COHU INC

Cohu, Inc.

Basis of Presentation

Our fiscal years are based on a52- or53-week period ending on the last Saturday in* December.The condensed consolidated balance sheet at December 30, 2023,has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of June 29, 2024, (also referred to as “thesecond* quarter of fiscal2024” and “thefirst six months of fiscal2024”) and* July 1, 2023, (also referred to as “thesecond* quarter of fiscal2023” and “thefirst six months of fiscal2023”) are unaudited. However, in management’s opinion, these financial statements reflect all adjustments (consisting only of normal, recurring items) necessary to provide a fair presentation of our financial position, results of operations and cash flows for the periods presented. Both thethree- andsix-month periods ended* June 29, 2024and July 1, 2023were comprised of13* and26 weeks, respectively.

Our interim results arenot necessarily indicative of the results that should be expected for the full year. The condensed consolidated financial statements presented herein reflect estimates and assumptions made by management at* June 29, 2024and for thethree*- andsix-month periods ended* June 29, 2024.For a better understanding of Cohu, Inc. and our financial statements, we recommend reading these interim condensed consolidated financial statements in conjunction with our audited financial statements for the year ended December 30, 2023,which are included in our2023* Annual Report on Form10-K, filed with the U.S. Securities and Exchange Commission (“SEC”). In the following notes to our interim condensed consolidated financial statements, Cohu, Inc., is referred to as “Cohu”, “we”, “our” and “us”.

All significant intercompany transactions and balances have been eliminated in consolidation.

Concentration of Credit Risk

Financial instruments that potentially subject us to significant credit risk consist principally of cash equivalents, short-term investments and trade accounts receivable. We invest in a variety of financial instruments and, by policy, limit the amount of credit exposure with anyone issuer.

Our trade accounts receivable are presented net of an allowance for credit losses, which is determined in accordance with the guidance provided by Accounting Standards Codification (“ASC”) Topic326, Financial Instruments-Credit Losses, (“ASC326”). At both* June 29, 2024and December 30, 2023,our allowance for credit losses was $0.3 million. Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for credit losses is adequate and represents our best estimate at June 29, 2024,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 afirst-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.

Inventories by category were as follows (in thousands):

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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 ofthirty toforty years for buildings, five tofifteen years for building improvements, three toten years for machinery, equipment and software, and the lease life for financing leases. Land isnot depreciated. Property, plant and equipment, at cost, consisted of the following*(in thousands)*:

Cloud-based Enterprise Resource Planning Implementation Costs

We have capitalized certain costs associated with the implementation of our cloud-based Enterprise Resource Planning (“ERP”) system in accordance with ASC Topic350, Intangibles—Goodwill and Other, (“ASC350”). 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 $10.7 million and $12.2 million at* June 29, 2024,and December 30, 2023,respectively. These amounts are recorded within other current assets and other assets in our condensed consolidated balance sheets. Implementation costs are amortized using the straight-line method over seven years and we recorded amortization expense of $0.7 million and $1.4 million during thethree* andsix months ended* June 29, 2024,respectively, and amortization expense of $0.7 million and $1.4 million during thethree* andsix months ended* July 1, 2023,*respectively.

Segment Information

We apply the provisions of ASC Topic280, Segment Reporting, (“ASC280”), 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 ourthree 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 ASC280 due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report inone segment, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”).

Goodwill, Intangible Assets and Other Long-Lived Assets

We evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value* may**not* be recoverable. We test goodwill for impairment byfirst comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value, asecond 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, to obtain an indication of value. We then apply a50/50 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.

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We conduct our annual impairment test as of* October1* each year and have determined there wasno impairment as of* October1,* 2023, as we determined that the estimated fair values of our reporting units and indefinite-lived intangible assets exceeded their carrying values on that date. Other events and changes in circumstances* mayalso require goodwill to be tested for impairment between annual measurement dates. As of June 29, 2024,we donot* 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 mightnot 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 isnot 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.

During thefirst six months of fiscal2024 and2023, no events or conditions occurred suggesting an impairment in our long-lived assets.

Product Warranty

Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from 12- to 36-months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations, the revenue relating to the extended warranty is deferred at its estimated relative standalone selling price and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.

Restructuring Costs

We record restructuring activities including costs forone-time termination benefits in accordance with ASC Topic420, Exit or Disposal Cost Obligations (“ASC420”). The timing of recognition for severance costs accounted for under ASC420 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 Topic712, Nonretirement Postemployment Benefits. These costs are recognized when management has committed to a restructuring plan and the severance costs are probable and estimable. See Note4, “Restructuring Charges” for additional information.

Debt Issuance Costs

We defer costs related to the issuance of debt. Debt issuance costs directly related to our Term Loan Credit Facility were presented within noncurrent liabilities as a reduction of long-term debt in our condensed consolidated balance sheets. The amortization of such costs was 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 $32,000 and $0.1 million for thethree andsix months ended* July 1, 2023,respectively. On February 9, 2024,we repaid the remaining outstanding amounts owed under our Term Loan Credit Facility and recognized the remaining capitalized debt issuance costs. See Note3,* “Borrowings and Credit Agreements” for additional information.

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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 thethree andsix months ended* June 29, 2024,we recognized foreign exchange losses, net of the impact of foreign exchange derivative contracts, of $0.4 million and $0.9 million, respectively, in our condensed consolidated statements of income. During thethree* andsix months ended* July 1, 2023,*we recognized foreign exchange losses, net of the impact foreign exchange derivative contracts, of $0.6 million and $1.1 million, respectively, in our condensed consolidated statements of operations.

Certain of our foreign subsidiaries have designated the local currency as their functional currency and, as a result, their assets and liabilities are translated at the rate of exchange at the balance sheet date, while revenue and expenses are translated using the average exchange rate for the period. Cumulative foreign currency translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders’ equity.

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 held at our subsidiaries whose functional currency is the local currency. For accounting purposes, our foreign currency forward contracts arenot designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our condensed consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our condensed consolidated statements of income for both realized and unrealized gains and losses. See Note7, “Derivative Financial Instruments” for additional information.

Share-Based Compensation

We measure and recognize all share-based compensation under the fair value method.

Reported share-based compensation is classified, in our condensed consolidated financial statements, as follows*(in thousands)*:

Income (Loss) Per Share

Basic income (loss) 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, certain restricted and performance stock units and stock options with exercise prices that exceed the average fair market value of our common stock for the period are excluded. For thethree andsix months ended* July 1, 2023,*awards to issue approximately 319,000 and 216,000 potentially issuable shares of common stock were excluded from the computation, respectively. All shares repurchased and held as treasury stock are reflected as a reduction to our basic weighted average shares outstanding based on the trade date of the share repurchase.

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The following table reconciles the denominators used in computing basic and diluted income per share (in thousands):

Leases

We determine if a contract contains a lease at inception. Operating leases are included in operating lease right of use (“ROU”) assets, current other accrued liabilities, and long-term lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, other current accrued liabilities, and long-term lease liabilities on our condensed consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at* January 1, 2019,the adoption date of ASU2016*-02, Leases (Topic842*), or the commencement date for leases entered into after the adoption date. As most of our leases donot* 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 of12 months or less arenot 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 tothird 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 isnot transferred until destination or acceptance, we defer revenue recognition until such events occur.

Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates arenot 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 that* may*occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.

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Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. At* June 29, 2024,we had $5.9 million of revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) for contracts with original expected durations of overone* year. As allowed under ASC Topic606, Revenue from Contracts with Customers (“ASC606”), we have opted tonot disclose unsatisfied performance obligations for contracts with original expected durations of less thanone 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 Topic460, Guarantees(“ASC460”), andnot as a separate performance obligation.

The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and* mayinclude fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized willnot* occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration that doesnot meet revenue recognition criteria is deferred.

Our contracts are typically less thanone year in duration and we have elected to use the practical expedient available in ASC606 to expense cost to obtain contracts as they are incurred because they would be amortized over less thanone year.

Accounts receivable represents our unconditional right to receive consideration from our customer. Payment terms donot exceedone year from the invoice date and therefore donot include a significant financing component. To date, there have beenno material impairment losses on accounts receivable. There wereno material contract assets or contract liabilities recorded on our condensed consolidated balance sheet in any of the periods presented.

On shipments where sales arenot recognized, gross profit is generally recorded as deferred profit in our condensed consolidated balance sheet, representing the difference between the receivable recorded and the inventory shipped. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances. At* June 29, 2024,we had deferred revenue totaling approximately $8.4 million, current deferred profit of $3.3 million and deferred profit expected to be recognized afterone* year included in noncurrent other accrued liabilities of $4.6 million. 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 afterone* year included in noncurrent other accrued liabilities of $4.9 million.

Net sales by type are as follows*(in thousands):*

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Revenue by geographic area based upon product shipment destination*(in thousands*):

A small number of customers historically have been responsible for a significant portion of our net sales. Significant customer concentration information is as follows:

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately $47.0 million and $34.8 million at* June 29, 2024and December 30, 2023,respectively, and was attributed to all non-owner changes in stockholders’ equity and consists of, on an after-tax basis where applicable, foreign currency adjustments resulting from the translation of certain of our subsidiary accounts where the functional currency isnot* the U.S. Dollar, unrealized loss on investments and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss during thefirst six months of fiscal2024 and2023 werenot significant.

Retiree Medical Benefits

We provide post-retirement health benefits to certain retired executives,one director (who is a former executive) and their eligible dependents under a noncontributory plan. These benefits areno longer offered to any other retired Cohu employees. The net periodic benefit cost incurred during thefirst six months of fiscal2024 and2023 wasnot significant.

Recent Accounting Pronouncements

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): 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 ASU2023*-07, Segment Reporting (Topic280*): 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, 2023and 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.

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In* March 2024,the U.S. Securities and Exchange Commission issued its final climate disclosure rules,The Enhancement and Standardization of Climate-Related Disclosures for Investors, which require all registrants to provide certain climate-related information in their registration statements and annual reports. The rules require disclosure of, among other things, material climate-related risks, activities to mitigate or adapt to such risks, governance and oversight of such risks, material climate targets and goals, and Scope1* and/or Scope2 greenhouse gas emissions, on a phased-in basis, when those emissions are material. In addition, the final rules require certain disclosures in the notes to the financial statements, including the effects of severe weather events and other natural conditions. The rules are effective for us on a phased-in timeline starting in fiscal2025; however, in* April 2024,*the SEC issued an order to voluntarily stay its final climate rules pending the completion of judicial review thereof by the U.S. Court of Appeals for the Eighth Circuit. We are currently evaluating the impact of the rules on our consolidated financial statements.

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 its principal manufacturing site located there. EQT provides test interface products including high performance thermal, MEMS, Infrared, Coaxial and Kelvin Contactors that expand 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 2024and an additional cash payment was made to EQT owners of SGD 0.8 million (approximately $0.6 million) resulting in a purchase price of SGD 68.8 million ($50.3 million). The retention liability for remaining tax, insurance and other claims as of June 29, 2024,was SGD 1.7 million ($1.3 million) and is accrued in long term other liabilities on our condensed consolidated balance sheet. The EQT Acquisition has been accounted for in conformity with ASC805.*

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 purchase price allocation was finalized during thesecond quarter of2024. The table below summarizes the assets acquired and liabilities assumed as of* October 2, 2023 (*in thousands):

The allocation of the intangible assets subject to amortization is as follows*(in thousands)*:

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 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.

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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* 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 value assigned to trademarks and trade names acquired 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.

EQT’s results of operations have been included starting* October 2, 2023.The impact of EQT on our condensed consolidated statements of operations and comprehensive income (loss) wasnot* material.

Goodwill and Intangible Assets

Changes in the carrying value of goodwill during the year ended* December 30, 2023,and thesix*-month period ended* June 29, 2024,*were as follows (in thousands):

Purchased intangible assets subject to amortization are as follows (in thousands):

Changes in the carrying values of purchased intangible assets presented above are a result of the impact of fluctuations in currency exchange rates.

Amortization expense related to intangible assets was approximately $9.7 million in thesecond quarter of fiscal2024 and $19.5 million in thefirst six months of fiscal2024. Amortization expense related to intangible assets was approximately $9.0 million in thesecond quarter of fiscal2023 and $17.8 million in thefirst six months of fiscal2023.

The following table is a summary of our borrowings (in thousands):

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 would have been 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 condensed consolidated balance sheets.

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 thefirst* quarter of fiscal2024 we recognized a loss of $0.2 million due to the recognition of the remaining debt discount and deferred financing costs. During thefirst six months of2023, we repurchased $34.1 million in principal of our Term Loan Credit Facility for $34.1 million in cash. This resulted in a loss of $0.4 million reflected in other expense in our condensed consolidated statement of operations and a $0.4 million reduction in debt discounts and deferred financing costs in our condensed consolidated balance sheets.

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 at rates ranging from 0.05% to 0.55%, and expire at various dates through2034. At* June 29, 2024,the outstanding loan balance was $1.7 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. At December 30, 2023,the outstanding loan balance was $2.1 million and $0.2 million of the outstanding balance is presented as current installments of long-term debt in our condensed consolidated balance sheets. The fair value of the debt approximates the carrying value at June 29, 2024.*

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 2019and June 2020,*one of our wholly owned subsidiaries located in Germany entered into a series of construction loans (“Loan Facilities”) with a German financial institution initially providing it with total borrowings of up to€10.1 million. The Loan Facilities were utilized to finance the expansion of our facility in Kolbermoor, Germany and are secured by the land and the existing building on the site. The Loan Facilities bear interest at agreed upon rates based on the facility amounts as discussed below.

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Thefirst 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.Thesecond* 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.Thethird* facility totaling€0.9 million has been fully drawn and is payable over 10 years at an annual interest rate of 1.2%. Principal and interest payments are due each month over the duration of the facility ending in* May 2030.*

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

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 200 million Japanese Yen was drawn as of* June 29, 2024.At June 29, 2024,*total borrowings outstanding under the revolving lines of credit were $1.2 million. As these credit facility agreements renew monthly, they have been included in short-term borrowings in our condensed 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 hasone 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* June 29, 2024and December 30, 2023*no amounts were outstanding under this line of credit.

MCT Integration Program

During thefirst quarter of2023, in connection with the acquisition of MCT Worldwide, LLC (“MCT”), we began a strategic restructuring and integration program (“MCT Integration Program”). As part of the MCT Integration Program, we consolidated MCT’s Penang, Malaysia manufacturing operations into Cohu’s Malacca, Malaysia manufacturing operations by the end of2023. Relating to the facility consolidation actions, we notified certain impacted employees of a reduction in force program. The facility consolidation and reduction in force programs were implemented as part of a comprehensive review of our operations and were intended to reduce our operating cost structure and capitalize on acquisition synergies. As of* June 29, 2024,*restructuring activities associated with the MCT Integration Program were materially complete.

As a result of the activities described above, we recognized total pretax charges of $0.4 million and $1.3 million during thethree andsix months ended* July 1, 2023,respectively, that are within the scope of ASC420.* Total pretax charges for thethree andsix months ended* June 29, 2024werenot* material.

The following table summarizes the activity within the restructuring related accounts for the MCT Integration Program during thefirst six months ended* July 1, 2023**(in thousands)*:

Our cash, cash equivalents, and short-term investments consisted primarily of cash and other investment grade securities. We donot 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.

We assess whether unrealized loss positions on available-for-sale debt securities are due to credit-related factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in earnings through an allowance account. Unrealized gains and losses that arenot due to credit-related factors are included in accumulated other comprehensive income (loss). Factors that could indicate an impairment exists include, but arenot 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 werenot significant.

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*** June 29,20*

Investments that we have classified as short-term, by security type, are as follows*(in thousands)*:

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Effective maturities of short-term investments are as follows*(in thousands)*:

Accounting standards pertaining to fair value measurements establish athree-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level1, defined as observable inputs such as quoted prices in active markets; Level2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level3, defined as unobservable inputs in which little orno 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 Level1. When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information, and they are included in Level2.

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)*:

Our2005 Equity Incentive Plan (“2005 Plan”) and the Cohu, Inc.1997 Employee Stock Purchase Plan (“ESPP”) are a broad-based, long-term retention programs intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that* maybe granted under the2005* Plan include, but arenot 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. On* June 29, 2024,there were 2,944,895 shares available for future equity grants under the2005* Plan and 721,973 shares available for purchase under the ESPP.

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Stock Options

Stock options* maybe granted to employees, consultants and non-employee directors to purchase a fixed number of shares of our common stock. The exercise prices of options granted are at least equal to the fair market value of our common stock on the dates of grant and options vest and become exercisable in annual increments that range fromone tofour years from the date of grant. Stock options granted under the2005* Plan have a maximum contractual term often years. In thefirst six months of fiscal2024, we didnot grant any stock options and as of* June 29, 2024,*no stock options were exercisable and outstanding.

Restricted Stock Units

We grant restricted stock units (“RSUs”) to certain employees, consultants and directors. RSUs vest in annual increments that range fromone tofour years from the date of grant. Prior to vesting, RSUs donot have dividend equivalent rights, donot have voting rights and the shares underlying the RSUs arenot considered issued and outstanding. Shares of our common stock will be issued on the date the RSUs vest net of the minimum 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 number of RSUs outstanding on* June 29, 2024.*

In thefirst six months of fiscal2024, we awarded 408,720 RSUs and issued 350,198 shares of our common stock on vesting of previously granted awards and 35,650 RSUs were forfeited. On* June 29, 2024,*we had 906,880 RSUs outstanding with an aggregate intrinsic value of approximately $30.0 million and the weighted average remaining vesting period was approximately 1.4 years.

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 athree-year measurement period. The performance criteria for the PSUs are based on a combination of our annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR compared with the Russell2000 Index (RUT) for the performance period. PSUs granted vest 100% on thethird anniversary of their grant, assuming achievement of the applicable performance criteria.

We estimate 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. To the extent applicable performance conditions are satisfied, shares of our common stock are 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. As a result, the actual number of shares issued will be fewer than the actual number of PSUs outstanding on* June 29, 2024.*

In thefirst six months of fiscal2024, we awarded 198,989 PSUs, we issued 62,680 shares of our common stock on vesting of previously granted awards and 8,881 shares were forfeited. On* June 29, 2024,*we had 535,450 PSUs outstanding with an aggregate intrinsic value of approximately $17.7 million and the weighted average remaining vesting period was approximately 1.8 years.

Employee Stock Purchase Plan

The ESPP provides for the issuance of shares of our common stock. Under the ESPP, eligible employees* maypurchase shares of Cohu common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of Cohu common stock at the beginning or end of each6*-month purchase offering period, subject to certain limits. Thetwo offering periods run from* November 1through April 30and May 1through October 31,respectively. During thefirst* six months of fiscal2024, 77,696 shares of our common stock were sold to our employees under the ESPP.

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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 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 reduce the risks and volatility associated with foreign currency transaction gains or losses.

We donot use derivative financial instruments for speculative or trading purposes. For accounting purposes, our foreign currency forward contracts arenot designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our condensed consolidated balance sheets with changes in fair value recorded within foreign transaction gain (loss) in our condensed consolidated statements of operations for both realized and unrealized gains and losses. The cash flows associated with the foreign currency forward contracts are reported in net cash used in operating activities in our condensed 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 on* June 29, 2024will mature during thethird* quarter of fiscal2024.

The following table provides information about our foreign currency forward contracts outstanding as of* June 29, 2024**(in thousands)*:

Our foreign currency contracts are classified within Level2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs. The fair values of foreign currency contracts outstanding on* June 29, 2024*were immaterial.

The location and amount of gains and losses related to non-designated derivative instruments in the condensed consolidated statements of operations were as follows (in thousands):

Share Repurchase Program

On* October 28, 2021,we announced that our Board of Directors authorized a $70 million share repurchase program. This share repurchase program was effective as of November 2, 2021,and hasno* expiration date. On* October 25, 2022,our Board of Directors authorized an additional $70 million under the share repurchase program. The timing of share repurchases and the number of shares of common stock to be repurchased will depend upon prevailing market conditions and other factors. Repurchases under this program will be made using our existing cash resources and maybe commenced or suspended from time-to-time at our discretion without prior notice. Repurchases maybe made in the open market, through10b5*-1 programs, or in privately negotiated transactions at prevailing market rates in accordance with federal securities laws. During thethree months ended* June 29, 2024,we repurchased 267,000 shares of our common stock for $8.2 million to be held as treasury stock. During thesix* months ended* June 29, 2024,we repurchased 600,504 shares of our common stock for $18.9 million to be held as treasury stock. During thethree* months ended* July 1, 2023,we repurchased 77,203 shares of our common stock for $2.7 million to be held as treasury stock. During thesix* months ended* July 1, 2023,we repurchased 176,885 shares of our common stock for $6.2 million to be held as treasury stock. As of June 29, 2024,*$39.4 million of shares of our common stock remained available for us to repurchase under our share repurchase program.

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We account for income taxes in accordance with ASC Topic740, Income Taxes, (“ASC740”). The provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. Our effective tax rate (“ETR”) used for interim periods is based on an estimated annual effective tax rate adjusted for the tax effect of items required to be recorded discretely in the interim periods in which those items occur. Our ETR is different than the statutory rate in the U.S. due to foreign income taxed at different rates than in the U.S., generation of tax credits, changes in uncertain tax benefit positions, changes to valuation allowances, and the impact of Global Intangible Low-Taxed Income (“GILTI”) and the Base Erosion and Anti-abuse Tax (“BEAT”). In addition, we have numerous tax holidays related to our manufacturing operations in Malaysia and the Philippines. The tax holiday periods expire at various times in the future; however, we actively seek to obtain new tax holidays.

We conduct business globally and, as a result, Cohu orone or more of its subsidiaries files income tax returns in the US and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, the Philippines, Malaysia and Thailand. We believe our financial statement accruals for income taxes are appropriate.

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 thannot” realization standard. Thefour 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 at each reporting period, including an assessment of our cumulative income or loss over the priorthree-year period and future periods, to determine if a valuation allowance was required.

Based on the evidence available, including a lack of sustainable earnings and history of expiring unused NOLs, and tax credits, we continue to maintain our judgment that a previously recorded valuation allowance against substantially all net deferred tax assets in the United States is required. If a change in judgment 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.

In accordance with the disclosure requirements in ASC740, we have classified unrecognized tax benefits as non-current income tax liabilities, or a reduction in non-current deferred tax assets, unless they are expected to be paid withinone year. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

We lease certain of our facilities, equipment and vehicles under non-cancelable operating and finance leases. Leases with initial terms of12 months or less arenot recorded on the condensed consolidated balance sheet, but we recognize those lease payments in the condensed 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 ROU asset and lease liabilities.

Our leases have remaining lease terms of 1 year to 34 years, some of which includeone or more options to extend the lease for up to 25 years. Our lease terms include renewal terms when we are reasonably certain that we will exercise the renewal options. We sublease certain leased assets tothird parties, mainly as a result of unused space in our facilities.

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Supplemental balance sheet information related to leases was as follows:

The components of lease expense were as follows:

Future minimum lease payments on* June 29, 2024,*are as follows:

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Supplemental cash flow information related to leases was as follows:

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 beno assurance, we donot 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.

Product Warranty

Our products are generally sold with warranty periods that range from 12 to 36 months following sale or acceptance. The product warranty promises customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC460, andnot as a separate performance obligation. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical and projected experience by product and configuration.

Changes in accrued warranty were as follows (in thousands):

Accrued warranty amounts expected to be incurred afterone year are included in noncurrent other accrued liabilities in the condensed consolidated balance sheet. These amounts totaled $0.2 million and $0.4 million at* June 29, 2024,and December 30, 2023,*respectively.