Cohu(COHU) - 2021 Q4 - Annual Report

Financial Performance - For the year ended December 25, 2021, Cohu's net sales increased by 39.5% year-over-year to $887.2 million[209] - Cohu's consolidated net sales increased by 39.5% from $636.0 million in 2020 to $887.2 million in 2021, driven by strong demand in automotive and industrial markets[234] - Net income from continuing operations was $167.3 million in 2021, compared to a net loss of $13.8 million in 2020[257] - Cash provided by operating activities totaled $97.7 million in 2021, an increase from $49.7 million in 2020[265] Market Demand - The strong demand in 2021 was driven by robust automotive demand, particularly in xEV and ADAS technologies, and near record levels of demand for equipment testing 5G, Wi-Fi 6, and Ultra-Wideband devices[209] - The long-term market drivers for Cohu remain intact, with optimism about the increasing ubiquity of semiconductors and the future rollout of 5G networks[210] Expenses and Margins - Gross margin improved to 43.6% in 2021 from 42.7% in 2020, attributed to increased business volume allowing better leverage of fixed costs[235] - Research and Development (R&D) expenses were $92.0 million, or 10.4% of net sales in 2021, compared to $86.2 million, or 13.5% of net sales in 2020, reflecting higher labor and material costs[239] - Selling, General and Administrative (SG&A) expenses decreased to 14.3% of net sales in 2021 from 20.3% in 2020, totaling $127.0 million, partly due to the sale of the PCB Test business[240] Debt and Financing - Cohu took actions to reduce outstanding principal under its Term Loan Credit Facility, prepaying $100 million in the first quarter and an additional $100 million on June 30, 2021[209] - Interest expense decreased significantly to $6.4 million in 2021 from $13.8 million in 2020, due to a reduction in the outstanding balance of the Term Loan Credit Facility[246] - Total indebtedness as of December 25, 2021, was $117.8 million, including $101.6 million under the Term Loan Credit Facility[260] - The company prepaid $200.0 million of its Term Loan Credit Facility in 2021, resulting in a loss of $3.4 million[274] Inventory and Assets - Cohu's inventory valuation includes reserves for estimated excess and obsolete inventory, which could negatively impact gross margin if future demand is less than projected[217] - Cohu recorded net charges of approximately $7.1 million for excess and obsolete inventory in 2021, compared to $6.0 million in 2020[237] - Cash, cash equivalents, and short-term investments increased by 123.4% to $379.9 million in 2021 from $170.0 million in 2020[264] - Working capital rose by 79.8% to $558.3 million in 2021, up from $310.6 million in 2020[264] Strategic Actions - A gain of $70.8 million was realized from the sale of the PCB Test business on June 24, 2021, as part of a strategic divestment[242] - Restructuring charges totaled $1.8 million in 2021, down from $7.6 million in 2020, as part of the integration plan following the merger with Xcerra[243] Tax and Valuation - The income tax provision for 2021 was 13.0%, compared to (5.1)% in 2020, influenced by federal tax credits and other factors[250] - The valuation allowance on deferred tax assets (DTAs) was approximately $76.3 million as of December 25, 2021, down from $86.1 million in the previous year[255] Foreign Currency Exposure - The company is exposed to fluctuations in foreign currencies, particularly the Swiss Franc, Euro, and Japanese Yen, which can impact reported earnings[293] - As of December 25, 2021, fluctuations in foreign currency exchange rates resulted in a decrease of $23.0 million in stockholders' equity due to foreign currency translation adjustments[296] - A hypothetical 10% devaluation of the U.S. dollar would lead to an approximate $31.1 million positive translation adjustment in other comprehensive income within stockholders' equity[297]