly, on May 5, 2022, we filed with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation implementing the approved changes (the “Restated Certificate”), and the Restated Certificate was effective as of that date.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

9. | Income Taxes

We used the estimated annual effective tax rate (“ETR”) expected to be applicable for the full fiscal year in computing our tax provision. The ETR on income for the three and six months ended June 25, 2022 was 23.6% and 23.2%, respectively, and reflects the impact of both new tax regulations and previously-enacted tax regulations now impacting the Company for the first time. New regulations impacting the tax provision include final regulations on foreign tax credits which limit the Company’s ability to claim credits in certain jurisdictions. Previously enacted legislation now impacting the Company include the requirements to capitalize research expenditures and software development costs, and the Company now being subjected to base erosion and anti-abuse tax rules as we exceeded certain revenue thresholds. These impacts were offset by a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation. The ETR on income for the three and six months ended June 26, 2021 was 15.7% and 14.8%, respectively, which were not impacted by the aforementioned tax regulations, reflected a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation.

We conduct business globally and as a result, Cohu or one or more of its subsidiaries files income tax returns in the US and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, Philippines and Malaysia. We believe our financial statement accruals for income taxes are appropriate.

In accordance with the disclosure requirements as described in ASC Topic 740, Income Taxes, we have classified unrecognized tax benefits as non-current income tax liabilities, or a reduction in non-current deferred tax assets, unless expected to be paid within one year. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the three and six months ended June 25, 2022. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the three and six months ended June 26, 2021.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

10. | Segment and Geographic Information

The summary below presents our reportable segments, Semiconductor Test & Inspection and PCB Test, for the six-month period ended June 26, 2021. Subsequent to the sale of our PCB Test business on June 24, 2021, we have one reportable segment, Semiconductor Test & Inspection. All amounts presented in our condensed consolidated balance sheet as of June 25, 2022 and our condensed consolidated statement of income for the three months ended June 25, 2022 represents the financial position and results of our remaining reportable segment.

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 26, |  |  | June 26, |
|  | 2021 |  |  | 2021 |
Net sales by segment: |  |  |  |  |  |  |  |
Semiconductor Test & Inspection |  | $ | 231,125 |  |  | $ | 443,531 |
PCB Test |  |  | 13,678 |  |  |  | 26,760 |
Total consolidated net sales for reportable segments |  | $ | 244,803 |  |  | $ | 470,291 |
Segment profit before tax: |  |  |  |  |  |  |  |
Semiconductor Test & Inspection |  | $ | 40,601 |  |  | $ | 77,228 |
PCB Test |  |  | 1,478 |  |  |  | 3,907 |
Profit for reportable segments |  |  | 42,079 |  |  |  | 81,135 |
Other unallocated amounts: |  |  |  |  |  |  |  |
Corporate expenses |  |  | (3,366 | ) |  |  | (6,839 | )
Gain on sale of PCB Test business |  |  | 75,779 |  |  |  | 75,664 |
Interest expense |  |  | (1,831 | ) |  |  | (4,406 | )
Interest income |  |  | 94 |  |  |  | 144 |
Loss on extinguishment of debt |  |  | - |  |  |  | (1,761 | )
Income from operations before taxes |  | $ | 112,755 |  |  | $ | 143,937 |

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

11. | Leases

We lease certain of our facilities, equipment and vehicles under non-cancelable operating and finance leases. Leases with initial terms of 12 months or less are not recorded on the condensed consolidated balance sheet, but we recognize those lease payments in the condensed consolidated statements of income 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 36 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.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

Supplemental balance sheet information related to leases was as follows:

(in thousands) | Classification |  | June 25, 2022 |  |  | December 25, 2021 |
Assets |  |  |  |  |  |  |  |  |
Operating lease assets | Operating lease right-of-use assets |  | $ | 23,519 |  |  | $ | 25,060 |
Finance lease assets | Property, plant and equipment, net (1) |  |  | 355 |  |  |  | 423 |
Total lease assets |  | $ | 23,874 |  |  | $ | 25,483 |
Liabilities |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |
Operating | Other accrued liabilities |  | $ | 4,838 |  |  | $ | 4,886 |
Finance | Other accrued liabilities |  |  | 119 |  |  |  | 167 |
Noncurrent |  |  |  |  |  |  |  |  |
Operating | Long-term lease liabilities |  |  | 20,412 |  |  |  | 21,977 |
Finance | Long-term lease liabilities |  |  | 34 |  |  |  | 63 |
Total lease liabilities |  | $ | 25,403 |  |  | $ | 27,093 |
Weighted-average remaining lease term (years) |  |  |  |  |  |  |  |
Operating leases |  |  | 6.6 |  |  |  | 6.9 |
Finance leases |  |  | 1.5 |  |  |  | 1.8 |
Weighted-average discount rate |  |  |  |  |  |  |  |
Operating leases |  |  | 6.3 | % |  |  | 6.3 | %
Finance leases |  |  | 1.0 | % |  |  | 0.7 | %

| (1) | Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of June 25, 2022 and December 25, 2021, respectively.

The components of lease expense were as follows:

|  | Three Months Ended |  |  | Six Months Ended |
(in thousands) |  | June 25, 2022 |  |  | June 26, 2021 |  |  | June 25, 2022 |  |  | June 26, 2021 |
Operating leases |  | $ | 1,676 |  |  | $ | 2,027 |  |  | $ | 3,392 |  |  | $ | 4,067 |
Variable lease expense |  |  | 526 |  |  |  | 574 |  |  |  | 1,063 |  |  |  | 1,126 |
Short-term operating leases |  |  | 1 |  |  |  | 34 |  |  |  | 2 |  |  |  | 67 |
Finance leases |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of leased assets |  |  | 26 |  |  |  | 24 |  |  |  | 58 |  |  |  | 45 |
Interest on lease liabilities |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Sublease income |  |  | (18 | ) |  |  | (21 | ) |  |  | (38 | ) |  |  | (40 | )
Net lease cost |  | $ | 2,212 |  |  | $ | 2,639 |  |  | $ | 4,478 |  |  | $ | 5,266 |

Future minimum lease payments at June 25, 2022, are as follows:

|  | Operating |  |  | Finance |  |  |  |  |
(in thousands) |  | leases (1) |  |  | leases |  |  | Total |
2022 |  | $ | 3,237 |  |  | $ | 84 |  |  | $ | 3,321 |
2023 |  |  | 5,731 |  |  |  | 48 |  |  |  | 5,779 |
2024 |  |  | 5,260 |  |  |  | 11 |  |  |  | 5,271 |
2025 |  |  | 5,058 |  |  |  | 11 |  |  |  | 5,069 |
2026 |  |  | 2,738 |  |  |  | 3 |  |  |  | 2,741 |
Thereafter |  |  | 9,586 |  |  |  | - |  |  |  | 9,586 |
Total lease payments |  |  | 31,610 |  |  |  | 157 |  |  |  | 31,767 |
Less: Interest |  |  | (6,361 | ) |  |  | (3 | ) |  |  | (6,364 | )
Present value of lease liabilities |  | $ | 25,249 |  |  | $ | 154 |  |  | $ | 25,403 |

| (1) | Excludes sublease income of $0.1 million in 2023.

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

Supplemental cash flow information related to leases was as follows:

|  | Six Months Ended |
(in thousands) |  | June 25, 2022 |  |  | June 26, 2021 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |
Operating cash flows from operating leases |  | $ | 3,329 |  |  | $ | 4,308 |
Operating cash flows from finance leases |  | $ | 1 |  |  | $ | - |
Financing cash flows from finance leases |  | $ | 86 |  |  | $ | 91 |
Leased assets obtained in exchange for new finance lease liabilities |  | $ | - |  |  | $ | 54 |
Leased assets obtained in exchange for new operating lease liabilities |  | $ | 1,251 |  |  | $ | 2,827 |

12. | Business Divestitures

PCB Test Equipment Business

On June 24, 2021, we completed the sale of our PCB Test Equipment (“PCB Test”) business, which represented our PCB Test reportable segment. As part of the transaction we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. Our decision to sell this non-core business resulted from management’s determination that it was no longer a fit within our organization. We received gross proceeds of $125.1 million, after completion of certain closing adjustments. The divestment generated a $70.8 million pre-tax gain on sale of business, which was recorded in our condensed consolidated statements of income. As a result of the closing of the transaction, we derecognized net assets of $48.2 million, including goodwill of $21.9 million and intangible assets of $14.8 million.

We evaluated the guidance in ASC Topic 205-20, Presentation of Financial Statements – Discontinued Operations, and determined that the divestment of our PCB Test business does not represent a strategic shift as the divestiture will not have a major effect on Cohu’s operations and financial results and, as a result, it is not presented as discontinued operations in any periods presented. Subsequent to the sale of our PCB Test business, we have one reportable segment, Semiconductor Test & Inspection.

13. | Contingencies

From time-to-time we are involved in various legal proceedings, examinations by various tax authorities and claims that have arisen in the ordinary course of our business. The outcome of any litigation is inherently uncertain. While there can be no assurance, we do not believe at the present time that the resolution of these matters will have a material adverse effect on our assets, financial position or results of operations.

14. | Guarantees

Product Warranty

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

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Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Balance at beginning of period |  | $ | 6,847 |  |  | $ | 7,138 |  |  | $ | 7,691 |  |  | $ | 6,382 |
Warranty expense accruals |  |  | 2,596 |  |  |  | 3,243 |  |  |  | 4,643 |  |  |  | 5,652 |
Warranty payments |  |  | (2,428 | ) |  |  | (1,895 | ) |  |  | (5,319 | ) |  |  | (3,548 | )
Liability transferred (1) |  |  | - |  |  |  | (945 | ) |  |  | - |  |  |  | (945 | )
Balance at end of period |  | $ | 7,015 |  |  | $ | 7,541 |  |  | $ | 7,015 |  |  | $ | 7,541 |

| (1) | Warranty liability transferred in connection with the sale of our PCB Test business.

Accrued warranty amounts expected to be incurred after one year are included in noncurrent other accrued liabilities in the condensed consolidated balance sheet. These amounts totaled $0.8 million and $1.1 million at June 25, 2022 and December 25, 2021, respectively.

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

June 25, 2022

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

This Form 10-Q contains certain forward-looking statements including expectations of market conditions, challenges and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the Safe Harbor provisions created by that statute. Such forward-looking statements are based on management’s current expectations and beliefs, including estimates and projections about our business and include, but are not limited to, statements concerning financial position, business strategy, our industry environment, market growth expectations, and plans or objectives for future operations. Forward-looking statements are not guarantees of future performance, and are subject to certain risks, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ materially from management’s current expectations. Such risks and uncertainties include those set forth in this Quarterly Report on Form 10-Q and our 2021 Annual Report on Form 10-K under the heading “Item 1A. Risk Factors”. The forward-looking statements in this report speak only as of the time they are made, and do not necessarily reflect management’s outlook at any other point in time. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or for any other reason, however, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the SEC after the date of this Quarterly Report. This Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain of our products. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, and general publications, government data, and similar sources.

OVERVIEW

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

For the second quarter ended June 25, 2022, on a sequential, quarter-over-quarter, basis our consolidated net sales increased 9.8% to $217.2 million. Over the past twelve months, consolidated net sales benefitted from growth in our semiconductor test business, and we saw improvements in gross margin due to favorable product mix, and increased insourcing of contactor manufacturing. Also, price increases offset cost increases in our supply chain. Based on the strength of current business conditions and the results from our operations, we have continued to take actions to reduce outstanding principal under our Term Loan Credit Facility through voluntary prepayments and we have also repurchased 717,808 shares of our common stock for approximately $20.4 million during the first half of 2022.

We continue to focus on building a well-balanced and resilient business model. Our long-term market drivers and market strategy remain intact, and we are encouraged by demand across our main market segments, along with customer traction with our new products. We continue to capture new customers and remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors, the continued rollout of 5G networks, increasing semiconductor complexity, increasing quality demands from semiconductor customers, increasing test intensity and continued proliferation of electronics in a variety of products across the automotive, mobility, industrial and consumer markets.

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

June 25, 2022

Application of Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. COVID-19 remains a concern throughout the United States and other countries around the world, and the duration and severity of the effects are currently unknown. We base our estimates on historical experience, forecasts and on various other assumptions that are believed to be reasonable under the current circumstances, however actual results may differ from those estimates under different assumptions or conditions. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

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

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

| ● | estimation of valuation allowances and accrued liabilities, specifically inventory reserves, which impact gross margin or operating expenses;

| ● | the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits, the valuation allowance on deferred tax assets and accounting for the impact of the change to U.S. tax law as described herein, which impact our tax provision, and

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

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

Revenue Recognition: Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur. Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as the transfer of control is completed for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment. Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At June 25, 2022, we had $7.4 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, and not as a separate performance obligation. The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The estimate is based on information available for projected future sales. Variable consideration that does not meet revenue recognition criteria is deferred. Accounts receivable represents our unconditional right to receive consideration from our customer. Payments terms do not exceed one year from the invoice date and therefore do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the condensed consolidated balance sheet in any of the periods presented. On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our condensed consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped.

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

June 25, 2022

Accounts Receivable: We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required. Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit losses is adequate and represents our best estimate of future losses, we will continue to monitor customer liquidity and other economic conditions, including the impact of the COVID-19 pandemic, which may result in changes to our estimates.

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

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

Segment Information: We applied the provisions of ASC 280, which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We have determined that our three identified operating segments are: THG, STG and ISG. Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in one segment, Semiconductor Test & Inspection. Prior to the sale of our PCB Test Group on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test.

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

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

June 25, 2022

We conduct our annual impairment test as of October 1st of each year and determined that there was no impairment as of October 1, 2021, as 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.

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

During the first half of 2022, no events or conditions occurred suggesting an impairment in our goodwill and other intangible assets.

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

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

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

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

June 25, 2022

Recent Accounting Pronouncements

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

RESULTS OF OPERATIONS

Recent Transactions Impacting Results of Operations

On June 24, 2021, we completed the sale of our PCB Test business, which represented our PCB Test reportable segment. As part of the transaction, we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. Our decision to sell this non-core business resulted from management’s determination that it was no longer a fit within our organization.

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 25, |  |  | June 26, |  |  | June 25, |  |  | June 26, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net sales |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %
Cost of sales |  |  | (53.5 | ) |  |  | (57.2 | ) |  |  | (53.7 | ) |  |  | (56.0 | )
Gross margin |  |  | 46.5 |  |  |  | 42.8 |  |  |  | 46.3 |  |  |  | 44.0 |
Research and development |  |  | (10.7 | ) |  |  | (9.6 | ) |  |  | (11.1 | ) |  |  | (9.9 | )
Selling, general and administrative |  |  | (15.0 | ) |  |  | (13.4 | ) |  |  | (15.4 | ) |  |  | (14.0 | )
Amortization of purchased intangible assets |  |  | (3.8 | ) |  |  | (3.7 | ) |  |  | (4.1 | ) |  |  | (3.9 | )
Restructuring charges |  |  | (0.0 | ) |  |  | (0.3 | ) |  |  | (0.1 | ) |  |  | (0.4 | )
Gain on sale of PCB Test business |  |  | - |  |  |  | 31.0 |  |  |  | - |  |  |  | 16.1 |
Income from operations |  |  | 17.0 | % |  |  | 46.8 | % |  |  | 15.6 | % |  |  | 31.9 | %

Second Quarter of Fiscal 2022 Compared to Second Quarter of Fiscal 2021

Net Sales

Our consolidated net sales decreased 11.3% to $217.2 million in 2022, compared to $244.8 million in 2021. Although customer test cell utilization rates remain high and we continue to benefit from robust demand for semiconductor test equipment, as compared to the prior year, our net sales declined during the second quarter of fiscal 2022 due to lower demand for mobility and 5G-related products.

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

Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of materials, assembly and test labor and overhead from operations. Our gross margin can fluctuate due to a number of factors, including, but not limited to, the mix and volume of products sold, product support costs, material, labor, supplier, logistics and other operating cost changes, changes to inventory reserves or the sale of previously reserved inventory and utilization of manufacturing capacity. Our gross margin, as a percentage of net sales for the second fiscal quarter, was 46.5% in 2022 and 42.8% in 2021. Our gross margin for the second fiscal quarter of 2022 improved compared to the prior year due to favorable product mix, and increased insourcing of contactor manufacturing.

Our gross margin can be impacted by charges to cost of sales related to excess, obsolete and lower of cost or net realizable value inventory issues. During the second quarter of 2022 and 2021, we recorded charges to cost of sales of $1.7 million and $1.8 million for excess and obsolete inventory, respectively. While we believe our reserves for excess and obsolete inventory and lower of cost or net realizable value concerns are adequate to cover known exposures at June 25, 2022, reductions in customer forecasts or continued modifications to products, as a result of our failure to meet specifications or other customer requirements, may result in additional charges to operations that could negatively impact our gross margin in future periods.

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

R&D expense consists primarily of salaries and related costs of employees engaged in ongoing research, product design and development activities, costs of engineering materials and supplies and professional consulting expenses. R&D expense was $23.2 million in 2022 and $23.4 million in 2021 representing 10.7% and 9.6% of net sales, respectively. On an absolute dollar basis total R&D expense decreased during the second fiscal quarter of 2022 as increased spending on labor and material costs associated with product development during the current year was offset by a reduction in expense due to the divestment of our PCB Test business, which incurred $0.8 million of R&D expense during the three months ended June 26, 2021. Total R&D expense as a percentage of net sales was higher in the second quarter of 2022 because of lower net sales.

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

June 25, 2022

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

SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for independent sales representatives, product promotion and costs of professional services. SG&A expense was $32.5 million or 15.0% of net sales in 2022, compared to $32.8 million or 13.4% in 2021. On an absolute dollar basis SG&A expense decreased during the second fiscal quarter of 2022 as higher costs were offset by a reduction in expense due to the divestment of our PCB Test business, which incurred $1.7 million of SG&A expense during the three months ended June 26, 2021. Total SG&A expense as a percentage of net sales was higher in the second quarter of 2022 because of lower net sales.

Amortization of Purchased Intangible Assets

Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $8.3 million and $9.0 million in the second quarter of 2022 and 2021, respectively. The decrease in expense recorded during the current year was a result of fluctuations in exchange rates and the sale of PCB Test business, as remaining purchased intangible assets that were being amortized were written-off as part of the sale.

Restructuring Charges

Subsequent to the acquisition of Xcerra on October 1, 2018, during the fourth quarter of 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding Xcerra. In the second quarter of 2021, we recorded restructuring charges totaling $0.6 million. Restructuring charges recorded in the second fiscal quarter of 2022 were not material.

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

Gain on Sale of PCB Test Business

On June 24, 2021, we completed the divestment of our PCB Test business which resulted in a gain of $75.8 million for the three months ended June 26, 2021. As part of the transaction, we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. Our decision to sell this non-core business resulted from management’s determination that it was no longer a fit within our organization.

Interest Expense and Income

Interest expense was $0.9 million in the second fiscal quarter of 2022 as compared to $1.8 million in the corresponding period of 2021. The decrease in interest expense primarily resulted from a reduction in the outstanding balance of our Term Loan Credit Facility.

Interest income was $0.3 million and $90,000 in the second fiscal quarter of 2022 and 2021, respectively.

Income Taxes

We used the estimated annual ETR expected to be applicable for the full fiscal year in computing our tax provision. The ETR on income for the three months ended June 25, 2022 was 23.6% and reflects the impact of both new tax regulations and previously-enacted tax regulations now impacting the Company for the first time. New regulations impacting the tax provision include final regulations on foreign tax credits which limit the Company’s ability to claim credits in certain jurisdictions. Previously enacted legislation now impacting the Company include the requirements to capitalize research expenditures and software development costs, and the Company now being subjected to base erosion and anti-abuse tax rules as we exceeded certain revenue thresholds. These impacts were offset by a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation. The ETR on income for the three months ended June 26, 2021 was 15.7% which was not impacted by the aforementioned tax regulations, reflected a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation.

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

June 25, 2022

We conduct business globally and, as a result, Cohu or one or more of its subsidiaries files income tax returns in the US and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, Philippines and Malaysia. We believe our financial statement accruals for income taxes are appropriate.

In accordance with the disclosure requirements as described in ASC 740, we have classified unrecognized tax benefits as non-current income tax liabilities, or a reduction in non-current deferred tax assets, unless expected to be paid within one year. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the three months ended June 25, 2022 and June 26, 2021.

Net Income

As a result of the factors set forth above, our net income was $28.8 million the three months ended June 25, 2022 and for the three months ended June 26, 2021, which includes the gain on the sale of our PCB Test Business discussed above, our net income was $95.1 million.

First Six Months of Fiscal 2022 Compared to First Six Months of Fiscal 2021

Net Sales

Our consolidated net sales decreased 11.8% to $415.0 million in 2022, compared to $470.3 million in 2021. Although customer test cell utilization rates remain high and we continue to benefit from robust demand for semiconductor test equipment, as compared to the prior year, our net sales declined during the first six months of 2022 due to lower demand for mobility and 5G-related products as well as the divestiture of our PCB Test business, which contributed $26.8 million in sales in the first six months of 2021.

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

Our gross margin, as a percentage of net sales, increased to 46.3% in 2022 from 44.0% in 2021. Our gross margin can fluctuate due to a number of factors, including, but not limited to, the mix of products sold, product support costs, material, labor, supplier, logistics and other operating cost changes, inventory reserve adjustments, and utilization of manufacturing capacity. Gross margins for the first six months of 2022 improved over the prior year due to favorable product mix, and increased insourcing of contactor manufacturing.

In the first six months of fiscal 2022 and 2021 we recorded charges to cost of sales of approximately $2.5 million and $2.6 million for excess and obsolete inventory, respectively. While we believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures at June 25, 2022, reductions in customer forecasts or continued modifications to products, as a result of our failure to meet specifications or other customer requirements, may result in additional charges to operations that could negatively impact our results of operations and gross margin in future periods.

R&D Expense

R&D expense was $46.3 million or 11.1% of net sales in 2022, compared to $46.6 million or 9.9% in 2021. R&D expense decreased during the first six months of 2022 as increased spending on labor and material costs associated with product development was more than offset by a reduction in expense due to the divestment of our PCB Test business, which incurred $1.5 million of R&D expense during the first six months of 2021. Total R&D expense as a percentage of net sales was higher in the first six months of 2022 because of lower net sales.

SG&A Expense

SG&A expense was $63.8 million or 15.4% of net sales in 2022, compared to $65.5 million or 14.0% in 2021. The decrease in SG&A expense in 2022 was driven by the divestment of our PCB Test business, which incurred $3.3 million of SG&A expense during the six months ended June 26, 2021. Total SG&A expense as a percentage of net sales was higher in the first six months of 2022 because of lower net sales.

Amortization of Purchased Intangible Assets

Amortization of acquisition-related intangible assets was $16.9 million and $18.3 million for the first six months of 2022 and 2021, respectively. The decrease in expense recorded during the current year was a result of fluctuations in exchange rates and the sale of PCB Test business on June 24, 2021, as remaining purchased intangible assets that were being amortized were written-off as part of the sale.

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

June 25, 2022

Restructuring Charges

We recorded restructuring charges, exclusive of the specific inventory related charges described above, totaling $0.6 million and $1.9 million in the first six months of 2022 and 2021, respectively.

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

Gain on Sale of PCB Test Business

On June 24, 2021, we completed the divestment of our PCB Test business which resulted in a gain of $75.7 million for the first six months of 2021. As part of the transaction, we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. Our decision to sell this non-core business resulted from management’s determination that it was no longer a fit within our organization.

Interest Expense and Income

Interest expense was $1.9 million in the first six months of 2022 as compared to $4.4 million in the corresponding period of 2021. The decrease in interest expense resulted from a reduction in the outstanding balance of our Term Loan Credit Facility.

Interest income was $0.4 million and $0.1 million in the first six months of 2022 and 2021, respectively.

Income Taxes

We used the estimated annual ETR expected to be applicable for the full fiscal year in computing our tax provision. The ETR on income for the six months ended June 25, 2022 was 23.2% and reflects the impact of both new tax regulations and previously-enacted tax regulations now impacting the Company for the first time. New regulations impacting the tax provision include final regulations on foreign tax credits which limit the Company’s ability to claim credits in certain jurisdictions. Previously enacted legislation now impacting the Company include the requirements to capitalize research expenditures and software development costs, and the Company now being subjected to base erosion and anti-abuse tax rules as we exceeded certain revenue thresholds. These impacts were offset by a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation. The ETR on income for the six months ended June 26, 2021 was 14.8% which was not impacted by the aforementioned tax regulations, reflected a partial release of our domestic valuation allowance on deferred tax assets to offset tax liabilities on current year earnings and excess benefits relating to stock-based compensation.

We conduct business globally and, as a result, Cohu or one or more of its subsidiaries files income tax returns in the US and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, Philippines and Malaysia. We believe our financial statement accruals for income taxes are appropriate.

In accordance with the disclosure requirements as described in ASC 740, we have classified unrecognized tax benefits as non-current income tax liabilities, or a reduction in non-current deferred tax assets, unless expected to be paid within one year. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the six months ended June 25, 2022 and June 26, 2021.

Net Income

As a result of the factors set forth above in 2022, our net income was $50.3 million as compared to $122.7 million in 2021 which includes the gain on the sale of our PCB Test Business discussed above.

LIQUIDITY AND CAPITAL RESOURCES

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

Our primary historical source of liquidity and capital resources has been cash flow generated by our operations and we manage our businesses to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating assets and to fund new products and product enhancements primarily through research and development. As of June 25, 2022, $115.2 million or 41.1% of our cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay foreign withholding taxes if we repatriate these funds. Except for working capital requirements in certain jurisdictions, we provide for all withholding and other residual taxes related to unremitted earnings of our foreign subsidiaries.

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

June 25, 2022

At June 25, 2022, our total indebtedness, net of discount and deferred financing costs, was $91.6 million, which included $78.3 million outstanding under the Term Loan Credit Facility, $2.5 million outstanding under Kita’s term loans, $8.9 million outstanding under Cohu GmbH’s construction loan and $1.8 million outstanding under Kita’s lines of credit. During the first six months of fiscal 2022, we prepaid $22.0 million in principal of our Term Loan Credit Facility and we repurchased 717,808 shares of our outstanding common stock, to be held as treasury stock, for $20.4 million.

Liquidity

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

|  | June 25, |  |  | December 25, |  |  | Increase |  |  | Percentage |
(in thousands) |  | 2022 |  |  | 2021 |  |  | (Decrease) |  |  | Change |
Cash, cash equivalents and short-term investments |  | $ | 368,081 |  |  | $ | 379,905 |  |  | $ | (11,824 | ) |  |  | (3.1 | )%
Working capital |  | $ | 573,028 |  |  | $ | 558,334 |  |  | $ | 14,694 |  |  |  | 2.6 | %

Cash Flows

Operating Activities: Operating cash flows for the first six months of fiscal 2022 consisted of our net income, adjusted for non-cash expenses and changes in operating assets and liabilities. These adjustments include depreciation expense on property, plant and equipment, share-based compensation expense, amortization of intangible assets, deferred income taxes, amortization of cloud-based software implementation costs, loss on extinguishment of debt, capitalized interest associated with cloud computing implementation, amortization of debt discounts and issuance costs and sales of property, plant and equipment. Our net cash provided by operating activities in the first six months of fiscal 2022 totaled $45.8 million. Net cash provided by operating activities was impacted by changes in current assets and liabilities and included increases in accounts receivable of $24.9 million, customer advances of $9.5 million, other current assets of $7.0 million, income taxes payable of $7.0 million, inventories of $6.0 million and decreases in accrued compensation, warranty and other liabilities of $8.4 million, and deferred profit of $2.6 million. The increase in accounts receivable was due to the timing of cash collections on net sales recognized in the first half of 2022. The increase in customer advances represents cash received from customers in advance of product shipments that are expected to occur during the second half of 2022. Other current assets increased from advance payments for services that will be utilized throughout 2022. The increase in income taxes payable is driven by taxable income generated in the first quarter of 2022 and the increase in inventory was driven by purchases from suppliers made to fulfill anticipated future shipments of products. Accrued compensation, warranty and other liabilities decreased due to payments of incentive compensation related to the prior year during the first quarter of 2022 and the recognition of revenue that was previously deferred in accordance with our revenue recognition policy resulted in the decrease in deferred profit.

Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business, purchases of investments, proceeds from investment maturities, business divestitures and asset disposals. Net cash used in investing activities in the first six months of fiscal 2022 totaled $3.9 million. In the first six months of fiscal 2022 we used $72.4 million of cash for purchases of short-term investments and generated $74.2 million from sales and maturities. We invest our excess cash, in an attempt to seek the highest available return while preserving capital, in short-term investments since excess cash may be required for a business-related purpose. Additions to property, plant and equipment of $5.7 million were made to support our operating and development activities.

Financing Activities: Financing cash flows consist primarily of net proceeds from the issuance of common stock under our stock option and employee stock purchase plans, repurchases of shares made under our share repurchase program and repayments of debt, net of new borrowings. We issue restricted stock units and maintain an employee stock purchase plan as components of our overall employee compensation. In the first six months of fiscal 2022, cash used to settle the minimum statutory tax withholding requirements on behalf of our employees upon vesting of restricted and performance stock awards, net of proceeds from the exercise of employee stock options was $3.2 million. We made payments totaling $20.4 million in the first six months of 2022 for shares of our common stock repurchased under our share repurchase program to be held as treasury stock. Repayments of short-term borrowings and long-term debt during the first six months of fiscal 2022 totaled $25.2 million.

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

June 25, 2022

Share Repurchase Program

On October 28, 2021, we announced that our Board of Directors authorized a $70 million share repurchase program. This share repurchase program was effective as of November 2, 2021, has no expiration date, and the timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and may be commenced or suspended from time-to-time at our discretion without prior notice. Repurchases may be made in the open market, through 10b5-1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. For the six months ended June 25, 2022, we repurchased 717,808 shares of our common stock for $20.4 million to be held as treasury stock. As of June 25, 2022, $42.3 million of shares of our common stock remains available for us to repurchase under our share repurchase program.

Capital Resources

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

Credit Agreement

On October 1, 2018, we entered into a Credit Agreement providing for a $350.0 million Term Loan Credit Facility and borrowed the full amount to finance a portion of the Xcerra acquisition. Loans under the Term Loan Credit Facility amortize in equal quarterly installments of 0.25% of the original principal amount, with the balance payable at maturity. All outstanding principal and interest in respect of the Term Loan Credit Facility must be repaid on or before October 1, 2025. The loans under the Term Loan Credit Facility bear interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00%. At June 25, 2022, the outstanding loan balance, net of discount and deferred financing costs, was $78.3 million and $13.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, the outstanding loan balance, net of discount and deferred financing costs, was $101.6 million and $10.1 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets.

Under the terms of the Credit Agreement, the lender may accelerate the payment terms upon the occurrence of certain events of default set forth therein, which include: the failure of Cohu to make timely payments of amounts due under the Credit Agreement, the failure of Cohu to adhere to the representations and covenants set forth in the Credit Agreement, the failure to provide notice of any event that causes a material adverse effect or to provide other required notices, upon the event that related collateral agreements become ineffective, upon the event that certain legal judgments are entered against Cohu, the insolvency of Cohu, or upon the change of control of Cohu. As of June 25, 2022, we believe no such events of default have occurred.

During the first six months of 2022, we prepaid $22.0 million in principal of our Term Loan Credit Facility for $22.0 million in cash. We accounted for the prepayment as a debt extinguishment, which resulted in a loss of $0.2 million reflected in other expense, net, in our condensed consolidated statement of income and a $0.3 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets. During the first half of 2021, we repurchased $100.0 million in principal of our Term Loan Credit Facility for $100.0 million in cash. This resulted in a loss of $1.8 million reflected in other expense in our condensed consolidated statement of operations and a corresponding $1.8 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets. Approximately $79.3 million in principal of the Term Loan Credit Facility remained outstanding as of June 25, 2022.

Kita Term Loans

We have a series of term loans with Japanese financial institutions primarily related to the expansion of our facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest rates ranging from 0.05% to 0.43%, and expire at various dates through 2034. At June 25, 2022, the outstanding loan balance was $2.5 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, the outstanding loan balance was $3.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

Construction Loans

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

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Cohu, Inc.

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

June 25, 2022

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

At June 25, 2022, total outstanding borrowings under the Loan Facilities was $8.9 million with $0.9 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 25, 2021, total outstanding borrowings under the Loan Facilities was $10.0 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at June 25, 2022.

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 access to working capital totaling up to 960 million Japanese Yen of which 250 million Japanese Yen is drawn. At June 25, 2022, total borrowings outstanding under the revolving lines of credit were $1.8 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our condensed consolidated balance sheets.

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

Our wholly owned subsidiary in Switzerland has one available line of credit which provides borrowings of up to a total of 2.0 million Swiss Francs, a portion of which is reserved for tax guarantees. At June 25, 2022 and December 25, 2021, no amounts were outstanding under this line of credit.

We also have a letter of credit facility (“LC Facility”) under which Bank of America, N.A., has agreed to administer the issuance of letters of credit on our behalf. The LC Facility requires us to maintain deposits of cash or other approved investments in amounts that approximate our outstanding letters of credit and contains customary restrictive covenants. In addition, our wholly owned subsidiary, Xcerra, has arrangements with various financial institutions for the issuance of letters of credit and bank guarantees. As of June 25, 2022, $0.3 million was outstanding under standby letters of credit and bank guarantees.

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

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations: Our significant contractual obligations consist of liabilities for debt, operating leases, unrecognized tax benefits, pensions, post-retirement benefits and warranties. During the first six months of 2022, we prepaid $22.0 million in outstanding principal of our Term Loan Credit Facility. Aside from the repayment of outstanding principal of our Term Loan Credit Facility, there were no material changes to these obligations outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

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

Off-Balance Sheet Arrangements: During the ordinary course of business, we provide standby letters of credit instruments to certain parties as required. As of June 25, 2022, $0.3 million was outstanding under standby letters of credit.

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Cohu, Inc.

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

June 25, 2022

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Investment and Interest Rate Risk.

At June 25, 2022, our investment portfolio included short-term fixed-income investment securities with a fair value of approximately $87.5 million. These securities are subject to interest rate risk and will likely decline in value if interest rates increase. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. As we classify our short-term securities as available-for-sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be credit-related. Due to the relatively short duration of our investment portfolio, an immediate ten percent change in interest rates would have no material impact on our financial condition or results of operations.

We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time sufficient for anticipated recovery of market value. As of June 25, 2022, the cost and fair value of investments we held with loss positions were approximately $79.7 million. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity.

Our long-term debt is carried at amortized cost and immaterial fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our debt will generally fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. As of June 25, 2022, we have approximately $78.3 million of long-term debt under a Term Loan Credit Facility that is subject to quarterly interest payments that are based on either a base rate plus a margin of up to 2.0% per annum, or the London Interbank Offered Rate ("LIBOR") plus a margin of up to 3.0% per annum. The selection of the interest rate formula is at our discretion. The interest rate otherwise payable under the Term Loan Credit Facility will be subject to increase by 2.0% per annum during the continuance of a payment default and may be subject to increase by 2.0% per annum with respect to the overdue principal amount of any loans outstanding and overdue interest payments and other overdue fees and amounts. At June 25, 2022, the interest rate in effect on these borrowings was 3.5%. In July 2017, the UK’s Financial Conduct Authority (“FCA”), which regulates the LIBOR, announced that it intended to phase out LIBOR by the end of 2021. In March 2021, the FCA announced an extension of the phase out in the case of U.S. dollar settings for certain tenors until the end of June 2023. Various central bank committees and working groups continue to discuss replacement of benchmark rates, the process for amending existing LIBOR-based contracts, and the potential economic impacts of different alternatives. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023. While the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen the secured overnight financing rate ("SOFR") as the recommended risk-free reference rate for the U.S, we cannot currently predict the extent to which this index will gain widespread acceptance as a replacement for LIBOR. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate. Our Term Loan Credit Facility constitutes our most significant exposure to this transition and there is no guarantee that a shift from LIBOR to a new reference rate will not result in increases to our borrowing costs.

Foreign Currency Exchange Risk.

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

During the fourth quarter of 2020, we began entering into foreign currency forward contracts with a financial institution to offset future movements in foreign exchange rates that affect certain existing U.S. Dollar denominated assets and liabilities held at our subsidiaries whose functional currency is the local currency. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

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Cohu, Inc.

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

June 25, 2022

Fluctuations in currency exchange rates also impact the U.S. Dollar amount of our net investment in foreign operations. The assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. Income and expense accounts are translated at an average exchange rate during the period which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. As a result of fluctuations in certain foreign currency exchange rates in relation to the U.S. Dollar as of June 25, 2022, compared to December 25, 2021, our stockholders’ equity increased by $21.4 million.

Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. Dollar as compared to these currencies as of June 25, 2022 would result in an approximate $32.6 million positive translation adjustment recorded in other comprehensive income within stockholders’ equity. Conversely, a hypothetical 10% appreciation of the U.S. Dollar as compared to these currencies as of June 25, 2022 would result in an approximate $32.6 million negative translation adjustment recorded in other comprehensive income within stockholders’ equity.

Item 4. Controls and Procedures.

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

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

(b) Changes in Internal Control over Financial Reporting. During the three months ended June 25, 2022, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II | OTHER INFORMATION

Item 1. | Legal Proceedings.
| The information set forth above under Note 13 contained in the "Notes to Unaudited Condensed Consolidated Financial Statements" of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

The most significant risk factors applicable to Cohu are described in Part I, Item 1A (Risk Factors) of Cohu’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021 (our “2021 Form 10-K”). There have been no material changes to the risk factors previously disclosed in our 2021 Form 10-K, except that we have updated the risk factors set forth below to reflect events occurring since the filing of our 2021 Form 10-K.

Risks Associated with Operating a Global Business

Political instability resulting from the military incursion into Ukraine by Russia continues to cause significant disruption to foreign and domestic economies, leading to broad and significant economic sanctions against Russia with an ongoing impact to material and commodity prices while raising sustained global uncertainty.

The rising tensions related to Russia’s actions have resulted in the United States and many European countries imposing significant economic sanctions on Russia and specific individuals targeted as having connections to the Russian government. The totality of these actions has continued to impact international trade relationships, and resulted in sustained increases in the cost of materials, where higher oil and other commodity prices have resulted in further increased shipping and transportation costs. Furthermore, energy shortages, particularly with respect to natural gas, should they occur in Europe, would disrupt our test handler operations and research and development activities at our Kolbermoor, Germany and La Chaux-de-Fonds facilities. Any increases in the cost, or shortages, of materials or energy may continue to create supply issues for critical materials that could constrain manufacturing levels for Cohu’s customers, leading to a decrease in demand for Cohu’s products.

The global impact of the military action and subsequent imposing of sanctions continues to evolve and cannot be sufficiently measured or predicted with certainty. The inherent uncertainty surrounding this war has negatively impacted the share prices of publicly traded companies and may continue to do so. Government entities and both public and private companies within the United States could be exposed to attempted or actual cybersecurity attacks launched in retaliation, resulting in disruptions to domestic markets and a prolonged state of global market volatility. Furthermore, there remains ongoing uncertainty with respect to China’s willingness to support ongoing or expanded sanctions, that could distance China from its existing trade partners, potentially creating a significant impact to the semiconductor chip and equipment industries that conduct operations within China, Taiwan and the region. There is a likelihood that these sanctions, and related geopolitical tensions, will not be resolved in the short-term but will have a lengthy disruption to all global companies.

Ongoing inflationary pressures on costs, including those for raw and packaging materials, components and subassemblies, labor and distribution costs, along with rising interest rates, may impact our financial condition or results of operation.

As a global manufacturer, we rely on raw materials, packaging materials, direct labor, energy, a large network of suppliers, distribution resources and transportation providers. In 2022, these costs, including those for transportation and other inputs necessary for the production and distribution of our products, have increased. The COVID-19 pandemic caused significant increases in freight and shipping costs, and global inflationary pressures have pushed those costs even higher. In addition, we continue to see significant price increases and shortages on certain specialty semiconductors necessary for the production of test instruments for our semiconductor ATE products, and these events have adversely impacted our gross margins on such products. These events are driven by factors beyond our control, and although we are unable to predict the longer-term impacts, we expect these pressures to continue throughout 2022.

Our efforts to offset these cost pressures, such as through product price increases, or attempting to reduce operating costs elsewhere, may not be successful. Higher product prices may result in reductions in sales volume as customers may be less willing to pay a price differential for our products and may purchase lower-priced competitive offerings or may delay some purchases altogether. To the extent that this may result in decreases in sales volume, our financial condition or operating results may be adversely affected.

Our financial condition or operating results may also be affected by increasing interest rates, which the Federal Reserve has raised multiple times in 2022, with expectations for additional increases during the remainder of the year. Given our remaining indebtedness, Cohu is incurring increased interest expenses. In addition, our indebtedness may make us more vulnerable to changes in general economic conditions, with future inflationary pressures and efforts to reign in such an impact coupled with continued interest rate increases, thereby making it more difficult for us to satisfy our obligations.

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

Recent Sales of Unregistered Securities

There were no unregistered sales of equity securities during the period covered by this report.

Issuer Purchases of Equity Securities

On October 28, 2021, we announced that our Board of Directors authorized a $70 million share repurchase program. This share repurchase program was effective as of November 2, 2021 and has no expiration date, and the timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and may be commenced or suspended from time-to-time at our discretion without prior notice. Repurchases may be made in the open market, through 10b5-1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. All such repurchased shares and related costs are held as treasury stock and accounted for at trade date using the cost method. The total number of shares of common stock we purchased during the three months ended June 25, 2022 was 504,102 shares of our common stock for $14.0 million to be held as treasury stock. As of June 25, 2022, $42.3 million of shares of our common stock remains available for us to repurchase under our share repurchase program.

Share repurchase activity during the second quarter of 2022 was as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  | Total Number of |  |  | Maximum $ |
|  | Total |  |  | Weighted |  |  |  |  |  |  | Shares Purchased |  |  | Value of Shares |
|  | Number of |  |  | Average |  |  | Total |  |  | as Part of Publicly |  |  | That May Yet Be |
|  | Shares |  |  | Price Paid |  |  | Purchase |  |  | Announced |  |  | Purchased Under |
|  | Purchased |  |  | Per Share(1) |  |  | Cost(2) |  |  | Programs(3) |  |  | The Programs(3) |
(In thousands except price per share amounts) |  |  |  |  |  |  |  |  |  |  |  |  |
Mar 27 - Apr 23, 2022 |  |  | 130 |  |  | $ | 26.84 |  |  | $ | 3,492 |  |  |  | 130 |  |  | $ | 52,796 |
Apr 24 - May 21, 2022 |  |  | 204 |  |  | $ | 28.10 |  |  | $ | 5,739 |  |  |  | 204 |  |  | $ | 47,056 |
May 22 - Jun 25, 2022 |  |  | 170 |  |  | $ | 27.97 |  |  | $ | 4,758 |  |  |  | 170 |  |  | $ | 42,298 |
|  |  | 504 |  |  | $ | 27.73 |  |  | $ | 13,989 |  |  |  | 504 |  |  |  |  |

(1) | The weighted average price paid per share of common stock does not include the cost of commissions.
(2) | The total purchase cost includes the cost of commissions.
(3) | On October 28, 2021, we announced that our Board of Directors authorized a $70 million share repurchase program. This share repurchase program is effective as of November 2, 2021 and has no expiration date, and the timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and may be commenced or suspended from time-to-time at our discretion without prior notice. Repurchases may be made in the open market, through 10b5-1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. All such repurchased shares and related costs are held as treasury stock and accounted for at trade date using the cost method.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

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Item 6. |  | Exhibits.
3.1 |  | Amended and Restated Certificate of Incorporation of Cohu, Inc., dated May 4, 2022, incorporated herein by reference to Exhibit 3.1 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2022
31.1 |  | Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| COHU, INC. |
| (Registrant) |
Date: July 29, 2022 | /s/ Luis A. Müller |
| Luis A. Müller |
| President & Chief Executive Officer |
Date: July 29, 2022 | /s/ Jeffrey D. Jones |
| Jeffrey D. Jones |
| Senior Vice President, Finance & Chief Financial Officer |
| (Principal Financial & Accounting Officer) |

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