COHU INC

Previous wording

Cohu is a leading supplier of semiconductor test and inspection metrology automation systems (handlers), MEMS test modules, test contactors, thermal subsystems, and semiconductor ATE 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 and operating budgets of our customers, who often abruptly delay or accelerate purchases in reaction to variations in their business. The level of expenditure by these companies depends on the current and anticipated market demand for semiconductor devices and the products that incorporate them. Our recurring 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 recurring products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products.

Current wording

Cohu is a leading supplier of test and inspection metrology automation systems, MEMS test modules, test contactors, thermal subsystems, data analytics software to optimize manufacturing yield and productivity, and automated test equipment (ATE) 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 and operating budgets of our customers, who often abruptly delay or accelerate purchases in reaction to variations in their business. The level of expenditure by these companies depends on the current and anticipated market demand for semiconductor devices and the products that incorporate them. Our recurring 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 recurring products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products.

Previous wording

During 2023 and into the first six months of fiscal 2024, global macroeconomic and geopolitical factors impacted the semiconductor industry. In response to the higher cost of capital and slowing demand, many chip companies have been cutting costs, reducing employee headcount, and pushing out capital expenditures for additional capacity. For the second quarter ended June 29, 2024, on a sequential, quarter-over-quarter basis, our consolidated net sales declined 2.7% to $104.7 million due to lower demand in automotive, industrial, and mobile applications, driven by these global economic conditions.

Current wording

During 2023 and into the first nine months of fiscal 2024, global macroeconomic and geopolitical factors impacted the semiconductor industry. In response to the higher cost of capital and slowing demand, and above targeted inventory levels, many chip companies have been cutting costs, reducing employee headcount, and pushing out capital expenditures for additional capacity. For the third quarter ended September 28, 2024, on a sequential, quarter-over-quarter basis, our consolidated net sales declined 9.0% to $95.3 million due to lower demand in automotive, industrial, and mobile applications, driven by these global economic conditions.

Previous wording

We continue to focus on building a well-balanced and resilient business model, executing on customer design-wins and in developing innovative products. Our long-term market drivers and market strategy remain intact, and we are encouraged by increased use of semiconductors including the most recent developments in artificial intelligence (“AI”), along with customer traction with our new products. We continue to capture new customers and new opportunities and remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors, 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, mobile, industrial, computing, and consumer markets.

Current wording

We continue to focus on building a well-balanced and resilient business model, executing on customer design-wins and in developing innovative products. Our long-term market drivers and market strategy remain intact, and we are encouraged by increased use of semiconductors including the most recent developments in artificial intelligence (“AI”), along with customer traction with our new products. We continue to capture new customers and new opportunities and remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors, increasing semiconductor complexity, increasing quality demands from semiconductor customers, increasing test intensity, increasing focus on automation and Industry 4.0 initiatives, and continued proliferation of electronics in a variety of products across the automotive, mobile, industrial, computing, and consumer markets.

Previous wording

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 the completion of services. In circumstances where control is not transferred until destination or acceptance, we defer revenue recognition until such events occur. Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include standard warranties. Service revenue is recognized over time as 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. On June 29, 2024, we had $5.9 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) with expected durations of over one year. As allowed under ASC 606, we have opted not to disclose unsatisfied performance obligations for contracts with original expected durations of less than one year. We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, 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 unkno…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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 and non-system products or the completion of 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 and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include standard warranties. Service revenue is recognized over time as 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, that 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. On September 28, 2024, we had $5.8 million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) with expected durations of over one year. As allowed under ASC 606, we have opted not to disclose unsatisfied performance obligations for contracts with original expected durations of less than one year. We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC 460, 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 cu…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We conduct our annual impairment test as of October 1st of each year and have determined there was no impairment as of October 1, 2023, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of June 29, 2024, we do not believe that circumstances have occurred that indicate impairment of our goodwill is more-likely-than-not. In the event we determine that an interim goodwill impairment review is required in a future period, the review may result in an impairment charge, which would have a negative impact on our results of operations.

Current wording

We conduct our annual impairment test as of October 1st of each year and have determined there was no impairment as of October 1, 2023, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of September 28, 2024, we do not believe there were indicators of impairment requiring an interim test. In the event we determine that an interim goodwill impairment review is required in a future period, the review may result in an impairment charge, which would have a negative impact on our results of operations.

Previous wording

During the first six months of fiscal 2024, no events or conditions occurred suggesting an impairment in our long-lived assets.

Current wording

During the first nine months of fiscal 2024, no events or conditions occurred suggesting an impairment in our long-lived assets.

Previous wording

Our consolidated net sales decreased 38.0% to $104.7 million in 2024, compared to $168.9 million in 2023 due to the current global macroeconomic environment, which is driving lower demand for automotive, industrial, computing, and mobile (including 5G-related products) applications. Consolidated net sales in the second quarter of fiscal 2024 include the net sales of EQT, which Cohu acquired on October 2, 2023, and totaled $4.9 million.

Current wording

Our consolidated net sales decreased 36.8% to $95.3 million in 2024, compared to $150.8 million in 2023 primarily due to the current global macroeconomic environment, which is driving lower demand for automotive, industrial, computing, and mobile applications. Consolidated net sales in the third quarter of fiscal 2024 include $3.0 million of net sales of EQT, which Cohu acquired on October 2, 2023.

Previous wording

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, changes in inventory reserves, the sale of previously reserved inventory and business volume which impacts the utilization of our manufacturing capacity. Our gross margin, as a percentage of net sales for the second fiscal quarter, was 44.8% in 2024 and 47.5% in 2023. During the second quarter of fiscal 2024, our gross margin declined compared to the prior year period due to lower business volume which impacted our ability to leverage fixed costs.

Current wording

Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of materials, assembly, 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, changes in inventory reserves, the sale of previously reserved inventory and business volume which impacts the utilization of our manufacturing capacity. Our gross margin, as a percentage of net sales for the third fiscal quarter, was 46.8% in 2024 and 47.0% in 2023. During the third quarter of fiscal 2024, our gross margin declined slightly due to lower business volume impacting our ability to leverage fixed costs.

Previous wording

We compute the majority of our excess and obsolete inventory reserve requirements using inventory usage forecasts. During the second quarter of fiscal 2024 and 2023, we recorded charges to cost of sales of $0.3 million and $1.1 million for excess and obsolete inventory, respectively. We believe our reserves for excess and obsolete inventory and lower of cost or net realizable value are adequate to cover known exposures as of June 29, 2024. Further reductions in customer forecasts, continued modifications to products, or 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.

Current wording

We compute the majority of our excess and obsolete inventory reserve requirements using inventory usage forecasts. During the third quarter of fiscal 2024 and 2023, we recorded charges to cost of sales of $0.8 million and $1.0 million for excess and obsolete inventory, respectively. We believe our reserves for excess and obsolete inventory and lower of cost or net realizable value are adequate to cover known exposures as of September 28, 2024. Further reductions in customer forecasts, continued modifications to products, or 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.

Previous wording

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 $21.3 million in fiscal 2024 and $22.5 million in fiscal 2023 representing 20.4% and 13.3% of net sales, respectively. During the second fiscal quarter of 2024 R&D expenses decreased due to lower spending on material costs associated with new product development. Our R&D costs in the second quarter of fiscal 2024 included $0.5 million of incremental costs from EQT.

Current wording

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 $20.3 million in fiscal 2024 and $21.5 million in fiscal 2023 representing 21.3% and 14.2% of net sales, respectively. During the third fiscal quarter of 2024 R&D expenses decreased due to lower spending on material costs associated with new product development and lower incentive compensation due to current business conditions. Our R&D costs in the third quarter of fiscal 2024 included $0.4 million of incremental costs from EQT.

Previous wording

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 $32.1 million or 30.7% of net sales in fiscal 2024, compared to $32.8 million or 19.4% in fiscal 2023. The increase in SG&A expense as a percentage of net sales is a result of lower sales in fiscal 2024. SG&A expense during the second fiscal quarter of 2024 includes $1.2 million of one-time severance costs resulting from manufacturing transition related to the expansion of our factories in the Philippines and Malaysia and $0.8 million of incremental SG&A costs from the operations of EQT. The second quarter of fiscal 2023 included $0.1 million of transaction costs incurred related to the acquisition of MCT and EQT. Transaction costs incurred in the second quarter of fiscal 2024 were not material.

Current wording

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 $30.3 million or 31.8% of net sales in fiscal 2024, compared to $32.4 million or 21.5% in fiscal 2023. The increase in SG&A expense as a percentage of net sales is a result of lower sales in fiscal 2024. SG&A expense during the third fiscal quarter of 2024 was down on a year-over-year basis due to lower incentive compensation due to current business conditions. SG&A expense in the third quarter of fiscal 2024 also includes $0.5 million of one-time severance costs resulting from manufacturing transition related to the expansion of our factories in the Philippines and Malaysia and $0.7 million of incremental SG&A costs from the operations of EQT. The third quarter of fiscal 2023 included $0.4 million of incremental SG&A costs from the operations of MCT and $0.8 million of transaction related costs incurred specifically related to the acquisitions of MCT and EQT. No transaction costs were incurred in the third quarter of fiscal 2024.

Previous wording

Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $9.7 million and $9.0 million in the second fiscal quarter of 2024 and 2023, respectively. The increase in expense recorded during second quarter of fiscal 2024 resulted from the amortization of acquired intangible assets from the acquisition of EQT.

Current wording

Amortization of purchased intangibles is the process of expensing the cost of an intangible asset acquired through a business combination over the projected life of the asset. Amortization of acquisition-related intangible assets was $9.8 million and $8.9 million in the third fiscal quarter of 2024 and 2023, respectively. The increase in expense recorded during the third quarter of fiscal 2024 resulted from the amortization of acquired intangible assets from the acquisition of EQT.

Previous wording

During the first quarter of 2023, we began a strategic restructuring and integration program in connection with the acquisition of MCT. Restructuring costs incurred in the second quarter of fiscal 2023 related to the integration of MCT which was acquired on January 30, 2023, and totaled $0.4 million. Amounts for restructuring recorded in the second quarter of fiscal 2024 were not material.

Current wording

During the first quarter of 2023, we began a strategic restructuring and integration program in connection with the acquisition of MCT. Restructuring costs incurred in the third quarter of fiscal 2023 related to the integration of MCT which was acquired on January 30, 2023 totaled $0.7 million. Amounts for restructuring recorded in the third quarter of fiscal 2024 were not material.

Previous wording

Interest expense was $0.1 million and $0.7 million in the second fiscal quarter of 2024 and 2023, respectively. On February 9, 2024, we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility. The payoff of our Term Loan Credit Facility resulted in lower interest expense in the second quarter of fiscal 2024 compared to the prior year.

Current wording

Interest expense was $0.1 million and $0.8 million in the third fiscal quarter of 2024 and 2023, respectively. On February 9, 2024, we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility. The payoff of our Term Loan Credit Facility resulted in lower interest expense in the third quarter of fiscal 2024 compared to the prior year.

Previous wording

Interest income was $2.3 million and $2.7 million in the second quarter of fiscal 2024 and 2023, respectively. The decrease in interest income year-over-year is a result of lower investment balances in the second quarter of fiscal 2024 resulting from the repayment of the Term Loan Credit Facility.

Current wording

Interest income was $2.6 million and $3.2 million in the third quarter of fiscal 2024 and 2023, respectively. The decrease in interest income year-over-year is a result of lower investment balances in the third quarter of fiscal 2024 resulting from the repayment of the Term Loan Credit Facility.

Previous wording

Our second quarter 2024 ETR reflects the impact of certain foreign earnings taxed at rates higher than the U.S. statutory rate and an increase in the U.S. valuation allowance, primarily attributable to capitalized research and development costs and intangible assets.

Current wording

Our third quarter 2024 ETR reflects the impact of certain foreign earnings taxed at rates higher than the U.S. statutory rate and an increase in the U.S. valuation allowance, primarily attributable to capitalized research and development costs and intangible assets.

Previous wording

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, the Philippines, Malaysia and Thailand. We believe our financial statement accruals for income taxes are appropriate.

Current wording

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, the Philippines, Malaysia and California. We believe our financial statement accruals for income taxes are appropriate.

Previous wording

As a result of the factors set forth above, our net loss was $15.8 million for the three months ended June 29, 2024. For the three months ended July 1, 2023, our net income was $10.6 million.

Current wording

As a result of the factors set forth above, our net loss was $18.1 million for the three months ended September 28, 2024. For the three months ended September 30, 2023, our net income was $3.9 million.

Previous wording

Our consolidated net sales decreased 39.0% to $212.3 million in 2024, compared to $348.3 million in 2023 due to the current global macroeconomic environment, which is driving lower demand for automotive, industrial, computing, and mobile (including 5G-related products) applications. Consolidated net sales for the first six months of fiscal 2024 include the net sales of EQT, which Cohu acquired on October 2, 2023, and totaled $8.7 million.

Current wording

Our consolidated net sales decreased 38.4% to $307.7 million in 2024, compared to $499.1 million in 2023 due to the current global macroeconomic environment, which is driving lower demand for automotive, industrial, computing, and mobile applications. Consolidated net sales for the first nine months of fiscal 2024 include $11.7 million of net sales of EQT, which Cohu acquired on October 2, 2023.

Previous wording

Our gross margin, as a percentage of net sales, decreased to 45.3% in 2024 from 47.8% in 2023 due to lower business volume impacting our ability to leverage fixed costs.

Current wording

Our gross margin, as a percentage of net sales, decreased to 45.8% in 2024 from 47.5% in 2023 due to lower business volume impacting our ability to leverage fixed costs.

Previous wording

In the first six months of fiscal 2024 and 2023 we recorded charges to cost of sales of approximately $2.0 million and $3.0 million for excess and obsolete inventory, respectively. We believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures as of June 29, 2024. Reductions in customer forecasts or continued modifications to products, or 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.

Current wording

In the first nine months of fiscal 2024 and 2023 we recorded charges to cost of sales for excess and obsolete inventory of approximately $2.8 million and $4.0 million, respectively. We believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures as of September 28, 2024. Reductions in customer forecasts or continued modifications to products, or 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.

Previous wording

R&D expense was $43.7 million or 20.6% of net sales in 2024, compared to $45.0 million or 12.9% in 2023. R&D expense decreased during the first six months of fiscal 2024 due to lower spending on material costs associated with new product development during the current year. The first six months of fiscal 2024 included $0.9 million, of incremental costs from EQT.

Current wording

R&D expense was $64.0 million or 20.8% of net sales in 2024, compared to $66.5 million or 13.3% in 2023. R&D expense decreased during the first nine months of fiscal 2024 due to lower spending on material costs associated with new product development during the current year and lower incentive compensation due to current business conditions. The first nine months of fiscal 2024 included $1.3 million of incremental costs from EQT.

Previous wording

SG&A expense was $67.2 million or 31.6% of net sales in 2024, compared to $67.0 million or 19.2% in 2023. The increase in SG&A expense as a percentage of net sales is a result of lower sales in the first six months of fiscal 2024. SG&A expense during the first six months of fiscal 2024 includes $2.9 million of one-time severance costs resulting from manufacturing transition related to the expansion of our factories in the Philippines and Malaysia, a $1.0 million impairment charge related to our investment in Fraes-und Technologiezentrum GmbH Frasdorf (“FTZ”), a company based in Germany that provides milling services to one of our wholly owned subsidiaries, $1.7 million of incremental SG&A costs from the operations of EQT, and $0.2 million of transaction costs related to our acquisition of MCT and EQT. The first six months of fiscal 2023 included $0.5 million of transaction costs related to acquisitions of MCT and EQT.

Current wording

SG&A expense was $97.5 million or 31.7% of net sales in 2024, compared to $99.4 million or 19.9% in 2023. The increase in SG&A expense as a percentage of net sales is a result of lower sales in the first nine months of fiscal 2024. SG&A expense during the first nine months of fiscal 2024 was down on a year-over-year basis due to lower incentive compensation due to current business conditions. SG&A expense during the first nine months of fiscal 2024 includes $3.4 million of one-time severance costs resulting from manufacturing transition related to the expansion of our factories in the Philippines and Malaysia, a $0.9 million impairment charge related to our investment in Fraes-und Technologiezentrum GmbH Frasdorf (“FTZ”), a company based in Germany that provides milling services to one of our wholly owned subsidiaries, $2.4 million of incremental SG&A costs from the operations of EQT, and $0.2 million of transaction costs related to our acquisition of MCT and EQT. The first nine months of fiscal 2023 included $1.3 million of transaction related costs incurred specifically related to the acquisitions of MCT and EQT.

Previous wording

Amortization of acquisition-related intangible assets was $19.5 million and $17.8 million for the first six months of 2024 and 2023, respectively. The increase in expense recorded during the first six months of fiscal 2024 was a result of the amortization of acquired intangible assets from MCT and EQT.

Current wording

Amortization of acquisition-related intangible assets was $29.3 million and $26.6 million for the first nine months of 2024 and 2023, respectively. The increase in expense recorded during the first nine months of fiscal 2024 was a result of the amortization of acquired intangible assets from MCT and EQT.

Previous wording

We recorded restructuring charges totaling $1.3 million in the first six months of fiscal 2023. Amounts recorded related to restructuring in the first six months of fiscal 2024 were not material. Costs incurred in the first six months of fiscal 2024 and 2023 relate to the integration of MCT which was acquired on January 30, 2023.

Current wording

We recorded restructuring charges totaling $2.0 million in the first nine months of fiscal 2023. Amounts recorded related to restructuring in the first nine months of fiscal 2024 were not material. Costs incurred in the first nine months of fiscal 2024 and 2023 relate to the integration of MCT which was acquired on January 30, 2023.

Previous wording

Interest expense was $0.4 million and $1.9 million in the first six months of 2024 and 2023, respectively. On February 9, 2024, we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility. We accounted for the transaction as a debt extinguishment, which resulted in us recognizing a loss of $0.2 million to write-off all remaining debt discount and deferred financing costs. The payoff of our Term Loan Credit Facility has resulted in lower interest expense in fiscal 2024 compared to the prior year period.

Current wording

Interest expense was $0.5 million and $2.6 million in the first nine months of 2024 and 2023, respectively. On February 9, 2024, we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility. We accounted for the transaction as a debt extinguishment, which resulted in us recognizing a loss of $0.2 million to write-off all remaining debt discount and deferred financing costs. The payoff of our Term Loan Credit Facility has resulted in lower interest expense in fiscal 2024 compared to the prior year period.

Previous wording

Interest income was $5.0 million and $5.5 million in the first six months of 2024 and 2023, respectively. The year-over-year decrease resulted from lower cash and investment balances in the first six months of fiscal 2024 due to the repayment of the Term Loan Credit Facility.

Current wording

Interest income was $7.7 million and $8.7 million in the first nine months of 2024 and 2023, respectively. The year-over-year decrease resulted from lower cash and investment balances in the first nine months of fiscal 2024 due to the repayment of the Term Loan Credit Facility.

Previous wording

The ETR on income for the six months ended June 29, 2024 reflects the impact of certain foreign earnings taxed at rates higher than the U.S. statutory rate and an increase in the U.S. valuation allowance attributable to capitalized research and development costs, offset by a reduction in unrecognized tax benefits in certain foreign tax jurisdictions.

Current wording

The ETR on income for the nine months ended September 28, 2024 reflects the impact of certain foreign earnings taxed at rates higher than the U.S. statutory rate and an increase in the U.S. valuation allowance attributable to capitalized research and development costs, offset by a reduction in unrecognized tax benefits in certain foreign tax jurisdictions.

Previous wording

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, the Philippines, Malaysia and Thailand. We believe our financial statement accruals for income taxes are appropriate.

Current wording

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, the Philippines, Malaysia and California. We believe our financial statement accruals for income taxes are appropriate.

Previous wording

In accordance with the disclosure requirements 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 was a material reduction to our unrecognized tax benefits in certain foreign tax jurisdictions during the six months ended June 29, 2024. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the six months ended July 1, 2023.

Current wording

In accordance with the disclosure requirements 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 was a material reduction to our unrecognized tax benefits in certain foreign tax jurisdictions during the nine months ended September 28, 2024. There were no material changes to our unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the nine months ended September 30, 2023.

Previous wording

As a result of the factors set forth above, our net loss was $30.4 million in 2024. Our net income was $26.3 million in 2023.

Current wording

As a result of the factors set forth above, our net loss was $48.5 million for the nine months ended September 28, 2024. For the nine months ended September 30, 2023, our net income was $30.2 million.

Previous wording

Our primary historical source of liquidity and capital resources has been cash flow generated by operations and we manage our business 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 29, 2024, $161.3 million or 79.4% of our cash, 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.

Current wording

Our primary historical source of liquidity and capital resources has been cash flow generated by operations and we manage our business 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 September 28, 2024, $125.1 million or 66.1% 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.

Previous wording

At June 29, 2024, our total indebtedness, net of discount and deferred financing costs, included $1.7 million outstanding under Kita’s term loans, $7.0 million outstanding under Cohu GmbH’s construction loan and $1.2 million outstanding under Kita’s lines of credit. On February 9, 2024, we made a cash payment of $29.3 million to repay the remaining outstanding amounts owed under our Term Loan Credit Facility and we repurchased 600,504 shares of our outstanding common stock, to be held as treasury stock, for $18.9 million, during the first six months of fiscal 2024.

Current wording

At September 28, 2024, our total indebtedness, net of discount and deferred financing costs, included $1.9 million outstanding under Kita’s term loans, $7.2 million outstanding under Cohu GmbH’s construction loan and $1.4 million outstanding under Kita’s lines of credit. On February 9, 2024, we made a cash payment of $29.3 million to repay the remaining outstanding amounts owed under our Term Loan Credit Facility and we repurchased 915,504 shares of our outstanding common stock, to be held as treasury stock, for $27.0 million, during the first nine months of fiscal 2024.

Previous wording

Operating Activities:* *Operating cash flows for the first six months of fiscal 2024 consisted of our net loss, adjusted for non-cash expenses and changes in operating assets and liabilities. These adjustments include impairment charges, depreciation expense on property, plant and equipment, share-based compensation expense, amortization of intangible assets, deferred income taxes, amortization of cloud-based software implementation costs, impairment charge on equity investment, loss on extinguishment of debt, amortization of debt discounts and issuance costs and sales of property, plant and equipment. Our net cash used in operating activities in the first six months of fiscal 2024 totaled $12.9 million. Net cash used by operating activities was impacted by changes in current assets and liabilities and included an increase in other current assets of $12.1 million and decreases in accounts receivable of $19.5 million, accrued compensation, warranty and other liabilities of $12.9 million, accounts payable of $12.0 million, inventory of $6.0 million and income taxes payable of $3.1 million. Other current assets, which includes prepaids and income taxes receivable, increased from prepayments of certain expenses that will be utilized throughout fiscal 2024 and the timing difference of accrual and receipt of income taxes. The decreases in accounts receivable and accounts payable were a result of the timing of cash collections on net sales recognized and payments made to suppliers during the first six months of fiscal 2024. Accrued compensation, warranty and other liabilities decreased due to payments of incentive compensation related to the prior year that were paid in the first quarter of 2024 and lower accruals made during the current year period. Inventory decreased due to a reduction in purchases in response to current business conditions and the income taxes payable decrease was driven by payments.

Current wording

Operating Activities:* *Operating cash flows for the first nine months of fiscal 2024 consisted of our net loss, adjusted for non-cash expenses and changes in operating assets and liabilities. These adjustments include impairment charges, depreciation expense on property, plant and equipment, share-based compensation expense, amortization of intangible assets, deferred income taxes, amortization of cloud-based software implementation costs, impairment charge on equity investment, loss on extinguishment of debt, amortization of debt discounts and issuance costs and sales of property, plant and equipment. Our net cash provided by operating activities in the first nine months of fiscal 2024 totaled $4.5 million. Net cash provided by operating activities was impacted by changes in current assets and liabilities and included an increase in other current assets of $14.5 million and decreases in accounts receivable of $32.5 million, accounts payable of $10.8 million, accrued compensation, warranty and other liabilities of $9.0 million, inventory of $8.1 million and income taxes payable of $3.8 million. Other current assets, which includes prepaids and income taxes receivable, increased from prepayments of certain expenses that will be utilized throughout fiscal 2024 and the timing difference of accrual and receipt of income taxes. The decreases in accounts receivable and accounts payable were a result of the timing of cash collections on net sales recognized and payments made to suppliers during the first nine months of fiscal 2024. Accrued compensation, warranty and other liabilities decreased due to payments of incentive compensation related to the prior year that were paid in the first quarter of 2024 and lower accruals made during the current year period. Inventory decreased due to a reduction in purchases in response to current business conditions and the income taxes payable decrease was driven by payments.

Previous wording

Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business, purchases of investments, business acquisitions and proceeds from investment maturities, and asset disposals and business divestitures. Our net cash provided by investing activities in the first six months of fiscal 2024 totaled $26.0 million. We generated $57.7 million from sales and maturities and used $26.4 million of cash for purchases of short-term investments in the first six months of fiscal 2024. 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 in the first six months of fiscal 2024 were $5.3 million were made to support our operating and development activities and include amounts related to the expansion of our factories in the Philippines and Malaysia.

Current wording

Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our business, purchases of investments, business acquisitions and proceeds from investment maturities, and asset disposals and business divestitures. Our net cash provided by investing activities in the first nine months of fiscal 2024 totaled $3.7 million. We generated $76.8 million from sales and maturities and used $65.6 million of cash for purchases of short-term investments in the first nine months of fiscal 2024. 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 in the first nine months of fiscal 2024 of $7.6 million, which were made to support our operating and development activities and include amounts related to the expansion of our factories in the Philippines and Malaysia.

Previous wording

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 and repayments of debt. We issue restricted stock units, including performance stock units, and maintain an employee stock purchase plan as components of our overall employee compensation. In the first six months of fiscal 2024, 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 shares issued under our employee stock purchase plan, was $2.6 million. We made payments totaling $18.9 million in the first six months of fiscal 2024 for shares of our common stock repurchased under our share repurchase program to be held as treasury stock. Repayments of debt during the first six months of fiscal 2024 totaled $30.2 million.

Current wording

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 and repayments of debt. We issue restricted stock units, including performance stock units, and maintain an employee stock purchase plan as components of our overall employee compensation. In the first nine months of fiscal 2024, 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 shares issued under our employee stock purchase plan, was $2.6 million. We made payments totaling $27.0 million in the first nine months of fiscal 2024 for shares of our common stock repurchased under our share repurchase program to be held as treasury stock. Repayments of debt during the first nine months of fiscal 2024 totaled $30.4 million.

Previous wording

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. On October 25, 2022, our Board of Directors authorized an additional $70 million under the share repurchase program. 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 29, 2024, we repurchased 600,504 shares of our common stock for $18.9 million to be held as treasury stock. As of June 29, 2024, we may purchase up to $39.4 million of shares of our common stock under our share repurchase program.

Current wording

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. On October 25, 2022, our Board of Directors authorized an additional $70 million under the share repurchase program. 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 nine months ended September 28, 2024, we repurchased 915,504 shares of our common stock for $27.0 million to be held as treasury stock. As of September 28, 2024, $31.4 million remained available for us to repurchase shares of our common stock under our share repurchase program.

Previous wording

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

Current wording

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

Previous wording

We have a series of term loans with Japanese financial institutions primarily related to the expansion of our facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest at rates ranging from 0.05% to 0.55%, and expire at various dates through 2034. At June 29, 2024, the outstanding loan balance was $1.7 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023, the outstanding loan balance was $2.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

Current wording

We have a series of term loans with Japanese financial institutions primarily related to the expansion of our facility in Osaka, Japan. The loans are collateralized by the facility and land, carry interest at rates ranging from 0.05% to 0.69%, and expire at various dates through 2034. At September 28, 2024, the outstanding loan balance was $1.9 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023, the outstanding loan balance was $2.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The term loans are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.

Previous wording

At June 29, 2024, total outstanding borrowings under the Loan Facilities was $7.0 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. At December 30, 2023, total outstanding borrowings under the Loan Facilities was $7.7 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at June 29, 2024.

Current wording

At September 28, 2024, total outstanding borrowings under the Loan Facilities was $7.2 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023, total outstanding borrowings under the Loan Facilities was $7.7 million with $1.0 million of the total outstanding balance being presented as current installments of long-term debt in our condensed consolidated balance sheets. The loans are denominated in Euros and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates. The fair value of the debt approximates the carrying value at September 28, 2024.