COHU INC 10-K

Item 9A. Controls and Procedures.   Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures - Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2022, the end of the period covered by this annual report.   Changes in Internal Control over Financial Reporting - There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   Management ’ s Annual Report on Internal Control Over Financial Reporting - Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2022.   41 Table of Contents   Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in their report which is included herein.   Report of Independent Registered Public Accounting Firm   To the Shareholders and the Board of Directors of Cohu, Inc.   Opinion on Internal Control over Financial Reporting   We have audited Cohu, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cohu, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and December 25, 2021, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 17, 2023, expressed an unqualified opinion thereon.   Basis for Opinion   The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.   Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and Limitations of Internal Control Over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   /s/  Ernst & Young LLP   San Diego, California February 17, 2023   42 Table of Contents   Item 9B. Other Information.   None.   Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.   Not applicable.   PART III   Item 10. Directors, Executive Officers and Corporate Governance.   The information under the heading “Information About Our Executive Officers” in Part I, Item 1 of this Form 10-K is incorporated by reference in this section. The other information required by this item is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the Securities and Exchange Commission (SEC) within 120 days after the close of fiscal 2022.   Code of Business Conduct and Code of Ethics Cohu has adopted a code of business conduct and ethics for directors, officers and employees. The code is available on the Investor Relations section of our website at www.cohu.com. We intend to make all required disclosures concerning any amendments to, or waivers from, our code of ethics on our website, within four business days of such amendment or waiver.   Corporate Governance Guidelines and Certain Committee Charters Cohu has adopted Corporate Governance Guidelines as well as charters for its Audit, Compensation and Nominating and Governance Committees. These documents are available on the Investor Relations section of our website at www.cohu.com.   The information on our website is not incorporated by reference in or considered to be a part of this Annual Report on Form 10-K.   Item 11. Executive Compensation.   Information regarding Executive Compensation is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2022.   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   Information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2022.   Item 13. Certain Relationships and Related Transactions, and Director Independence.   Information regarding Certain Relationships and Related Transactions, and Director Independence is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2022.   Item 14. Principal Accounting Fees and Services.   Information regarding the Principal Accounting Fees and Services is hereby incorporated by reference to Cohu’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2022.   43 Table of Contents   PART IV   Item 15. Exhibits, Financial Statement Schedules.   (a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.     (1) Financial Statements   The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 46:     Form 10-K     Description Page Number     Consolidated Balance Sheets at December 31, 2022 and December 25, 2021 45     Consolidated Statements of Operations for each of the three years in the period ended December 31, 2022 46     Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2022 47     Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2022 48     Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022 49     Notes to Consolidated Financial Statements 50     Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 78     (2) Financial Statement Schedule   Schedule II – Valuation and Qualifying Accounts 85   All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.     (3) Exhibits   The exhibits listed under Item 15(b) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K.   44 Table of Contents     COHU, INC.   CONSOLIDATED BALANCE SHEETS   (in thousands, except par value)       December 31,     December 25,   ASSETS   2022     2021   Current assets:                 Cash and cash equivalents   $ 242,341     $ 290,201   Short-term investments     143,235       89,704   Accounts receivable, net     176,148       192,873   Inventories     170,141       161,053   Prepaid expenses     24,017       16,194   Other current assets     8,969       768   Total current assets     764,851       750,793                     Property, plant and equipment, net     65,011       63,957   Goodwill     213,539       219,791   Intangible assets, net     140,104       177,320   Other assets     21,105       22,123   Operating lease right of use assets     22,804       25,060       $ 1,227,414     $ 1,259,044                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Short-term borrowings   $ 1,907     $ 3,059   Current installments of long-term debt     4,404       11,338   Accounts payable     51,763       85,230   Customer advances     6,886       7,300   Accrued compensation and benefits     38,348       39,835   Accrued warranty     5,614       6,614   Deferred profit     8,022       13,208   Income taxes payable     26,648       6,873   Other accrued liabilities     17,280       19,002   Total current liabilities     160,872       192,459                     Other accrued liabilities     7,620       8,588   Noncurrent income tax liabilities     6,486       6,138   Accrued retirement benefits     10,363       18,037   Deferred income taxes     21,359       25,887   Long-term debt     72,664       103,393   Long-term lease liabilities     19,209       22,040   Stockholders' equity:                                   Preferred stock, $ 1 par value; 1,000 shares authorized, none issued     -       -   Common stock, $ 1 par value; 90,000 shares authorized, 49,276 shares issued and outstanding in 2022 and 48,756 shares in 2021     49,276       48,756   Paid-in capital     687,218       674,777   Treasury stock, at cost; 1,767 shares in 2022 and 207 shares in 2021     ( 58,043 )     ( 7,324 ) Retained earnings     290,402       193,555   Accumulated other comprehensive loss     ( 40,012 )     ( 27,262 ) Total stockholders' equity     928,841       882,502       $ 1,227,414     $ 1,259,044     The accompanying notes are an integral part of these statements.   45 Table of Contents     COHU, INC.   CONSOLIDATED STATEMENTS OF OPERATIONS   (in thousands, except per share amounts)         Years ended         December 31,     December 25,     December 26,         2022     2021     2020   Net sales   $ 812,775     $ 887,214     $ 636,007   Cost and expenses:                         Cost of sales (1)     429,449       500,253       364,225   Research and development     92,589       91,963       86,151   Selling, general and administrative     131,390       126,958       129,248   Amortization of purchased intangible assets     33,185       35,414       38,746   Gain on sale of PCB Test business (2)     -       ( 70,815 )     -   Restructuring charges (Note 4)     605       1,823       7,623   Impairment charges     -       100       11,249   Gain on sale of facilities     -       -       ( 4,495 )           687,218       685,696       632,747   Income from operations     125,557       201,518       3,260   Other (expense) income:                         Interest expense     ( 4,177 )     ( 6,413 )     ( 13,759 ) Interest income     4,012       239       224   Foreign transaction gain (loss)     1,635       411       ( 3,170 ) Gain (loss) on extinguishment of debt     ( 312 )     ( 3,411 )     268   Income (loss) from continuing operations before taxes     126,715       192,344       ( 13,177 ) Income tax provision     29,868       25,019       666   Income (loss) from continuing operations     96,847       167,325       ( 13,843 ) Income from discontinued operations, net of tax     -       -       42   Net income (loss)   $ 96,847     $ 167,325     $ ( 13,801 )                               Income (loss) per share:                         Basic:                         Income (loss) from continuing operations   $ 2.01     $ 3.53     $ ( 0.33 ) Income from discontinued operations     -       -       0.00   Net income (loss)   $ 2.01     $ 3.53     $ ( 0.33 )                             Diluted:                         Income (loss) from continuing operations   $ 1.98     $ 3.45     $ ( 0.33 ) Income from discontinued operations     -       -       0.00   Net income (loss)   $ 1.98     $ 3.45     $ ( 0.33 )                             Weighted average shares used in computing income (loss) per share:                         Basic     48,178       47,409       41,854   Diluted     48,799       48,460       41,854     (1) Excludes amortization of $26,023, $27,508, and $29,510 for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively.     (2) On June 24, 2021 we completed the divestment of our PCB Test business. The divestment of this business did not qualify for presentation as discontinued operations and the results of the PCB Test business are included in continuing operations for all periods presented. See Note 14, “Business Divestitures and Discontinued Operations” for additional information on this transaction and financial statement presentation.   The accompanying notes are an integral part of these statements.   46 Table of Contents     COHU, INC.   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME   (in thousands)       Years ended       December 31,     December 25,     December 26,       2022     2021     2020   Net income (loss)   $ 96,847     $ 167,325     $ ( 13,801 ) Other comprehensive income (loss), net of tax                         Foreign currency translation adjustments     ( 17,950 )     ( 22,956 )     27,321   Adjustments related to postretirement benefits     5,894       2,602       2,383   Change in unrealized gain/loss on investments     ( 694 )     ( 67 )     -   Reclassification due to sale of PCB Test business     -       ( 2,515 )     -   Other comprehensive income (loss), net of tax     ( 12,750 )     ( 22,936 )     29,704   Comprehensive income   $ 84,097     $ 144,389     $ 15,903     The accompanying notes are an integral part of these statements.   47 Table of Contents     COHU, INC.   CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY   (in thousands, except par value and per share amounts)                                                                                 Accumulated                       Common                     other                       stock     Paid-in     Retained     comprehensive     Treasury               $1 par value     capital     earnings     loss     Stock     Total   Balance at December 28, 2019   $ 41,395     $ 433,190     $ 42,517     $ ( 34,030 )   $ -     $ 483,072   Net loss     -       -       ( 13,801 )     -       -       ( 13,801 ) Changes in cumulative translation adjustment     -       -       -       27,321       -       27,321   Adjustments related to postretirement benefits, net of tax     -       -       -       2,383       -       2,383   Cash dividends - $ 0.06 per share     -       -       ( 2,486 )     -       -       ( 2,486 ) Exercise of stock options     101       1,001       -       -       -       1,102   Shares issued under ESPP     243       3,026       -       -       -       3,269   Shares issued for restricted stock units vested     660       ( 660 )     -       -       -       -   Repurchase and retirement of stock     ( 209 )     ( 2,597 )     -       -       -       ( 2,806 ) Share-based compensation expense     -       14,234       -       -       -       14,234   Balance at December 26, 2020     42,190       448,194       26,230       ( 4,326 )     -       512,288   Common stock repurchases     -       -       -       -       ( 7,324 )     ( 7,324 ) Net income     -       -       167,325       -       -       167,325   Changes in cumulative translation adjustment     -       -       -       ( 22,956 )     -       ( 22,956 ) Adjustments related to postretirement benefits, net of tax     -       -       -       2,602       -       2,602   Changes in unrealized gains and losses on investments, net of tax     -       -       -       ( 67 )     -       ( 67 ) Exercise of stock options     250       2,260       -       -       -       2,510   Shares issued under ESPP     161       3,403       -       -       -       3,564   Shares issued for restricted stock units vested     704       ( 704 )     -       -       -       -   Repurchase and retirement of stock     ( 242 )     ( 10,222 )     -       -       -       ( 10,464 ) Impact of sale of PCB Test business     -       -       -       ( 2,515 )     -       ( 2,515 ) Share-based compensation expense     -       14,420       -       -       -       14,420   Sale of common stock, net of issuance costs     5,693       217,426       -       -       -       223,119   Balance at December 25, 2021     48,756       674,777       193,555       ( 27,262 )     ( 7,324 )     882,502   Common stock repurchases     -       -       -       -       ( 50,719 )     ( 50,719 ) Net income     -       -       96,847       -       -       96,847   Changes in cumulative translation adjustment     -       -       -       ( 17,950 )     -       ( 17,950 ) Adjustments related to postretirement benefits, net of tax     -       -       -       5,894       -       5,894   Changes in unrealized gains and losses on investments, net of tax     -       -       -       ( 694 )     -       ( 694 ) Exercise of stock options     12       105       -       -       -       117   Shares issued under ESPP     161       3,470       -       -       -       3,631   Shares issued for restricted stock units vested     529       ( 529 )     -       -       -       -   Repurchase and retirement of stock     ( 182 )     ( 5,523 )     -       -       -       ( 5,705 ) Share-based compensation expense     -       14,918       -       -       -       14,918   Balance at December 31, 2022   $ 49,276     $ 687,218     $ 290,402     $ ( 40,012 )   $ ( 58,043 )   $ 928,841     The accompanying notes are an integral part of these statements.   48 Table of Contents     COHU, INC.   CONSOLIDATED STATEMENTS OF CASH FLOWS   (in thousands)       Years ended       December 31,     December 25,     December 26,       2022     2021     2020   Cash flows from operating activities:                         Net income (loss)   $ 96,847     $ 167,325     $ ( 13,801 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities:                         (Gain) loss on business divestitures     -       ( 70,815 )     ( 35 ) Interest capitalized associated with cloud computing implementation     ( 199 )     ( 91 )     ( 124 ) Net accretion on investments     ( 859 )     -       -   (Gain) loss on extinguishment of debt     312       3,411       ( 268 ) Impairment charges related to indefinite lived intangibles     -       100       11,249   Depreciation and amortization     46,016       48,568       52,746   Share-based compensation expense     14,918       13,792       14,234   Inventory related charges     6,725       6,523       3,731   Amortization of debt discounts and issuance costs     315       643       1,177   Accrued retiree benefits     ( 1,589 )     ( 500 )     1,675   Deferred income taxes     ( 3,504 )     953       ( 5,305 ) Changes in other assets     ( 3,230 )     ( 1,652 )     285   Amortization of cloud-based software implementation costs     2,060       1,644       1,191   (Gain) loss from sale of property, plant and equipment     ( 203 )     1       ( 4,170 ) Changes in other accrued liabilities     ( 943 )     ( 416 )     91   Operating lease right-of-use assets     5,139       6,746       6,831   Changes in current assets and liabilities, excluding effects from divestitures:                         Customer advances     ( 184 )     ( 4,090 )     2,188   Accounts receivable     12,451       ( 59,123 )     ( 20,210 ) Inventories     ( 18,508 )     ( 35,864 )     ( 14,982 ) Accrued compensation, warranty and other liabilities     ( 4,007 )     225       4,678   Accounts payable     ( 33,130 )     17,316       15,058   Deferred profit     ( 5,014 )     4,732       871   Other current assets     ( 16,202 )     1,709       1,150   Income taxes payable     20,908       3,444       ( 2,089 ) Current and long-term operating lease liabilities     ( 5,258 )     ( 6,666 )     ( 6,291 ) Net cash provided by operating activities     112,861       97,915       49,880   Cash flows from investing activities:                         Purchases of property, plant and equipment     ( 14,770 )     ( 12,000 )     ( 18,660 ) Net cash received from sale of land, facility and assets     349       157       17,025   Purchases of short-term investments     ( 208,856 )     ( 204,699 )     ( 19,703 ) Sales and maturities of short-term investments     155,406       135,549       -   Cash received from disposition of business, net of cash paid     -       120,886       2,975   Net cash provided by (used in) investing activities     ( 67,871 )     39,893       ( 18,363 ) Cash flows from financing activities:                         Cash dividends paid     -       -       ( 4,971 ) Proceeds from revolving line of credit and construction loans     -       1,376       5,878   Repayments of long-term debt     ( 38,226 )     ( 206,069 )     ( 41,056 ) Net issuance (repurchases) of stock, including awards settled in cash     ( 1,957 )     ( 4,390 )     2,077   Payments on current and long-term finance lease liabilities     ( 167 )     ( 186 )     ( 146 ) Acquisition of treasury stock     ( 50,719 )     ( 7,324 )     -   Proceeds received from issuance of common stock, net of fees     -       223,119       -   Net cash provided by (used in) financing activities     ( 91,069 )     6,526       ( 38,218 ) Effect of exchange rate changes on cash and cash equivalents     ( 1,781 )     ( 3,491 )     129   Net increase (decrease) in cash and cash equivalents     ( 47,860 )     140,843       ( 6,572 ) Cash and cash equivalents at beginning of year     290,201       149,358       155,930   Cash and cash equivalents at end of year   $ 242,341     $ 290,201     $ 149,358   Supplemental disclosure of cash flow information:                         Cash paid for income taxes   $ 23,123     $ 22,717     $ 5,772   Cash paid for interest   $ 3,443     $ 6,253     $ 16,324   Property, plant and equipment purchases included in accounts payable   $ 152     $ 624     $ 1,063   Inventory capitalized as capital assets   $ 2,529     $ 1,635     $ 1,050     The accompanying notes are an integral part of these statements.   49 Table of Contents         COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   1. Summary of Significant Accounting Policies   Basis of Presentation – Cohu, Inc. (“Cohu”, “we”, “our”, “us” and the “Company”), through our wholly owned subsidiaries, is a provider of semiconductor test equipment and services. Our consolidated financial statements include the accounts of Cohu and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We evaluate the need to consolidate affiliates based on standards set forth in ASC Topic 810, Consolidation (“ASC 810” ).   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.   Our fiscal years are based on a 52 - or 53 -week period ending on the last Saturday in December. Our current fiscal year, which ended on December 31, 2022, consisted of 53 weeks. Our fiscal years ended on December 25, 2021, and December 26, 2020, each consisted of 52 weeks.   Business Divestitures and Discontinued Operations – On June 24, 2021, we completed the sale of our 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. In February 2020, we divested our fixtures services business. Our decision to sell these non-core businesses and assets resulted from management’s determination that that they were not a fit within the core business of our organization which is delivering leading-edge solutions for the manufacturing of semiconductors through back-end semiconductor equipment and services. Unless otherwise indicated, all amounts herein relate to continuing operations. For financial statement purposes, only the results of operations of our fixtures services business have been segregated from those of continuing operations and have been presented in our consolidated financial statements as discontinued operations for all periods presented. See Note 14, “ Business Divestitures and Discontinued Operations ” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.   Income (Loss) Per Share – Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of outstanding restricted stock and performance stock units and issuance of stock under our employee stock purchase plan using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share computations due to their anti-dilutive effect. For purposes of computing diluted income (loss) 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 years ended December 31, 2022, December 25, 2021 and December 26, 2020, approximately 261,000 , 180,000 , and 113,000 shares, respectively, of potentially issuable shares of our common stock were excluded from the computation.   The following table reconciles the denominators used in computing basic and diluted income (loss) per share:   (in thousands)   2022     2021     2020   Weighted average common shares outstanding     48,178       47,409       41,854   Effect of dilutive stock options and restricted stock units     621       1,051       -         48,799       48,460       41,854     For the year ended December 26, 2020, Cohu has utilized the “control number” concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.       50 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Cash, Cash Equivalents and Short-term Investments – Highly liquid investments with insignificant interest rate risk and original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months are classified as short-term investments. All of our short-term investments in debt securities are classified as available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded in the statement of comprehensive income (loss). We manage our cash equivalents and short-term investments as a single portfolio of highly marketable securities. We have the ability and intent, if necessary, to liquidate any of our investments in order to meet the liquidity needs of our current operations during the next 12 months. Accordingly, investments with contractual maturities greater than one year have been classified as current assets in the accompanying consolidated balance sheets.   Fair Value of Financial Instruments – The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturities of these financial instruments.   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 an allowance for credit losses, which is determined in accordance with the guidance provided by ASC Topic 326, Financial Instruments-Credit Losses (“ASC 326” ). 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 December 31, 2022, we will continue to monitor customer liquidity and other economic conditions, 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 the net realizable value of inventories involves numerous estimates and judgments including projecting average selling prices and sales volumes for future periods and costs to complete and dispose of inventory. As a result of these analyses, we record a charge to cost of sales in advance of the period when the inventory is sold when estimated market values are below our costs. Charges to cost of sales for excess and obsolete inventories totaled $ 7.2  million and $ 7.1  million in 2022 and 2021, respectively. Charges to cost of sales for excess and obsolete inventories totaled $ 8.1  million in 2020 and included $ 2.1  million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products.   Inventories by category were as follows (in thousands) :       December 31,     December 25,       2022     2021   Raw materials and purchased parts   $ 106,041     $ 92,798   Work in process     36,024       40,732   Finished goods     28,076       27,523   Total inventories   $ 170,141     $ 161,053     Gain on Sale of Facilities – As part of our previously announced Xcerra integration plan, we implemented certain facility consolidation actions. See Note 4, “Restructuring Charges” for additional information on this program. During 2020, we completed the sales of our facilities located in Rosenheim, Germany and Penang, Malaysia which resulted in a gain of $ 4.5  million.   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, three to ten years for machinery, equipment and software and the lease life for financing leases. Land is not depreciated.   51 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Property, plant and equipment, at cost, consisted of the following (in thousands) :       December 31,     December 25,       2022     2021   Land and land improvements   $ 7,066     $ 7,703   Buildings and building improvements     31,161       31,711   Machinery and equipment     105,109       95,542         143,336       134,956   Less accumulated depreciation and amortization     ( 78,325 )     ( 70,999 ) Property, plant and equipment, net   $ 65,011     $ 63,957     Depreciation expense was $ 12.8  million in 2022, $ 13.2  million in 2021 and $ 14.0  million in 2020. The decrease in depreciation expense recognized is a result of assets becoming fully depreciated.   Cloud Computing 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.   Total unamortized capitalized cloud computing implementation costs totaled $ 14.7  million and $ 13.5  million at December 31, 2022 and December 25, 2021, respectively. These amounts are recorded within other assets in our consolidated balance sheets. During the fourth quarter of 2022 the final phase of ERP system development was completed. Implementation costs are amortized using the straight-line method over seven years and we recorded $ 2.1  million and $ 1.6  million in amortization expense during the years ended December 31, 2022 and December 25, 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 & Inspection. Prior to the sale of our PCB Test Group on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test.   Goodwill, Purchased Intangible Assets and Other Long-lived Assets  – We evaluate goodwill and other indefinite-lived intangible assets, which are solely comprised of in-process research and development (“IPR&D”), 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 or, in the case of in-process research and development, to the fair value of the asset. 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 using a weighting of the income and market approaches. Under the income approach, we use a discounted cash flow methodology to derive an indication of value, which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, we use the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance metrics of the reporting unit being tested, in order to obtain an indication of value. We then apply a 50/50 weighting to the indicated values from the income and market approaches to derive the fair values of the reporting units. 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.   52 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October  1, 2022, 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 December 31, 2022, 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.   Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.   Product Warranty – Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from 12 to 36 months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations, the revenue relating to the extended warranty is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.   Income Taxes – We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized and recorded, net of federal and state tax benefits, in income tax expense.   We recognized deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established for those jurisdictions when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized in the future.   Contingencies and Litigation – We assess the probability of adverse judgments in connection with current and threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is probable, and we can reasonably estimate the ultimate cost.   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 consolidated balance sheets. Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease liabilities on our consolidated balance sheets.   Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the adoption date of January 1, 2019, 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.   53 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   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 consolidated balance sheet but recognized in our consolidated statements of operations on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component and include both in our calculation of the ROU assets and 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 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 installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized over time as we transfer control to our customer for the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment.   Certain of our equipment sales have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations may occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.   Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At December 31, 2022 and December 25, 2021, we had $ 7.1  million and $ 7.7  million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) for contracts with original expected durations of over one year, respectively. As allowed under 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.   54 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   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. 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 customers. 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 recorded on the consolidated balance sheet in any of the periods presented.   On shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances. At December 31, 2022, we had deferred revenue totaling approximately $ 16.1  million, current deferred profit of $ 8.0  million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $ 5.5  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.   Disaggregated net sales by segment are as follows:   (in thousands)   2022     2021     2020   Systems-Semiconductor Test & Inspection   $ 474,655     $ 541,589     $ 317,821   Non-systems-Semiconductor Test & Inspection     338,120       318,865       267,419   Systems-PCB Test     -       17,831       33,293   Non-systems-PCB Test     -       8,929       17,474   Net sales   $ 812,775     $ 887,214     $ 636,007     Advertising Costs – Advertising costs are expensed as incurred and were not material for all periods presented.   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.   Debt Issuance Costs – We defer 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 consolidated balance sheets. The amortization of such costs is recognized as interest expense using the effective interest method over the term of the respective debt issue. Amortization related to deferred debt issuance costs and original discount costs was $ 0.3  million, $ 0.6  million and $ 1.2  million for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively.   55 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Share-based Compensation – We measure and recognize all share-based compensation under the fair value method. Our estimate of share-based compensation expense requires a number of assumptions including our stock price volatility, employee exercise patterns (expected life of the options) and related tax effects. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.   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 years ended December 31, 2022 and December 25, 2021, in our consolidated statement of operations we recognized foreign exchange gains totaling $ 1.6  million and $ 0.4  million, respectively. During the year ended December 26, 2020, we recognized a foreign exchange loss of $3.2  million.   Certain of our foreign subsidiaries have designated the local currency as their functional currency and, as a result, their assets and liabilities are translated at the rate of exchange at the balance sheet date, while revenue and expenses are translated using the average exchange rate for the period. Cumulative translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’ equity.   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. During the fourth quarter of 2020, we began entering 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 at our subsidiaries whose functional currency is the local currency. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses. Additional information related to our foreign exchange derivative contracts is included in Note 7, “ Derivative Financial Instruments ”.   Accumulated Other Comprehensive Loss – Our accumulated other comprehensive loss totaled approximately $ 40.0  million at December 31, 2022, and $ 27.3  million at December 25, 2021, and was attributed to, net of income taxes where applicable, foreign currency adjustments resulting from the translation of certain accounts into U.S. Dollars, changes in unrealized gains and losses on investments and adjustments to accumulated postretirement benefit obligations. The U.S. Dollar strengthened relative to certain foreign currencies in countries where we have operations as of December 25, 2021 and continued to strengthen as of December 31, 2022 and consequently, our accumulated other comprehensive loss attributed to foreign currency translation adjustments increased by $ 23.0  million and $ 18.0  million during the years ended December 25, 2021 and December 31, 2022, respectively. Reclassification adjustments from accumulated other comprehensive loss during 2022 and 2021 were not significant. Additional information related to accumulated other comprehensive loss, on an after-tax basis is included in Note 15, “ Accumulated Other Comprehensive Income ”.   Recent Accounting Pronouncements   Recently Adopted Accounting Pronouncements – All accounting pronouncements adopted during the current year were not material.   Recently Issued Accounting Pronouncements – In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020 - 04, Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. Our Term Loan Credit Facility bears interest at fluctuating interest rates based on LIBOR. If LIBOR ceases to exist, we may need to renegotiate our loan and we cannot predict what alternative index would be negotiated with our lenders. ASU 2020 - 04 was effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. In December 2022, the FASB issued ASU 2022 - 06, Reference Rate Reform (Topic 848 ): Deferral of the Sunset Date of Topic 848 , to extend the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.   56 Table of Contents        COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.           2. Goodwill and Purchased Intangible Assets   Changes in the carrying value of our goodwill during the years ended December 31, 2022, and December 25, 2021, were as follows ( in thousands ):       Semiconductor Test & Inspection     PCB Test     Total Goodwill   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     ( 6,252 )     -       ( 6,252 ) Balance December 31, 2022   $ 213,539     $ -     $ 213,539       ( 1 ) On June 24, 2021, we completed the sale of our PCB Test business. See Note 14, “ Business Divestitures and Discontinued Operations ” for additional information.   Purchased intangible assets, subject to amortization, are as follows (in thousands) :       December 31, 2022     December 25, 2021                       Remaining                       Gross Carrying     Accumulated     Useful Life     Gross Carrying     Accumulated       Amount     Amortization     (years)     Amount     Amortization   Developed technology   $ 224,253     $ 128,938       3.6     $ 229,131     $ 104,855   Customer relationships     64,632       31,015       6.5       65,916       26,189   Trade names     20,461       9,397       6.4       20,877       7,714   Covenant not-to-compete     269       161       4.0       308       154       $ 309,615     $ 169,511             $ 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 and the sale of our PCB Test business.   We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and when an event occurs, or circumstances change that indicate that the carrying value may not be recoverable. We completed our required annual goodwill impairment testing as of October 1, 2022, the first day of our fourth quarter and concluded there were no impairments of goodwill within our reporting units or our indefinite-lived intangible assets at that time. Other events and changes in circumstances may also require goodwill and our indefinite-lived intangible assets to be tested for impairment between annual measurement dates.   During the fourth quarter of 2021 we completed and transferred to developed technology an in-process technology project which was reviewed for impairment as part of this process. Due to a change in forecasted results an impairment charge of $ 0.1  million was recorded.   Amortization expense related to purchased intangible assets was approximately $ 33.2  million in 2022, $ 35.4  million in 2021 and $ 38.7  million in 2020. As of December 31, 2022, we expect amortization expense in future periods to be as follows: 2023 - $ 33.4  million; 2024 - $ 33.4  million; 2025 - $ 24.8  million; 2026 - $ 18.6  million 2027 - $ 15.1  million; and thereafter $ 14.8  million.   57 Table of Contents         COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS            3. Borrowings and Credit Agreements   The following table is a summary of our borrowings as of December 31, 2022 and December 25, 2021:       Fiscal year ended   (in thousands)   December 31, 2022     December 25, 2021   Bank term loan under credit agreement   $ 66,952     $ 103,130   Bank term loans-Kita     2,466       3,070   Construction loan-Cohu GmbH     8,414       10,045   Lines of credit     1,907       3,059   Total debt     79,739       119,304   Less: financing fees and discount     ( 764 )     ( 1,514 ) Less: current portion     ( 6,311 )     ( 14,397 ) Total long-term debt   $ 72,664     $ 103,393     The debt principal payments, excluding financing lease obligations, for the next five years and thereafter are as follows (in thousands) :   2023   $ 6,574   2024     4,672   2025     61,130   2026     1,183   2027     1,189   Thereafter     4,991   Total   $ 79,739     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 December 31, 2022, the outstanding loan balance, net of discount and deferred financing costs, was $ 66.2  million and $ 3.2  million of the outstanding balance is presented as current installments of long-term debt in our 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 consolidated balance sheets. As of December 31, 2022, the fair value of the debt was $ 66.6  million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of December 31, 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 December 31, 2022, we believe no such events of default have occurred.   During 2022 we prepaid $ 31.8  million in principal of our Term Loan Credit Facility for $ 31.7  million in cash. We accounted for the prepayment as a debt extinguishment, which resulted in a loss of $ 0.3  million reflected in our consolidated statement of operations and a $ 0.4  million reduction in debt discounts and deferred financing costs in our consolidated balance sheets. During 2021 we repurchased $ 200.0  million in principal of our Term Loan Credit Facility for $ 200.0  million in cash. We accounted for the repurchase as a debt extinguishment, which resulted in a loss of $ 3.4  million reflected in our consolidated statement of operations, as well as a $ 3.4  million reduction in debt discounts and deferred financing costs in our consolidated balance sheets. Approximately $ 67.0  million in principal of the Term Loan Credit Facility remains outstanding as of December 31, 2022.   58 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   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 December 31, 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 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 consolidated balance sheets. The fair value of the debt approximates the carrying value at December 31, 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 Loan Facilities with a German financial institution providing it with total borrowings of up to €10.1  million. The Loan Facilities are being 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 December 31, 2022, total outstanding borrowings under the Loan Facilities was $ 8.4  million with $ 1.0  million of the total outstanding balance being presented as current installments of long-term debt in our 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 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 December 31, 2022.   Lines of Credit   As a result of our acquisition of Kita, we assumed a series of revolving credit facilities with various financial institutions in Japan. The credit facilities renew monthly and provide Kita with access to working capital totaling up to 960  million Japanese Yen of which 250  million Japanese Yen is drawn. At December 31, 2022, total borrowings outstanding under the revolving lines of credit were $ 1.9  million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our consolidated balance sheets.   The revolving lines of credit are denominated in Japanese Yen and, as a result, amounts disclosed herein will fluctuate because of changes in currency exchange rates.   Our wholly owned subsidiary in Switzerland has one available line of credit which provides borrowings of up to a total of 2.0  million Swiss Francs, a portion of which is reserved for tax guarantees. At December 31, 2022, and December 25, 2021, no amounts were outstanding under this line of credit.   59 Table of Contents        COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          4. Restructuring Charges   Subsequent to the acquisition of Xcerra, during the fourth quarter of 2018, we began a strategic restructuring program designed to reposition our organization and improve our cost structure as part of our targeted integration plan regarding the recently acquired Xcerra (“Integration Program”). As part of the Integration Program we consolidated our global handler and contactor manufacturing operations and closed our manufacturing operations in Penang, Malaysia and Fontana, California in 2019.   In 2019, we began the Integration Program of our German operations and entered a social plan with the German labor organization representing certain of the employees of our wholly owned subsidiary, Multitest elektronische Systeme GmbH. During the fourth quarter of 2020 we implemented a voluntary program and termination agreements with certain employees of our wholly owned subsidiary, Cohu GmbH. These programs collectively reduced headcount, enabled us to consolidate the facilities of our multiple operations located near Kolbermoor and Rosenheim, Germany, as well as transitioned certain manufacturing to other lower cost regions. The facility consolidations and reduction in force programs were implemented as part of a comprehensive review of our operations and are intended to streamline and reduce our operating cost structure and capitalize on acquisition synergies.   As a result of the activities described above, we recognized total pretax charges of $ 0.2  million, $ 1.3  million and $ 11.4  million for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively, that are within the scope of ASC 420.   All costs of the Integration Program were, and are expected to be, incurred by our Semiconductor Test & Inspection segment.   Charges related to the Integration Program for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, were as follows (in thousands):   (in thousands)   2022     2021     2020   Employee severance costs   $ ( 8 )   $ 1,161     $ 6,485   Inventory related charges (adjustments)     ( 454 )     ( 558 )     3,731   Other restructuring costs     613       662       1,138   Total   $ 151     $ 1,265     $ 11,354     Costs associated with restructuring activities are presented in our consolidated statements of operations as restructuring charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, which are classified within cost of sales. Other restructuring costs include expenses for professional fees associated with employee severance, impairments of fixed assets and facility closure costs.   The following table summarizes the activity within the restructuring related accounts for the Integration Program during the years ended December 31, 2022 and December 25, 2021 (in thousands) :       Employee Severance     Other Exit Costs     Total                             Balance, December 26, 2020   $ 5,826       -       5,826   Costs accrued     1,161       662       1,823   Amounts paid or charged     ( 6,545 )     ( 662 )     ( 7,207 ) Impact of currency exchange     ( 94 )     -       ( 94 ) Balance, December 25, 2021     348       -       348   Costs accrued     ( 8 )     613       605   Amounts paid or charged     ( 331 )     ( 613 )     ( 944 ) Impact of currency exchange     ( 9 )     -       ( 9 ) Balance, December 31, 2022   $ -     $ -     $ -     At December 31, 2022, we have no accrual for restructuring. All amounts accrued related to inventory will remain in our consolidated balance sheet until it is scrapped.   60 Table of Contents        COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           5. Financial Instruments Measured at Fair Value   Our cash, cash equivalents, and short-term investments consisted primarily of cash and other investment grade securities. We do not hold investment securities for trading purposes. All short-term investments in debt securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality investments and through investment diversification.   Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized gains and losses on sales of short-term investments are included in interest income. Realized gains and losses for the periods presented were not significant.   Investments that we have classified as short-term, by security type, are as follows (in thousands) :       At December 31, 2022               Gross     Gross     Estimated       Amortized     Unrealized     Unrealized     Fair       Cost     Gains     Losses (1)     Value   Corporate debt securities (2)   $ 59,283     $ 30     $ 240     $ 59,073   U.S. treasury securities     34,614       1       418       34,197   Bank certificates of deposit     36,500       20       41       36,479   Asset-backed securities     12,727       10       79       12,658   Foreign government security     828       -       -       828       $ 143,952     $ 61     $ 778     $ 143,235         At December 25, 2021               Gross     Gross     Estimated       Amortized     Unrealized     Unrealized     Fair       Cost     Gains     Losses (1)     Value   Corporate debt securities (2)   $ 84,060     $ 2     $ 31     $ 84,031   U.S. treasury securities     3,953       -       5       3,948   Bank certificates of deposit     800       -       -       800   Foreign government security     925       -       -       925       $ 89,738     $ 2     $ 36     $ 89,704     ( 1 ) As of December 31, 2022, the cost and fair value of investments with loss positions were approximately $ 86.3  million and $ 85.5  million, respectively. As of December 25, 2021, the cost and fair value of investments with loss positions was approximately $ 57.0  million. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity.   ( 2 ) Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio.   Effective maturities of short-term investments at December 31, 2022, were as follows:       Amortized     Estimated   (in thousands)   Cost     Fair Value   Due in one year or less   $ 112,956     $ 112,683   Due after one year through three years     30,996       30,552       $ 143,952     $ 143,235     Accounting standards pertaining to fair value measurements establish a three -tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. When available, we use quoted market prices to determine the fair value of our investments, and they are included in Level 1. When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information.   61 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The following table summarizes, by major security type, our financial instruments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands) :       Fair value measurements at December 31, 2022 using:                               Total estimated       Level 1     Level 2     Level 3     fair value   Cash   $ 190,371     $ -     $ -     $ 190,371   Corporate debt securities     -       69,753       -       69,753   Money market funds     -       40,290       -       40,290   Bank certificates of deposit     -       37,480       -       37,480   U.S. treasury securities     -       34,196       -       34,196   Asset-backed securities     -       12,658       -       12,658   Foreign government security     -       828       -       828       $ 190,371     $ 195,205     $ -     $ 385,576         Fair value measurements at December 25, 2021 using:                               Total estimated       Level 1     Level 2     Level 3     fair value   Cash   $ 195,297     $ -     $ -     $ 195,297   Money market funds     -       92,400       -       92,400   Corporate debt securities     -       86,535       -       86,535   U.S. treasury securities     -       3,948       -       3,948   Foreign government security     -       925       -       925   Bank certificates of deposit     -       800       -       800       $ 195,297     $ 184,608     $ -     $ 379,905            6. Employee Benefit Plans   Defined Contribution Retirement Plans – Cohu maintains a defined contribution 401 (k) retirement savings plan covering all salaried and hourly U.S. employees. Participation is voluntary and participants’ contributions are based on their eligible compensation. Participants in the Cohu plan receive matching contributions of 50 % up to 8 % of salary contributed, subject to various statutory limits. In 2022, 2021 and 2020 we made matching contributions to the plan of $ 2.4  million, $ 2.4  million and $ 2.3  million, respectively.   Defined Benefit Retirement Plans – Some of our employees located in Europe and Asia participate in defined benefit retirement plans. Our largest defined benefit retirement plan is the Ismeca Europe Semiconductor BVG Pension Plan which covers our employees in Switzerland (“the Swiss Plan”) and the following discussion relates solely to the Swiss Plan.   Net periodic benefit cost of the Swiss Plan was as follows:   (in thousands)   2022     2021     2020   Service cost   $ 954     $ 1,223     $ 1,310   Interest cost     56       61       67   Expected return on assets     ( 128 )     ( 128 )     ( 200 ) Settlements     ( 487 )     72       292   Net periodic costs   $ 395     $ 1,228     $ 1,469     62 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The following table sets forth the projected benefit obligation, the fair value of plan assets, the funded status and the liability we have recorded in our consolidated balance sheets related to the Swiss Plan:   (in thousands)   2022     2021   Change in projected benefit obligation:                 Benefit obligation at beginning of year   $ ( 28,765 )   $ ( 31,039 ) Service cost     ( 954 )     ( 1,223 ) Interest cost     ( 56 )     ( 61 ) Actuarial gain     6,043       1,179   Participant contributions     ( 1,459 )     ( 1,780 ) Benefits paid     378       436   Plan change     397       1,076   Settlements     2,426       1,653   Foreign currency exchange adjustment     362       994   Benefit obligation at end of year     ( 21,628 )     ( 28,765 ) Change in plan assets:                 Fair value of plan assets at beginning of year     18,919       18,756   Return on assets, net of actuarial loss     119       207   Employer contributions     831       878   Participant contributions     1,459       1,780   Benefits paid     ( 378 )     ( 436 ) Settlements     ( 2,426 )     ( 1,653 ) Foreign currency exchange adjustment     ( 113 )     ( 613 ) Fair value of plan assets at end of year     18,411       18,919   Net liability at end of year   $ ( 3,217 )   $ ( 9,846 )   At December 31, 2022 and December 25, 2021, the Swiss Plan’s net liability is included in noncurrent accrued retirement benefits. Amounts recognized in accumulated other comprehensive loss net of tax related to the Swiss Plan consisted of an unrecognized net actuarial gains totaling $ 6.8 million and $ 0.9 million at December 31, 2022 and December 25, 2021, respectively.   Actuarial gains of $ 6.0  million and $ 1.2  million for the years ended December 31, 2022 and December 25, 2021, respectively, were due to assumption changes as well as plan experience.   Weighted-average actuarial assumptions used to determine the projected benefit obligation under the Swiss Plan are as follows:       2022     2021   Discount rate     2.3 %     0.2 % Compensation increase     3.0 %     1.5 %   Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows:       2022     2021     2020   Discount rate     2.3 %     0.2 %     0.2 % Rate of return on assets     1.8 %     0.7 %     1.0 % Compensation increase     3.0 %     1.1 %     1.1 %   During  2023 employer and employee contributions to the Swiss Plan are expected to total $ 0.9  million. Estimated benefit payments are expected to be as follows: 2023 - $ 1.2  million; 2024 - $ 1.3  million; 2025 - $ 1.0  million; 2026 - $ 1.2  million; 2027 - $ 1.3  million; and $ 6.8  million thereafter through 2032.   As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple employers. We have no investment authority over the assets of the plan that are held and invested by a Swiss insurance company. Investment holdings are made with respect to Swiss laws and target allocations for plan assets are 54 % debt securities and cash, 23 % real estate investments, 13 % alternative investments and 10 % equity securities. The valuation of the collective fund assets as a whole is a Level 3 measurement; however, the individual investments of the fund are generally Level 1 (equity securities), Level 2 (fixed income) and Level 3 (real estate and alternative) investments. We determine the fair value of the plan assets based on information provided by the collective fund, through review of the collective fund’s annual financial statements. See Note 5, “ Financial Instruments Measured at Fair Value ” for additional information on the three -tier fair value hierarchy.   63 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   We maintain other defined benefit plans for employees located outside the U.S. for which the majority of the obligations and net periodic benefit cost were determined to be immaterial for all periods presented.   Retiree Medical Benefits – We provide post-retirement health benefits to certain executives and directors under a noncontributory plan. The net periodic benefit cost was $ 0.1  million in both 2022 and 2020 and was insignificant in 2021. We fund benefits as costs are incurred and as a result there are no plan assets.   The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 4.9 % in 2022, 2.5 % in 2021 and 2.1 % in 2020. The annual rates of increase of the cost of health benefits was assumed to be 6.8 % and 7.2 % in 2023 for pre- 65 participants and post- 65 participants, respectively. This rate was then assumed to decrease 0.27 % per year and 0.31 % per year for pre- 65 participants and post- 65 participants, respectively, to 4.4 % in 2032 and remain level thereafter.   Contributions to the post-retirement health benefit plan are expected to total $ 0.1 million in  2023. Estimated benefit payments are expected to be as follows: 2023 - $ 0.1 million; 2024 - $ 0.1 million; 2025 - $ 0.1 million; 2026 - $ 0.1 million; 2027 - $ 0.1 million and $ 0.6 million thereafter through 2032.   The following table sets forth the post-retirement benefit obligation, funded status and the liability we have recorded in our consolidated balance sheets:   (in thousands)   2022     2021   Accumulated benefit obligation at beginning of year   $ ( 2,097 )   $ ( 2,398 ) Interest cost     ( 51 )     ( 49 ) Actuarial gain     382       241   Benefits paid     109       109   Accumulated benefit obligation at end of year     ( 1,657 )     ( 2,097 ) Plan assets at end of year     -       -   Funded status   $ ( 1,657 )   $ ( 2,097 )   Deferred Compensation – The Cohu, Inc. Deferred Compensation Plan allows certain of our officers to defer a portion of their current compensation. We have purchased life insurance policies on the participants with Cohu as the named beneficiary. Participant contributions, distributions and investment earnings and losses are accumulated in a separate account for each participant. At December 31, 2022, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $ 1.1  million and the cash surrender value of the related life insurance policies included in other current assets was approximately $ 1.4  million. At December 25, 2021, the liability totaled $ 1.6  million and the corresponding assets were $ 1.8  million.   Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 2,650,000 shares of our common stock. Under the Plan, eligible employees may purchase shares of common stock through payroll deductions. The price paid for the common stock is equal to 85 % of the fair market value of our common stock on specified dates. During the last three years we issued shares under the Plan as follows: 2022 - 160,855; 2021 - 161,351 and 2020 - 242,633. At December 31, 2022, there were 346,498  shares available for issuance under the Plan.   Employee Stock Benefit Plans – Our 2005 Equity Incentive Plan ( “2005 Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that may be granted under the program include, but are not limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At December 31, 2022, there were 914,705 shares available for future equity grants under the 2005 Plan.   64 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Stock Options   Under the 2005 Plan stock options may be granted to employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not less than 100 % of the fair market value at the date of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire ten years from the grant date. We have historically issued new shares of Cohu common stock upon share option exercise.   During 2022, 2021 and 2020 no stock options were granted and the activity under our share-based compensation plans was as follows:       2022     2021     2020   (in thousands, except per share data)   Shares     Wt. Avg. Ex. Price     Shares     Wt. Avg. Ex. Price     Shares     Wt. Avg. Ex. Price   Outstanding and exercisable, beginning of year     12     $ 9.44       262     $ 10.01       363     $ 10.27   Exercised     ( 12 )   $ 9.44       ( 250 )   $ 10.03       ( 101 )   $ 10.95   Outstanding and exercisable, end of year     -     $ -       12     $ 9.44       262     $ 10.01     The aggregate intrinsic value of options exercised was $ 0.2  million in 2022, $ 8.4  million in 2021, and $ 1.3  million in 2020. At December 31, 2022, we had no stock options exercisable and outstanding.   Restricted Stock Units   Under our equity incentive plans, restricted stock units (“RSUs”) may be granted to employees, consultants and outside directors. Restricted stock units vest over a one -year, two -year or a four -year period from the date of grant. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock units are not considered issued and outstanding. New shares of our common stock will be issued on the date the restricted stock units vest net of the statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at December 31, 2022.   Restricted stock unit activity under our share-based compensation plans was as follows:     2022     2021     2020   (in thousands, except per share data) Units     Wt. Avg. Fair Value     Units     Wt. Avg. Fair Value     Units     Wt. Avg. Fair Value   Outstanding, beginning of year   1,058     $ 21.16       1,414     $ 15.16       1,328     $ 17.05   Granted   431     $ 27.74       270     $ 41.66       779     $ 14.02   Released   ( 474 )   $ 19.94       ( 579 )   $ 16.23       ( 621 )   $ 17.48   Cancelled   ( 46 )   $ 24.33       ( 47 )   $ 18.96       ( 72 )   $ 17.59   Outstanding, end of year   969     $ 24.55       1,058     $ 21.16       1,414     $ 15.16     Equity-Based Performance Stock Units   We grant performance stock units (“PSUs”) to certain senior executives as a part of our long-term equity compensation program. The number of shares of common stock that will ultimately be issued to settle PSUs granted ranges from  0 % to  200 % of the number granted and is determined based on certain performance criteria over a three -year measurement period. The performance criteria for the PSUs are based on a combination of our annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR compared with the annualized TSR of certain peer companies for the performance period. PSUs granted vest 100 % on the third anniversary of their grant, assuming achievement of the applicable performance criteria.   We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the requisite service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.   65 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   PSU activity under our share-based compensation plans was as follows:     2022     2021     2020   (in thousands, except per share data) Units     Wt. Avg. Fair Value     Units     Wt. Avg. Fair Value     Units     Wt. Avg. Fair Value   Outstanding, beginning of year   384     $ 22.22       425     $ 15.51       364     $ 18.72   Granted   151     $ 33.22       93     $ 51.43       200     $ 13.18   Released   ( 55 )   $ 14.11       ( 125 )   $ 21.77       ( 39 )   $ 21.40   Cancelled   ( 77 )   $ 15.94       ( 9 )   $ 14.04       ( 100 )   $ 20.25   Outstanding, end of year   403     $ 28.64       384     $ 22.22       425     $ 15.51     Share-based Compensation – We estimate the fair value of stock options and RSUs on the grant date using the Black-Scholes valuation model. The estimated fair value of PSUs is determined on the grant date using the Monte Carlo simulation valuation model. Option valuation models require the input of highly subjective assumptions and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions for the Black-Scholes model include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date. Expected dividends are based primarily on historical factors related to our common stock. Expected volatility is based on historic weekly stock price observations of our common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term. We believe that historical volatility is the best estimate of future volatility. Expected life of the award is based on historical option exercise data. The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu and the selected peer group price volatility, the correlation between Cohu and the selected index, and dividend yields. Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of May 5, 2020. All awards granted in 2022, 2021 and 2020 exclude the assumption of dividend payments and the estimated fair value awards granted in prior years, when dividends were paid, are unchanged.   The following weighted average assumptions were used to value share-based awards granted:   Employee Stock Purchase Plan   2022     2021     2020   Dividend yield     0.0 %     0.0 %     0.5 % Expected volatility     45.6 %     58.3 %     67.1 % Risk-free interest rate     1.2 %     0.1 %     1.1 % Expected term (years)     0.5       0.5       0.5   Weighted-average grant date fair value per share   $ 8.79     $ 9.42     $ 6.01     Restricted Stock Units   2022     2021     2020   Dividend yield     0.0 %     0.0 %     0.0 %   Reported share-based compensation is classified in the consolidated financial statements as follows:   (in thousands)   2022     2021     2020   Cost of sales   $ 646     $ 828     $ 893   Research and development     3,100       3,017       3,245   Selling, general and administrative     11,172       9,947       10,096   Share-based compensation of continuing operations     14,918       13,792       14,234   Income tax benefit     ( 4,004 )     ( 722 )     ( 963 ) Total share-based compensation, net of tax   $ 10,914     $ 13,070     $ 13,271     We account for forfeitures of plan-based awards as they occur. At December 31, 2022, we had approximately $ 21.6  million of pre-tax unrecognized compensation cost related to unvested restricted stock units and performance stock units which is expected to be recognized over a weighted-average period of approximately 2.3  years.   66 Table of Contents        COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          7. Derivative Financial Instruments   Foreign Exchange Derivative Contracts   We operate and sell our products in various global markets and, as a result, we are exposed to changes in foreign currency exchange rates. In the fourth quarter of 2020, we began utilizing foreign currency forward contracts to offset against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses.   We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our consolidated statements of operations for both realized and unrealized gains and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash provided by operating activities in our consolidated statements of cash flows.   The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All our foreign exchange derivative contracts outstanding at December 31, 2022 will mature during the first quarter of fiscal 2023.   The following table provides information about our foreign currency forward contracts outstanding as of December 31, 2022 (in thousands) :   Currency Contract Position   Contract Amount (Local Currency)     Contract Amount (U.S. Dollars)   Euro Buy     81,677     $ 87,300   Swiss Franc Buy     20,714       22,500                 $ 109,800     Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs. The fair value of our foreign currency contracts as of December 31, 2022 was immaterial.   The location and amount of gains (losses) related to non-designated derivative instruments in the consolidated statements of operations were as follows (in thousands) :   Derivatives Not Designated Location of Gain (Loss)   Fiscal Year   as Hedging Instruments Recognized on Derivatives   2022     2021     2020   Foreign exchange forward contracts Foreign transaction gain (loss)   $ ( 5,356 )   $ ( 3,428 )   $ 756            8. Equity   Common Stock Issuance   On March 8, 2021, we closed an underwritten follow-on public offering of 4,950,000 shares of our common stock at $ 41.00 per share. As part of the transaction, the underwriters were also granted a 30 -day option to purchase up to an aggregate of 742,500 additional shares of common stock to cover over-allotments which was exercised in full on March 11, 2021. The offering, and the follow-on option to sell additional shares, resulted in net proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately $ 223.1  million. All of the shares were sold pursuant to an effective shelf registration statement previously filed with the SEC.   Share Repurchase Program   On October 28, 2021, we announced that our Board of Directors authorized a $ 70  million share repurchase program. On October 25, 2022, our Board of Directors authorized an additional $ 70  million under the share repurchase program. This share repurchase program was effective as of November 2, 2021 and has no expiration date, and the timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and may be commenced or suspended from time-to-time at our discretion without prior notice. Repurchases may be made in the open market, through 10b5 - 1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. For the year ended December 31, 2022, we repurchased 1,767,070 shares of our common stock for $ 50.7  million to be held as treasury stock. For the year ended December 25, 2021, we repurchased 206,572 shares of our common stock for $ 7.3  million. As of December 31, 2022, we may purchase up to $ 82.0  million of shares of our common stock under our share repurchase program.   67 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Common Stock   On May 4, 2022, our stockholders approved an amendment to Cohu’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 60,000,000 to 90,000,000 shares. Accordingly, on May 5, 2022, we filed with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation implementing the approved changes (the “Restated Certificate”), and the Restated Certificate was effective as of that date.          9. Income Taxes   Significant components of the provision (benefit) for income taxes for continuing operations are as follows:   (in thousands)   2022     2021     2020   Current:                         U.S. Federal   $ 1,609     $ 1,103     $ -   U.S. State     456       101       21   Foreign     31,307       22,862       5,950   Total current     33,372       24,066       5,971   Deferred:                         U.S. Federal     ( 9 )     5       8   Foreign     ( 3,495 )     948       ( 5,313 ) Total deferred     ( 3,504 )     953       ( 5,305 )     $ 29,868     $ 25,019     $ 666     Income (loss) before income taxes from continuing operations consisted of the following:   (in thousands)   2022     2021     2020   U.S.   $ 9,180     $ 30,588     $ ( 25,005 ) Foreign     117,535       161,756       11,828   Total   $ 126,715     $ 192,344     $ ( 13,177 )   Deferred tax effects   Except for working capital requirements in certain foreign jurisdictions, we provide for all taxes, including withholding and other residual taxes, related to unremitted earnings of our foreign subsidiaries.   68 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of our deferred tax assets and liabilities were as follows:   (in thousands)   2022     2021   Deferred tax assets:                 Inventory, receivable and warranty reserves   $ 13,599     $ 12,166   Net operating loss carryforwards     39,545       44,806   Tax credit carryforwards     29,646       31,264   Capitalized R&D     19,819       8,728   Accrued employee benefits     4,416       5,695   Stock-based compensation     2,990       2,222   Lease liabilities     3,965       4,500   Other     472       2,674   Gross deferred tax assets     114,452       112,055   Less valuation allowance     ( 89,234 )     ( 76,250 ) Total deferred tax assets     25,218       35,805   Deferred tax liabilities:                 Intangible assets and other acquisition basis differences     38,921       48,657   Operating lease right-of-use assets     3,573       4,066   Unremitted earnings of foreign subsidiaries     153       4,207   Total deferred tax liabilities     42,647       56,930   Net deferred tax liabilities   $ ( 17,429 )   $ ( 21,125 )   The components of total net deferred tax assets (liabilities), net of valuation allowances, as shown in our consolidated balance sheets are as follows:   (in thousands)   2022     2021   Other assets (long-term)   $ 3,930     $ 4,762   Long-term deferred income tax liabilities     ( 21,359 )     ( 25,887 ) Net deferred tax liabilities   $ ( 17,429 )   $ ( 21,125 )   Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, ( 1 ) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); ( 2 ) taxable income in prior carryback years, if carryback is permitted under the tax law; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carryforwards.   In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs each reporting period, including an assessment of taxable income in prior carryback years, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and prudent and feasible tax planning strategies that we would be willing to undertake to prevent a deferred tax asset from otherwise expiring.   The assessment regarding whether a valuation allowance is required or whether a change in judgement regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to:     • Nature, frequency, and severity of cumulative losses in recent years     • Duration of statutory carryforward and carryback periods     • Statutory limitations against utilization of tax attribute carryforwards against taxable income     • Historical experience with tax attributes expiring unused     • Near- and medium-term financial outlook   69 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. We use the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years.   The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents our best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on our results of operations and financial condition.   In certain tax jurisdictions, our analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence, which is objective and veritable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, we consider all other available positive and negative evidence in this analysis. Based on the evidence available including a lack of sustainable earnings and history of expiring unused NOLs, and tax credits, we continue to maintain the judgement that a previously recorded valuation allowance against substantially all net deferred tax assets in the United States is still required. If a change in judgement regarding this valuation allowance were to occur in the future, we will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period.   Our valuation allowance on our DTAs at December 31, 2022, and December 25, 2021, was approximately $ 89.2 million and $ 76.3  million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are realizable primarily through future reversals of existing taxable temporary differences and to a lesser extent future taxable income in certain jurisdictions exclusive of reversing temporary differences and carryforwards.   The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for income taxes for continuing operations is as follows:   (in thousands)   2022     2021     2020   Tax provision at U.S. 21 % statutory rate   $ 26,610     $ 40,392     $ ( 2,757 ) State income taxes, net of federal tax benefit     ( 1,535 )     2,246       ( 1,160 ) Settlements, adjustments and releases from statute expirations     348       ( 787 )     ( 118 ) Federal R&D credits     ( 1,679 )     ( 943 )     ( 46 ) Stock-based compensation     ( 572 )     ( 4,802 )     727   Excess executive compensation     946       1,608       491   Change in valuation allowance     13,307       ( 9,882 )     ( 1,691 ) Exemption of PTG gain     -       ( 12,378 )     -   Dividend, net of foreign tax credits     13       693       1,224   GILTI, net of foreign tax credits     3,458       9,343       4,191   Foreign rate differential     ( 6,131 )     ( 1,023 )     ( 1,512 ) Other, net     ( 4,897 )     552       1,317       $ 29,868     $ 25,019     $ 666     An accounting policy may be selected to either (i) treat taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income (“GILTI”) as a current-period expense when incurred or (ii) factor such amounts into a company’s measurement of its deferred taxes. We have elected to account for GILTI as a period cost.   At December 31, 2022, we had federal, state and foreign net operating loss carryforwards of approximately $ 140.0  million, $ 113.9  million and $ 9.0  million, respectively, that expire in various tax years beginning in 2023 through 2041 or have no expiration date. We also have federal and state tax credit carryforwards at December 31, 2022 of approximately $ 3.7  million and $ 32.9 million, respectively, certain of which expire in various tax years beginning in 2023 through 2041 or have no expiration date. The federal and state loss and credit carryforwards are subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code and applicable state tax laws. We analyzed and determined that there were no ownership changes during the three -year period ending December 31, 2022. We will continue to assess the realizability of these carryforwards in subsequent periods. Future changes in the ownership of Cohu could further limit the utilization of these carryforwards.   70 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   We have certain tax holidays with respect to our operations in Malaysia and the Philippines. These holidays require compliance with certain conditions and expire at various dates through 2027. The impact of these holidays was an increase in net income of approximately $ 4.5  million or $ 0.09  per share in both 2022 and 2021, and $ 3.6  million, or $ 0.09  per share, in fiscal 2020.   A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:   (in thousands)   2022     2021     2020   Balance at beginning of year   $ 33,391     $ 33,696     $ 34,740   Additions for tax positions of current year     910       686       817   Reductions for tax positions of prior years     ( 428 )     ( 83 )     ( 425 ) Reductions due to lapse of the statute of limitations     ( 354 )     ( 1,012 )     ( 304 ) Reductions due to settlements     -       -       ( 1,134 ) Foreign exchange rate impact     ( 151 )     104       2   Balance at end of year   $ 33,368     $ 33,391     $ 33,696     If the unrecognized tax benefits at December 31, 2022 are ultimately recognized, excluding the impact of U.S. tax benefits netted against deferred taxes that are subject to a valuation allowance, approximately $ 5.8  million ($ 5.3  million at December 25, 2021 and $ 5.9 million at December 26, 2020) would result in a reduction in our income tax expense and effective tax rate.   We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately $ 0.6  million and $ 0.8  million accrued for the payment of interest and penalties at December  31,   2022, and December 25, 2021, respectively. Interest expense, net of accrued interest reversed, was $( 0.1 ) million in 2022, $( 0.2 ) million in 2021 and $( 0.3 ) million in 2020.   Our U.S. federal and state income tax returns for years after 2018 and 2017, respectively, remain open to examination, subject to the statute of limitations. Net operating loss and credit carryforwards arising prior to these years are also open to examination if and when utilized. The statute of limitations for the assessment and collection of income taxes related to our foreign tax returns varies by country. In the foreign countries where we have significant operations these time periods generally range from four to ten years after the year for which the tax return is due or the tax is assessed.   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, Singapore, Philippines and Malaysia. We believe our financial statement accruals for income taxes are appropriate.   71 Table of Contents         COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          10. Segment and Geographic Information   We applied the provisions of ASC 280, which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. We have determined that our three identified operating segments are: THG, STG and ISG. Our THG, STG and ISG operating segments qualify for aggregation under ASC 280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in one segment, Semiconductor Test & Inspection. All amounts presented in our consolidated balance sheet as of December 31, 2022, and our consolidated statement of operations for the twelve months ended December 31, 2022, represents the financial position and results of our remaining reportable segment. Prior to the sale of our PCB Test Group on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test.   (in thousands)   2021     2020   Net sales by segment:                 Semiconductor Test & Inspection   $ 860,454     $ 585,240   PCB Test     26,760       50,767   Total consolidated net sales for reportable segments   $ 887,214     $ 636,007   Segment profit (loss) before tax:                 Semiconductor Test & Inspection   $ 138,026     $ ( 2,497 ) PCB Test     3,907       6,971   Profit for reportable segments     141,933       4,474   Other unallocated amounts:                 Corporate expenses     ( 10,819 )     ( 4,384 ) Gain on sale of PCB Test business     70,815       -   Interest expense     ( 6,413 )     ( 13,759 ) Interest income     239       224   Gain on extinguishment of debt     ( 3,411 )     268   Profit (loss) from continuing operations before taxes   $ 192,344     $ ( 13,177 )   (in thousands)   2021     2020   Depreciation and amortization by segment deducted in arriving at profit (loss):   Semiconductor Test & Inspection   $ 48,129     $ 51,548   PCB Test     439       1,198   Total depreciation and amortization   $ 48,568     $ 52,746   Capital expenditures by segment:                 Semiconductor Test & Inspection   $ 11,954     $ 18,616   PCB Test     46       44   Total consolidated capital expenditures   $ 12,000     $ 18,660     (in thousands)   2020   Total assets by segment:         Semiconductor Test & Inspection   $ 968,028   PCB Test     66,826   Total assets for reportable segments     1,034,854   Corporate, principally cash and investments     55,492   Discontinued operations     -   Total consolidated assets   $ 1,090,346     72 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   During the last three years, the following customers of our Semiconductor Test & Inspection segment that comprised 10% or greater of our consolidated net sales were as follows:       2022     2021     2020   Analog Devices     *       14.1 %     *   * Less than 10% of consolidated net sales.     On June 24, 2021, we completed the divestment of our PCB Test business. Prior to this, no customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 25, 2021 and December 26, 2020.   Net sales to customers, attributed to countries based on product shipment destination, were as follows:   (in thousands)   2022     2021     2020   China   $ 146,227     $ 213,575     $ 143,360   Philippines     111,647       155,070       56,272   Malaysia     99,508       79,777       57,893   United States     79,093       77,495       108,694   Taiwan     59,835       88,152       83,685   Rest of the world     316,465       273,145       186,103   Total, net   $ 812,775     $ 887,214     $ 636,007     Geographic location of our property, plant and equipment and other long-lived assets was as follows:   (in thousands)   2022     2021   Property, plant and equipment:                 United States   $ 18,419     $ 18,375   Germany     15,977       17,419   Philippines     14,706       10,384   Japan     9,316       11,156   Malaysia     4,300       4,082   Rest of the world     2,293       2,541   Total, net   $ 65,011     $ 63,957                     Goodwill and other intangible assets:                 Germany   $ 158,401     $ 181,146   United States     131,068       150,477   Malaysia     43,571       43,611   Singapore     12,512       12,990   Switzerland     4,299       4,583   Japan     2,641       3,148   Rest of the world     1,151       1,156   Total, net   $ 353,643     $ 397,111             11. Leases   We lease certain of our facilities, equipment and vehicles under non-cancelable operating and finance leases. Leases with initial terms with 12 months or less are not recorded in the consolidated balance sheet, but we recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Lease and non-lease components are included in the calculation of the right of use asset (“ROU”) asset and lease liabilities.   Our leases have remaining lease terms ranging from 1 year to 35 years, some of which include one or more options to extend the lease for up to 25 years. Our lease term includes renewal terms when we are reasonably certain that we will exercise the renewal options. We sublease certain leased assets to third parties, mainly as a result of unused space in our facilities.   73 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Supplemental balance sheet information related to leases was as follows:       December 31,     December 25,   (in thousands) Classification   2022     2021   Assets:                   Operating lease assets Operating lease right-of-use assets   $ 22,804     $ 25,060   Finance lease assets Property, plant and equipment, net (1)     323       423   Total lease assets   $ 23,127     $ 25,483   Liabilities:                   Current:                   Operating Other accrued liabilities   $ 4,927     $ 4,886   Finance Other accrued liabilities     49       167   Noncurrent:                   Operating Long-term lease liabilities     19,185       21,977   Finance Long-term lease liabilities     24       63   Total lease liabilities   $ 24,185     $ 27,093                       Weighted-average remaining lease term (years):                 Operating leases     6.2       6.9   Finance leases     1.7       1.8                       Weighted-average discount rate:                 Operating leases     6.2 %     6.3 % Finance leases     2.2 %     0.7 %   ( 1 ) Finance lease assets are recorded net of accumulated amortization of $ 0.2 million and $ 0.1 million in 2022 and 2021, respectively.   The components of lease expense were as follows:       December 31,     December 25,   (in thousands)   2022     2021   Operating leases   $ 6,698     $ 7,638   Variable lease expense     2,220       2,192   Short-term operating leases     4       69   Finance leases:                 Amortization of leased assets     88       86   Interest on lease liabilities     1       2   Sublease income     ( 69 )     ( 81 ) Net lease cost   $ 8,942     $ 9,906     Future minimum lease payments at December 31, 2022, are as follows:       Operating     Finance           (in thousands)   leases     leases     Total   2023   $ 6,197     $ 50     $ 6,247   2024     5,848       11       5,859   2025     5,234       11       5,245   2026     2,849       3       2,852   2027     1,780       -       1,780   Thereafter     7,904       -       7,904   Total lease payments     29,812       75       29,887   Less: Interest     ( 5,700 )     ( 2 )     ( 5,702 ) Present value of lease liabilities   $ 24,112     $ 73     $ 24,185     74 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Supplemental cash flow information related to leases was as follows:       December 31,     December 25,   (in thousands)   2022     2021   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows from operating leases   $ 6,716     $ 7,628   Operating cash flows from finance leases   $ 1     $ 1   Financing cash flows from finance leases   $ 167     $ 186   Leased assets obtained in exchange for new finance lease liabilities   $ -     $ 54   Leased assets obtained in exchange for new operating lease liabilities   $ 2,874     $ 3,866           12. Commitments and Contingencies   From time-to-time we are involved in various legal proceedings, examinations by various tax authorities and claims that have arisen in the ordinary course of our business. The outcome of any litigation is inherently uncertain. While there can be no assurance, we do not believe at the present time that the resolution of these matters will have a material adverse effect on our assets, financial position or results of operations.         13. Guarantees   Accrued Warranty   Changes in accrued warranty during the three -year period ended December 31, 2022, was as follows:   (in thousands)   2022     2021     2020   Beginning balance   $ 7,691     $ 6,382     $ 6,155   Warranty accruals     8,897       13,389       6,173   Warranty payments     ( 10,374 )     ( 11,135 )     ( 5,946 ) Warranty liability transferred     -       ( 945 )     -   Ending balance   $ 6,214     $ 7,691     $ 6,382     Accrued warranty amounts expected to be incurred after one year are included in noncurrent other accrued liabilities in the consolidated balance sheet. These amounts totaled $ 0.6  million and $ 1.1  million at December 31, 2022 and December 25, 2021, respectively.         14. Business Divestitures and Discontinued Operations   PCB Test Equipment Business   On June 24, 2021, we completed the sale of our PCB Test business, which represented our PCB Test reportable segment. As part of the transaction we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business. Our decision to sell this non-core business resulted from management’s determination that that they were no longer a fit within our organization. We received gross proceeds of $ 125.1  million, subject to certain closing adjustments. The sale generated a $ 70.8  million pre-tax gain on sale of business, which was recorded in our consolidated statements of operations for the twelve months ended December 25, 2021. As a result of the closing of the transaction, we derecognized net assets of $ 48.2  million, including goodwill of $ 21.9  million and intangible assets of $ 14.8  million.   We evaluated the guidance in ASC Topic 205 - 20, Presentation of Financial Statements – Discontinued Operations , and determined that the divestment of our PCB Test business does not represent a strategic shift as the divestiture will not have a major effect on Cohu’s operations and financial results and, as a result, it is not presented as discontinued operations in any periods presented. Subsequent to the sale of our PCB Test business, we have one reportable segment, Semiconductor Test & Inspection.   Fixtures Services Business ( “ FSG ” )   On October 1, 2018, we acquired a fixtures services business as part of Xcerra. At the time of the acquisition our management determined that this business did not align with Cohu’s core business and was not a strategic fit within our organization. The fixtures services business was marketed for sale since we acquired Xcerra on October 1, 2018 and it has been presented as discontinued operations as it met the held for sale criteria. For financial statement purposes, the results of operations for this business have been segregated from those of continuing operations and are presented in our consolidated financial statements as discontinued operations for all periods presented.   75 Table of Contents   COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   We completed the sale of this business in February 2020 which resulted in an immaterial gain that that was recorded in our statement of operations for the twelve months ended December 26, 2020, as noted below.   Operating results of our discontinued operations are summarized as follows (in thousands) :       December 26,       2020   Net sales   $ 432             Operating income   $ 11   Gain on sale of FSG     35   Income before taxes     46   Income tax provision     4   Income, net of tax   $ 42           15. Accumulated Other Comprehensive Income (Loss)   Components of other comprehensive income (loss), on an after-tax basis, were as follows:   (in thousands)   Before Tax amount     Tax (Expense) Benefit     Net of Tax Amount   Year ended December 26, 2020                         Foreign currency translation adjustments   $ 27,321     $ -     $ 27,321   Adjustments related to postretirement benefits     2,599       ( 216 )     2,383   Other comprehensive income   $ 29,920     $ ( 216 )   $ 29,704   Year ended December 25, 2021                         Foreign currency translation adjustments   $ ( 22,859 )   $ ( 97 )   $ ( 22,956 ) Adjustments related to postretirement benefits     2,920       ( 318 )     2,602   Change in unrealized gain/loss on investments     ( 67 )     -       ( 67 ) Reclassification due to sale of PBC Test Business     ( 2,515 )     -       ( 2,515 ) Other comprehensive loss   $ ( 22,521 )   $ ( 415 )   $ ( 22,936 ) Year ended December 31, 2022                         Foreign currency translation adjustments   $ ( 17,991 )   $ 41     $ ( 17,950 ) Adjustments related to postretirement benefits     6,690       ( 796 )   $ 5,894   Change in unrealized gain/loss on investments     ( 694 )     -     $ ( 694 ) Other comprehensive loss   $ ( 11,995 )   $ ( 755 )   $ ( 12,750 )   Components of accumulated other comprehensive income (loss), net of tax, at the end of each period are as follows:   (in thousands)   2022     2021   Accumulated net currency translation adjustments   $ ( 46,308 )   $ ( 25,833 ) Accumulated net adjustments related to postretirement benefits     7,031     $ 1,153   Accumulated net unrealized gain/loss on investments     ( 735 )   $ ( 67 ) Accumulated reclassification due to sale of PBC Test Business     -     $ ( 2,515 ) Total accumulated other comprehensive loss   $ ( 40,012 )   $ ( 27,262 )   76 Table of Contents       COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         16. Related Party Transactions   At December 31, 2022, certain of our cash and short-term investments were held and managed by BlackRock, Inc. which owns 15.9 % of our outstanding common stock as reported in its Form 13 -G/A filing made with the Securities and Exchange Commission on January 20, 2023.   We have an ownership interest in Fraes-und Technologiezentrum GmbH Frasdorf (“FTZ”), a company based in Germany that provides milling services to one of our wholly owned subsidiaries. This investment is accounted for under the equity method and is not material to our consolidated balance sheets. During 2022, 2021 and 2020, purchases of products from FTZ were not material.   We also had an ownership interest in ETZ Elektrisches Testzentrum fuer Leiterplatten GmbH (“ETZ”) which provided our PCB Test business, atg-Luther & Maelzer GmbH, with certain component parts. Our ownership interest in ETZ was transferred on June 24, 2021 as part of the sale of the PCB Test business and ETZ is no longer a related party. During 2021 and 2020, purchases of products from ETZ, when it was a related party, were not material.         17. Subsequent Event   On January 30, 2023, we completed the acquisition of all the outstanding membership units of MCT Worldwide, LLC. (“MCT”), pursuant to a membership unit purchase agreement dated January 30, 2023, by and among MCT Worldwide, LLC, Arise Acquisition Co., LLC, The Seaport Group LLC Profit Sharing Plan, and Delta Design, Inc., a wholly owned subsidiary of Cohu (“the Acquisition”). MCT is a U.S. based company with a principal manufacturing site in Penang Malaysia. MCT provides automated solutions for the semiconductor industry and designs, manufactures, markets, services and distributes strip test handlers, film frame handlers and laser mark handlers. On January 30, 2023, we made a cash payment totaling $ 28.0  million for MCT. The Acquisition is a cash free debt free transaction and is subject to a working capital adjustment for the difference between the actual and estimated net working capital. In connection with the Acquisition, we incurred approximately $ 0.1  million in acquisition-related costs, which were expensed as selling, general and administrative costs during the year ended December 31, 2022. Additional acquisition-related costs will be incurred during fiscal 2023.   77 Table of Contents         Report of Independent Registered Public Accounting Firm   To the Shareholders and the Board of Directors of Cohu, Inc.   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of Cohu, Inc. (the Company) as of December 31, 2022 and December 25, 2021, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and December 25, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2023 expressed an unqualified opinion thereon.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.     Valuation of inventories Description of  the Matter As of December 31, 2022, the Company’s consolidated inventories balance was $170.1 million. As described in Note 1 to the consolidated financial statements, the Company values its inventories at lower of cost, determined on a first-in, first-out basis, or net realizable value. Obsolete inventory or inventory in excess of management's estimated usage requirement is written down to its estimated net realizable value.   Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control. In particular, the excess and obsolete inventory calculations are sensitive to significant assumptions, including product expectations and expected future usage of individual materials.   78 Table of Contents   How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory valuation process, including management's assessment of the assumptions stated above and data underlying the excess and obsolete inventory valuation.   To test the valuation of inventories, our audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used by management in the analysis of excess and obsolete inventory. We evaluated adjustments to inventory reserves for specific product expectations, compared the balance of on-hand inventories to usage forecasts and historical usage, and assessed the historical accuracy of management’s estimates by performing a retrospective analysis comparing prior period forecasted demand to actual historical sales.   /s/ Ernst & Young LLP   We have served as the Company’s auditor since 1956.   San Diego, California February 17, 2023   79 Table of Contents   Index to   Exhibits         15. (b) The following exhibits are filed as part of, or incorporated into, the 2022 Cohu, Inc. Annual Report on Form 10-K:       Exhibit No. Description         3.1 Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to Exhibit 3.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on May 5, 2022         3.2 Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on May 17, 2018         4.1 Description of Capital Stock         10.1 Credit and Guaranty Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018         10.2 Pledge and Security Agreement dated as of October 1, 2018, by and among Cohu, Inc., Certain Subsidiaries of Cohu, Inc. and Deutsche Bank AG New York Branch, incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 7, 2018         10.3 Amended Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Appendix A from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*         10.4 Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, herein by reference to Appendix B from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2019*         10.5 Cohu, Inc. Deferred Compensation Plan (as amended and restated) incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on December 29, 2008*         10.6 Form of employee restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*         10.7 Form of non-employee director restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*         10.8 Form of non-employee director restricted stock unit deferral election form for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*   80 Table of Contents     10.9 Non-employee director fee deferral election form incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*         10.10 Form of deferred stock agreement for shares granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*         10.11 Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015*         10.12 Form of Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed December 13, 2018*         10.13 Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Current Report on Form 8-K (file no. 001-04298) filed with the Securities and Exchange Commission on December 29, 2008*         10.14 Lease agreement dated December 4, 2015 by and between CT Crosthwaite I, LLC and Cohu, Inc. incorporated herein by reference to Exhibit 10.14 from the Cohu, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2016         10.15 Severance Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.16 Severance Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.17 Severance Agreement, dated September 8, 2020, between the Company and Thomas D. Kampfer incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.18 Severance Agreement, dated September 8, 2020, between the Company and Luis A. Mü ller incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.19 Change in Control Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.20 Change in Control Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.21 Change in Control Agreement, dated September 8, 2020, between the Company and Thomas D. Kampfer incorporated herein by reference to Exhibit 10.7 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.22 Change in Control Agreement, dated September 8, 2020, between the Company and Luis A. Mü ller incorporated herein by reference to Exhibit 10.8 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 *         10.23 Severance Agreement, dated September 8, 2020, between the Company and Ian Lawee incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 29, 2022 *   81 Table of Contents     10.24 Change in Control Agreement, dated September 8, 2020, between the Company and Ian Lawee incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 29, 2022 *         10.25 Share and Asset Purchase Agreement, dated May 10, 2021, by and among Cohu, Inc., Cohu Semiconductor Test GmbH, Credence International Ltd. (BVI), Xcerra Corporation, Everett Charles Tech, Inc., KOGNITEC Vertrieb & Service GmbH, Mycronic AB and Mycronic, Inc. incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2021         21 Subsidiaries of Cohu, Inc.         23 Consent of Independent Registered Public Accounting Firm         31.1             Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Luis A. Müller   31.2             Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones   32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Luis A. Müller   32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones         101.INS Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)         101.SCH Inline XBRL Taxonomy Extension Schema Document         101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document         101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document         101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document         101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document         104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   *  Management contract or compensatory plan or arrangement   82 Table of Contents   Item 16. Form 10-K Summary.   None.   83 Table of Contents   SIGNATURES                 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                     COHU, INC.                     Date: February 17, 2023   By:  /s/ Luis A. Müller           Luis A. Müller           President and Chief Executive Officer                   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.                             Signature     Title       Date                /s/ James A. Donahue   Chairperson of the Board,   February 17, 2023 James A. Donahue   Director                      /s/ Luis A. Müller   President and Chief Executive Officer, Director   February 17, 2023 Luis A. Müller   (Principal Executive Officer)                      /s/ Jeffrey D. Jones   Vice President, Finance and CFO   February 17, 2023 Jeffrey D. Jones   (Principal Financial and Accounting Officer)                    /s/ William E. Bendush   Director   February 17, 2023 William E. Bendush                          /s/ Steven J. Bilodeau   Director     February 17, 2023 Steven J. Bilodeau                            /s/ Andrew M. Caggia   Director     February 17, 2023 Andrew M. Caggia                            /s/ Yon Y. Jorden   Director     February 17, 2023 Yon Y. Jorden                            /s/ Andreas W. Mattes   Director     February 17, 2023 Andreas W. Mattes                            /s/ Nina L. Richardson   Director     February 17, 2023 Nina L. Richardson               84 Table of Contents         COHU, INC.                             SCHEDULE II                             VALUATION AND QUALIFYING ACCOUNTS                     (in thousands)                                           Additions                                       (Reductions)                               Balance at     Not     Additions             Balance       Beginning     Charged     Charged     Deductions/     at End   Description   of Year     to Expense (1)   to Expense     Write-offs     of Year                                             Allowance for doubtful accounts:                                                                             Year ended December 26, 2020   $ 9     $ ( 1 )   $ 79     $ ( 41 )   $ 128                                             Year ended December 25, 2021   $ 128     $ 14     $ 149     $ 1     $ 290                                             Year ended December 31, 2022   $ 290     $ ( 8 )   $ 122     $ 205     $ 199                                                                                       Reserve for excess and obsolete inventories:                                                                             Year ended December 26, 2020   $ 20,958     $ 4,611     $ 8,117     $ 6,749     $ 26,937                                             Year ended December 25, 2021   $ 26,937     $ ( 2,926 ) (2) $ 7,102     $ 8,101     $ 23,012                                             Year ended December 31, 2022   $ 23,012     $ 698     $ 7,179     $ 4,018     $ 26,871                                               All amounts presented above have been restated to exclude the impact of our discontinued operations.                                                     ( 1 ) Changes in reserve balances resulting from foreign currency impact and reclassifications from other reserves.   ( 2 ) Reductions not charged to expense includes $ 2.2 million transferred as part of the sale of our PCB Test business.         85