0001437749-22-018062.txt : 20220729 0001437749-22-018062.hdr.sgml : 20220729 20220729060952 ACCESSION NUMBER: 0001437749-22-018062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 79 CONFORMED PERIOD OF REPORT: 20220625 FILED AS OF DATE: 20220729 DATE AS OF CHANGE: 20220729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COHU INC CENTRAL INDEX KEY: 0000021535 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 951934119 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04298 FILM NUMBER: 221117141 BUSINESS ADDRESS: STREET 1: 12367 CROSTHWAITE CIRCLE CITY: POWAY STATE: CA ZIP: 92064-6817 BUSINESS PHONE: 858-848-8100 MAIL ADDRESS: STREET 1: 12367 CROSTHWAITE CIRCLE CITY: POWAY STATE: CA ZIP: 92064-6817 FORMER COMPANY: FORMER CONFORMED NAME: COHU ELECTRONICS INC DATE OF NAME CHANGE: 19720809 10-Q 1 cohu20220625_10q.htm FORM 10-Q cohu20220625_10q.htm
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.

 

7
Table of Contents

  

 

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.

 

8
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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.

 

14
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Cohu, Inc.

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.

 

15
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Cohu, Inc.

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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Cohu, Inc.

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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Cohu, Inc.

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