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 30, 2023, 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 30, 2023, 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 30, 2023. 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 30, 2023, as stated in their report which is included herein. 46 Table of Contents 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 30, 2023, 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 30, 2023, 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 30, 2023 and December 31, 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 30, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 16, 2024, 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 16, 2024 47 Table of Contents Item 9B. Other Information. Rule 10b5 - 1 Trading Plans Our directors and executive officers may purchase or sell shares of our common stock in the market from time to time, including pursuant to equity trading plans adopted in accordance with Rule 10b5 - 1 under the Exchange Act and in compliance with guidelines specified by our insider trading policy. In accordance with Rule 10b5 - 1 and our insider trading policy, directors, officers and certain employees who, at such time, are not in possession of material non-public information are permitted to enter into written plans that pre-establish amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of our stock, including shares acquired pursuant to our equity incentive plans. Under a Rule 10b5 - 1 trading plan, a broker executes trades pursuant to parameters established by the director or executive officer when entering into the plan, without further direction from them. The use of these trading plans permits asset diversification as well as personal financial and tax planning. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5 - 1 plan when they are not in possession of material nonpublic information, subject to compliance with SEC rules, the terms of our insider trading policy and certain minimum holding requirements. The following table shows the Rule 10b5 - 1 trading plans intended to satisfy the affirmative defense conditions of Rule 10b - 1 (c) adopted or terminated by our directors and executive officers during the fourth quarter of fiscal 2023. Plan Plan Expiration Number of Shares Name and Position Action Adoption Date Date to be Sold under Plan Nina L. Richardson , Director Adoption 11/7/2023 10/11/2024 4,999 Transactions by Section 16 directors and officers will be disclosed publicly through Form 144 and Form 4 filings with the SEC to the extent required by law. No non-Rule 10b5 - 1 trading arrangements (as defined by Item 408 (a) of Regulation S-K) were entered into, adopted or terminated by any Section 16 director or officer during the fourth quarter of fiscal 2023. 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 SEC within 120 days after the close of fiscal 2023. 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 2023. 48 Table of Contents 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 2023. 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 2023. 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 2023. 49 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 51: Form 10-K Description Page Number Consolidated Balance Sheets at December 30, 2023 and December 31, 2022 51 Consolidated Statements of Income for each of the three years in the period ended December 30, 2023 52 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 30, 2023 53 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 30, 2023 54 Consolidated Statements of Cash Flows for each of the three years in the period ended December 30, 2023 55 Notes to Consolidated Financial Statements 56 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 87 (2) Financial Statement Schedule Schedule II – Valuation and Qualifying Accounts 94 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. 50 Table of Contents COHU, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 30, December 31, ASSETS 2023 2022 Current assets: Cash and cash equivalents $ 245,524 $ 242,341 Short-term investments 90,174 143,235 Accounts receivable, net 124,624 176,148 Inventories 155,793 170,141 Prepaid expenses 17,696 24,017 Other current assets 5,007 8,969 Total current assets 638,818 764,851 Property, plant and equipment, net 69,085 65,011 Goodwill 241,658 213,539 Intangible assets, net 151,770 140,104 Other assets 32,243 21,105 Operating lease right of use assets 16,778 22,804 $ 1,150,352 $ 1,227,414 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 1,773 $ 1,907 Current installments of long-term debt 4,551 4,404 Accounts payable 33,600 51,763 Customer advances 4,748 6,886 Accrued compensation and benefits 31,897 38,348 Accrued warranty 4,653 5,614 Deferred profit 3,586 8,022 Income taxes payable 4,024 26,648 Other accrued liabilities 14,589 17,280 Total current liabilities 103,421 160,872 Other accrued liabilities 8,262 7,620 Noncurrent income tax liabilities 7,065 6,486 Accrued retirement benefits 10,802 10,363 Deferred income taxes 23,154 21,359 Long-term debt 34,303 72,664 Long-term lease liabilities 13,175 19,209 Stockholders' equity: Preferred stock, $ 1 par value; 1,000 shares authorized, none issued - - Common stock, $ 1 par value; 90,000 shares authorized, 49,429 shares issued and outstanding in 2023 and 49,276 shares in 2022 49,429 49,276 Paid-in capital 686,146 687,218 Treasury stock, at cost; 2,253 shares in 2023 and 1,767 shares in 2022 ( 69,184 ) ( 58,043 ) Retained earnings 318,558 290,402 Accumulated other comprehensive loss ( 34,779 ) ( 40,012 ) Total stockholders' equity 950,170 928,841 $ 1,150,352 $ 1,227,414 The accompanying notes are an integral part of these statements. 51 Table of Contents COHU, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Years ended December 30, December 31, December 25, 2023 2022 2021 Net sales $ 636,322 $ 812,775 $ 887,214 Cost and expenses: Cost of sales (1) 333,454 429,449 500,253 Research and development 88,571 92,589 91,963 Selling, general and administrative 132,249 131,390 126,958 Amortization of purchased intangible assets 36,355 33,185 35,414 Gain on sale of PCB Test business (2) - - ( 70,815 ) Restructuring charges (Note 4) 2,421 605 1,823 Impairment charges - - 100 593,050 687,218 685,696 Income from operations 43,272 125,557 201,518 Other (expense) income: Interest expense ( 3,382 ) ( 4,177 ) ( 6,413 ) Interest income 11,504 4,012 239 Foreign transaction gain (loss) ( 5,209 ) 1,635 411 Loss on extinguishment of debt ( 369 ) ( 312 ) ( 3,411 ) Income before taxes 45,816 126,715 192,344 Income tax provision 17,660 29,868 25,019 Net income $ 28,156 $ 96,847 $ 167,325 Income per share: Basic: $ 0.59 $ 2.01 $ 3.53 Diluted: $ 0.59 $ 1.98 $ 3.45 Weighted average shares used in computing income per share: Basic 47,486 48,178 47,409 Diluted 48,025 48,799 48,460 (1) Excludes amortization of $28,418, $26,023, and $27,508 for the years ended December 30, 2023, December 31, 2022, and December 25, 2021, 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. 52 Table of Contents COHU, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years ended December 30, December 31, December 25, 2023 2022 2021 Net income $ 28,156 $ 96,847 $ 167,325 Other comprehensive income (loss), net of tax Foreign currency translation adjustments 6,815 ( 17,950 ) ( 22,956 ) Adjustments related to postretirement benefits ( 2,375 ) 5,894 2,602 Change in unrealized gain/loss on investments 793 ( 694 ) ( 67 ) Reclassification due to sale of PCB Test business - - ( 2,515 ) Other comprehensive income (loss), net of tax 5,233 ( 12,750 ) ( 22,936 ) Comprehensive income $ 33,389 $ 84,097 $ 144,389 The accompanying notes are an integral part of these statements. 53 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 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 Common stock repurchases - - - - ( 23,641 ) ( 23,641 ) Net income - - 28,156 - - 28,156 Changes in cumulative translation adjustment - - - 6,815 - 6,815 Adjustments related to postretirement benefits, net of tax - - - ( 2,375 ) - ( 2,375 ) Changes in unrealized gains and losses on investments, net of tax - - - 793 - 793 Shares issued under ESPP 147 3,785 - - - 3,932 Shares issued for restricted stock units vested 6 ( 20,174 ) - - 20,168 - Repurchase and retirement of stock - ( 1,920 ) - - ( 7,668 ) ( 9,588 ) Share-based compensation expense - 17,237 - - - 17,237 Balance at December 30, 2023 $ 49,429 $ 686,146 $ 318,558 $ ( 34,779 ) $ ( 69,184 ) $ 950,170 The accompanying notes are an integral part of these statements. 54 Table of Contents COHU, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years ended December 30, December 31, December 25, 2023 2022 2021 Cash flows from operating activities: Net income $ 28,156 $ 96,847 $ 167,325 Adjustments to reconcile net income to net cash provided by operating activities: Gain on business divestitures - - ( 70,815 ) Interest capitalized associated with cloud computing implementation - ( 199 ) ( 91 ) Net accretion on investments ( 1,364 ) ( 859 ) - Loss on extinguishment of debt 369 312 3,411 Impairment charges related to indefinite lived intangibles - - 100 Depreciation and amortization 49,744 46,016 48,568 Share-based compensation expense 17,237 14,918 13,792 Inventory related charges 5,619 6,725 6,523 Amortization of debt discounts and issuance costs 146 315 643 Accrued retiree benefits ( 540 ) ( 1,589 ) ( 500 ) Deferred income taxes ( 4,774 ) ( 3,504 ) 953 Changes in other assets ( 13,286 ) ( 3,230 ) ( 1,652 ) Amortization of cloud-based software implementation costs 2,800 2,060 1,644 (Gain) loss from sale of property, plant and equipment ( 4 ) ( 203 ) 1 Changes in other accrued liabilities ( 702 ) ( 943 ) ( 416 ) Operating lease right-of-use assets 7,656 5,139 6,746 Changes in current assets and liabilities, excluding effects from divestitures: Customer advances ( 2,309 ) ( 184 ) ( 4,090 ) Accounts receivable 61,899 12,451 ( 59,123 ) Inventories 12,839 ( 18,508 ) ( 35,864 ) Accrued compensation, warranty and other liabilities ( 14,897 ) ( 4,007 ) 225 Accounts payable ( 21,356 ) ( 33,130 ) 17,316 Deferred profit ( 4,447 ) ( 5,014 ) 4,732 Other current assets 10,920 ( 16,202 ) 1,709 Income taxes payable ( 24,782 ) 20,908 3,444 Current and long-term operating lease liabilities ( 7,454 ) ( 5,258 ) ( 6,666 ) Net cash provided by operating activities 101,470 112,861 97,915 Cash flows from investing activities: Purchases of property, plant and equipment ( 16,053 ) ( 14,770 ) ( 12,000 ) Net cash received from sale of land, facility and assets 216 349 157 Purchases of short-term investments ( 97,290 ) ( 208,856 ) ( 204,699 ) Sales and maturities of short-term investments 152,649 155,406 135,549 Cash received from disposition of business, net of cash paid - - 120,886 Payment for purchase of MCT, net of cash received (26,331 ) - - Payment for purchase of EQT, net of cash received (43,401 ) - - Net cash provided by (used in) investing activities ( 30,210 ) ( 67,871 ) 39,893 Cash flows from financing activities: Proceeds from revolving line of credit and construction loans - - 1,376 Repayments of long-term debt ( 38,788 ) ( 38,226 ) ( 206,069 ) Net issuance (repurchases) of stock, including awards settled in cash ( 5,656 ) ( 1,957 ) ( 4,390 ) Payments on current and long-term finance lease liabilities ( 52 ) ( 167 ) ( 186 ) Acquisition of treasury stock ( 23,641 ) ( 50,719 ) ( 7,324 ) Proceeds received from issuance of common stock, net of fees - - 223,119 Net cash provided by (used in) financing activities ( 68,137 ) ( 91,069 ) 6,526 Effect of exchange rate changes on cash and cash equivalents 60 ( 1,781 ) ( 3,491 ) Net increase (decrease) in cash and cash equivalents 3,183 ( 47,860 ) 140,843 Cash and cash equivalents at beginning of year 242,341 290,201 149,358 Cash and cash equivalents at end of year $ 245,524 $ 242,341 $ 290,201 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 44,276 $ 23,123 $ 22,717 Cash paid for interest $ 3,424 $ 3,443 $ 6,253 Property, plant and equipment purchases included in accounts payable $ 124 $ 152 $ 624 Inventory capitalized as capital assets $ 1,215 $ 2,529 $ 1,635 The accompanying notes are an integral part of these statements. 55 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 fiscal years ended on December 30, 2023 and December 25, 2021, each consisted of 52 weeks. Our fiscal year ended on December 31, 2022 consisted of 53 weeks. Business Divestitures – 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. Our decision to sell this non-core business and assets resulted from management’s determination that that it was 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. See Note 15, “ Business Divestitures ” for additional information. Income Per Share – Basic income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted income per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of outstanding restricted stock and performance stock units and issuance of stock under our employee stock purchase plan using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share computations due to their anti-dilutive effect. For purposes of computing diluted income per share, stock options with exercise prices that exceed the average fair market value of our common stock for the period are excluded. For the years ended December 30, 2023, December 31, 2022 and December 25, 2021, approximately 193,000 , 261,000 , and 180,000 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 per share: (in thousands) 2023 2022 2021 Weighted average common shares outstanding 47,486 48,178 47,409 Effect of dilutive stock options and restricted stock units 539 621 1,051 48,025 48,799 48,460 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. 56 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 30, 2023, 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 $ 4.5 million, $ 7.2 million and $ 7.1 million in 2023, 2022 and 2021, respectively. Inventories by category were as follows (in thousands) : December 30, December 31, 2023 2022 Raw materials and purchased parts $ 103,118 $ 106,041 Work in process 26,820 36,024 Finished goods 25,855 28,076 Total inventories $ 155,793 $ 170,141 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. Property, plant and equipment, at cost, consisted of the following (in thousands) : December 30, December 31, 2023 2022 Land and land improvements $ 7,301 $ 7,066 Buildings and building improvements 39,677 31,161 Machinery and equipment 108,831 105,109 155,809 143,336 Less accumulated depreciation and amortization ( 86,724 ) ( 78,325 ) Property, plant and equipment, net $ 69,085 $ 65,011 Depreciation expense was $ 13.4 million in 2023, $ 12.8 million in 2022 and $ 13.2 million in 2021. The decrease in depreciation expense between 2022 and 2021 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 $ 12.2 million and $ 14.7 million at December 30, 2023 and December 31, 2022, respectively. These amounts are recorded within other assets in our consolidated balance sheets. Implementation costs are amortized using the straight-line method over seven years and we recorded $ 2.8 million and $ 2.1 million in amortization expense during the years ended December 30, 2023 and December 31, 2022, respectively. 57 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 business 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. We conduct our annual impairment test as of October 1st of each year, and have determined there was no impairment as of October 1, 2023, as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates. As of December 30, 2023, 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 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. 58 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 59 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are not determinable and in the case of new products, revenue and cost of sales are deferred until customer acceptance has been received. Our post-shipment obligations typically include standard warranties. Service revenue is recognized over time as 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 30, 2023 and December 31, 2022, we had $ 6.2 million and $ 7.1 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. 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 represent 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 30, 2023, we had deferred revenue totaling approximately $ 8.8 million, current deferred profit of $ 3.6 million and deferred profit expected to be recognized after one year included in noncurrent other accrued liabilities of $ 4.9 million. 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. 60 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Disaggregated net sales by segment are as follows: (in thousands) 2023 2022 2021 Systems-Semiconductor Test & Inspection $ 326,448 $ 474,655 $ 541,589 Non-systems-Semiconductor Test & Inspection 309,874 338,120 318,865 Systems-PCB Test - - 17,831 Non-systems-PCB Test - - 8,929 Net sales $ 636,322 $ 812,775 $ 887,214 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 $ 0.1 million, $ 0.3 million and $ 0.6 million for the years ended December 30, 2023, December 31, 2022 and December 25, 2021, respectively. 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 year ended December 30, 2023, in our consolidated statement of income we recognized a foreign exchange loss of $ 5.2 million. During the years ended December 31, 2022 and December 25, 2021, we recognized foreign exchange gains totaling $ 1.6 million and $ 0.4 million, respectively. 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. To minimize foreign exchange volatility we enter into foreign currency forward contracts with a financial institution to hedge against future movements in foreign exchange rates that affect certain existing U.S. Dollar denominated assets and liabilities 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 8, “ Derivative Financial Instruments ”. 61 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Loss – Our accumulated other comprehensive loss totaled approximately $ 34.8 million at December 30, 2023, and $ 40.0 million at December 31, 2022, 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 31, 2022 and then weakened as of December 30, 2023 and consequently, our accumulated other comprehensive loss attributed to foreign currency translation adjustments increased by $ 18.0 million and decreased by $ 6.8 million during the years ended December 31, 2022 and December 30, 2023, respectively. Reclassification adjustments from accumulated other comprehensive loss during 2023 and 2022 were not significant. Additional information related to accumulated other comprehensive loss, on an after-tax basis is included in Note 16, “ Accumulated Other Comprehensive Income ”. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020 - 04, Reference Rate Reform (Topic 848 ) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ( “ ASC 848 ” ) . ASC 848 provides temporary optional expedients and exceptions to certain U.S. GAAP contract modification requirements for contracts affected by reference rate reform as entities transition away from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. In December 2022, the FASB issued ASU 2022 - 06, Reference Rate Reform (Topic 848 ): Deferral of the Sunset Date of Topic 848 to defer the sunset date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the optional expedients in ASC 848. Effective June 16, 2023, we adopted ASC 848. Our Term Loan B Credit and Guaranty Agreement is our only contract where interest expense is based on LIBOR. The ICE Benchmark Administration Limited, LIBOR’s administrator, has ceased publishing certain LIBOR settings and stopped publishing the Overnight, 1 -month, 3 -month, 6 -month, and 12 -month USD LIBOR U.S. dollar settings in 2023. As a result, we commenced the transition of our LIBOR-based contract to SOFR. The optional expedients under ASC 848 have allowed and will allow us to account for contract modifications as continuations of the existing contract without further reassessments or remeasurements that would otherwise be required under the applicable U.S. GAAP. Subsequent to our fiscal year ended December 30, 2023, on February 9, 2024, we made a cash payment of $ 29.3 million to repay the remaining outstanding principal of our Term Loan Credit Facility. Recently Issued Accounting Pronouncements – In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures , which requires enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. We are currently evaluating the impact of the adoption of this standard. In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures , which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This ASU is effective for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. We are currently evaluating the impact of the adoption of this standard. 62 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 30, 2023, and December 31, 2022, were as follows ( in thousands ): Total Goodwill Balance December 25, 2021 $ 219,791 Impact of currency exchange ( 6,252 ) Balance December 31, 2022 213,539 Additions 24,132 Impact of currency exchange 3,987 Balance December 30, 2023 $ 241,658 Purchased intangible assets, subject to amortization, are as follows (in thousands) : December 30, 2023 December 31, 2022 Remaining Gross Carrying Accumulated Useful Life Gross Carrying Accumulated Amount Amortization (years) Amount Amortization Developed technology $ 233,623 $ 137,168 4.2 $ 224,253 $ 128,938 Customer relationships 73,759 28,932 7.1 64,632 31,015 Trade names 21,569 11,231 5.4 20,461 9,397 Backlog 100 25 0.8 - - Covenant not-to-compete 250 175 3.0 269 161 $ 329,301 $ 177,531 $ 309,615 $ 169,511 Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuation in currency exchange rates, the sale of our PCB Test business and the acquisitions of MCT and EQT. 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, 2023, 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 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 $ 36.4 million in 2023, $ 33.2 million in 2022 and $ 35.4 million in 2021. As of December 30, 2023, we expect amortization expense in future periods to be as follows: 2024 - $ 39.3 million; 2025 - $ 30.6 million; 2026 - $ 24.4 million; 2027 - $ 20.8 million 2028 - $ 18.2 million; and thereafter $ 18.5 million. 63 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 30, 2023 and December 31, 2022: Fiscal year ended (in thousands) December 30, 2023 December 31, 2022 Bank term loan under credit agreement $ 29,327 $ 66,952 Bank term loans-Kita 2,095 2,466 Construction loan-Cohu GmbH 7,681 8,414 Lines of credit 1,773 1,907 Total debt 40,876 79,739 Less: financing fees and discount ( 249 ) ( 764 ) Less: current portion ( 6,324 ) ( 6,311 ) Total long-term debt $ 34,303 $ 72,664 The debt principal payments, excluding financing lease obligations, for the next five years and thereafter are as follows (in thousands) : 2024 $ 6,459 2025 27,018 2026 1,197 2027 1,203 2028 1,258 Thereafter 3,741 Total $ 40,876 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 was due on or before October 1, 2025. The loans under the Term Loan Credit Facility bore interest, at Cohu’s option, at a floating annual rate equal to LIBOR plus a margin of 3.00 %. On June 16, 2023, in connection with the discontinuation of LIBOR, we entered into an amendment to our Term Loan Credit Facility, which provided for the transition of the benchmark interest rate from LIBOR to SOFR. Effective with the interest period beginning July 1, 2023, LIBOR was replaced with Adjusted Term SOFR, a floating annual rate equal to SOFR plus a margin of 3.0 %. At December 30, 2023, the outstanding loan balance, net of discount and deferred financing costs, was $ 29.1 million and $ 3.4 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. 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. As of December 30, 2023, the fair value of the debt was $ 29.4 million. The measurement of the fair value of debt is based on the average of the bid and ask trading quotes as of December 30, 2023 and is considered a Level 2 fair value measurement. Under the terms of the Credit Agreement, the lender had the option to accelerate the payment terms upon the occurrence of certain events of default set forth therein, which included: 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 30, 2023, we believe no such events of default have occurred. 64 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 2023 we prepaid $ 34.1 million in principal of our Term Loan Credit Facility in cash. We accounted for the prepayment as a debt extinguishment, which resulted in a loss of $ 0.4 million reflected in our consolidated statement of income and a $ 0.4 million reduction in debt discounts and deferred financing costs in our consolidated balance sheets. During 2022 we repurchased $ 31.8 million in principal of our Term Loan Credit Facility for $ 31.7 million in cash. We accounted for the repurchase as a debt extinguishment, which resulted in a loss of $ 0.3 million reflected in our consolidated statement of income, as well as a $ 0.4 million reduction in debt discounts and deferred financing costs in our consolidated balance sheets. Approximately $ 29.3 million in principal of the Term Loan Credit Facility remained outstanding as of December 30, 2023. Subsequent to our fiscal year ended December 30, 2023, on February 9, 2024, we made a cash payment of $ 29.3 million to repay the remaining outstanding amounts owed under our Term Loan Credit Facility. We accounted for the transaction as a debt extinguishment, and in the first quarter of fiscal 2024 we will recognize a loss of $ 0.2 million due to the recognition of the remaining debt discount and deferred financing costs. 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 0.45 %, and expire at various dates through 2034. At December 30, 2023, the outstanding loan balance was $ 2.1 million and $ 0.2 million of the outstanding balance is presented as current installments of long-term debt in our consolidated balance sheets. 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. The fair value of the debt approximates the carrying value at December 30, 2023. 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 30, 2023, total outstanding borrowings under the Loan Facilities was $ 7.7 million with $ 1.0 million of the total outstanding balance being presented as current installments of long-term debt in our consolidated balance sheets. 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. 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 30, 2023. 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 30, 2023, total borrowings outstanding under the revolving lines of credit were $ 1.8 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our 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 30, 2023, and December 31, 2022, no amounts were outstanding under this line of credit. 65 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Restructuring Charges MCT Integration Program During 2023, we began a strategic restructuring and integration program in connection with the acquisition of MCT (“MCT Integration Program”). As part of the MCT Integration Program, we consolidated MCT’s Penang, Malaysia manufacturing operations into Cohu’s Melaka, Malaysia manufacturing operations by the end of 2023. Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program and the facility consolidation and reduction in force programs are being implemented as part of a comprehensive review of our operations and are intended to reduce our operating cost structure and capitalize on acquisition synergies. As a result of the activities described above, we recognized total pretax charges of $ 2.4 million during the twelve months ended December 30, 2023, that are within the scope of ASC 420. Charges related to the MCT Integration Program for the year ended December 30, 2023, were as follows: (in thousands) 2023 Employee severance costs $ 2,159 Other restructuring costs 262 Total $ 2,421 Costs associated with restructuring activities are presented in our consolidated statements of income as restructuring charges. Other restructuring costs include facility closure and manufacturing software integration costs. The following table summarizes the activity within the restructuring related accounts for the MCT Integration Program during the year ended December 30, 2023 (in thousands) : Employee Severance Other Exit Costs Total Balance, December 31, 2022 - - - Costs accrued 2,159 262 2,421 Amounts paid or charged ( 2,091 ) ( 262 ) ( 2,353 ) Impact of currency exchange - - - Balance, December 30, 2023 $ 68 $ - $ 68 Xcerra Integration Program 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 (“Xcerra Integration Program”). As part of the Xcerra 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 Xcerra 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 of December 31, 2022, restructuring activities associated with the Xcerra Integration Program were materially complete. Certain end of life inventory adjustment continued during the current year. 66 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of the activities described above, we recognized total pretax (credits)/charges of $( 0.1 ) million, $ 0.2 million and $ 1.3 million for the years ended December 30, 2023 ,December 31, 2022 and December 25, 2021, respectively, that are within the scope of ASC 420. All costs of the Xcerra Integration Program were incurred by our Semiconductor Test & Inspection segment. Charges related to the Xcerra Integration Program for the years ended December 30, 2023, December 31, 2022 and December 25, 2021, were as follows (in thousands): (in thousands) 2023 2022 2021 Employee severance costs - $ ( 8 ) $ 1,161 Inventory related charges (adjustments) ( 62 ) ( 454 ) ( 558 ) Other restructuring costs - 613 662 Total $ ( 62 ) $ 151 $ 1,265 Costs associated with restructuring activities were presented in our consolidated statements of income as restructuring charges, except for certain costs associated with inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products, which were 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 Xcerra 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 30, 2023, our total accrual for restructuring related items for both the MCT and Xcerra Integration Programs is reflected within current liabilities in our consolidated balance sheets as these amounts are expected to be paid out in 2024. The estimated costs associated with the employee severance and facility consolidation actions will be paid predominantly in cash. All amounts accrued related to inventory will remain in our consolidated balance sheet until it is scrapped. 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. 67 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Investments that we have classified as short-term, by security type, are as follows (in thousands) : At December 30, 2023 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses (1) Value Corporate debt securities (2) $ 45,105 $ 147 $ 15 $ 45,237 U.S. treasury securities 20,439 26 116 20,349 Bank certificates of deposit 15,468 20 - 15,488 Asset-backed securities 8,017 17 10 8,024 Foreign government security 741 - - 741 Municipal securities 330 5 - 335 $ 90,100 $ 215 $ 141 $ 90,174 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 Bank certificates of deposit 36,500 20 41 36,479 U.S. treasury securities 34,614 1 418 34,197 Asset-backed securities 12,727 10 79 12,658 Foreign government security 828 - - 828 $ 143,952 $ 61 $ 778 $ 143,235 ( 1 ) As of December 30, 2023, the cost and fair value of investments with loss positions were approximately $ 38.5 million and $ 38.4 million, respectively. As of December 31, 2022, the cost and fair value of investments with loss positions was approximately $ 86.3 million and $ 85.5 million, respectively. We evaluated the nature of these investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold these investments to maturity. ( 2 ) Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio. Effective maturities of short-term investments at December 30, 2023, were as follows: Amortized Estimated (in thousands) Cost Fair Value Due in 1 year or less $ 57,981 $ 57,887 Due after 1 year through 5 years 31,378 31,546 Due after 5 years through 10 years 741 741 $ 90,100 $ 90,174 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. 68 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 30, 2023 using: Total estimated Level 1 Level 2 Level 3 fair value Cash $ 157,697 $ - $ - $ 157,697 Money market funds - 81,115 - 81,115 Corporate debt securities - 51,949 - 51,949 U.S. treasury securities - 20,349 - 20,349 Bank certificates of deposit - 15,488 - 15,488 Asset-backed securities - 8,024 - 8,024 Foreign government security - 741 - 741 Municipal securities - 335 - 335 $ 157,697 $ 178,001 $ - $ 335,698 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 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 2023, 2022 and 2021 we made matching contributions to the plan of $ 2.5 million, $ 2.4 million and $ 2.4 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) 2023 2022 2021 Service cost $ 551 $ 954 $ 1,223 Interest cost 510 56 61 Expected return on assets ( 331 ) ( 128 ) ( 128 ) Settlements ( 177 ) ( 487 ) 72 Net periodic costs $ 553 $ 395 $ 1,228 69 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) 2023 2022 Change in projected benefit obligation: Benefit obligation at beginning of year $ ( 21,628 ) $ ( 28,765 ) Service cost ( 551 ) ( 954 ) Interest cost ( 510 ) ( 56 ) Actuarial gain (loss) ( 1,391 ) 6,043 Participant contributions ( 1,153 ) ( 1,459 ) Benefits paid 385 378 Plan change - 397 Settlements 2,177 2,426 Foreign currency exchange adjustment ( 2,213 ) 362 Benefit obligation at end of year ( 24,884 ) ( 21,628 ) Change in plan assets: Fair value of plan assets at beginning of year 18,411 18,919 Return on assets, net of actuarial loss 52 119 Employer contributions 860 831 Participant contributions 1,153 1,459 Benefits paid ( 385 ) ( 378 ) Settlements ( 2,177 ) ( 2,426 ) Foreign currency exchange adjustment 1,786 ( 113 ) Fair value of plan assets at end of year 19,700 18,411 Net liability at end of year $ ( 5,184 ) $ ( 3,217 ) At December 30, 2023 and December 31, 2022, 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 $ 4.2 million and $ 6.8 million at December 30, 2023 and December 31, 2022, respectively. The actuarial loss of $ 1.4 million and the actuarial gain of $ 6.0 million for the years ended December 30, 2023 and December 31, 2022, 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: 2023 2022 Discount rate 1.5 % 2.3 % Compensation increase 2.0 % 3.0 % Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows: 2023 2022 2021 Discount rate 1.5 % 2.3 % 0.2 % Rate of return on assets 1.5 % 1.8 % 0.7 % Compensation increase 2.0 % 3.0 % 1.1 % During 2024 employer and employee contributions to the Swiss Plan are expected to total $ 0.9 million. Estimated benefit payments are expected to be as follows: 2024 - $ 1.2 million; 2025 - $ 1.1 million; 2026 - $ 1.2 million; 2027 - $ 1.4 million; 2028 - $ 1.3 million; and $ 7.3 million thereafter through 2033. 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 50 % debt securities and cash, 24 % real estate investments, 16 % 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. 70 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 2023 and 2022 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 4.7 % in 2023, 4.9 % in 2022 and 2.5 % in 2021. The annual rates of increase of the cost of health benefits was assumed to be 7.9 % and 8.7 % in 2024 for pre- 65 participants and post- 65 participants, respectively. This rate was then assumed to decrease 0.39 % per year and 0.48 % per year for pre- 65 participants and post- 65 participants, respectively, to 4.4 % in 2033 and remain level thereafter. Contributions to the post-retirement health benefit plan are expected to total $ 0.1 million in 2024. Estimated benefit payments are expected to be as follows: 2024 - $ 0.1 million; 2025 - $ 0.1 million; 2026 - $ 0.1 million; 2027 - $ 0.1 million; 2028 - $ 0.1 million and $ 0.6 million thereafter through 2033. 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) 2023 2022 Accumulated benefit obligation at beginning of year $ ( 1,657 ) $ ( 2,097 ) Interest cost ( 78 ) ( 51 ) Actuarial (gain) loss ( 6 ) 382 Benefits paid 90 109 Accumulated benefit obligation at end of year ( 1,651 ) ( 1,657 ) Plan assets at end of year - - Funded status $ ( 1,651 ) $ ( 1,657 ) 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 30, 2023, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $ 0.9 million and the cash surrender value of the related life insurance policies included in other current assets was approximately $ 1.4 million. At December 31, 2022, the liability totaled $ 1.1 million and the corresponding assets were $ 1.4 million. Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 3,750,000 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: 2023 - 146,829; 2022 - 160,855 and 2021 - 161,351. At December 30, 2023, there were 799,669 shares available for issuance under the Plan. On May 10, 2023, our stockholders approved an amendment to the ESPP which increased the number of ESPP shares that may be issued by 600,000 and eliminated the requirement that no participant may purchase shares for any offering period with a value exceeding $ 12,500 divided by the share value on the first date of the offering period. 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 30, 2023, there were 3,509,023 shares available for future equity grants under the 2005 Plan. On May 10, 2023, our stockholders approved amendments to the 2005 Plan which increased the shares of stock available for issuance by 3,200,000 , specified an annual limit of $ 750,000 on our non-employee director compensation, increased the amounts permitted for cash payouts of performance awards from current limit of $ 2,000,000 to $ 4,000,000 per each fiscal year and provided updated criteria for performance awards. 71 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 2023, 2022 and 2021 no stock options were granted and the activity under our share-based compensation plans was as follows: 2022 2021 Wt. Avg. Wt. Avg. (in thousands, except per share data) Shares Ex. Price Shares Ex. Price Outstanding and exercisable, beginning of year 12 $ 9.44 262 $ 10.01 Exercised ( 12 ) $ 9.44 ( 250 ) $ 10.03 Outstanding and exercisable, end of year - $ - 12 $ 9.44 The aggregate intrinsic value of options exercised was $ 0.2 million in 2022 and $ 8.4 million in 2021. At December 30, 2023, 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 30, 2023. Restricted stock unit activity under our share-based compensation plans was as follows: 2023 2022 2021 Wt. Avg. Wt. Avg. Wt. Avg. (in thousands, except per share data) Units Fair Value Units Fair Value Units Fair Value Outstanding, beginning of year 969 $ 24.55 1,058 $ 21.16 1,414 $ 15.16 Granted 365 $ 36.66 431 $ 27.74 270 $ 41.66 Released ( 428 ) $ 22.33 ( 474 ) $ 19.94 ( 579 ) $ 16.23 Cancelled ( 22 ) $ 28.62 ( 46 ) $ 24.33 ( 47 ) $ 18.96 Outstanding, end of year 884 $ 30.52 969 $ 24.55 1,058 $ 21.16 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 majority of 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. 72 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. PSU activity under our share-based compensation plans was as follows: 2023 2022 2021 Wt. Avg. Wt. Avg. Wt. Avg. (in thousands, except per share data) Units Fair Value Units Fair Value Units Fair Value Outstanding, beginning of year 403 $ 28.64 384 $ 22.22 425 $ 15.51 Granted 270 $ 39.97 151 $ 33.22 93 $ 51.43 Released ( 258 ) $ 13.18 ( 55 ) $ 14.11 ( 125 ) $ 21.77 Cancelled ( 7 ) $ 42.52 ( 77 ) $ 15.94 ( 9 ) $ 14.04 Outstanding, end of year 408 $ 45.65 403 $ 28.64 384 $ 22.22 Share-based Compensation – We estimate the fair value of our employee stock purchase plan using the Black-Scholes valuation model. The 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 estimated fair value of PSUs is determined on the grant date using the Monte Carlo simulation valuation model. 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 2023, 2022 and 2021 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 2023 2022 2021 Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 36.3 % 45.6 % 58.3 % Risk-free interest rate 4.5 % 1.2 % 0.1 % Expected term (years) 0.5 0.5 0.5 Weighted-average grant date fair value per share $ 8.54 $ 8.79 $ 9.42 Restricted Stock Units 2023 2022 2021 Dividend yield 0.0 % 0.0 % 0.0 % 73 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reported share-based compensation is classified in the consolidated financial statements as follows: (in thousands) 2023 2022 2021 Cost of sales $ 845 $ 646 $ 828 Research and development 3,394 3,100 3,017 Selling, general and administrative 12,998 11,172 9,947 Share-based compensation of continuing operations 17,237 14,918 13,792 Income tax benefit ( 1,770 ) ( 4,004 ) ( 722 ) Total share-based compensation, net of tax $ 15,467 $ 10,914 $ 13,070 We account for forfeitures of plan-based awards as they occur. At December 30, 2023, we had approximately $ 27.9 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 2.2 years. 7. Business Acquisitions MCT 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 MCT 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 of which $ 0.6 million was used to pay former MCT CFO and CEO and expensed as restructuring severance expense. Taking into consideration the amount expensed as severance and the working capital adjustment receivable resulted in a final net purchase price of approximately $ 26.8 million. The MCT Acquisition was a cash free debt free transaction and was subject to a working capital adjustment for the difference between the actual and estimated net working capital. The MCT Acquisition has been accounted for in conformity with ASC Topic 805, Business Combinations, (“ASC 805” ). The acquired assets and liabilities of MCT were recorded at their respective fair values including an amount for goodwill representing the difference between the consideration paid and the fair value of the identifiable net assets. The purchase price allocation was finalized during the fourth quarter of 2023. The table below summarizes the assets acquired and liabilities assumed as of January 30, 2023 ( in thousands ): Current assets, including cash received $ 9,505 Property, plant and equipment 197 Other assets 356 Intangible assets 12,000 Goodwill 8,755 Total assets acquired 30,813 Liabilities assumed ( 4,024 ) Net assets acquired $ 26,789 74 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The allocation of the intangible assets subject to amortization is as follows ( in thousands ): Estimated Fair Value Weighted Average Useful Life (years) Developed technology $ 7,500 7.0 Customer relationships 4,000 10.0 Product backlog 500 0.5 Total intangible assets $ 12,000 Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful lives which approximates the pattern of how the economic benefit is expected to be used. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry. The value assigned to developed technology was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates. Developed technology, which comprises products that have reached technological feasibility, includes the products in MCT’s product line. The revenue estimates used to value the developed technology were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by MCT and competitors. The estimated after-tax cash flows were based on a hypothetical royalty rate applied to the revenues for the developed technology. The discount rate utilized to discount the net cash flows of the developed technology to present value was based on the risk associated with the respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets, the weighted average cost of capital, the internal rate of return, and the weighted average return on assets. The value assigned to customer relationships was determined by using the multi-period excess earnings method under the income approach. The estimated cash flows were based on revenues from the existing customers net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the customer relationships to present value was based on the respective cash flows taking into consideration the perceived risks. The value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of January 30, 2023, using the multi-period excess earnings method under the income approach to discount back to present value the cash flows attributable to the backlog at a discount rate commensurate with the expected risks of the backlog cash flows. MCT’s results of operations have been included starting January 30, 2023. The impact of MCT on our consolidated statements of income and comprehensive income was not material. In connection with the MCT Acquisition, during the twelve months ended December 30, 2023 we incurred acquisition-related costs, which were expensed as selling, general and administrative costs totaling $ 0.5 million. During the prior year period no acquisition-related costs were incurred. EQT On October 2, 2023, we completed the acquisition of Equiptest Engineering Pte. Ltd. (“EQT”), a provider of semiconductor test contactors and other consumables. (“the EQT Acquisition”). EQT is a Singapore based company with a principal manufacturing site located there. EQT provides test interface products including, high performance thermal, MEMS, Infrared, Coaxial and Kelvin Contactors that expands our interface products in mid- to high-power contactors. The EQT Acquisition was a cash free debt free transaction and was subject to a working capital adjustment for the difference between the actual and estimated net working capital. We made a cash payment of SGD 66.0 million ($ 48.3 million) on October 2, 2023, and set up a retention sum liability for potential adjustments to working capital, future tax or insurance claims in the amount of SGD 2.2 million ($ 1.6 million) resulting in an initial purchase price of SGD 68.3 million ($ 49.9 million). The working capital adjustment was finalized in January 2024 and an additional cash payment was made to EQT owners of SGD 0.8 million (approximately $ 0.6 million). As of December 30, 2023 we accrued this additional payment due to the sellers in resulting in an adjusted purchase price of SGD 68.8 million ($ 50.3 million) and the additional SGD 0.5 million ($ 0.4 million) is accrued in the short term other liabilities. The retention liability for net working capital, remaining tax, insurance and other claims as of December 30, 2023 was SGD 2.2 million ($ 1.6 million) and $ 0.3 million and $ 1.3 million is accrued in short term and long term other liabilities, respectively, on our consolidated balance sheet. The EQT Acquisition has been accounted for in conformity with ASC Topic 805, Business Combinations, (“ASC 805” ). 75 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 30, 2023, we have not finalized the purchase price allocation. Accordingly, the preliminary purchase price allocation shown below could change as we are still in the process of finalizing the fair values of the tangible and intangible assets acquired and liabilities assumed, and the related income tax effects may still be adjusted as they are finalized during the remainder of the measurement period (which will not exceed 12 months from the acquisition closing date). The EQT Acquisition was nontaxable and certain of the assets acquired, including goodwill and intangibles, will not be deductible for tax purposes. The acquired assets and liabilities of EQT were recorded at their respective fair values including an amount for goodwill representing the difference between the consideration paid and the fair value of the identifiable net assets. The table below summarizes the assets acquired and liabilities assumed as of October 2, 2023 ( in thousands ): Current assets, including cash received $ 10,135 Property, plant and equipment 538 Intangible assets 34,500 Goodwill 15,377 Total assets acquired 60,550 Liabilities assumed ( 10,203 ) Net assets acquired $ 50,347 The preliminary allocation of the intangible assets subject to amortization is as follows ( in thousands ): Estimated Fair Value Weighted Average Useful Life (years) Developed technology $ 20,600 8.0 Customer relationships 12,900 10.0 Product backlog 100 1.0 Trademarks and trade name 900 5.0 Total intangible assets $ 34,500 Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful lives which approximates the pattern of how the economic benefit is expected to be used. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry. The preliminary value assigned to developed technology was determined by using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates. Developed technology, which comprises products that have reached technological feasibility, includes the products in EQT’s product line. The revenue estimates used to value the developed technology were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by EQT and competitors. The estimated after-tax cash flows were based on a hypothetical royalty rate applied to the revenues for the developed technology. The discount rate utilized to discount the net cash flows of the developed technology to present value was based on the risk associated with the respective cash flows taking into consideration the perceived risk of the technology relative to the other acquired assets, the weighted average cost of capital, the internal rate of return, and the weighted average return on assets. 76 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The preliminary value assigned to customer relationships was determined by using the multi-period excess earnings method under the income approach. The estimated cash flows were based on revenues from the existing customers net of operating expenses and net of contributory asset charges. The discount rate utilized to discount the net cash flows of the customer relationships to present value was based on the respective cash flows taking into consideration the perceived risks. The preliminary value assigned to backlog acquired was estimated based upon the contractual nature of the backlog as of October 2, 2023, using the multi-period excess earnings method under the income approach to discount back to present value the cash flows attributable to the backlog at a discount rate commensurate with the expected risks of the backlog cash flows. The preliminary value assigned to trademarks and trade names acquired was determined by using the using the relief from royalty method under the income approach, which included assumptions related to revenue growth rates, royalty rates, and discount rates. EQT’s results of operations have been included starting October 2, 2023. The impact of EQT on Cohu’s condensed consolidated statements of income and comprehensive income were not material. In connection with the acquisition of EQT, during the twelve months ended December 30, 2023 we incurred acquisition-related costs, which were expensed as selling, general and administrative costs totaling $ 1.1 million. During the prior year period no acquisition-related costs were incurred. 8. 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. To minimize foreign exchange volatility we utilize 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 income for both realized and unrealized gains and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash provided by operating activities in our 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 30, 2023 will mature during the first quarter of fiscal 2024. The following table provides information about our foreign currency forward contracts outstanding as of December 30, 2023 (in thousands) : Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Buy 89,186 $ 98,800 Swiss Franc Buy 10,407 12,400 South Korean Won 2,574,040 2,000 Malaysian Ringgit 9,200 2,000 $ 115,200 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 30, 2023 was immaterial. 77 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The location and amount of losses related to non-designated derivative instruments in the consolidated statements of income were as follows (in thousands) : Derivatives Not Designated Location of Gain (Loss) Fiscal Year as Hedging Instruments Recognized on Derivatives 2023 2022 2021 Foreign exchange forward contracts Foreign transaction gain (loss) $ ( 2,127 ) $ ( 5,356 ) $ ( 3,428 ) 9. 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 30, 2023, we repurchased 700,270 shares of our common stock for $ 23.6 million to be held as treasury stock. For the year ended December 31, 2022, we repurchased 1,767,070 shares of our common stock for $ 50.7 million. As of December 30, 2023, we may purchase up to $ 58.3 million of shares of our common stock under our share repurchase program. 10. Income Taxes Significant components of the provision (benefit) for income taxes for continuing operations are as follows: (in thousands) 2023 2022 2021 Current: U.S. Federal $ 694 $ 1,609 $ 1,103 U.S. State 86 456 101 Foreign 21,654 31,307 22,862 Total current 22,434 33,372 24,066 Deferred: U.S. Federal 61 ( 9 ) 5 Foreign ( 4,835 ) ( 3,495 ) 948 Total deferred ( 4,774 ) ( 3,504 ) 953 $ 17,660 $ 29,868 $ 25,019 Income (loss) before income taxes from continuing operations consisted of the following: (in thousands) 2023 2022 2021 U.S. $ ( 37,799 ) $ 9,180 $ 30,588 Foreign 83,615 117,535 161,756 Total $ 45,816 $ 126,715 $ 192,344 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. 78 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) 2023 2022 Deferred tax assets: Inventory, receivable and warranty reserves $ 10,931 $ 13,599 Net operating loss carryforwards 36,602 39,545 Tax credit carryforwards 34,637 29,646 Capitalized R&D 30,485 19,819 Accrued employee benefits 3,348 4,416 Stock-based compensation 3,227 2,990 Lease liabilities 3,222 3,965 Uniform capitalization 1,564 - Other - 472 Gross deferred tax assets 124,016 114,452 Less valuation allowance ( 99,888 ) ( 89,234 ) Total deferred tax assets 24,128 25,218 Deferred tax liabilities: Intangible assets and other acquisition basis differences 34,076 38,921 Operating lease right-of-use assets 2,854 3,573 Unremitted earnings of foreign subsidiaries 4,106 153 Other 50 - Total deferred tax liabilities 41,086 42,647 Net deferred tax liabilities $ ( 16,958 ) $ ( 17,429 ) 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) 2023 2022 Other assets (long-term) $ 6,196 $ 3,930 Long-term deferred income tax liabilities ( 23,154 ) ( 21,359 ) Net deferred tax liabilities $ ( 16,958 ) $ ( 17,429 ) 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 79 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Statutory limitations against utilization of tax attribute carryforwards against taxable income • Historical experience with tax attributes expiring unused • Near- and medium-term financial outlook 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 net operating losses 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 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 30, 2023, and December 31, 2022, was approximately $ 99.9 million and $ 89.2 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 for income taxes is as follows: (in thousands) 2023 2022 2021 Tax provision at U.S. 21% statutory rate $ 9,470 $ 26,610 $ 40,392 State income taxes, net of federal tax benefit ( 633 ) ( 1,535 ) 2,246 Accruals, adjustments and releases from statute expirations 579 348 ( 787 ) Federal R&D credits ( 1,360 ) ( 1,679 ) ( 943 ) Stock-based compensation ( 1,504 ) ( 572 ) ( 4,802 ) Excess executive compensation 1,375 946 1,608 Change in valuation allowance 10,654 13,307 ( 9,882 ) Exemption of PTG gain - - ( 12,378 ) Dividend, net of foreign tax credits - 13 693 GILTI, net of foreign tax credits 1,735 3,458 9,343 Foreign rate differential 2,093 ( 6,131 ) ( 1,023 ) Other, net ( 4,749 ) ( 4,897 ) 552 $ 17,660 $ 29,868 $ 25,019 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 30, 2023, we had federal, state and foreign net operating loss carryforwards of approximately $ 120.9 million, $ 130.1 million and $ 13.2 million, respectively, that expire in various tax years beginning in 2024 through 2042 or have no expiration date. We also have federal and state tax credit carryforwards at December 30, 2023 of approximately $ 4.0 million and $ 33.7 million, respectively, certain of which expire in various tax years beginning in 2024 through 2042, 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 30, 2023. 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. 80 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 $ 3.8 million or $ 0.08 per share in 2023 and $ 4.5 million, or $ 0.09 per share, in both fiscal 2022 and 2021. A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows: (in thousands) 2023 2022 2021 Balance at beginning of year $ 33,368 $ 33,391 $ 33,696 Additions for tax positions of current year 899 910 686 Additions/(Reductions) for tax positions of prior years 1,802 ( 428 ) ( 83 ) Reductions due to lapse of the statute of limitations ( 295 ) ( 354 ) ( 1,012 ) Foreign exchange rate impact 126 ( 151 ) 104 Balance at end of year $ 35,900 $ 33,368 $ 33,391 If the unrecognized tax benefits at December 30, 2023 are ultimately recognized, excluding the impact of U.S. tax benefits netted against deferred taxes that are subject to a valuation allowance, approximately $ 7.5 million ($ 5.8 million at December 31, 2022 and $ 5.3 million at December 25, 2021) would result in a reduction in our income tax expense and effective tax rate. It is reasonably possible that unrecognized tax benefits related to transfer pricing will decrease by up to $ 1.1 million within the next 12 months. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately $ 0.7 million and $ 0.6 million accrued for the payment of interest and penalties at December 30, 2023, and December 31, 2022, respectively. Interest expense, net of accrued interest reversed, was $( 0.1 ) million in 2023 and 2022 and $( 0.2 ) million in 2021. Our U.S. federal and state income tax returns for years after 2019 and 2018, 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 U.S. 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 Thailand. We believe our financial statement accruals for income taxes are appropriate. Tax positions have been reflected in the consolidated financial statements in accordance ASC 740, Income Taxes. Such tax positions are, based solely on their technical merits, more likely than not to be sustained upon examination by taxing authorities and reflect the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon settlement with the applicable taxing authority with full knowledge of all relevant information. We have both intent and ability to initiate a claim pursuant to the competent authority (e.g., Mutual Agreement Procedure) for reasonable and prudent situations such as, for example, when the resulting tax benefit exceeds the costs involved to obtain such tax benefit, and the success of prevailing upon pursuing the competent authority is more-likely-than- not achievable. 81 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. 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 30, 2023 and December 31, 2022, and our consolidated statement of income for the twelve months ended December 30, 2023 and December 31, 2022, represents the financial position and results of our remaining reportable segment. Prior to the sale of our PCB Test business on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test. (in thousands) 2021 Net sales by segment: Semiconductor Test & Inspection $ 860,454 PCB Test 26,760 Total consolidated net sales for reportable segments $ 887,214 Segment profit (loss) before tax: Semiconductor Test & Inspection $ 138,026 PCB Test 3,907 Profit for reportable segments 141,933 Other unallocated amounts: Corporate expenses ( 10,819 ) Gain on sale of PCB Test business 70,815 Interest expense ( 6,413 ) Interest income 239 Gain on extinguishment of debt ( 3,411 ) Profit (loss) from continuing operations before taxes $ 192,344 (in thousands) 2021 Depreciation and amortization by segment deducted in arriving at profit (loss): Semiconductor Test & Inspection $ 48,129 PCB Test 439 Total depreciation and amortization $ 48,568 Capital expenditures by segment: Semiconductor Test & Inspection $ 11,954 PCB Test 46 Total consolidated capital expenditures $ 12,000 82 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: 2023 2022 2021 STMicroelectronics 12.0 % * * 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 year ended December 25, 2021. Net sales to customers, attributed to countries based on product shipment destination, were as follows: (in thousands) 2023 2022 2021 Malaysia $ 100,949 $ 99,508 $ 79,777 Philippines 92,529 111,647 155,070 China 92,408 146,227 213,575 United States 76,995 79,093 77,495 Rest of the world 273,441 376,300 361,297 Total, net $ 636,322 $ 812,775 $ 887,214 Geographic location of our property, plant and equipment and other long-lived assets was as follows: (in thousands) 2023 2022 Property, plant and equipment: Philippines $ 22,501 $ 14,706 United States 16,093 18,419 Germany 15,843 15,977 Japan 7,810 9,316 Malaysia 4,700 4,300 Rest of the world 2,138 2,293 Total, net $ 69,085 $ 65,011 Goodwill and other intangible assets: Germany $ 149,592 $ 158,401 United States 111,660 131,068 Malaysia 63,249 43,571 Singapore 60,875 12,512 Switzerland 4,439 4,299 Japan 2,358 2,641 Rest of the world 1,255 1,151 Total, net $ 393,428 $ 353,643 12. 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 34 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. 83 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental balance sheet information related to leases was as follows: December 30, December 31, (in thousands) Classification 2023 2022 Assets: Operating lease assets Operating lease right-of-use assets $ 16,778 $ 22,804 Finance lease assets Property, plant and equipment, net (1) 247 323 Total lease assets $ 17,025 $ 23,127 Liabilities: Current: Operating Other accrued liabilities $ 5,122 $ 4,927 Finance Other accrued liabilities 11 49 Noncurrent: Operating Long-term lease liabilities 13,160 19,185 Finance Long-term lease liabilities 15 24 Total lease liabilities $ 18,308 $ 24,185 Weighted-average remaining lease term (years): Operating leases 5.5 6.2 Finance leases 2.1 1.7 Weighted-average discount rate: Operating leases 6.4 % 6.2 % Finance leases 4.0 % 2.2 % (1) Finance lease assets are recorded net of accumulated amortization of $ 0.3 million and $ 0.2 million in 2023 and 2022, respectively. The components of lease expense were as follows: December 30, December 31, December 25, (in thousands) 2023 2022 2021 Operating leases $ 6,691 $ 6,698 $ 7,638 Variable lease expense 2,389 2,220 2,192 Short-term operating leases 16 4 69 Finance leases: Amortization of leased assets 90 88 86 Interest on lease liabilities 1 1 2 Sublease income ( 29 ) ( 69 ) ( 81 ) Net lease cost $ 9,158 $ 8,942 $ 9,906 Future minimum lease payments at December 30, 2023, are as follows: Operating Finance (in thousands) leases leases Total 2024 $ 6,090 $ 12 $ 6,102 2025 5,271 12 5,283 2026 2,520 3 2,523 2027 1,503 - 1,503 2028 1,269 - 1,269 Thereafter 5,547 - 5,547 Total lease payments 22,200 27 22,227 Less: Interest ( 3,918 ) ( 1 ) ( 3,919 ) Present value of lease liabilities $ 18,282 $ 26 $ 18,308 84 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental cash flow information related to leases was as follows: December 30, December 31, December 25, (in thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,756 $ 6,716 $ 7,628 Operating cash flows from finance leases $ 1 $ 1 $ 1 Financing cash flows from finance leases $ 52 $ 167 $ 186 Leased assets obtained in exchange for new finance lease liabilities $ - $ - $ 54 Leased assets obtained in exchange for new operating lease liabilities $ 1,415 $ 2,874 $ 3,866 Financing lease assets acquired in MCT acquisition $ 19 $ - $ - Operating lease assets acquired in MCT acquisition $ 130 $ - $ - 13. 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. 14. Guarantees Accrued Warranty Changes in accrued warranty during the three -year period ended December 30, 2023, was as follows: (in thousands) 2023 2022 2021 Beginning balance $ 6,214 $ 7,691 $ 6,382 Warranty accruals 6,555 8,897 13,389 Warranty payments ( 7,862 ) ( 10,374 ) ( 11,135 ) Warranty liability transferred 110 - ( 945 ) Ending balance $ 5,017 $ 6,214 $ 7,691 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 $ 0.4 million and $ 0.6 million at December 30, 2023 and December 31, 2022, respectively. 15. Business Divestitures 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. 85 Table of Contents COHU, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. 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 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 ) Year ended December 30, 2023 Foreign currency translation adjustments $ 6,256 $ 559 $ 6,815 Adjustments related to postretirement benefits ( 2,800 ) 425 ( 2,375 ) Change in unrealized gain/loss on investments 793 - 793 Other comprehensive income $ 4,249 $ 984 $ 5,233 Components of accumulated other comprehensive income (loss), net of tax, at the end of each period are as follows: (in thousands) 2023 2022 Accumulated net currency translation adjustments $ ( 39,493 ) $ ( 46,308 ) Accumulated net adjustments related to postretirement benefits 4,656 7,031 Accumulated net unrealized gain/loss on investments 58 ( 735 ) Total accumulated other comprehensive loss $ ( 34,779 ) $ ( 40,012 ) 17. Related Party Transactions At December 30, 2023, certain of our cash and short-term investments were held and managed by BlackRock, Inc. which owns 15.8 % of our outstanding common stock as reported in its Form 13 -G/A filing made with the Securities and Exchange Commission on January 22, 2024. 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 2023, 2022 and 2021, 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, purchases of products from ETZ, when it was a related party, were not material. 86 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 30, 2023 and December 31, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 30, 2023, and the related notes and 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 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023, 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 30, 2023, 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 16, 2024 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. 87 Table of Contents Valuation of inventories Description of the Matter As of December 30, 2023, the Company’s consolidated inventories balance was $155.8 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 the determination of expected future product demand. 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 expected future product demand and data underlying the excess and obsolete inventory valuation. To test the valuation of inventories, our audit procedures included, among others, evaluating expected future product demand 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 demand assumptions, and assessed the historical accuracy of management’s estimates by comparing prior period forecasted demand to actual consumption. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1956. San Diego, California February 16, 2024 88 Table of Contents Index to Exhibits 15. (b) The following exhibits are filed as part of, or incorporated into, the 2023 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 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 3.1 from the Cohu, Inc. Form 8-K filed with the Securities and Exchange Commission on May 12, 2023 4.1 Description of Capital Stock incorporated herein by reference to Exhibit 4.1 from the Cohu, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2023 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 Cohu, Inc. 2005 Equity Incentive Plan, as amended May 10, 2023, incorporated herein by reference to Appendix B from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2023* 10.4 Cohu, Inc. 1997 Employee Stock Purchase Plan, as amended May 10, 2023, incorporated herein by reference to Appendix C from the Cohu, Inc. Form DEF 14A filed with the Securities and Exchange Commission on March 28, 2023* 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 filed with the Securities and Exchange Commission on December 29, 2008* 10.6 Form of executive 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. Form 10-Q filed with the Securities and Exchange Commission on May 5, 2023* 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* 89 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 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 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. Müller 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 * 90 Table of Contents 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 * 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 10.26 First Amendment to Credit and Guaranty Agreement, dated as of June 16, 2023, between Cohu, Inc. and Deutsche Bank AG New York Branch, as administrative agent incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Form 8-K filed with the Securities and Exchange Commission on June 23, 2023 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 97 Cohu, Inc. Policy for Recovery of Erroneously Awarded Incentive Compensation 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 91 Table of Contents Item 16. Form 10-K Summary. None. 92 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 16, 2024 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 16, 2024 James A. Donahue Director /s/ Luis A. Müller President and Chief Executive Officer, Director February 16, 2024 Luis A. Müller (Principal Executive Officer) /s/ Jeffrey D. Jones Senior Vice President, Finance and CFO February 16, 2024 Jeffrey D. Jones (Principal Financial and Accounting Officer) /s/ William E. Bendush Director February 16, 2024 William E. Bendush /s/ Steven J. Bilodeau Director February 16, 2024 Steven J. Bilodeau /s/ Andrew M. Caggia Director February 16, 2024 Andrew M. Caggia /s/ Yon Y. Jorden Director February 16, 2024 Yon Y. Jorden /s/ Andreas W. Mattes Director February 16, 2024 Andreas W. Mattes /s/ Nina L. Richardson Director February 16, 2024 Nina L. Richardson 93 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 25, 2021 $ 128 $ 14 $ 149 $ 1 $ 290 Year ended December 31, 2022 $ 290 $ ( 8 ) $ 122 $ 205 $ 199 Year ended December 30, 2023 $ 199 $ 5 $ 140 $ 4 $ 340 Reserve for excess and obsolete inventories: 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 Year ended December 30, 2023 $ 26,871 $ 648 $ 4,540 $ 11,641 $ 20,418 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. 94