12367 Crosthwaite Circle Poway, CA 92064-6817 858.848.8100
Cohu, inc.
www.cohu.com
2012 AnnuAl RepoRt
Company profile
Cohu is a supplier of test handling, burn-in, thermal subsystems and MEMS test solutions used by the global
semiconductor industry, microwave communications and video equipment.
Financial Highlights
(in thousands, except per share data)
operations:
Orders
Net sales
Net income (loss)
Income (loss) per share:
Basic
Diluted
Balance Sheet:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Stockholders’ equity
$350
300
250
200
150
100
50
0
$350
300
250
200
150
100
50
0
08 09 10 11 12
oRDeRS
(In Millions)
08 09 10 11 12
SAleS
(In Millions)
$40
30
20
10
0
-10
-20
-30
2012
$214,950
$221,162
$(12,243)
$(0.50)
$(0.50)
$110,229
$184,703
$334,873
$280,899
2011
$261,244
$308,968
$15,719
$0.65
$0.64
$105,002
$191,945
$361,608
$291,031
$350
300
250
200
150
100
50
0
08 09 10 11 12
net InCoMe (loSS)
(In Millions)
08 09 10 11 12
StoCKHolDeRS’ eQuItY
(In Millions)
Forward-looking Statements and non-GAAp Amounts
This Cohu, Inc. 2012 Annual Report contains forward-looking statements including expectations of market conditions, challenges
and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the Safe
Harbor provisions created by that statute. These forward-looking statements are based on management’s current expectations
and beliefs, including estimates and projections about our industries. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and assumptions, including but not limited to, those discussed under
the caption “1A. Risk Factors” beginning on page 9 of this Annual Report that could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of
the time they are made.
Certain amounts referred to in this Annual Report are “Non-GAAP” as contrasted with amounts prepared under generally
accepted accounting principles (GAAP). These Non-GAAP amounts adjust the Company’s actual results prepared under GAAP
to exclude charges and the related income tax effect for share-based compensation, the amortization of acquired intangible
assets, other acquisition costs and the gain on sale of a facility. These Non-GAAP amounts are not meant as a substitute for
GAAP, but are included solely for informational and comparative purposes. Cohu’s management believes that this information
can assist investors in evaluating the Company’s operational trends, financial performance and cash generating capacity and
allows investors to evaluate Cohu’s financial performance in the same manner as management. However, the non-GAAP financial
amounts should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP amounts.
CoHu, InC.
CoMpAnY InFoRMAtIon
Board of Directors
James A. Donahue
Chairman of the Board,
President and Chief Executive Officer,
Cohu, Inc.
William e. Bendush (1)(2)
Retired Senior Vice President,
and Chief Financial Officer of
Applied Micro Circuits Corporation
Steven J. Bilodeau (1)(2)(3)
Retired Chairman, President
and Chief Executive Officer,
Standard Microsystems Corporation
Harry l. Casari (1)(2)
Retired Partner,
Ernst & Young LLP
Robert l. Ciardella (1)(3)(4)
Retired President, Asymtek
Harold Harrigian (1)(3)
Retired Partner and
Director of Corporate Finance,
Crowell, Weedon & Co.
(1) Member Audit Committee
(2) Member Compensation Committee
(3) Member Nominating and Governance Committee
(4) Lead Independent Director
Corporate executive officers
James A. Donahue
Chairman of the Board,
Jeffrey D. Jones
Vice President, Finance and
President and Chief Executive Officer
Chief Financial Officer, Secretary
John H. Allen
Vice President,
Administration
Stockholder Information
Corporate Headquarters
12367 Crosthwaite Circle
Poway, CA 92064-6817
(858) 848-8100
www.cohu.com
legal Counsel
DLA Piper LLP (US)
San Diego, California
Independent Auditors
Ernst & Young LLP
San Diego, California
transfer Agent and Registrar
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
(866) 272-6728 U.S.
www.computershare.com/investor
Annual Meeting
The Annual Meeting of Stockholders will be
held on Wednesday, May 15, 2013 at 8:00 a.m.
at Cohu’s corporate headquarters.
SeC Filings
Copies of documents filed by Cohu
with the Securities and Exchange
Commission, including our Annual Report
on Form 10-K for the year ended
December 29, 2012 and other information about
Cohu are available without charge by contacting
Cohu Investor Relations at (858) 848-8106
or by accessing our web site www.cohu.com
or the SEC’s Edgar web site www.sec.gov.
Current press Releases
Cohu distributes press releases via
Business Wire. Releases can be
accessed via Cohu’s web site or through
financial wires.
Share Information
Cohu, Inc. stock is traded on the
NASDAQ Global Select Market under
the symbol “COHU”.
Cohu, Inc. 2012 Annual Report
Cohu, Inc. 2012 Annual Report
12367 Crosthwaite Circle
Poway, CA 92064
Dear Fellow Stockholder,
Last year began on a positive note as SEMI reported that orders for backend semiconductor equipment
increased in February following a sequential decline the month before. This was somewhat of a surprise
as prevailing expectations were for a soft start to the year with improved conditions in the second half.
The positive momentum continued through May, with higher levels of equipment utilization driven by
strong demand for smartphone, tablet and automotive ICs. It appeared that 2012 was off to a good start.
As veterans of the semiconductor equipment industry we know that business conditions can change
quickly and significantly. That’s exactly what happened, as monthly orders for backend semiconductor
equipment began a seven-month decline in June that continued through December. Global economic
concerns and political uncertainty in the United States were key factors in an unfavorable macroeconomic
environment.
As a result, Cohu’s financial performance in 2012 was disappointing. For the year ended December 29,
2012, sales were $221.2 million compared to $309.0 million in 2011. The Non-GAAP loss in 2012 was
$3.1 million or $0.13 per share compared to Non-GAAP net income of $23.4 million, or $0.96 per share
in 2011. On a GAAP basis, the 2012 net loss was $12.2 million or $0.50 per share compared to net
income of $15.7 million or $0.64 per share in 2011. Despite difficult business conditions, Cohu’s balance
sheet remained strong, with cash increasing to $110 million at year-end. As we have for 36 consecutive
years, Cohu paid its shareholders a quarterly cash dividend, in 2012 of $0.06 per share. Shortly after the
close of Fiscal 2012, we announced the acquisition of Ismeca that will be discussed later in this letter.
Semiconductor Test Handlers and Thermal Systems
Equipment utilization on customers’ test floors increased to the 75% range during the first quarter,
compared to the mid 60s at the end of 2011. In line with this, SEMI reported that the March book to bill
ratio for backend equipment was a healthy 1.3. First quarter orders for our semiconductor equipment
increased 22% sequentially, driven by higher demand for pick and place handlers. In April, the beta
evaluation of our new gravity handler, Saturn, was successfully completed and we initiated production of
several units to support customer evaluations during the second half of the year. Customer activity and
forecasts were improving and we guided to higher sales in the second quarter.
Equipment utilization continued to improve, to near 80% by the end of Q2. Orders for our semiconductor
equipment increased 44% compared to the first quarter, as we benefitted from stronger demand for mobile
and automotive ICs as well as the ramp of our Pyramid thermal handler at a major microprocessor IDM.
We booked a large, follow-on order for Castle handlers from a major IDM, for use in testing automotive
ICs and shipped a derivative version of the Saturn gravity handler, named Jupiter, for handling large IC
packages. Our new gravity handler platform, available in both standard and large package configurations,
provides compelling productivity improvements, particularly in short test time, high-parallel applications,
a fast-growing segment of the test market.
By the end of the second quarter, there were indications that industry conditions were weakening. June
orders for backend equipment declined and a number of semiconductor companies guided to flat or lower
(i)
Cohu, Inc. 2012 Annual Report
results for the third quarter. Industry analysts predicted a slowdown in the ramp of smartphones and
tablets and at the macro level, business and consumer confidence was eroding.
As the third quarter unfolded, it was clear that business conditions had softened. Equipment utilization
fell to the low 70% range and orders for our semiconductor equipment declined 35% sequentially. In
September, SEMI reported that orders for backend semi equipment fell to the lowest level in more than
three years. Despite the weakening business environment, orders for our high-speed pick and place
handlers were the highest in more than a year. Increasingly, customers are transitioning their high volume
products to the Matrix handler due to its speed and high parallel test capability. Orders for Pyramid
handlers declined from a record level in the previous quarter, as our customer’s installed base approached
levels adequate for current programs. We successfully transferred production of the first pick and place
handler to our Philippines factory during the third quarter, a key step in our hybrid manufacturing
strategy, whereby subassemblies are outsourced and final assembly and test is performed in-house.
Throughout the third quarter, industry conditions deteriorated and SEMI’s September backend equipment
book to bill ratio fell to 0.54.
Orders during Q4 were about the same as the year earlier quarter. In 2012 we may have seen a complete
industry cycle, compressed to a single year: two quarters of increasing orders, peaking in Q2, followed
by two quarters of sequential decline. Many analysts believe that the length of industry cycles is
shortening. Moreover, it seems that the amplitude of the swings has been dampened as consumer
electronics, and in the last several years, mobility applications in particular, have become the primary user
of semiconductor devices. The frequent introduction of new consumer products, with varied life spans,
creates a very different industry dynamic, influenced by many more variables than the PC-dominated
cycle of the past.
Opportunities for our T-Core thermal subsystems are increasing as certain customers implement batch
testing and system level test methodologies for mobility ICs. T-Core utilizes the same proprietary
thermal technology incorporated in the Pyramid handler and limits temperature fluctuations during test.
We have solutions to address thermal requirements across the broad range of test handling applications.
Additionally, our focus on expanding the company’s library of MEMs test solutions is paying off and
enabling handler sales.
Ismeca Acquisition
On December 31, 2012, at the beginning of Cohu’s 2013 fiscal year, we completed the acquisition of
Ismeca, the leading supplier of turret-based semiconductor and LED test handler and backend finishing
equipment. Through this acquisition we combined the number one supplier of turret-based handling
equipment with Delta Design, the number one supplier of logic pick and place test handlers and with
Rasco, the number two supplier of gravity-feed and test-in-strip handlers. The acquisition of Ismeca
strengthens our leadership position, provides new growth opportunities and significant cost synergies.
Through Ismeca, we move into markets that test smaller IC and discrete components at faster speeds and
gain entry into the LED equipment market. The LED market is expected to grow significantly as this
technology is adopted for general lighting.
Cohu’s Semiconductor Equipment Group (SEG) now comprises three businesses with a range of products
and technology capabilities that is unmatched in the industry. The semiconductor industry needs
suppliers that have the technical resources, manufacturing capability and global scale to deliver effective
solutions as technology change drives new form factors, smaller geometries, critical temperature control,
new sensors and lighting applications in a dynamic market environment.
(ii)
Cohu, Inc. 2012 Annual Report
Outlook
Over the near term and until the macroeconomic environment improves, we expect that capacity
expansion for traditional semiconductor packages will be limited. In this environment, we are tightly
controlling operating expenses, but continuing to invest in key projects to broaden our product portfolio,
grow the customer base and optimize manufacturing. At the same time, we are excited about solid
opportunities in selected areas including ICs for mobile applications, LEDs, MEMs and wafer level
packages. Many industry analysts anticipate that business conditions will improve in the second half of
2013 and with our broad product line we are in an excellent position to benefit.
I want to thank our employees, customers, shareholders and suppliers for your support in 2012.
Sincerely,
James A. Donahue
Chairman of the Board,
President and Chief Executive Officer
March 7, 2013
(iii)
Cohu, Inc. 2012 Annual Report
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(iv)
Cohu, Inc. 2012 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[√]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2012
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
Incorporation or Organization)
12367 Crosthwaite Circle, Poway, California
(Address of principal executive offices)
95-1934119
(I.R.S. Employer Identification No.)
92064-6817
(Zip Code)
Registrant’s telephone number, including area code: (858) 848-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $1.00 par value
Preferred Share Purchase Rights, $1.00 par value
Name of Exchange on Which Registered
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $109,000,000 based on the closing stock
price as reported by the NASDAQ Stock Market LLC as of June 29, 2012. Shares of common stock held by each officer and director and by each
person or group who owns 5% or more of the outstanding common stock have been excluded in that such persons or groups may be deemed to be
affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 11, 2013 the Registrant had 24,639,179 shares of its $1.00 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Cohu, Inc.’s 2013 Annual Meeting of Stockholders to be held on May 15, 2013, and to be filed pursuant to
Regulation 14A within 120 days after registrant’s fiscal year ended December 29, 2012, are incorporated by reference into Part III of this Report.
(This page intentionally left blank)
COHU, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 2012
TABLE OF CONTENTS
PART I
Page
Item 1.
Business................................................................................................................................................... 1
Item 1A. Risk Factors............................................................................................................................................. 9
Item 1B. Unresolved Staff Comments................................................................................................................. 14
Item 2.
Properties............................................................................................................................................... 15
Item 3.
Legal Proceedings................................................................................................................................. 15
Item 4. Mine Safety Disclosures ....................................................................................................................... 15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ............................................................................................................. 16
Item 6.
Selected Financial Data ........................................................................................................................ 18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations............. 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................ 26
Item 8.
Financial Statements and Supplementary Data.................................................................................... 26
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 27
Item 9A. Controls and Procedures ....................................................................................................................... 27
Item 9B. Other Information ................................................................................................................................. 29
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................................. 29
Item 11. Executive Compensation ...................................................................................................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.............................................................................................................................. 29
Item 13. Certain Relationships and Related Transactions, and Director Independence.................................... 29
Item 14. Principal Accounting Fees and Services .............................................................................................. 29
PART IV
Item 15. Exhibits, Financial Statement Schedules.............................................................................................. 30
Signatures ............................................................................................................................................................... 57
(This page intentionally left blank)
The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains
certain forward-looking statements including expectations of market conditions, challenges and plans, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject
to the Safe Harbor provisions created by that statute. These forward-looking statements are based on
management’s current expectations and beliefs, including estimates and projections about our industries.
Statements concerning financial position, business strategy, and plans or objectives for future operations are
forward-looking statements. These statements are not guarantees of future performance and are subject to
certain risks, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ
materially from management’s current expectations. Such risks and uncertainties include those set forth in this
Annual Report on Form 10-K under the heading “Item 1A. Risk Factors”. The forward-looking statements in
this report speak only as of the time they are made and do not necessarily reflect management’s outlook at any
other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or for any other reason. However, readers should carefully review the
risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange
Commission (“SEC”) after the date of this Annual Report.
Item 1. Business.
PART I
Cohu, Inc. (“Cohu”, “we”, “our” and “us”) was incorporated under the laws of California in 1947, as Kalbfell
Lab, Inc. and commenced active operations in the same year. Our name was changed to Kay Lab in 1954. In
1957, Cohu was reincorporated under the laws of the State of Delaware as Cohu Electronics, Inc. and in 1972,
our name was changed to Cohu, Inc.
We have three reportable segments: semiconductor equipment, mobile microwave communication systems and
video cameras. Our semiconductor equipment segment, Cohu’s Semiconductor Equipment Group (“SEG”),
encompasses Cohu’s wholly owned subsidiaries Delta Design, Inc. (“Delta”), Rasco GmbH (“Rasco”) and
Ismeca Semiconductor Holding SA (“Ismeca”). Delta develops, manufactures and sells pick-and-place
semiconductor test handlers, burn-in related equipment and thermal sub-systems to semiconductor manufacturers
and test subcontractors throughout the world. Rasco develops, manufactures and sells gravity-feed and test-in-
strip semiconductor test handling equipment and micro-electro-mechanical systems (“MEMS”) test modules used
in final test operations by semiconductor manufacturers and test subcontractors. Ismeca, acquired by Cohu on
December 31, 2012, designs, manufactures and sells turret-based test handling and back-end finishing equipment
for integrated circuits, light emitting diodes (LEDs) and discrete components used by semiconductor
manufacturers and test subcontractors throughout the world in assembly and packaging of devices. The
acquisition of Ismeca was completed subsequent to the end of Cohu’s fiscal year ended December 29, 2012 and
certain disclosures include Ismeca to enable investors to evaluate the operating and financial effects to our
business recognized in the subsequent accounting period. Unless otherwise indicated, disclosures made
throughout this Form 10-K exclude the effect of the acquisition of Ismeca.
Our microwave communication systems segment is comprised of our wholly owned subsidiary Broadcast
Microwave Services, Inc. (“BMS”). BMS develops, manufactures and sells microwave communications
equipment to government agencies, law enforcement and public safety organizations, unmanned air vehicle
program contractors, television broadcasters, entertainment companies, professional sports teams and other
commercial entities. Our video camera segment (“Electronics Division”) develops, manufactures and sells a
wide selection of video cameras and related products, specializing in video solutions for security, surveillance
and traffic monitoring. Customers for these products are distributed among security, surveillance, traffic
control/management, scientific imaging and machine vision.
Sales by reportable segment, expressed as a percentage of total consolidated net sales, for the last three years
were as follows:
Semiconductor equipment
Microwave communications
Video cameras
2012
81 %
12 %
7 %
100 %
2011
84 %
10 %
6 %
100 %
1
2010
85 %
10 %
5 %
100 %
Additional financial information on our reportable segments for each of the last three years is included in Note 7,
“Segment and Related Information” in Part IV, Item 15(a) of this Form 10-K.
Semiconductor Equipment
We are a worldwide supplier of semiconductor test handling systems, MEMS test modules, burn-in equipment
and thermal sub-systems. Our semiconductor equipment companies develop, manufacture, sell and service a
broad line of equipment capable of handling a wide range of integrated circuit packages. Test handlers are
electromechanical systems used to automate testing of the packaged integrated circuit in the “back-end” of the
semiconductor manufacturing process. Testing determines the quality and performance of the integrated circuit
prior to shipment to customers. Testers are designed to verify the performance of the integrated circuit, such as
microprocessors, logic, analog, memory or mixed signal devices. Handlers are engineered to thermally condition
and present for testing the packaged semiconductor devices. The majority of test handlers use either pick-and-
place, gravity-feed, turret or test-in-strip technologies. The type of packaged device normally determines the
appropriate handling approach. Gravity-feed handling is the predominant solution for temperature testing of
small outline leaded and non-leaded packages, as well as for large packages with leads on only one or two sides
as is common in high power devices. In gravity-feed handlers, integrated circuits are unloaded from plastic tubes,
metal magazines or a bowl at the top of the machine and flow through the system, from top to bottom, propelled
by the force of gravity. After testing, the integrated circuits are sorted and reloaded into tubes, magazines, bulk or
tape for additional process steps or final shipment.
Integrated circuits with leads on all four sides, such as the quad flat pack, or with balls or pads on the bottom or
sides of the package, such as ball grid array packages, and quad flat no-lead packages as well as certain low
profile integrated circuits with leads on two sides, such as the thin small outline package, and wafer-level
packages are predominately handled in pick-and-place systems. Pick-and-place handlers use robotic mechanisms
to move integrated circuits from Jedec trays and place them in precision transport boats or carriers for processing
through the system. After testing, integrated circuits are sorted and reloaded into designated trays, based on test
results.
Test-in-strip handlers accommodate integrated circuits in strips or panels prior to the final singulation step in the
semiconductor manufacturing process flow and are typically used for high-parallel testing applications. Turret-
based handlers use a rotating “turret” mechanism that provides very high device throughput and efficient
integration of multiple back-end finishing operations. Turret handlers are ideally suited for high-volume and high-
mix testing of smaller integrated circuits and discrete and LED devices. MEMS test modules are independent
physical stimuli units for testing sensor integrated circuits typically used in the automotive and consumer
electronics industries. These MEMS test modules can be integrated to our gravity-feed, pick & place, or test-in-
strip handlers for testing a variety of sensors, including pressure, acoustic, magnetic field hall effect, optical and
others.
To ensure quality, semiconductors are typically tested at hot and/or cold temperatures, which can simulate the
final operating environment. Our test handler products are designed to provide a precisely controlled test
environment, often over the range of -60 degrees Celsius to +175 degrees Celsius. As the speed and power of
certain integrated circuits, such as microprocessors, has increased so has the need to actively manage the self-
generated heat during the test process to maximize yield. This heat is capable of damaging or destroying the
integrated circuit and can result in speed downgrading, when devices self-heat and fail to successfully test at their
maximum possible speed. Device yields are extremely important and speed grading directly affects the selling
price of the integrated circuit and the profitability of the semiconductor manufacturer. In addition to temperature
capability, other key factors in the design of test handlers are handling speed, flexibility, parallel test capability,
alignment to the test contactors, system size, reliability and cost.
Delta provides thermal sub-systems for use in advanced burn-in and system-level test applications. These
thermal sub-systems maintain and control the temperature of the integrated circuit during the testing process.
Burn-in stresses devices for detection of early failures (infant mortality) prior to distribution. The burn-in process
is also used by semiconductor manufacturers to develop reliability models of newly introduced devices. The
objective of reliability testing is to determine a device’s fault-free operation and estimated useful life by exposing
the device to various electrical and thermal conditions that impact its performance. System-level testing is
required for functional testing of high-end microprocessors as well as mobile processors combined with memory
integrated circuits. This is typically the last test operation of complex, expensive integrated circuits prior to the
electronic assembly process.
2
Our products are complex electromechanical systems that are used in high-volume production environments and
many are in service twenty-four hours per day, seven days a week. Customers continuously strive to increase the
utilization of their production test equipment and expect high reliability from test handling, MEMS test modules
and thermal subsystems used in burn-in and system-level test. The availability of trained technical support
personnel is an important competitive factor in the marketplace. Our semiconductor equipment companies
deploy service engineers worldwide, often within customers’ production facilities, who work with customer
personnel to maintain, repair and continuously improve the performance of our equipment.
Our Semiconductor Equipment Products
We offer products for the pick-and-place, gravity-feed, test-in-strip and turret handling, MEMS, burn-in and
system-level test markets. We currently sell the following products in the semiconductor equipment market:
Pick-and-place
The Delta EDGE is a pick-and-place handler that combines an economical design with a small footprint and fast
index time (processing speed of the contactor placement mechanism). The EDGE handler is designed to meet the
needs of integrated circuit manufacturers and subcontractors who test at ambient and hot temperatures.
The Delta MATRiX is a high performance pick-and-place handler capable of thermally conditioning devices
from -60 degrees Celsius to +175 degrees Celsius. It provides increased productivity in several dimensions of
performance: up to three times higher throughput and four times higher parallelism than our previous generation
products, and active thermal control per test site. With an adjustable test site configuration, customers can reuse
existing load-boards, including those made for gravity handlers. The system also provides flexibility with field
upgradeable options including a chamberless tri-temperature test site and auto contactor cleaning.
The Delta Castle is a pick-and-place test handler capable of thermally conditioning devices from -60 degrees
Celsius to +160 degrees Celsius. The Castle can position from one to nine devices for testing. Its large thermal
soak chamber provides a continuous flow of thermally conditioned devices to the test site allowing the handler to
process parts at high speed when running at temperature. The Castle incorporates an innovative vertical tray
storage system that saves space on the test floor by minimizing the handler’s footprint.
The Delta Pyramid is a high performance thermal handler providing high throughput, high parallel test capability
for microprocessors and graphics processors. The Pyramid incorporates Delta’s proprietary thermal control
technology. The system is highly configurable and is capable of adapting to various customer requirements
ranging from small tablet microprocessor testing to high-end server product testing.
Delta’s Summit series of pick-and-place thermal handlers are designed to meet the requirements of manufacturers
of microprocessors, graphic processors and other high speed, high power integrated circuits. The Summit handlers
incorporate Delta’s proprietary thermal control technology. The Summit PTC, or Passive Thermal Control, and
ATC, or Active Thermal Control, models dissipate the heat generated during test enabling the integrated circuit to
be tested successfully at its maximum speed and performance.
Gravity-Feed
Rasco’s SO1x00 is a high throughput gravity-feed platform that provides an economical solution for testing up to
8 devices in parallel. These handlers can be configured for tube-to-tube or metal magazine input and output,
ambient-hot or tri-temperature testing and are easily kit-able for a wide range of integrated circuit packages.
Rasco’s SO2x00 is a modular platform that offers a reliable solution for testing small integrated circuit packages
and up to 8 devices in parallel. The base platform can be configured with various input and output modules: tube,
metal magazine, bowl, bulk, tape and reel, and an optional laser marking unit. These handlers can be configured
for ambient-hot or tri-temperature testing.
Rasco’s Saturn and Jupiter are our next generation gravity handlers delivering a fast index time capability with
up to 8 devices tested in parallel at cold and/or hot temperature. Saturn has a configuration that covers testing of
very small to medium size packaged integrated circuits, and Jupiter is a version that enables testing of medium to
very large packaged integrated circuits typically serving the power management device market.
Test-in-strip
Rasco’s SO3000, test-in-strip handler, can process an entire strip at once or index the strip for single/multiple
device testing. The system has tri-temperature capability, accommodates either stacked or slotted input/output
media and can be configured with optional, automated vision alignment.
3
Turret
Ismeca’s NX16 is a high-speed, 16-position turret handler commonly used for testing and inspection of integrated
circuits, LEDs and discrete devices. The product is highly configurable with bowl or tube feeding, tape and bulk
output modules along with many processing options including laser marking, scanning, vision and test. The
NX16 is capable of testing devices at ambient and hot temperature.
Ismeca’s NX32 is a scalable, 32-position turret handler used for testing and inspection of integrated circuits,
LEDs, and discrete devices. There are many configurations of the NX32 turret handler: handling wafers in film-
frame for input and/or output that is common for LEDs and wafer level package (WLP) devices; tray and tube
input and/or output used for integrated circuits and discretes; and bowl feeding, tape and de-taping, alignment,
laser marking, scanning, vision and test modules. The NX32 is capable of testing devices at ambient and hot
temperature.
Ismeca’s NY20 is our next generation turret handler platform that delivers higher throughput combined with fast
device change-over time for both high-volume and high-mix testing and inspection of integrated circuits, LEDs
and discrete devices. The new 20-position turret offers many of the functional modules and capabilities available
on the NX16 and NX32 platforms in a smaller footprint, higher throughput handler.
Micro-Electro-Mechanical Systems (“MEMS”)
Rasco’s MEMS series are modules that generate a physical stimuli for testing of sensor integrated circuits
typically used in the automotive (tire pressure, airbag sensors) and consumer electronics (tilt, motion, microphone
and light sensors) industries. The MEMS modules are stand-alone units that can be integrated into Delta or Rasco
pick-and-place, test-in-strip, or gravity-feed handlers.
Burn-in
Delta’s VTS300, is an automated burn-in system that supports asynchronous loading and unloading of devices
without system interruption, transforming the burn-in process from a traditional batch-oriented approach to a
more efficient continuous-flow process.
Thermal Sub-Systems
Delta adapted its proprietary thermal control technology for use by integrated circuit manufacturers in high
performance burn-in and system level test. The T-Core thermal sub-systems provide fast and accurate thermal
control of the integrated circuit during the testing process using the same technology available in the Pyramid
handler. T-Core is also used in engineering and device characterization applications.
Spares
Delta, Rasco and Ismeca provide consumable and non-consumable items that are used to maintain, sustain or
otherwise enable their equipment to meet its performance, availability and production requirements.
Tooling (kits)
Delta, Rasco and Ismeca design and manufacture a wide range of device dedication kits that enable handlers to
process different semiconductor packages. Our Philippines operation, established in 2004, designs and
manufactures the majority of our handler kits and provides applications support to customers in the southeast
Asia region.
Sales by Product Line
During the last three years, sales of our semiconductor equipment products were distributed as follows:
Semiconductor test handler systems
Thermal sub-systems and burn-in equipment
Spares, tooling (kits) and service
Microwave Communications
2012
56 %
5 %
39 %
2011
57 %
3 %
40 %
2010
64 %
1 %
35 %
BMS develops, manufactures and sells microwave communications equipment, antenna systems and associated
equipment. These products are used in the transmission of video, audio and telemetry data. Applications for
these microwave data-links include unmanned aerial vehicles (UAVs), law enforcement, security and
surveillance and electronic news gathering. Customers include government agencies, law enforcement and
public safety organizations, unmanned air vehicle program contractors, television broadcasters, entertainment
companies, professional sports teams and other commercial entities.
4
Video Cameras
The Electronics Division develops, manufactures and sells a wide selection of video cameras and related
products, specializing in video solutions for security, surveillance and traffic monitoring, closed circuit video or
CCTV cameras, equipment and systems. The customer base for these products is distributed among traffic
control and management, security/surveillance, military, scientific imaging and machine vision. The Electronics
Division’s products are high-performance, high-resolution cameras that meet the most demanding performance
requirements and are resistant to harsh operating environments. The Electronics Division also offers customized
products and accessories including cables, camera mounts and data storage devices.
Customers
Semiconductor Equipment
Our customers include semiconductor integrated device manufacturers and test subcontractors. Repeat sales to
existing customers represent a significant portion of our sales. During the last three years, customers from our
semiconductor equipment segment that have comprised 10% or greater of our consolidated net sales are as follows:
Intel
Texas Instruments
* Less than 10% of net sales
2012
2011
39 %
*
36 %
11 %
2010
26 %
14 %
The loss of, or a significant reduction in, orders by these or other significant customers, including reductions due to
market, economic or competitive conditions or the outsourcing of final integrated circuit test to subcontractors that
are not our customers would adversely affect our financial condition and results of operations and as a result, we
believe that our customer concentration is a significant business risk.
Additional financial information on revenues from external customers by geographic area for each of the last
three years is included in Note 7, “Segment and Related Information” in Part IV, Item 15(a) of this Form 10-K.
Microwave Communications
Our customer base for microwave communications equipment is diverse and includes government agencies, law
enforcement and public safety organizations, unmanned air vehicle program contractors, television broadcasters,
entertainment companies, professional sports teams and other commercial entities throughout the world. No single
customer of this segment accounted for 10% or more of our consolidated net sales in 2012, 2011 or 2010.
Video Cameras
Our customer base in the video camera industry segment is also diverse and includes corporate end-users, state and
federal government agencies, original equipment manufacturers, system integrators and value-added resellers. No
single customer of this segment accounted for 10% or more of our consolidated net sales in 2012, 2011 or 2010.
Sales and Marketing
We market our products worldwide through a combination of a direct sales force and independent sales
representatives. In geographic areas where we believe there is sufficient sales potential, we generally employ our
own personnel. The U.S. sales office for our semiconductor equipment businesses is located at Delta’s Poway,
California facility. The Europe sales office is located at Rasco’s Kolbermoor, Germany facility. We operate in Asia
with headquarters in Singapore and a branch office in Taipei, Taiwan. Sales in Japan and Korea are made primarily
through independent sales representatives.
Competition
Semiconductor Equipment
The semiconductor equipment industry is intensely competitive and is characterized by rapid technological
change and demanding worldwide service requirements. Significant competitive factors include product
performance, price, reliability, customer support and installed base of products. While we are a leading
worldwide supplier of semiconductor test handling equipment, we face substantial competition. The Japanese
and Korean markets for test handling equipment are large and represent a significant percentage of the worldwide
market. During each of the last three years our sales to Japanese and Korean customers, who have historically
purchased test handling equipment from Asian suppliers, have represented less than 10% of our total sales. Some
of our current and potential competitors are part of larger corporations that have substantially greater financial,
engineering, manufacturing and customer support capabilities and offer more extensive product offerings than
5
Cohu. To remain competitive we believe we will require significant financial resources to offer a broad range of
products, maintain customer support and service centers worldwide and to invest in research and development of
new products. Failure to introduce new products in a timely manner or the introduction by competitors of
products with actual or perceived advantages could result in a loss of competitive position and reduced sales of
existing products. No assurance can be given that we will continue to compete successfully throughout the
world.
Microwave Communications and Video Cameras
Our products in the microwave communications and video camera segments are sold in highly competitive
markets throughout the world, where we compete on the basis of product performance and integration with
customer requirements, service, product quality, reliability and price. Many of our competitors are divisions or
segments of large, diversified companies with substantially greater financial, engineering, marketing,
manufacturing and customer support capabilities than Cohu. No assurance can be given that we will continue to
compete successfully in these market segments.
Backlog
Our backlog of unfilled orders for products, by segment, at December 29, 2012 and December 31, 2011, was as
follows:
(in millions)
Semiconductor equipment
Microwave communications
Video cameras
Total consolidated backlog
2012
2011
$
$
30.6
10.0
4.1
44.7
$
$
38.2
11.1
2.6
51.9
Backlog is generally expected to be shipped within the next twelve months. Our backlog at any point in time may
not be representative of actual sales in any future period due to the possibility of customer changes in delivery
schedules, cancellation of orders, potential delays in product shipments, difficulties in obtaining parts from
suppliers, failure to satisfy customer acceptance requirements and the inability to recognize revenue under
accounting requirements. Furthermore, many orders are subject to cancellation or rescheduling by the customer
with limited or no penalty. A reduction in backlog during any particular period could have a material adverse
effect on our business, financial condition and results of operations. There is no significant seasonal aspect to our
business. The decrease in our backlog at December 29, 2012 is a result of the downturn in the global
semiconductor equipment industry, which led to decreased orders for our semiconductor test handling systems
during 2012.
Manufacturing and Raw Materials
Our manufacturing operations are currently located in Poway, California (Delta, BMS and Electronics Division);
Laguna, the Philippines (Delta); Kolbermoor, Germany (Rasco); Malacca, Malaysia (Ismeca); Suzhou, China
(Ismeca); La Chaux-de-Fonds, Switzerland (Ismeca) and Kemel, Germany (BMS).
Many of the components and subassemblies we utilize are standard products, although some items are made to our
specifications. Certain components, particularly in our semiconductor equipment businesses, are obtained or are
available from a limited number of suppliers. We seek to reduce our dependence on sole and limited source
suppliers, however in some cases the complete or partial loss of certain of these sources could have a material
adverse effect on our operations while we attempt to locate and qualify replacement suppliers.
Patents and Trademarks
Our proprietary technology is protected by various intellectual property laws including patents, licenses,
trademarks, copyrights and trade secrets. In addition, we believe that, due to the rapid pace of technological
change in the semiconductor equipment industry and our other business segments, the successful manufacture
and sale of our products also depends upon our experience, technological know-how, manufacturing and
marketing skills and speed of response to sales opportunities. In the absence of patent protection, we would be
vulnerable to competitors who attempt to copy or imitate our products or processes. We believe our intellectual
property has value and we have in the past and will in the future take actions we deem appropriate to protect such
property from misappropriation. However, there can be no assurance such actions will provide meaningful
protection from competition. Protecting our intellectual property rights or defending against claims brought by
other holders of such rights, either directly against us or against customers we have agreed to indemnify, would
likely be expensive and time consuming and could have a material adverse effect on our operations.
6
Research and Development
Certain of the markets in which we compete, particularly the semiconductor equipment industry, are
characterized by rapid technological change. Research and development activities are carried on in our various
subsidiaries and division and are directed toward development of new products and equipment, as well as
enhancements to existing products and equipment. Our total research and development expense was $36.2
million in each of 2012, 2011 and 2010.
We work closely with our customers to make improvements to our existing products and in the development of
new products. We expect to continue to invest heavily in research and development and must manage product
transitions successfully as introductions of new products could adversely impact sales of existing products.
Environmental Laws
Our business is subject to numerous federal, state, local and international environmental laws. On occasion, we
have been notified by local authorities of instances of noncompliance with local and/or state environmental laws.
We believe we are in compliance with applicable federal, state, local and international regulations. Compliance
with foreign, federal, state and local laws that have been enacted or adopted regulating the discharge of materials
into the environment or otherwise relating to the protection of the environment and the prevention of climate
change have not had a material effect and is not expected to have a material effect upon the capital expenditures,
results of operations or our competitive position. However, future changes in regulations may require expenditures
that could adversely impact earnings in future years.
Executive Officers of the Registrant
The following sets forth the names, ages, positions and offices held by all executive officers of Cohu as of
February 28, 2013. Executive Officers serve at the discretion of the Board of Directors, until their successors are
appointed.
Name
Cohu:
James A. Donahue
Jeffrey D. Jones
John H. Allen
Cohu wholly owned subsidiaries:
Luis A. Müller
Hock W. Chiang
Peter Portmann
Thomas G. Lightner
Samer Kabbani
James G. McFarlane
Age
Position
64
51
61
43
55
55
68
38
62
Chairman, President and Chief Executive Officer
Vice President, Finance and Chief Financial Officer
Vice President, Administration
President – Cohu SEG
Vice President Global Sales & Service – Cohu SEG
Vice President Global Operations – Cohu SEG
Vice President Global Quality - Cohu SEG
President - Delta Design Systems
President - Delta Design Kit Operations
Mr. Donahue has been employed by Delta since 1978 and was President of Delta from May, 1983 until
December, 2010. In October, 1999, Mr. Donahue was named President and Chief Operating Officer of Cohu and
was appointed to Cohu’s Board of Directors. In June, 2000, Mr. Donahue was promoted to Chief Executive
Officer and was appointed Chairman of the Board in March, 2010.
Mr. Jones joined Delta in 2005 as Vice President Finance. In November 2007, Mr. Jones was named Vice
President, Finance and Chief Financial Officer of Cohu. Prior to joining Delta, Mr. Jones, was a consultant
from 2004 to 2005 and Vice President and General Manager of the Systems Group at SBS Technologies, Inc.,
a designer and manufacturer of embedded computer products, from 1998 to 2003.
Mr. Allen has been employed by Cohu since June, 1995. He was Director of Finance until September, 1995,
became Vice President, Finance in September, 1995, and was appointed Chief Financial Officer in October,
1995. In November 2007, Mr. Allen was made Vice President, Administration. Prior to joining Cohu, Mr. Allen
held various positions with Ernst & Young LLP from 1976 until June, 1995 and had been a partner with that firm
since 1987.
7
Mr. Müller joined Delta in 2005 as Director of Engineering. In July 2008, Mr. Müller was promoted to the
position of Vice President of the High Speed Handling Group for Delta and in January 2009 he was named
Managing Director of Rasco. In January 2011, Mr. Müller was appointed President of Cohu’s Semiconductor
Equipment Group, which encompasses Cohu subsidiaries Delta Design, Inc., Rasco GmbH and Ismeca
Semiconductor.
Mr. Chiang has been employed by Cohu since October 2012 as Vice President, Global Sales & Service for
Cohu’s Semiconductor Equipment Group. Prior to joining Cohu, Mr. Chiang served as a Director for AXElite
Technology Corporation. Additionally, from 1995 through 2011, Mr. Chiang held a variety of positions at
Teradyne, Inc. (“Teradyne”) including Director – Asia SOC Marketing & New Business Development,
Managing Director of Teradyne’s Singapore and China operations and Director of Worldwide Field Total Quality
Management.
Mr. Portmann began his employment with Cohu with the acquisition of Ismeca on December 31, 2012 and was
named Vice President Global Operations of Cohu’s Semiconductor Equipment Group in January
2013. Immediately prior to joining Cohu, Mr. Portman served as the Vice President and Global Operations
Manager of Ismeca for seven years. Additionally, from 1994 through 2001, Mr. Portmann held a variety of
leadership positions at Ismeca including General Manager of Ismeca Malaysia and Vice President of the
Semiconductor Division.
Mr. Lightner has been employed by Cohu since July 2000 and has served as Delta’s Vice President,
Manufacturing from April 2001 to October 2007, Vice President, Operations, of Broadcast Microwave Services,
Inc., the Company’s wholly-owned microwave communications subsidiary from October 2007 to June 2010 and
as Delta’s Vice President, Quality from June 2010 to January 2011. In February 2013, Mr. Lightner was
appointed Vice President, Global Quality of Cohu’s Semiconductor Equipment Group.
Mr. Kabbani joined Delta in 2003 holding several leadership positions in engineering. In 2007, Mr. Kabbani was
promoted to the position of Vice President of the High Performance Logic Group and in 2011 he became Vice
President of Engineering for Delta. Mr. Kabbani was named President of Delta Design Systems in February
2013.
Mr. McFarlane has been employed by Delta since 1989. He was Director of Engineering from 1992 to 1998 and
was promoted to Vice President of Engineering in 1998. In 2000, Mr. McFarlane was promoted to Senior Vice
President and in February 2013 was named President of Delta Design Kit Operations.
Employees
Including headcount additions arising from our acquisition of Ismeca, as of December 31, 2012, we had
approximately 1,500 employees. Our employee headcount has fluctuated in the last five years primarily due to
the volatile business conditions in the semiconductor equipment industry and the acquisitions of Rasco and
Ismeca. None of our employees are covered by collective bargaining agreements, however, certain employees at
Rasco’s facility in Kolbermoor, Germany, are represented by a works council, certain employees at Ismeca’s
facility La Chaux-de-Fonds, Switzerland are members of the micro-technology and Swiss watch trade union and
certain employees in Ismeca’s China operation belong to local trade unions. We have not experienced any work
stoppages and consider our relations with our employees to be good. We believe that a great part of our future
success will depend on our continued ability to attract and retain qualified employees. Competition for the
services of certain personnel, particularly those with technical skills, is intense. There can be no assurance that
we will be able to attract, hire, assimilate and retain a sufficient number of qualified employees.
Available Information
Our web site address is www.cohu.com. We make available free of charge, on or through our web site, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities
and Exchange Commission. Our Code of Business Conduct and Ethics and other documents related to our
corporate governance is also posted on our web site at www.cohu.com/investors/corporategovernance.
Information contained on our web site is not deemed part of this report.
8
Item 1A. Risk Factors.
Set forth below and elsewhere in this report on Form 10-K and in other documents we file with the SEC, are risks
and uncertainties that could cause actual results to differ materially from the results expressed or implied by the
forward-looking statements contained in this Annual Report. Before deciding to purchase, hold or sell our
common stock, you should carefully consider the risks described below in addition to the other cautionary
statements and risks described elsewhere, and the other information contained, in this Annual Report on Form
10-K. The risks and uncertainties described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any
of these known or unknown risks or uncertainties actually occurs with material adverse effects on Cohu, our
business, financial condition and results of operations could be seriously harmed. The trading price of our
common stock could decline due to any of these risks, and you may lose all or part of your investment.
We are exposed to risks associated with acquisitions, investments and divestitures.
We have made, and may in the future make, acquisitions of, or significant investments in, businesses with
complementary products, services and/or technologies such as our acquisition of Ismeca, which was completed
on December 31, 2012. Acquisitions and investments involve numerous risks, including, but not limited to:
difficulties and increased costs in connection with integration of the personnel, operations, technologies
and products of acquired businesses;
increasing the scope, geographic diversity and complexity of our business;
diversion of management’s attention from other operational matters;
the potential loss of key employees or customers of Cohu or acquired businesses;
lack of synergy, or the inability to realize expected synergies, resulting from the acquisition;
failure to commercialize purchased technology; and
the impairment of acquired intangible assets and goodwill that could result in significant charges to
operating results in future periods.
We may be required to finance future acquisitions and investments through a combination of borrowings,
proceeds from equity or debt offerings and the use of cash, cash equivalents and short-term investments.
With respect to divestitures, we may divest businesses that do not meet our strategic objectives, or do not meet
our growth or profitability targets and may not be able to complete proposed divestitures on terms commercially
favorable to us.
Mergers, acquisitions and investments are inherently risky and the inability to effectively manage these risks
could materially and adversely affect our business, financial condition and results of operations. At December
29, 2012 we had goodwill and net purchased intangible assets balances of $58.8 million and $19.0 million,
respectively. These amounts exclude the impact of our acquisition of Ismeca, which was completed subsequent
to our fiscal year end. We expect our goodwill and purchased intangible asset balances will increase
significantly as a result of this transaction.
We are exposed to the risks of operating a global business.
We are a global corporation with offices and subsidiaries in certain foreign locations to support our sales and
services to the global semiconductor industry and, as such, we face risks in doing business abroad that we do not
face domestically. Certain aspects inherent in transacting business internationally could negatively impact our
operating results, including:
costs and difficulties in staffing and managing international operations;
unexpected changes in regulatory requirements;
difficulties in enforcing contractual and intellectual property rights;
longer payment cycles;
local political and economic conditions;
potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of
“double taxation”; and
fluctuations in currency exchange rates, which can affect demand and increase our costs.
9
Additionally, managing geographically dispersed operations presents difficult challenges associated with
organizational alignment and infrastructure, communications and information technology, inventory control,
customer relationship management, terrorist threats and related security matters and cultural diversities. If we are
unsuccessful in managing such operations effectively, our business and results of operations will be adversely
affected.
The semiconductor industry we serve is highly volatile and unpredictable.
Visibility into our markets is limited. Our operating results are substantially dependent on our semiconductor
equipment business. This capital equipment business is in turn highly dependent on the overall strength of the
semiconductor industry. Historically, the semiconductor industry has been highly cyclical with recurring periods
of oversupply and excess capacity, which often have had a significant effect on the semiconductor industry’s
demand for capital equipment, including equipment of the type we manufacture and market. We anticipate that
the markets for newer generations of semiconductors and semiconductor equipment may also be subject to
similar cycles and severe downturns. Any significant reductions in capital equipment investment by
semiconductor integrated device manufacturers and test subcontractors will materially and adversely affect our
business, financial position and results of operations. In addition, the volatile and unpredictable nature of
semiconductor equipment demand has in the past and may in the future expose us to significant excess and
obsolete and lower of cost or market inventory write-offs and reserve requirements. In 2012, 2011 and 2010, we
recorded pre-tax inventory-related charges of approximately $8.9 million, $5.8 million, and $1.7 million,
respectively, primarily as a result of changes in customer forecasts.
The semiconductor equipment industry in general and the test handler market in particular, is highly
competitive.
The semiconductor test handler industry is intensely competitive and we face substantial competition from
numerous companies throughout the world. The test handler industry, while relatively small in terms of
worldwide market size compared to other segments of the semiconductor equipment industry, has several
participants resulting in intense competitive pricing pressures. Future competition may include companies that do
not currently supply test handlers. Some of our competitors are part of larger corporations that have substantially
greater financial, engineering, manufacturing and customer support capabilities and provide more extensive
product offerings. In addition, there are emerging semiconductor equipment companies that provide or may
provide innovative technology incorporated in products that may compete successfully against our products. We
expect our competitors to continue to improve the design and performance of their current products and introduce
new products with improved performance capabilities. Our failure to introduce new products in a timely manner,
the introduction by our competitors of products with perceived or actual advantages, or disputes over rights to use
certain intellectual property or technology could result in a loss of our competitive position and reduced sales of,
or margins on our existing products. We believe that competitive conditions in the semiconductor test handler
market have intensified over the last several years. This intense competition has adversely impacted our product
average selling prices and gross margins on certain products. If we are unable to reduce the cost of our existing
products and successfully introduce new lower cost products we expect these competitive conditions to
negatively impact our gross margin and operating results in the foreseeable future.
Semiconductor equipment is subject to rapid technological change, product introductions and transitions may
result in inventory write-offs and our new product development involves numerous risks and uncertainties.
Semiconductor equipment and processes are subject to rapid technological change. We believe that our future
success will depend in part on our ability to enhance existing products and develop new products with improved
performance capabilities. We expect to continue to invest heavily in research and development and must manage
product transitions successfully, as introductions of new products, including the products obtained in our
acquisitions, may adversely impact sales and/or margins of existing products. In addition, the introduction of
new products by us or by our competitors, the concentration of our revenues in a limited number of large
customers, the migration to new semiconductor testing methodologies and the custom nature of our inventory
parts increases the risk that our established products and related inventory may become obsolete, resulting in
significant excess and obsolete inventory exposure. This increased exposure resulted in significant charges to
operations during each of the years in the three-year period ended December 29, 2012. Future inventory write-
offs and increased inventory reserve requirements could have a material adverse impact on our results of
operations and financial condition.
The design, development, commercial introduction and manufacture of new semiconductor equipment is an
inherently complex process that involves a number of risks and uncertainties. These risks include potential
problems in meeting customer acceptance and performance requirements, integration of the equipment with other
10
suppliers’ equipment and the customers’ manufacturing processes, transitioning from product development to
volume manufacturing and the ability of the equipment to satisfy the semiconductor industry’s constantly
evolving needs and achieve commercial acceptance at prices that produce satisfactory profit margins. The design
and development of new semiconductor equipment is heavily influenced by changes in integrated circuit
assembly, test and final manufacturing processes and integrated circuit package design changes. We believe that
the rate of change in such processes and integrated circuit packages is accelerating. As a result of these changes
and other factors, assessing the market potential and commercial viability of handling, MEMS, system-level and
burn-in test equipment is extremely difficult and subject to a great deal of risk. In addition, not all integrated
circuit manufacturers employ the same manufacturing processes. Differences in such processes make it difficult
to design standard test products that are capable of achieving broad market acceptance. As a result, we might not
accurately assess the semiconductor industry’s future equipment requirements and fail to design and develop
products that meet such requirements and achieve market acceptance. Failure to accurately assess customer
requirements and market trends for new semiconductor test products may have a material adverse impact on our
operations, financial condition and results of operations.
The transition from product development to the manufacture of new semiconductor equipment is a difficult
process and delays in product introductions and problems in manufacturing such equipment are common. We
have in the past and may in the future experience difficulties in manufacturing and volume production of our
new equipment. In addition, as is common with semiconductor equipment, our after sale support and warranty
costs have typically been significantly higher with new products than with our established products. Future
technologies, processes and product developments may render our current or future product offerings obsolete
and we might not be able to develop, introduce and successfully manufacture new products or make
enhancements to our existing products in a timely manner to satisfy customer requirements or achieve market
acceptance. Furthermore, we might not realize acceptable profit margins on such products.
Global economic conditions may have an impact on our business and financial condition in ways that we
currently cannot predict.
Our operations and financial results depend on worldwide economic conditions and their impact on levels of
business spending, which have deteriorated significantly in many countries and regions and may remain
depressed for the foreseeable future. Continued uncertainties may reduce future sales of our products and
services. While we believe we have a strong customer base and have experienced strong collections in the past, if
the current market conditions deteriorate, we may experience increased collection times and greater write-offs,
either of which could have a material adverse effect on our cash flow.
In addition, the tightening of credit markets and concerns regarding the availability of credit may make it more
difficult for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment,
including the products we sell. Delays in our customers’ ability to obtain such financing, or the unavailability of
such financing would adversely affect our product sales and revenues and therefore harm our business and
operating results. We cannot predict the timing, duration of or effect on our business of the economic slowdown
or the timing or strength of a subsequent recovery.
A limited number of customers account for a substantial percentage of our net sales.
A small number of customers of our semiconductor equipment segment have been responsible for a significant
portion of our net sales. During the past five years, the percentage of our sales derived from these significant
customers has varied greatly. Such variations are due to changes in the customers’ business and their purchase of
products from our competitors. It is common in the semiconductor test handler industry for customers to
purchase equipment from more than one equipment supplier, increasing the risk that our competitive position
with a specific customer may deteriorate. No assurance can be given that we will continue to maintain our
competitive position with these or other significant customers. Furthermore, we expect the percentage of our
revenues derived from significant customers will vary greatly in future periods. The loss of, or a significant
reduction in, orders by these or other significant customers as a result of competitive products, market conditions
including end market demand for our customers’ products, outsourcing final semiconductor test to test
subcontractors that are not our customers or other factors, would have a material adverse impact on our business,
financial condition and results of operations. Furthermore, the concentration of our revenues in a limited number
of large customers is likely to cause significant fluctuations in our future annual and quarterly operating results.
11
We do not currently participate in the memory test handler market.
Pick-and-place handlers used in memory test applications account for a significant portion of the worldwide test
handler market. We do not currently participate in the memory market segment; therefore our total available
sales market is limited.
If we cannot continue to develop, manufacture and market products and services that meet customer
requirements for innovation and quality, our revenue and gross margin may suffer.
The process of developing new high technology products and services and enhancing existing products and
services is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and
emerging technological trends accurately could significantly harm our market share and results of operations. In
addition, in the course of conducting our business, we must adequately address quality issues associated with our
products and services, including defects in our engineering, design and manufacturing processes, as well as defects
in third-party components included in our products. In order to address quality issues, we work extensively with
our customers and suppliers and engage in product testing to determine the cause of quality problems and to
determine appropriate solutions. Finding solutions to quality issues can be expensive and may result in additional
warranty, replacement and other costs, adversely affecting our profits. In addition, quality issues can impair our
relationships with new or existing customers and adversely affect our reputation, which could lead to a material
adverse effect on our operating results.
The cyclical nature of the semiconductor equipment industry places enormous demands on our employees,
operations and infrastructure.
The semiconductor equipment industry is characterized by dramatic and sometimes volatile changes in demand
for its products. Changes in product demand result from a number of factors including the semiconductor
industry’s continually changing and unpredictable capacity requirements and changes in integrated circuit
design and packaging. Sudden changes in demand for semiconductor equipment have a significant impact on
our operations. Typically, we reduce and increase our workforce, particularly in manufacturing, based on
customer demand for our products. These changes in workforce levels place enormous demands on our
employees, operations and infrastructure since newly hired personnel rarely possess the expertise and level of
experience of current employees. Additionally, these transitions divert management time and attention from
other activities and adversely impact employee morale. We have in the past and may in the future experience
difficulties, particularly in manufacturing, in training and recruiting the large number of additions to our
workforce. The volatility in headcount and business levels, combined with the cyclical nature of the
semiconductor industry, may require that we invest substantial amounts in new operational and financial
systems, procedures and controls. We may not be able to successfully adjust our systems, facilities and
production capacity to meet our customers’ changing requirements. The inability to meet such requirements
will have an adverse impact on our business, financial position and results of operations.
We utilize contract manufacturers and changes to those relationships, expected or unexpected, may result in
delays or disruptions that could cause us to lose revenue and damage our customer relationships.
Our reliance on contract manufacturers gives us less control over the manufacturing process and exposes us to
significant risks, including limited control over capacity, late delivery, quality and costs. In addition, it is time
consuming and costly to qualify and implement additional contract manufacturer relationships. Therefore, if we
should fail to effectively manage our contract manufacturer relationships or if one or more of them should
experience delays, disruptions or quality control problems, or if we had to change or add additional contract
manufacturers or contract manufacturing sites, our ability to ship products to our customers could be delayed.
Also, the addition of manufacturing locations or contract manufacturers may increase the complexity of our supply
chain management. We cannot be certain that existing or future contract manufacturers will be able to manufacture
our products on a timely and cost-effective basis, or to our quality and performance specifications. If our contract
manufacturers are unable to meet our manufacturing requirements in a timely manner, our ability to ship products
and to realize the related revenues when anticipated could be materially affected.
The loss of key personnel could adversely impact our business.
Certain key personnel are critical to our business. Our future operating results depend substantially upon the
continued service of our key personnel, many of whom are not bound by employment or non-competition
agreements. Our future operating results also depend in significant part upon our ability to attract and retain
qualified management, manufacturing, technical, engineering, marketing, sales and support personnel.
Competition for qualified personnel, particularly those with technical skills, is intense, and we cannot ensure
success in attracting or retaining qualified personnel. In addition, the cost of living in the San Diego, California,
12
Kolbermoor, Germany and La Chaux-de Fonds, Switzerland areas, where the majority of our development
personnel are located, is high and we have had difficulty in recruiting prospective employees from other
locations. There may be only a limited number of persons with the requisite skills and relevant industry
experience to serve in these positions and it may become increasingly difficult for us to hire personnel over time.
Our business, financial condition and results of operations could be materially adversely affected by the loss of
any of our key employees, by the failure of any key employee to perform in his or her current position, or by our
inability to attract and retain skilled employees.
Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could
adversely impact our operations.
We use numerous vendors to supply parts, components and subassemblies for the manufacture of our products. It
is not always possible to maintain multiple qualified suppliers for all of our parts, components and subassemblies.
As a result, certain key parts may be available only from a single supplier or a limited number of suppliers. In
addition, suppliers may cease manufacturing certain components that are difficult to replace without significant
reengineering of our products. On occasion, we have experienced problems in obtaining adequate and reliable
quantities of various parts and components from certain key suppliers. Our results of operations may be
materially and adversely impacted if we do not receive sufficient parts to meet our requirements in a timely and
cost effective manner.
Third parties may violate our proprietary rights or accuse us of infringing upon their proprietary rights.
We rely on patent, copyright, trademark and trade secret laws to establish and maintain proprietary rights in our
technology and products. Any of our proprietary rights may expire due to patent life, or be challenged, invalidated
or circumvented. In addition, from time to time, we receive notices from third parties regarding patent or
copyright claims. Any such claims, with or without merit, could be time-consuming to defend, result in costly
litigation, divert management’s attention and resources and cause us to incur significant expenses. In the event of
a successful claim of infringement against us and our failure or inability to license the infringed technology or to
substitute similar non-infringing technology, our business, financial condition and results of operations could be
adversely affected.
A majority of our revenues are generated from exports to foreign countries, primarily in Asia, that are subject
to economic and political instability and we compete against a number of Asian test handling equipment
suppliers.
The majority of our export sales are made to destinations in Asia. Political or economic instability, particularly in
Asia, may adversely impact the demand for capital equipment, including equipment of the type we manufacture
and market. In addition, we face intense competition from a number of Asian suppliers that have certain
advantages over U.S. suppliers, including us. These advantages include, among other things, proximity to
customers, favorable tariffs and affiliation with significantly larger organizations. In addition, changes in the
amount or price of semiconductors produced in Asia could impact the profitability or capital equipment spending
programs of our foreign and domestic customers.
The occurrence of natural disasters in Asia and geopolitical instability caused by terrorist attacks and other
threats may adversely impact our operations and sales.
Our Asian sales and service headquarters is located in Singapore and the majority of our sales are made to
destinations in Asia. In addition, we have manufacturing plants in the Philippines, Malaysia and China. These
regions are known for being vulnerable to natural disasters and other risks, such as earthquakes, tsunamis, fires,
and floods, which at times have disrupted the local economies. A significant earthquake or tsunami could
materially affect operating results. We are not insured for most losses and business interruptions of this kind, and
do not presently have redundant, multiple site capacity in the event of a natural disaster. In the event of such
disaster, our business would suffer. Furthermore, we have customers throughout the Middle East and terrorist
attacks, protests or other threats in this region may cause geopolitical instability, which may have an adverse
impact on our business, results of operations and financial condition.
Compliance with regulations may impact sales to foreign customers.
Certain products and services that we offer require compliance with United States and other foreign country
export and other regulations. Compliance with complex U.S. and other foreign country laws and regulations that
apply to our international sales activities increases our cost of doing business in international jurisdictions and
could expose us or our employees to fines and penalties. These laws and regulations include import and export
requirements, the U.S. State Department International Traffic in Arms Regulations (ITAR) and U.S. and other
foreign country laws such as the Foreign Corrupt Practices Act (FCPA), and local laws prohibiting corrupt
13
payments to governmental officials. Violations of these laws and regulations could result in fines, criminal
sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to
our reputation. Although we have implemented policies and procedures designed to ensure compliance with
these laws, there can be no assurance that our employees, contractors or agents will not violate our policies, or
that our policies will be effective in preventing all potential violations. Any such violations could include
prohibitions on our ability to offer our products and services to one or more countries, and could also materially
damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees,
our business and our operating results. Further, defending against claims of violations of these laws and
regulations, even if we are successful, could be time-consuming, result in costly litigation, divert
management’s attention and resources and cause us to incur significant expenses.
Our business and operations could suffer in the event of security breaches.
Attempts by others to gain unauthorized access to information technology systems are becoming more
sophisticated and are sometimes successful. These attempts, which might be related to industrial or other
espionage, include covertly introducing malware to our computers and networks and impersonating authorized
users, among others. We seek to detect and investigate all security incidents and to prevent their recurrence, but in
some cases, we might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or
publication of our intellectual property and/or confidential business information could harm our competitive
position, reduce the value of our investment in research and development and other strategic initiatives or
otherwise adversely affect our business. To the extent that any security breach results in inappropriate disclosure
of our customers' or licensees' confidential information, we may incur liability as a result. In addition, we may be
required to devote additional resources to the security of our information technology systems.
Our financial and operating results may vary and may fall below analysts’ estimates, which may cause the
price of our common stock to decline.
Our operating results may fluctuate from quarter to quarter due to a variety of factors including, but not limited
to:
cyclical nature of the semiconductor equipment industry;
timing and amount of orders from customers and shipments to customers;
inability to recognize revenue due to accounting requirements;
inventory writedowns;
inability to deliver solutions as expected by our customers; and
intangible and deferred tax asset writedowns.
Due to these factors or other unanticipated events, quarter-to-quarter comparisons of our operating results may
not be reliable indicators of our future performance. In addition, from time to time our quarterly financial results
may fall below the expectations of the securities and industry analysts who publish reports on our company or of
investors in general. This could cause the market price of our stock to decline, perhaps significantly.
We have experienced significant volatility in our stock price.
A variety of factors may cause the price of our stock to be volatile. In recent years, the stock market in general,
and the market for shares of high-technology companies in particular, including ours, have experienced extreme
price fluctuations, which have often been unrelated to the operating performance of affected companies. During
the last three years the price of our common stock has ranged from $7.96 to $17.35. The price of our stock may
be more volatile than the stock of other companies due to, among other factors, the unpredictable and cyclical
nature of the semiconductor industry, our significant customer concentration, intense competition in the test
handler industry, our limited backlog and our relatively low daily stock trading volume. The market price of our
common stock is likely to continue to fluctuate significantly in the future, including fluctuations related and
unrelated to our performance.
Item 1B. Unresolved Staff Comments.
None.
14
Item 2. Properties.
Certain information concerning our principal properties at December 31, 2012, identified by business segment is
set forth below:
Location
Poway, California (1) (2) (3) (4)
Kolbermoor, Germany (1)
Malacca, Malaysia (1) (5)
Calamba City, Laguna, Philippines (1)
La Chaux-de-Fonds, Switzerland (1) (5)
Singapore (1)
Suzhou, China (1) (5)
Heidenrod – Kemel, Germany (3)
Approximate
Sq. Footage
338,000
40,000
77,000
51,000
34,000
24,000
6,000
5,000
Ownership
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
(1) Semiconductor equipment
(2) Video cameras
(3) Microwave Communications
(4) Cohu Corporate offices
(5) Locations were acquired on December 31, 2012 in conjunction with the purchase of Ismeca, see Note 2, “Subsequent Event”,
included in Part IV, Item 15(a) of this Form 10-K.
In addition to the locations listed above, we lease other properties primarily for sales and service offices in
various locations. We believe our facilities are suitable for their respective uses and are adequate for our present
needs.
Item 3. Legal Proceedings.
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 businesses. Although the outcome of such legal proceedings,
claims and examinations cannot be predicted with certainty, we do not believe any such matters exist at this time
that will have a material adverse effect on our financial position or results of our operations.
Item 4. Mine Safety Disclosures
Not applicable.
15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
(a) Market Information
Cohu, Inc. stock is traded on the NASDAQ Global Select Market under the symbol "COHU". The following table
sets forth the high and low sales prices as reported on the NASDAQ Global Select Market during the last two
years.
Fiscal 2012
Fiscal 2011
High
Low
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
14.16
11.72
10.80
11.50
$
$
$
$
10.39
8.69
8.23
7.96
$
$
$
$
17.35
15.72
13.65
12.42
$
$
$
$
13.10
11.94
9.67
8.99
Holders
At February 11, 2013, Cohu had 572 stockholders of record.
Dividends
We have paid consecutive quarterly dividends since 1977 and, as discussed below, expect to continue doing so.
Cash dividends, per share, declared in 2012 and 2011 were as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Fiscal 2012
$
$
$
$
$
0.06 $
0.06 $
0.06 $
0.06 $
0.24 $
Fiscal 2011
0.06
0.06
0.06
0.06
0.24
We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations by our
Board of Directors that cash dividends are in the best interests of our stockholders. Our dividend policy may be
affected by, among other items, our views on potential future capital requirements, including those related to
research and development, investments and acquisitions, legal risks and stock repurchases.
Equity Compensation Plan Information
The following table summarizes information with respect to equity awards under Cohu’s equity compensation
plans at December 29, 2012 (in thousands, except per share amounts):
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights (a) (1)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b) (2)
Number of securities
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))(c) (3)
3,857
-
3,857
$
$
12.62
-
12.62
2,417
-
2,417
(1)
Includes options, restricted stock units (RSUs) and performance stock units (PSUs) outstanding under Cohu’s equity
incentive plans, as no stock warrants or other rights were outstanding as of December 29, 2012.
(2) The weighted average exercise price of outstanding options, warrants and rights does not take RSUs and PSUs into account
as RSUs and PSUs have a de minimus purchase price.
Includes 485,542 shares of common stock reserved for future issuance under the Cohu 1997 Employee Stock Purchase Plan.
(3)
For further details regarding Cohu’s equity compensation plans, see Note 5, “Employee Benefit Plans”, included
in Part IV, Item 15(a) of this Form 10-K.
16
Comparative Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting
material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act except to the
extent that Cohu specifically incorporates it by reference into a document filed under the Securities Act or the
Exchange Act.
The graph below compares the cumulative total stockholder return on the common stock of Cohu for the last five
fiscal years with the cumulative total return on a Peer Group Index and a NASDAQ Market Index over the same
period (assuming the investment of $100 in Cohu’s common stock, Peer Group Index and NASDAQ Market
Index on December 29, 2007 and reinvestment of all dividends). The Peer Group Index set forth on the
Performance Graph is the Morningstar Semiconductor Equipment and Materials Index. The Morningstar
Semiconductor Equipment and Materials Index is comprised of approximately 40 publicly-held semiconductor
equipment and other related companies. Historical stock price performance is not necessarily indicative of future
stock price performance.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG COHU INC.,
NASDAQ MARKET INDEX, SEMICONDUCTOR EQUIPMENT AND MATERIALS INDEX
Cohu, Inc.
NASDAQ Index
Peer Group
2007
2008
2009
2010
2011
2012
$
$
$
100
100
100
$
$
$
80
58
42
$
$
$
94
87
74
$
$
$
110
102
82
$
$
$
80
101
73
$
$
$
75
117
89
17
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with Cohu’s Consolidated Financial
Statements and Notes thereto included in Part IV, Item 15(a) and with Management’s Discussion and Analysis of
Financial Condition and Results of Operations, included in Part II, Item 7. In December, 2008, we purchased
Rasco. The results of Rasco’s operations have been included in our consolidated financial statements since that
date.
All amounts presented below exclude any impact from the acquisition of Ismeca, which was completed on
December 31, 2012, subsequent to our current fiscal year end. See Note 2, “Subsequent Event”, included in Part
IV, Item 15(a) of this Form 10-K.
Years Ended,
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales
Net income (loss) (2)
$
Net income (loss) per common share – basic
Net income (loss) per common share – diluted $
$
Cash dividends per share, paid quarterly
Consolidated Balance Sheet Data:
Total consolidated assets
Working Capital
$
$
$
$
Dec. 29
2012
Dec. 31
2011 (1)
Dec. 25
2010
Dec. 26
2009
Dec. 27
2008
221,162 $
(12,243) $
(0.50) $
(0.50) $
0.24 $
308,968 $
15,719 $
0.65 $
0.64 $
0.24 $
322,667 $
24,644 $
1.04 $
1.02 $
0.24 $
171,261 $
(28,168) $
(1.20) $
(1.20) $
0.24 $
199,659
(5,443)
(0.23)
(0.23)
0.24
334,873 $
184,703 $
361,608 $
191,945 $
366,043 $
168,683 $
330,118 $
139,597 $
344,169
155,589
(1) The year ended December 31, 2011 consists of 53 weeks. All other years are comprised of 52 weeks.
(2) The year ended December 26, 2009 includes a charge of $19.6 million for an increase in the valuation allowance against our
deferred tax assets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
Cohu operates in three business segments. Our primary business is the development, manufacture, sale and
servicing of test handling, burn-in, thermal sub-systems and MEMS test solutions for the global semiconductor
industry through our wholly-owned subsidiaries, Delta Design, Inc., Rasco GmbH and Ismeca Semiconductor
Holding SA, which was acquired on December 31, 2012. This business is significantly dependent on capital
expenditures by semiconductor manufacturers and test subcontractors, which in turn is dependent on the current
and anticipated market demand for semiconductors that is subject to cyclical trends. We expect that the
semiconductor equipment industry will continue to be cyclical and volatile in part because consumer electronics,
the principal end market for integrated circuits, is a highly dynamic industry and demand is difficult to accurately
predict. Our other businesses produce mobile microwave communications equipment (Broadcast Microwave
Services, Inc.) and video cameras and accessories (Cohu Electronics Division).
During 2012 orders for back-end semiconductor equipment, as reported by Semiconductor Equipment and
Materials International (SEMI), trended downward during the second half of the year due to slowing
semiconductor sales as a result of continued weak global macroeconomic conditions. Lower demand for
semiconductors results in equipment utilization on our customers’ test floors below the level requiring capacity
expansion. Orders reported by our semiconductor equipment segment decreased 12% sequentially in the fourth
quarter of 2012. Despite the currently weak macro-economic environment and near-term uncertainty, we
continue to be optimistic about the long-term prospects for the semiconductor equipment industry due to
expanding applications, growing integrated circuit content in consumer, industrial and automotive applications,
and the projected adoption of high brightness LEDs for the general lighting market.
On December 31, 2012, subsequent to our fiscal year that ended December 29, 2012, we completed the
acquisition of Ismeca, which designs, manufactures and sells turret-based test handling and back-end finishing
equipment for integrated circuits, LEDs and discrete components. With the acquisition of Ismeca we expanded
our served market and increased our market share in the semiconductor test handling market. The acquisition of
Ismeca also expanded our portfolio of test handling solutions and provides us with an entry into the LED
equipment market, which is forecasted to grow as LED technology is adopted for general lighting. This
management’s discussion and analysis of financial condition and results of operations excludes any impact from
18
Ismeca.
Our non-semiconductor equipment businesses comprised approximately 16% of our consolidated revenues
during the three-year period ended December 29, 2012 and were approximately 19% for the year ended
December 29, 2012. Our microwave communications equipment business develops, manufactures and sells
mobile microwave communications equipment, antenna systems and associated equipment. These products
are used in the transmission of video, audio, and telemetry. Applications for these microwave data-links
include unmanned aerial vehicles (“UAVs”), public safety, security, surveillance, and electronic news
gathering. Customers for these products are government agencies, public safety organizations, UAV program
contractors, television broadcasters, and other commercial entities. Opportunities for our microwave
communications equipment business continue to expand in the surveillance, UAV and law enforcement
markets.
Our video camera segment develops, manufactures and sells a wide variety of video cameras and related
products, specializing in video solutions for traffic control and management, security/surveillance, military,
scientific imaging and machine vision. Customers for these products are distributed among corporate end-
users, state and federal government agencies, original equipment manufacturers, system integrators and value-
added resellers.
Application of Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We base our estimates on historical experience, forecasts and on various other
assumptions that are believed to be reasonable under the circumstances, however actual results may differ from
those estimates under different assumptions or conditions. The methods, estimates and judgments we use in
applying our accounting policies have a significant impact on the results we report in our financial statements.
Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the
need to make estimates of matters that are inherently uncertain. Our critical accounting estimates that we believe
are the most important to an investor’s understanding of our financial results and condition and require complex
management judgment include:
revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of
operations;
estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves
and allowance for bad debts, which impact gross margin or operating expenses;
the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax
benefits and the valuation allowance on deferred tax assets, which impact our tax provision;
the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which
primarily impacts gross margin or operating expenses if we are required to record impairments of assets or
accelerate their depreciation; and
the valuation and recognition of share-based compensation, which impacts gross margin, research and
development expense, and selling, general and administrative expense.
Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other
policies that we consider key accounting policies; however, these policies typically do not require us to make
estimates or judgments that are difficult or subjective.
Revenue Recognition: We generally recognize revenue upon shipment and title passage for established
products (i.e., those that have previously satisfied customer acceptance requirements) that provide for full
payment tied to shipment. Revenue for products that have not previously satisfied customer acceptance
requirements or from sales where customer payment dates are not determinable is recognized upon customer
acceptance. For arrangements containing multiple elements initiated prior to December 26, 2010, the first day
of our fiscal 2011, the revenue relating to the undelivered elements is deferred at their estimated relative fair
values until delivery of the deferred elements. For arrangements initiated or materially modified subsequent to
December 26, 2010 containing multiple elements, the revenue relating to the undelivered elements is deferred
using the relative selling price method utilizing estimated sales prices until delivery of the deferred elements.
19
We limit the amount of revenue recognition for delivered elements to the amount that is not contingent on the
future delivery of products or services, future performance obligations or subject to customer-specified return
or adjustment.
Accounts Receivable: We maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition of our customers deteriorates,
resulting in an impairment of their ability to make payments, additional allowances may be required.
Warranty: We provide for the estimated costs of product warranties in the period sales are recognized. Our
warranty obligation estimates are affected by historical product shipment levels, product performance, and
material and labor costs incurred in correcting product performance problems. Should product performance,
material usage or labor repair costs differ from our estimates, revisions to the estimated warranty liability would
be required.
Inventory: The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory
that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future
demand for our products. The demand forecast is a direct input in the development of our short-term
manufacturing plans. We record valuation reserves on our inventory for estimated excess and obsolete inventory
and lower of cost or market concerns equal to the difference between the cost of inventory and the estimated
market value based upon assumptions about future product demand, market conditions and product selling prices.
If future product demand, market conditions or product selling prices are less than those projected by
management or if continued modifications to products are required to meet specifications or other customer
requirements, increases to inventory reserves may be required, which would have a negative impact on our gross
margin.
Income Taxes: We estimate our liability for income taxes based on the various jurisdictions where we conduct
business. This requires us to estimate our (i) current taxes; (ii) temporary differences that result from differing
treatment of certain items for tax and accounting purposes and (iii) unrecognized tax benefits. Temporary
differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet. The
deferred tax assets are reduced by a valuation allowance if, based upon all available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized. Establishing, reducing or increasing a
valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the
statement of operations. We must make significant judgments to determine the provision for income taxes,
deferred tax assets and liabilities, unrecognized tax benefits and any valuation allowance to be recorded against
deferred tax assets. Our gross deferred tax asset balance as of December 29, 2012 was approximately
$30.4 million, with a valuation allowance of approximately $24.9 million. Our deferred tax assets consist
primarily of reserves and accruals that are not yet deductible for tax and tax credit and net operating loss
carryforwards.
Goodwill, Purchased 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 by first comparing the book value of net assets to the fair value of
the reporting units. 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 estimated fair value of goodwill and the
carrying value. We estimated the fair values of our reporting units primarily using the income approach valuation
methodology that includes the discounted cash flow method, taking into consideration the market approach and
certain market multiples as a validation of the values derived using the discounted cash flow methodology.
Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based
primarily on customer forecasts, industry trade organization data and general economic conditions.
We conduct our annual impairment test as of October 1st of each year, and have determined there is no
impairment as of October 1, 2012. Other events and changes in circumstances may also require goodwill to be
tested for impairment between annual measurement dates. While a decline in stock price and market
capitalization is not specifically cited as a goodwill impairment indicator, a company’s stock price and market
capitalization should be considered in determining whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. Additionally, a significant decline in a company’s stock price may
suggest that an adverse change in the business climate may have caused the fair value of one or more reporting
units to fall below their carrying value. The financial and credit market volatility directly impacts our fair value
measurement through our stock price that we use to determine our market capitalization. During times of
20
volatility, significant judgment must be applied to determine whether credit or stock price changes are a short-
term swing or a longer-term trend. As of December 29, 2012 we do not believe there have been any events or
circumstances that would require us to perform an interim goodwill impairment review, however, a sustained
decline in Cohu’s market capitalization below its book value could lead us to determine, in a future period, that
an interim goodwill impairment review is required and may result in an impairment charge, which would have a
negative impact on our results of operations.
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would
necessitate an impairment assessment include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or any other significant adverse change that
would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived
assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its
undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference
between the carrying amount and estimated fair value.
Contingencies: We are subject to certain contingencies that arise in the ordinary course of our businesses which
require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an
asset. If a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable,
we accrue a charge to operations in the period such conditions become known.
Share-based Compensation: Share-based compensation expense related to stock options is recorded based on
the fair value of the award on its grant date, which we estimate using the Black-Scholes valuation model. Share-
based compensation expense related to restricted stock unit awards is calculated based on the market price of our
common stock on the grant date, reduced by the present value of dividends expected to be paid on our common
stock prior to vesting of the restricted stock unit.
Recent Accounting Pronouncements
For a description of accounting changes and recent accounting pronouncements, including the expected dates of
adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, "Recent Accounting
Pronouncements" in Part IV, Item 15(a) of this Form 10-K.
RESULTS OF OPERATIONS
The following table summarizes certain operating data from continuing operations as a percentage of net sales in
each of the last three years.
Net sales
Cost of sales
Gross margin
Research and development
Selling, general and administrative
Income (loss) from operations
2012 Compared to 2011
Net Sales
2012
100.0 %
(69.3)%
30.7 %
(16.4)%
(20.7)%
(6.4)%
2011
100.0 %
(67.6)%
32.4 %
(11.7)%
(15.1)%
5.6 %
2010
100.0 %
(65.9)%
34.1 %
(11.2)%
(13.7)%
9.2 %
During 2012, our consolidated net sales were approximately $221.2 million, a decrease of 28.4% from the prior
year. Sales of semiconductor equipment decreased 31.2% from $260.6 million to $179.4 million and accounted
for 81.1% of consolidated net sales in 2012 versus 84.4% in 2011. Sales of our semiconductor equipment
segment decreased in 2012 compared to the corresponding prior year period due to continued global macro-
economic weakness and political uncertainty which has resulted in reduced demand for semiconductors. This, in
turn, resulted in higher inventory of integrated circuits leading many customers to operate at equipment utilization
levels that do not require purchases of new systems.
Sales of microwave communications equipment accounted for approximately $26.9 million or 12.2% of
consolidated net sales in 2012 and decreased 10.4% when compared to 2011. The decrease in business volume
within our microwave equipment segment during 2012 resulted from customer order delays for equipment to be
used in government agency related security and surveillance infrastructure projects.
21
Sales of video cameras accounted for 6.7% of consolidated net sales in 2012 and decreased $3.5 million or 19.1%
when compared to 2011. The decrease in business volume within our video camera segment during 2012
resulted primarily from delays in obtaining customer orders for equipment to be used in traffic related public
infrastructure projects.
Gross Margin
Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of the cost of materials,
assembly and test labor and overhead from operations. Our gross margin can fluctuate due to a number of factors,
including, but not limited to, the mix of products sold, product support costs, inventory reserve adjustments and
utilization of manufacturing capacity. Our gross margin, as a percentage of net sales, decreased to 30.7% in 2012
from 32.4% in 2011, due to unfavorable product mix, increased inventory reserve charges and lower sales
volume.
Our gross margin has been impacted by charges to cost of sales related to excess, obsolete and lower of cost or
market inventory issues. We compute the majority of our excess and obsolete inventory reserve requirements
using a one-year inventory usage forecast. During 2012 and 2011, we recorded net charges to cost of sales of
approximately $8.9 million and $5.8 million, respectively, for excess and obsolete inventory. While we believe
our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known
exposures at December 29, 2012, reductions in customer forecasts or continued modifications to products, as a
result of our failure to meet specifications or other customer requirements, may result in additional charges to
operations that could negatively impact our gross margin in future periods.
Research and Development Expense (“R&D Expense”)
R&D expense consists primarily of salaries and related costs of employees engaged in ongoing research, product
design and development activities, costs of engineering materials and supplies and professional consulting
expenses. During both 2012 and 2011 R&D expense was $36.2 million and represented 16.4% of net sales in
2012 compared to 11.7% in 2011.
Selling, General and Administrative Expense (“SG&A Expense)
SG&A expense consists primarily of salaries and benefit costs of employees, commission expense for
independent sales representatives, product promotion and costs of professional services. SG&A expense as a
percentage of net sales increased to 20.7% in 2012, from 15.1% in 2011, decreasing in absolute dollars from
$46.6 million in 2011 to $45.9 million in 2012 due to a decrease in variable selling expenses as a result of lower
business volume across our business segments. Additionally, during 2012 we incurred approximately
$2.3 million in costs associated with the acquisition of Ismeca.
Interest and other, net
Interest and other, net was approximately $1.0 million and $0.4 million in 2012 and 2011, respectively. Interest
and other income in 2012 includes a gain on the sale of a facility totaling $0.7 million related to our metal
detection equipment segment, which was divested in 2006.
Income Taxes
The provision (credit) for income taxes expressed as a percentage of pre-tax income or loss was (6.7%) in 2012
and 11.6% in 2011. The provision (credit) for income taxes for the years ended December 29, 2012 and
December 31, 2011 differs from the U.S. federal statutory rate primarily due to changes in the valuation
allowance on our deferred tax assets, foreign income taxed at different rates and other factors.
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 our
cumulative income or loss over the prior three-year period and future periods, to determine if a valuation
22
allowance was required. A significant negative factor in our assessment was Cohu's three-year cumulative U.S.
loss history at the end of the 2009 and 2010 fiscal year periods.
After a review of the four sources of taxable income described above and in view of our three-year cumulative
U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a corresponding charge to
our income tax provision, of approximately $19.6 million in the second quarter of fiscal 2009.
Notwithstanding our 36-month domestic, cumulative GAAP pretax income of approximately $5.0 million at
the end of 2012, with (i) our operating loss in 2012, (ii) weak business conditions in our primary business
segment and (iii) our significant gross deferred tax assets we were unable to conclude at December 29, 2012
that it was “more likely than not” that our DTAs would be realized and will only reverse the valuation
allowance and reinstate DTAs to the extent we accrue taxes on future income. We will evaluate the
realizability of our DTAs at the end of each quarterly reporting period in 2013 and should circumstances
change it is possible the remaining valuation allowance, or a portion thereof, will be reversed during 2013.
Our valuation allowance on DTAs at December 29, 2012 and December 31, 2011 was approximately $24.9
million and $22.4 million, respectively. The remaining gross DTAs for which a valuation allowance was not
recorded are realizable through future reversals of existing taxable temporary differences or loss carryback. As
the realization of DTAs is determined by tax jurisdiction, the significant deferred tax liability recorded as part
of the 2008 acquisition of Rasco, a German corporation, was not a source of taxable income in assessing the
realization of our DTAs in the U.S.
The American Taxpayer Relief Act of 2012, which reinstated the United States federal research and development
tax credit retroactively from January 1, 2012 through December 31, 2012, was not enacted into law until the first
quarter of 2013. Therefore, the expected tax benefit, if any, resulting from such reinstatement for fiscal 2012 will
not be reflected in the Company’s income tax provision until 2013.
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and further explanation of our
provision for income taxes, see Note 6, “Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K,
which is incorporated herein by reference.
As a result of the factors set forth above, our net loss was $12.2 million in 2012, compared to net income of
$15.7 million in 2011.
2011 Compared to 2010
Net Sales
During 2011, our consolidated net sales were approximately $309.0 million, a decrease of 4.2% from the prior
year. Sales of semiconductor equipment decreased 4.7% from $273.6 million to $260.6 million and accounted
for 84.4% of consolidated net sales in 2011 versus 84.8% in 2010. During 2011, sales of our semiconductor
equipment business were impacted by excess semiconductor inventory, manufacturing overcapacity and slowing
semiconductor demand due to continued economic weakness that resulted in lower equipment utilization and
reduced orders during the second half of the year. Conversely, in 2010 our sales of semiconductor equipment
benefitted from high rates of equipment utilization which required our customers to invest in additional capacity.
Our sales in 2010 also benefitted from market share gains and capacity additions on new test floors.
Sales of microwave communications equipment accounted for approximately $30.0 million or 9.7% of
consolidated net sales in 2011 and decreased 5.5% when compared to 2010. The sales decrease during 2011 was
due to lower sales of antenna systems to customers in the government surveillance market resulting primarily
from a delay in the receipt of certain customer orders that were delayed to fiscal 2012.
Sales of video cameras accounted for 5.9% of consolidated net sales in 2011 and increased $1.0 million or 5.5%
when compared to 2010. The increase in 2011 sales resulted from increased demand for high definition traffic
monitoring products.
Gross Margin
Our gross margin, as a percentage of net sales, decreased to 32.4% in 2011 from 34.1% in 2010, due to
unfavorable product mix and lower sales volume. Our gross margin has been impacted by charges to cost of sales
related to excess, obsolete and lower of cost or market inventory issues. During 2011 and 2010, we recorded net
charges to cost of sales of approximately $5.8 million and $1.7 million, respectively, for excess and obsolete
inventory
23
R&D Expense
During both 2011 and 2010 R&D expense was $36.2 million and represented 11.7% of net sales in 2011
compared to 11.2% in 2010.
SG&A Expense
SG&A expense as a percentage of net sales increased to 15.1% in 2011, from 13.7% in 2010, increasing to
$46.6 million in 2011 from $44.1 million in 2010 due primarily to higher labor costs across our business
segments.
Interest and other, net
Interest and other, net was approximately $0.4 million and $0.6 million in 2011 and 2010, respectively. Our
interest income was lower in 2011 due to lower interest rates.
Income Taxes
The provision for income taxes expressed as a percentage of pre-tax income or loss was 11.6% in 2011 and
18.5% in 2010. The provision for income taxes for the years ended December 31, 2011 and December 25, 2010
differs from the U.S. federal statutory rate primarily due to decreases in the valuation allowance on our deferred
tax assets, foreign income taxed at different rates and other factors.
As a result of the factors set forth above, our net income was $15.7 million in 2011, compared to net income of
$24.6 million in 2010.
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on capital expenditures by semiconductor manufacturers and test subcontractors that
are, in turn, dependent on the current and anticipated market demand for semiconductors. The cyclical and
volatile nature of demand for semiconductor equipment, our primary industry, makes estimates of future
revenues, results of operations and net cash flows difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by our operations
and we manage our businesses to maximize operating cash flows as our primary source of liquidity. We use
cash to fund growth in our operating assets and to fund new products and product enhancements primarily
through research and development. As of December 29, 2012, $85.1 million of our cash and cash equivalents
was held by our foreign subsidiaries, of which, $54.5 million, excluding cash acquired, was used on December
31, 2012 for the acquisition of Ismeca. See Note 2, “Subsequent Event”, included in Part IV, Item 15(a) of this
Form 10-K. If these funds are needed for our operations in the U.S., we may be required to accrue and pay
U.S. taxes or foreign withholding taxes if we repatriate these funds. Our intent is to indefinitely reinvest these
funds in our foreign operations and we have no current plans that would require us to repatriate these funds to
the U.S.
Liquidity
Working Capital: The following summarizes our cash, cash equivalents, short-term investments and working
capital at December 29, 2012 and December 31, 2011:
(in thousands)
Cash, cash equivalents and short-term investments
Working capital
2012
$ 110,229
$ 184,703
2011
$ 105,002
$ 191,945
Increase
(Decrease)
5,227
$
(7,242)
$
Percentage
Change
5 %
(4)%
The working capital amounts presented above excludes the impact of the acquisition of Ismeca on December 31,
2012.
Cash Flows
Operating Activities: Cash generated from operating activities consists of net income or loss, adjusted for non-
cash expenses and changes in operating assets and liabilities. Non-cash items include depreciation and
amortization, share-based compensation expense and deferred income taxes. Our net cash flows provided from
operating activities in 2012 totaled $13.2 million compared to $12.2 million in 2011. The increase in cash
provided by operating activities was a result of improved inventory and supply chain management in our
semiconductor equipment segment and the collection of customer receivables coupled with decreased business
24
volume across our segments. Cash provided by operating activities was impacted by changes in current assets
and liabilities and included decreases in: accounts receivable of $5.0 million; inventory of $19.9 million; accounts
payable of $5.5 million and accrued compensation, warranty and other liabilities of $6.5 million. The decreases in
accounts receivable and inventory were due to lower business volume and improved inventory and supply chain
management in our semiconductor equipment segment. The decrease in accounts payable was a result of lower
business volume and the timing of cash payments. The decrease in accrued compensation, warranty and other
liabilities was due to decreased business volume and improvements in equipment reliability primarily within our
semiconductor equipment segment.
Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our
businesses, proceeds from investment maturities and cash used for purchases of investments and business
acquisitions. Our net cash used for investing activities in 2012 totaled $41.2 million and was primarily the result
of $84.8 million in net proceeds from sales and maturities of short-term investments, offset by $40.5 million in
cash used for purchases of short-term investments. We invest our excess cash, in an attempt to seek the highest
available return while preserving capital, in short-term investments since excess cash is only temporarily
available and may be required for a business-related purpose. Other expenditures in 2012 included purchases of
property, plant and equipment of $3.3 million. The purchases of property, plant and equipment were primarily
made to support activities in our semiconductor equipment and microwave communications equipment
businesses.
Financing Activities: Cash provided by financing activities consisted of net proceeds from the issuance of
common stock under our equity incentive and employee stock purchase plans, which totaled $1.6 million during
2012. We issue stock options and maintain an employee stock purchase plan as components of our overall
employee compensation. Cash used in financing activities consisted of amounts distributed to our stockholders in
the form of cash dividends. We paid dividends totaling $7.3 million, or $0.30 per common share, during 2012.
On January 30, 2013, we announced a cash dividend of $0.06 per share on our common stock, payable on,
April 19, 2013 to stockholders of record as of March 5, 2013. We intend to continue to pay quarterly dividends
subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the
best interests of our stockholders.
Capital Resources
We have a secured letter of credit facility (the “Secured Facility”) under which Bank of America, N.A., has
agreed to administer the issuance of letters of credit on behalf of Cohu and our subsidiaries. The Secured Facility
requires us to maintain deposits of cash or other approved investments, which serve as collateral, in amounts that
approximate our outstanding standby letters of credit. As of December 29, 2012, we had approximately
$0.6 million of standby letters of credit outstanding.
We expect that we will continue to make capital expenditures to support our business and we anticipate that
present working capital will be sufficient to meet our operating requirements for at least the next twelve months.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 29, 2012, and the effect such
obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts
already recorded on our balance sheet as current liabilities at December 29, 2012 as well as contractual
obligations related to the December 31, 2012 Ismeca acquisition. Amounts excluded include our liability for
unrecognized tax benefits that totaled approximately $6.1 million at December 29, 2012. We are currently unable
to provide a reasonably reliable estimate of the amount or period(s) the cash settlement of this liability may occur.
(in thousands)
Non-cancelable
operating leases
2013
2014
2015
2016
2017
Thereafter
Total
$
993
$
596
$
72
$
-
$
-
$
-
$ 1,661
Commitments to contract manufacturers and suppliers. From time to time, we enter into commitments with our
suppliers to purchase inventory and contract manufacturers to provide manufacturing services for our products at
fixed prices or in guaranteed quantities. During the normal course of business, we issue purchase orders with
estimates of our requirements several months ahead of the delivery dates. However, our agreements with these
suppliers usually allow us the option to reschedule or adjust our requirements based on our business needs.
Typically purchase orders outstanding with delivery dates within 30 days are non-cancelable. We are not able to
determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders
25
may represent authorizations to purchase rather than binding agreements. We typically do not have significant
agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that
exceed our expected requirements for the next six to twelve months.
Off-Balance Sheet Arrangements. During the ordinary course of business, we provide standby letters of credit
instruments to certain parties as required. As of December 29, 2012, the maximum potential amount of future
payments that we could be required to make under these standby letters of credit was approximately $0.6 million.
No liability has been recorded in connection with these arrangements beyond those required to appropriately
account for the underlying transaction being guaranteed. Based on historical experience and information
currently available, we do not believe it is probable that any amounts will be required to be paid under these
arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Investment and Interest Rate Risk.
At December 29, 2012, our investment portfolio included short-term, fixed-income investment securities with
a fair value of approximately $7.4 million. These securities are subject to interest rate risk and will likely
decline in value if interest rates increase. Our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in
market value due to changes in interest rates. As we classify our short-term securities as available-for-sale, no
gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity
or declines in fair value are determined to be other-than-temporary. Due to the relatively short duration of our
investment portfolio, an immediate ten percent change in interest rates would have no material impact on our
financial condition or results of operations.
We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors
such as the length of time and extent to which fair value has been below cost basis, the financial condition of
the issuer and our ability and intent to hold the investment for a period of time sufficient for anticipated
recovery of market value.
Foreign Currency Exchange Risk.
We conduct business on a global basis in a number of major international currencies. As such, we are exposed to
adverse as well as beneficial movements in foreign currency exchange rates. The majority of our sales are
denominated in U.S. dollars except for certain of our revenues that are denominated in Euros. Certain expenses
incurred by our non-U.S. operations, such as employee payroll and benefits as well as some raw materials
purchases and other expenses are denominated and paid in local currency.
We considered a hypothetical ten percent adverse movement in foreign exchange rates to the underlying
exposures described above and believe that these hypothetical market movements would not have a material
effect on our consolidated financial position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is included in Part IV, Item 15(a).
26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 29, 2012, the end of the period covered by this
annual report.
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.
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 29, 2012.
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 29, 2012, as stated in their report which is included herein.
27
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cohu, Inc.
We have audited Cohu, Inc.’s internal control over financial reporting as of December 29, 2012, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Cohu, Inc.’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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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.
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.
In our opinion, Cohu, Inc. maintained, in all material respects, effective internal control over financial reporting
as of December 29, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Cohu, Inc. as of December 29, 2012 and December 31, 2011,
and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and
cash flows for each of the three years in the period ended December 29, 2012 of Cohu, Inc. and our report dated
February 28, 2013 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 28, 2013
28
Changes in Internal Control Over Financial Reporting - There have been no changes in our internal control
over financial reporting that occurred during the fourth quarter of 2012 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information under the heading “Executive Officers of the Registrant” 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 the Company’s definitive
proxy statement, which will be filed with the Securities and Exchange Commission ("SEC") within 120 days after
the close of fiscal 2012.
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.
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 the Company’s definitive
proxy statement, which will be filed with the SEC within 120 days after the close of fiscal 2012.
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 the Company’s definitive proxy statement, which
will be filed with the SEC within 120 days after the close of fiscal 2012.
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 the Company’s definitive proxy statement, which will be filed with the SEC within
120 days after the close of fiscal 2012.
Item 14. Principal Accounting Fees and Services.
Information regarding the Principal Accounting Fees and Services is hereby incorporated by reference to the
Company’s definitive proxy statement, which will be filed with the SEC within 120 days after the close of fiscal
2012.
29
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(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 31:
Description
Consolidated Balance Sheets at
Form 10-K
Page Number
December 29, 2012 and December 31, 2011 .........................................................................31
Consolidated Statements of Operations for each of the three
years in the period ended December 29, 2012........................................................................32
Consolidated Statements of Comprehensive Income (Loss) for each of the three
years in the period ended December 29, 2012........................................................................33
Consolidated Statements of Stockholders’ Equity for each of
the three years in the period ended December 29, 2012 ........................................................34
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 29, 2012........................................................................35
Notes to Consolidated Financial Statements .............................................................................36
Report of Independent Registered Public Accounting Firm .....................................................54
(2) Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts.................................................................... 58
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.
30
COHU, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories:
Raw materials and purchased parts
Work in process
Finished goods
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment, at cost:
Land and land improvements
Buildings and building improvements
Machinery and equipment
Less accumulated depreciation and amortization
Net property, plant and equipment
Goodwill
Intangible assets, net
Other assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued compensation and benefits
Accrued warranty
Deferred profit
Income taxes payable
Other accrued liabilities
Total current liabilities
Other accrued liabilities
Deferred income taxes
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares authorized, none issued
Common stock, $1 par value; 60,000 shares authorized, 24,632
shares issued and outstanding in 2012 and 24,330 shares in 2011
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity
The accompanying notes are an integral part of these statements.
31
December 29,
2012
December 31,
2011
$
$
$
$
$
$
$
102,808
7,421
36,986
37,140
14,958
10,234
62,332
4,746
6,790
221,083
12,106
31,209
40,108
83,423
(47,959)
35,464
58,756
18,977
593
334,873
13,217
10,271
4,692
2,139
1,109
4,952
36,380
5,847
11,747
53,262
51,740
41,922
47,186
15,504
19,999
82,689
6,646
7,557
243,816
12,002
31,190
38,007
81,199
(44,218)
36,981
58,060
21,828
923
361,608
18,625
12,652
6,801
2,821
2,518
8,454
51,871
5,964
12,742
-
-
24,632
83,547
170,937
1,783
280,899
334,873
$
24,330
77,658
189,055
(12)
291,031
361,608
COHU, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Net sales
Cost and expenses:
Cost of sales
Research and development
Selling, general and administrative
Income (loss) from operations
Interest and other income
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Income (loss) per share:
Basic
Diluted
Weighted average shares used in computing
income (loss) per share:
Basic
Diluted
December 29,
2012
Years ended
December 31,
2011
December 25,
2010
$
221,162
$
308,968
$
322,667
153,184
36,171
45,891
235,246
(14,084)
967
(13,117)
(874)
(12,243)
(0.50)
(0.50)
24,459
24,459
$
$
$
208,839
36,230
46,563
291,632
17,336
442
17,778
2,059
15,719
0.65
0.64
24,134
24,501
$
$
$
212,672
36,201
44,117
292,990
29,677
561
30,238
5,594
24,644
1.04
1.02
23,732
24,097
$
$
$
The accompanying notes are an integral part of these statements.
32
COHU, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
December 29,
2012
Years ended
December 31,
2011
December 25,
2010
$
(12,243)
$
15,719
$
24,644
1,689
122
(16)
1,795
(10,448)
$
$
(1,076)
1,267
(6)
185
15,904
$
(7,270)
(1,506)
(83)
(8,859)
15,785
The accompanying notes are an integral part of these statements.
33
COHU, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except par value and per share amounts)
Balance at December 26, 2009
Net income
Changes in cumulative translation adjustment
Adjustments related to postretirement
benefits, net of income taxes
Changes in unrealized gains and losses on
investments, net of income taxes
Cash dividends - $0.24 per share
Exercise of stock options
Shares issued under employee stock purchase plan
Shares issued for restricted stock units vested
Repurchase and retirement of stock
Share-based compensation expense
Tax benefit from equity awards
Balance at December 25, 2010
Net income
Changes in cumulative translation adjustment
Adjustments related to postretirement
benefits, net of income taxes
Changes in unrealized gains and losses on
investments, net of income taxes
Cash dividends - $0.24 per share
Exercise of stock options
Shares issued under employee stock purchase plan
Shares issued for restricted stock units vested
Repurchase and retirement of stock
Share-based compensation expense
Tax benefit from equity awards
Balance at December 31, 2011
Net loss
Changes in cumulative translation adjustment
Adjustments related to postretirement
benefits, net of income taxes
Changes in unrealized gains and losses on
investments, net of income taxes
Cash dividends - $0.24 per share
Exercise of stock options
Shares issued under employee stock purchase plan
Shares issued for restricted stock units vested
Repurchase and retirement of stock
Share-based compensation expense
Balance at December 29, 2012
$
Common
stock
$1 par value
23,547
$
-
-
Paid-in
capital
Retained
earnings
$
$
64,847
-
-
160,193
24,644
-
Accumulated
other
comprehensive
income (loss)
$
8,662
-
(7,270)
$
Total
257,249
24,644
(7,270)
-
-
-
(1,506)
(1,506)
-
-
263
112
101
(34)
-
-
23,989
-
-
-
-
2,606
1,101
(101)
(431)
3,543
234
71,799
-
-
-
(5,703)
-
-
-
-
-
-
179,134
15,719
-
(83)
-
-
-
-
-
-
-
(197)
-
(1,076)
(83)
(5,703)
2,869
1,213
-
(465)
3,543
234
274,725
15,719
(1,076)
-
-
-
1,267
1,267
-
-
123
120
139
(41)
-
-
24,330
-
-
-
-
988
1,142
(139)
(421)
4,287
2
77,658
-
-
-
(5,798)
-
-
-
-
-
-
189,055
(12,243)
-
(6)
-
-
-
-
-
-
-
(12)
-
1,689
(6)
(5,798)
1,111
1,262
-
(462)
4,287
2
291,031
(12,243)
1,689
-
-
-
122
122
-
-
73
152
108
(31)
-
24,632
$
-
-
536
1,100
(108)
(260)
4,621
83,547
$
-
(5,875)
-
-
-
-
-
170,937
$
(16)
-
-
-
-
-
-
1,783
$
(16)
(5,875)
609
1,252
-
(291)
4,621
280,899
The accompanying notes are an integral part of these statements.
34
COHU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization
Share-based compensation expense
Gain on sale of facility
Deferred income taxes
Accrued retiree benefits
Excess tax benefit from stock options exercised
Changes in current assets and liabilities, excluding effects from
acquisitions:
Accounts receivable
Inventories
Accounts payable
Other current assets
Income taxes payable, including excess stock option exercise benefits
Deferred profit
Accrued compensation, warranty and other liabilities
Net cash provided from operating activities
Cash flows from investing activities, excluding effects from acquisitions:
Sales and maturities of short-term investments
Purchases of short-term investments
Purchases of property, plant and equipment
Cash received from facility sale
Cash paid for Duma Video, Inc.
Other assets
Net cash provided from (used for) investing activities
Cash flows from financing activities:
Cash dividends paid
Issuance of stock, net
Excess tax benefit from stock options exercised
Net cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the year for:
Income taxes
Inventory capitalized as capital assets
Dividends declared but not yet paid
December 29,
2012
Years ended
December 31,
2011
December 25,
2010
$
(12,243) $
15,719 $
24,644
9,403
4,621
(677)
581
(91)
-
4,979
19,897
(5,458)
978
(1,667)
(682)
(6,472)
13,169
84,780
(40,461)
(3,267)
1,080
(900)
(66)
41,166
10,067
4,287
-
(1,676)
381
(2)
24,877
(20,865)
427
(1,549)
(6,462)
(12,013)
(953)
12,238
75,657
(75,128)
(1,413)
-
-
78
(806)
(7,333)
1,570
-
(5,763)
974
49,546
53,262
102,808 $
(5,777)
1,911
2
(3,864)
(227)
7,341
45,921
53,262 $
10,988
3,543
-
(1,971)
(222)
(234)
(23,434)
(13,866)
(4,402)
2,958
7,334
9,512
4,665
19,515
46,979
(52,491)
(4,579)
-
-
314
(9,777)
(5,679)
3,617
234
(1,828)
(236)
7,674
38,247
45,921
711 $
567 $
- $
10,203 $
1,380 $
1,455 $
(2,138)
2,990
1,434
$
$
$
$
The accompanying notes are an integral part of these statements.
35
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation – Cohu, Inc. (“Cohu”, “we”, “our” and “us”), through our wholly owned subsidiaries, is a
provider of semiconductor test equipment, microwave communication systems and video cameras. Our
Consolidated Financial Statements include the accounts of Cohu and our wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation. 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 29, 2012 and December 25, 2010 each consisted of 52 weeks and our fiscal year ended
December 31, 2011 consisted of 53 weeks.
Certain prior year balances related to comprehensive income and customer advances have been reclassified to
conform to the current year’s presentation. Such reclassifications did not affect total revenues, operating income
or net income.
Risks and Uncertainties – We are subject to a number of risks and uncertainties that may significantly impact
our future operating results. These risks and uncertainties are discussed under Part I, Item 1A. “Risk Factors”
included in this Annual Report on Form 10-K. Understanding these risks and uncertainties is integral to the
review of our consolidated financial statements.
Income (Loss) Per Share – Basic income (loss) per common share is computed by dividing net income (loss) by
the weighted-average number of common shares outstanding during the reporting period. Diluted income per
share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options,
vesting of outstanding restricted 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 31, 2011 and December 25, 2010 approximately 1,956,000 and 1,724,000 shares
of our common stock were excluded from the computation, respectively.
The following table reconciles the denominators used in computing basic and diluted income (loss) per share:
(in thousands)
Weighted average common shares outstanding
Effect of dilutive stock options and restricted stock units
2012
24,459
-
24,459
2011
24,134
367
24,501
2010
23,732
365
24,097
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 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 from December
29, 2012 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, short-term investments, accounts receivable, accounts payable and accrued expenses,
approximate fair value due to the short maturities of these financial instruments.
36
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.
Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million at December 29,
2012 and $0.5 million at December 31, 2011. Our customers include semiconductor manufacturers and
semiconductor test subcontractors and other customers located throughout many areas of the world. While we
believe that our allowance for doubtful accounts is adequate and represents our best estimate of potential loss
exposure at December 29, 2012, we will continue to monitor customer liquidity and other economic conditions,
which may result in changes to our estimates regarding collectability.
Inventories – Inventories are stated at the lower of cost, determined on a current average or first-in, first-out
basis, or market. Cost includes labor, material and overhead costs. Determining market 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 market values are below our costs.
Charges to cost of sales for excess and obsolete inventories aggregated $8.9 million, $5.8 million, and
$1.7 million in 2012, 2011 and 2010, respectively.
Property, Plant and Equipment – Depreciation and amortization of property, plant and equipment is calculated
principally on the straight-line method based on estimated useful lives of thirty to forty years for buildings, five to
fifteen years for building improvements and three to ten years for machinery, equipment and software.
Goodwill, Purchased 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 by first comparing the book value of net assets to the fair value of
the reporting units. 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 estimated fair value of goodwill and the
carrying value. We estimated the fair values of our reporting units primarily using the income approach valuation
methodology that includes the discounted cash flow method, taking into consideration the market approach and
certain market multiples as a validation of the values derived using the discounted cash flow methodology.
Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based
primarily on customer forecasts, industry trade organization data and general economic conditions.
We conduct our annual impairment test as of October 1st of each year, and have determined there is no
impairment as of October 1, 2012. Other events and changes in circumstances may also require goodwill to be
tested for impairment between annual measurement dates. While a decline in stock price and market
capitalization is not specifically cited as a goodwill impairment indicator, a company’s stock price and market
capitalization should be considered in determining whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value. Additionally, a significant decline in a company’s stock price may
suggest that an adverse change in the business climate may have caused the fair value of one or more reporting
units to fall below their carrying value. The financial and credit market volatility directly impacts our fair value
measurement through our stock price that we use to determine our market capitalization. During times of
volatility, significant judgment must be applied to determine whether credit or stock price changes are a short-
term swing or a longer-term trend. As of December 29, 2012 we do not believe there have been any events or
circumstances that would require us to perform an interim goodwill impairment review, however, a sustained
decline in Cohu’s market capitalization below its book value could lead us to determine, in a future period, that
an interim goodwill impairment review is required and may result in an impairment charge, which would have a
negative impact on our results of operations.
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would
necessitate an impairment assessment include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or any other significant adverse change that
would indicate that the carrying amount of an asset or group of assets may not be recoverable. For long-lived
assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its
37
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference
between the carrying amount and estimated fair value.
Product Warranty – Product warranty costs are accrued in the period sales are recognized. Our products are
generally sold with standard warranty periods, which differ by product, ranging from 12- to 36-months. Parts and
labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based
on historical and estimated costs by product and configuration. From time-to-time we offer customers extended
warranties beyond the standard warranty period. In those situations the revenue relating to the extended warranty
is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs
associated with our extended warranty contracts are expensed as incurred.
Income Taxes – We assess our income tax positions and record tax benefits for all years subject to examination
based upon management’s evaluation of the facts, circumstances and information available at the reporting dates.
For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the
largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant information. For those income tax positions where
it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the
financial statements. Where applicable, associated interest has also been recognized and recorded, net of federal
and state tax benefits, in income tax expense.
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.
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 there is
persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services
have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably
assured. Title and risk of loss generally pass to our customers upon shipment. In circumstances where either title
or risk of loss pass upon destination or acceptance, we defer revenue recognition until such events occur.
Revenue for established products that have previously satisfied a customer’s acceptance requirements and
provide for full payment tied to shipment is generally recognized upon shipment and passage of title. In certain
instances, customer payment terms may provide that a minority portion (e.g. 20%) of the equipment purchase
price be paid only upon customer acceptance. In those situations, the majority portion (e.g. 80%) of revenue
where payment is tied to shipment and the entire product cost of sale are recognized upon shipment and passage
of title and the minority portion of the purchase price related to customer acceptance is deferred and recognized
upon receipt of customer acceptance. 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 is deferred until customer acceptance has been received. Our post-shipment obligations typically include
installation and standard warranties. The estimated fair value of installation related revenue is recognized in the
period the installation is performed. Service revenue is recognized ratably over the period of the related contract.
Spares and kit revenue is generally recognized upon shipment.
Certain of our equipment sales are accounted for as multiple-element arrangements. A multiple-element
arrangement is a transaction which may involve the delivery or performance of multiple products, services, or
rights to use assets, and performance may occur at different points in time or over different periods of time. For
arrangements containing multiple elements initiated prior to December 26, 2010, the first day of our fiscal 2011,
the revenue relating to the undelivered elements is deferred at their estimated relative fair values until delivery of
the deferred elements. For arrangements initiated or materially modified subsequent to December 26, 2010
containing multiple elements, the revenue relating to the undelivered elements is deferred using the relative
selling price method utilizing estimated sales prices until delivery of the deferred elements. We limit the amount
of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of
products or services, future performance obligations or subject to customer-specified return or adjustment.
38
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in our consolidated balance sheet. At December 29, 2012, we had total
deferred revenue of approximately $3.6 million and deferred profit of $2.1 million. At December 31, 2011, we
had total deferred revenue of approximately $6.6 million and deferred profit of $2.8 million.
Advertising Costs – Advertising costs are expensed as incurred and were not material for all periods presented.
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 complex and subjective
assumptions including our stock price volatility, employee exercise patterns (expected life of the options), future
forfeitures 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 Currency Translation – Assets and liabilities of those subsidiaries that use the U.S. dollar as their
functional currency are translated 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 translated using historical exchange
rates. Revenues and costs are translated using average exchange rates for the period, except for costs related to
those balance sheet items that are translated using historical exchange rates. Gains and losses on foreign currency
transactions are recognized as incurred. Our subsidiaries located in Germany, designated the Euro 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 currency gains and losses were not significant in any period and are
included in the consolidated statements of operations.
Comprehensive Income (Loss) – Our accumulated other comprehensive income (loss) totaled approximately
$1.8 million and $(12,000) at December 29, 2012 and December 31, 2011, respectively, and was attributed to,
net of income taxes where applicable, foreign currency adjustments resulting from the translation of certain
accounts into U.S. dollars where the functional currency is the Euro, unrealized losses and gains on
investments and adjustments to accumulated postretirement benefit obligations. Additional information related
to accumulated other comprehensive income (loss), on an after-tax basis is included in Note 12.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements – In September 2011, the Financial Accounting Standards
Board (“FASB”) issued guidance to amend and simplify the rules related to testing goodwill for impairment.
The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity’s events and
circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the
currently required two-step impairment test. The new guidance is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this new
guidance in the first quarter of fiscal 2012 did not have a material impact on our consolidated financial
position, results of operations or cash flows.
In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the
new guidance allows an entity to present components of net income and other comprehensive income in one
continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The new guidance eliminates the current option to report other comprehensive income
and its components in the statement of changes in equity. While the new guidance changes the presentation of
comprehensive income, there are no changes to the components that are recognized in net income or other
comprehensive income under current accounting guidance. This new guidance is effective for fiscal years and
interim periods beginning after December 15, 2011. The adoption of this new guidance in the first quarter of
39
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fiscal 2012 did not have a material impact on our consolidated financial position, results of operations or cash
flows.
In May 2011, the FASB issued new guidance to achieve common fair value measurement and disclosure
requirements between GAAP and International Financial Reporting Standards. This new guidance amends
current fair value measurement and disclosure guidance to include increased transparency around valuation
inputs and investment categorization. This new guidance is effective for fiscal years and interim periods
beginning after December 15, 2011. The adoption of this new guidance in the first quarter of fiscal 2012 did
not have a material impact on our consolidated financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements – In July 2012, the FASB issued guidance to simplify the
testing for a drop in value of intangible assets such as trademarks, patents, and distribution rights. The
amended standard reduces the cost of accounting for indefinite-lived intangible assets, especially in cases
where the likelihood of impairment is low. The changes permit businesses and other organizations to first use
subjective criteria to determine if an intangible asset has lost value. The amendments will be effective for fiscal
years starting after September 15, 2012 with early adoption permitted. We do not believe our adoption of the
new guidance in the first quarter of fiscal 2013 will have an impact on our consolidated financial position,
results of operations or cash flows.
2. Subsequent Event
On December 31, 2012, we completed the acquisition (the “Acquisition”) of all of the outstanding share capital of
Ismeca Semiconductor Holding SA (“Ismeca”) from Schweiter Technologies AG (the “Seller”) pursuant to a
Share Purchase and Transfer Agreement dated December 9, 2012, by and between the Seller and a wholly owned
subsidiary of Cohu (the “Purchase Agreement”). Ismeca, headquartered in La Chaux-de-Fonds, Switzerland, and
with major operations in Malacca, Malaysia and Suzhou, China, designs, manufactures and sells turret-based test
handling and back-end finishing equipment for ICs, LEDs and discrete components. The aggregate purchase
price was approximately $57.1 million, comprised of an initial purchase price of $54.5 million, increased by
approximately $2.6 million based on net cash and net debt acquired, as required by the Purchase Agreement. In
connection with the Acquisition, we incurred approximately $2.3 million in acquisition related costs, which were
expensed as general and administrative costs during the year ended December 29, 2012.
Due to the timing of the closing of the Acquisition we are currently in the process of completing the purchase
accounting and related allocations. Although this work is preliminary, at this time we anticipate that a significant
portion of the purchase price will be allocated to goodwill and purchased intangible assets and we expect this
work to be completed in the second quarter of fiscal 2013.
3. Goodwill and Purchased Intangible Assets
Changes in the carrying value of goodwill by reportable segment during the years ended December 29, 2012 and
December 31, 2011 were as follows (in thousands):
Balance, December 25, 2010
Impact of currency exchange
Balance, December 31, 2011
Impact of currency exchange
Balance, December 29, 2012
Semiconductor
Equipment
$
$
55,280
(408)
54,872
648
55,520
Microwave
Communications
3,218
$
(30)
3,188
48
3,236
$
$
$
Total
Goodwill
58,498
(438)
58,060
696
58,756
In August 2012, our microwave communication equipment segment acquired the intellectual property and certain
other assets of Duma Video, Inc. (“Duma”), a distributor of low latency compression video encoding and
decoding devices. The purchase price of these assets was approximately $1.0 million and the amount allocated to
intangible assets is being amortized on a straight-line basis over three years. Under the terms of the purchase
agreement, in addition to the up-front cash payment, we will be required to make future payments to the seller
totaling a maximum of approximately $0.5 million, contingent upon the completion of certain milestone events.
40
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our purchased intangible assets, subject to amortization, were as follows (in thousands):
Gross Carrying
Amount
December 29, 2012
Accumulated
Amortization Useful Life
4.0 years
2.6 years
16,452
120
16,572
32,399 $
864
33,263 $
December 31, 2011
Amount
$
$
31,737 $
-
31,737 $
Accumulated
Amortization
12,149
-
12,149
Remaining Gross Carrying
Rasco technology
Duma technology
$
$
The amounts included in the table above for the years ended December 29, 2012 and December 31, 2011 exclude
approximately $2.3 million and $2.2 million, respectively, related to the Rasco trade name which has an
indefinite life and is not being amortized.
Amortization expense related to purchased intangible assets was approximately $4.1 million, $4.6 million and
$6.1 million in 2012, 2011 and 2010, respectively. As of December 29, 2012, we expect amortization expense in
future periods to be as follows: 2013 – $4.3 million; 2014 - $4.3 million; 2015 - $4.2 million; and 2016 -
$3.8 million.
4. Cash, Cash Equivalents and Short-term Investments
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 are classified as
available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in
interest rates and credit risk and we monitor credit risk and attempt to mitigate exposure by making high-quality
investments and through investment diversification.
Gains and losses on investments are calculated using the specific-identification method and are recognized during
the period in which the investment is sold or when an investment experiences an other-than-temporary decline in
value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance,
changes in credit rating or adverse changes in the regulatory or economic environment of the asset. Gross realized
gains and losses on sales of short-term investments are included in interest income. Realized gains and losses for
the periods presented were not significant.
Investments that we have classified as short-term, by security type, are as follows (in thousands):
Municipal securities
Government-sponsored
enterprise securities
Amortized
Cost
$
$
1,470
5,937
7,407
$
$
At December 29, 2012
Gross
Gross
Unrealized
Unrealized
Losses (1)
Gains
-
14
14
$
$
Estimated
Fair
Value
-
-
-
$
$
1,470
5,951
7,421
41
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. Treasury securities
Corporate debt securities (2)
Municipal securities
Government-sponsored
enterprise securities
Bank certificates of deposit
Amortized
Cost
$
$
3,258
22,454
4,315
19,033
2,650
51,710
$
$
At December 31, 2011
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Estimated
Fair
Value
9
6
-
32
-
47
$
$
-
2
-
15
-
17
$
$
3,267
22,458
4,315
19,050
2,650
51,740
(1) As of December 29, 2012, there were no investments in our portfolio in a loss position. As of December 31, 2011, the cost
and fair value of investments with loss positions were approximately $12.8 million. We evaluated the nature of these
investments, credit worthiness of the issuer and the duration of these impairments to determine if an other-than-temporary
decline in fair value had occurred and concluded that these losses were temporary and we have the ability and intent to hold
these investments to maturity.
(2) Corporate debt securities include investments in financial and other corporate institutions. No single issuer represents a
significant portion of the total corporate debt securities portfolio.
Effective maturities of short-term investments at December 29, 2012, were as follows:
(in thousands)
Due in one year or less
Amortized
Cost
$
7,407 $
Estimated
Fair Value
7,421
Our municipal securities include variable rate demand notes which can be put (sold at par) typically on a daily
basis with settlement periods ranging from the same day to one week and have varying contractual maturities
through 2037. These securities can be used for short-term liquidity needs and are held for limited periods of time.
At December 29, 2012 these securities had amortized cost and fair value of $1.5 million and are included in “Due
in one year or less” in the table above.
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.
The following table summarizes, by major security type, our assets 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 29, 2012 using:
Level 2
Level 3
-
1,470
5,951
1,754
9,175
$
$
Total estimated
fair value
$
$
101,054
1,470
5,951
1,754
110,229
-
-
-
-
-
Cash
Municipal securities
Government-sponsored
enterprise securities
Money market funds
Level 1
101,054
-
-
-
101,054
$
$
$
$
42
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value measurements at December 31, 2011 using:
Level 1
Level 2
Level 3
Cash
U.S. Treasury securities
Corporate debt securities
Municipal securities
Government-sponsored
enterprise securities
Money market funds
Bank certificates of deposit
$
$
25,359
3,267
-
-
-
-
28,626
$
$
-
-
27,208
4,315
19,050
22,753
3,050
76,376
$
$
Total estimated
fair value
$
$
25,359
3,267
27,208
4,315
19,050
22,753
3,050
105,002
-
-
-
-
-
-
-
5. Employee Benefit Plans
Retirement Plans – We have a voluntary defined contribution retirement 401(k) plan whereby we match
employee contributions. In 2012 and 2011, we provided a matching contribution at 1.5% of eligible employee
compensation and made contributions to the plan of approximately $0.5 million in both periods. There were no
employer matching contributions made to the plan in 2010. Certain of our foreign employees participate in
defined benefit pension plans. The related expense and benefit obligation of these plans were not significant for
any period 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 $0.3 million, $0.4 million and $0.3 million in 2012,
2011 and 2010, respectively. 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
3.7% in 2012, 4.2% in 2011 and 5.4% in 2010. Annual rates of increase of the cost of health benefits were
assumed to be 9.0% in 2013. These rates were then assumed to decrease 0.5% per year to 5.0% in 2021 and
remain level thereafter. A one percent increase (decrease) in health care cost trend rates would increase
(decrease) the 2012 net periodic benefit cost by approximately $13,000 ($13,000) and the accumulated post-
retirement benefit obligation as of December 29, 2012, by approximately $322,000 ($269,000).
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)
Accumulated benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Accumulated benefit obligation at end of year
Plan assets at end of year
Funded status
2012
2011
$
$
2,909
16
120
(617)
(62)
2,366
-
(2,366)
$
$
3,909
20
208
(1,137)
(91)
2,909
-
(2,909)
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 29, 2012 and December 31, 2011, the
payroll liability to participants, included in accrued compensation and benefits in the consolidated balance
sheet, was approximately $2.1 million and $2.0 million and the cash surrender value of the related life
insurance policies included in other current assets was approximately $1.7 million and $1.6 million,
respectively.
43
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides
for the issuance of a maximum of 1,900,000 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. In 2012, 2011, and 2010,
151,812, 120,240 and 112,745 shares, respectively, were issued under the Plan. At December 29, 2012, there
were 485,542 shares reserved for issuance under the Plan.
Stock Options – Under our equity incentive plans, 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. At
December 29, 2012, 1,931,575 shares were available for future equity grants under the Cohu, Inc. 2005 Equity
Incentive Plan. We have historically issued new shares of Cohu common stock upon share option exercise.
Stock option activity under our share-based compensation plans was as follows:
2012
2011
2010
(in thousands, except per share data)
Outstanding, beginning of year
Granted
Exercised
Canceled
Outstanding, end of year
Shares
3,112 $
437 $
(73) $
(363) $
3,113 $
Wt. Avg.
Ex. Price
13.01
10.50
8.26
14.29
12.62
Shares
3,210 $
157 $
(123) $
(132) $
3,112 $
Wt. Avg.
Ex. Price
12.89
13.33
9.03
14.24
13.01
Shares
3,221 $
380 $
(263) $
(128) $
3,210 $
Wt. Avg.
Ex. Price
12.87
13.77
10.92
19.06
12.89
Options exercisable at year end
2,209 $
13.52
2,112 $
14.44
1,857 $
15.26
The aggregate intrinsic value of options exercised during 2012, 2011 and 2010 was approximately $0.2 million,
$0.6 million, and $0.8 million, respectively. At December 29, 2012, the aggregate intrinsic value of options
outstanding, vested and expected to vest were each approximately $2.8 million and the aggregate intrinsic value
of options exercisable was approximately $1.9 million.
Information about stock options outstanding at December 29, 2012 is as follows (options in thousands):
Range of
Exercise Prices
7.32 - $
10.84 - $
16.27 - $
24.42 - $
10.83
16.26
24.41
36.63
$
$
$
$
Number
Options Outstanding
Approximate
Wt. Avg.
Remaining Wt. Avg.
Ex. Price
8.33
$
14.49
$
17.33
$
25.70
$
12.62
$
Outstanding Life (Years)
7.2
5.0
2.3
2.5
5.2
1,317
1,001
790
5
3,113
Options Exercisable
Number
Exercisable
641
773
790
5
2,209
Wt. Avg.
Ex. Price
7.39
$
14.64
$
17.33
$
25.70
$
13.52
$
44
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units – Under our equity incentive plans, restricted stock units may be granted to employees,
consultants and outside directors. Restricted stock units vest over either a one-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.
Shares of our common stock will be issued on the date the restricted stock units vest.
Restricted stock unit activity under our share-based compensation plans was as follows:
(in thousands, except per share data)
Outstanding, beginning of year
Granted
Vested
Canceled
Outstanding, end of year
2012
Wt. Avg.
Fair Value
Units
12.98
$
299
9.57
462
$
13.27
(108) $
13.92
(38) $
10.54
$
615
2011
Wt. Avg.
Fair Value
Units
13.35
$
373
13.00
75
$
13.91
(139) $
13.41
(10) $
12.98
$
299
2010
Wt. Avg.
Units Fair Value
14.60
$
155
12.90
323
$
14.68
(101) $
15.40
(4) $
13.35
$
373
Equity-Based Performance Stock Units – In March 2012, we granted equity-based performance units covering
128,916 shares of our common stock to certain employees. The number of shares of stock ultimately issued to
participants will depend upon the extent to which the financial performance goals set by our Board of Directors
are met. The award measurement period is based on a one-year period which ends on December 29, 2012. Based
upon the level of achievement of performance goals the number of shares we will issue can range from 0% up to
150% of the number of shares under each grant which will vest over 3 years from the date of initial grant. We
record a provision for equity-based performance units outstanding based on our current assessment of
achievement of the performance goals. Shares of our common stock will be issued on the date the equity-based
performance units vest.
Share-based Compensation – We estimate the fair value of each share-based award on the grant date using
the Black-Scholes valuation model. Option valuation models, including Black-Scholes, require the input of
highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair
value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected
volatility, and the expected life of the award. The risk-free rate of interest is based on the U.S. Treasury rates
appropriate for the expected term of the award as of the grant date. Expected dividends are based, primarily,
on historical factors related to our common stock. Expected volatility is based on historic, weekly stock price
observations of our common stock during the period immediately preceding the share-based award grant that is
equal in length to the award’s expected term. We believe that historical volatility is the best estimate of future
volatility. Expected life of the award is based on historical option exercise data. Estimated forfeitures are
required to be included as a part of the grant date expense estimate. We used historical data to estimate
expected employee behaviors related to option exercises and forfeitures.
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.
The following weighted average assumptions were used to value share-based awards granted:
Employee Stock Purchase Plan
Dividend yield
Expected volatility
Risk-free interest rate
Expected term of options
Weighted-average grant date fair
2012
2.4 %
43.6 %
0.1 %
0.5 years
2011
1.9 %
42.4 %
0.1 %
0.5 years
2010
1.8 %
48.2 %
0.2 %
0.5 years
value per share
$
2.78
$
3.77
$
3.90
45
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Options
Dividend yield
Expected volatility
Risk-free interest rate
Expected term of options
Weighted-average grant date fair
2012
2.1 %
46.3 %
1.2 %
6.25 years
2011
2.0 %
45.8 %
1.9 %
6.0 years
2010
1.6 %
46.6 %
1.6 %
5.9 years
value per share
$
3.87
$
5.06
$
5.39
Restricted Stock Units
Dividend yield
Performance Stock Units
Dividend yield
2012
2.3 %
2012
2.3 %
2011
1.8 %
2010
1.7 %
Reported share-based compensation is classified in the consolidated financial statements as follows:
(in thousands)
Cost of sales
Research and development
Selling, general and administrative
Total share-based compensation
Income tax benefit
Total share-based compensation, net of tax
2012
2011
2010
$
$
417 $
1,364
2,840
4,621
-
4,621 $
420 $
1,356
2,511
4,287
-
4,287 $
297
1,121
2,125
3,543
-
3,543
At December 29, 2012, excluding a reduction for forfeitures, we had approximately $2.8 million of pre-tax
unrecognized compensation cost related to unvested stock options which is expected to be recognized over a
weighted-average period of approximately 1.5 years.
At December 29, 2012, excluding a reduction for forfeitures, we had approximately $5.9 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 2.3 years.
6.
Income Taxes
Significant components of the provision (benefit) for income taxes are as follows:
2012
2011
2010
(in thousands)
Current:
U.S. Federal
U.S. State
Foreign
Total current
Deferred:
U.S. Federal
U.S. State
Foreign
Total deferred
$
$
(1,898)
(388)
831
(1,455)
1,890
186
(1,495)
581
(874)
$
$
(90)
(250)
4,075
3,735
(977)
(4)
(695)
(1,676)
2,059
Income (loss) before income taxes consisted of the following:
(in thousands)
U.S.
Foreign
Total
2012
(10,189)
(2,928)
(13,117)
$
$
2011
8,154
9,624
17,778
$
$
46
$
$
$
$
1,239
(71)
6,397
7,565
(1,519)
(207)
(245)
(1,971)
5,594
2010
7,059
23,179
30,238
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)
Deferred tax assets:
Inventory, receivable and warranty reserves
Net operating loss carryforwards
Tax credit carryforwards
Accrued employee benefits
Deferred profit
Stock-based compensation
Acquisition basis differences
Depreciation and fixed asset related
Other
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and fixed asset related
Gain on facilities sale
Acquisition basis differences
Other
Total deferred tax liabilities
Net deferred tax liabilities
2012
2011
$
$
11,434
2,299
7,764
2,167
502
3,409
2,226
318
243
30,362
(24,948)
5,414
-
2,792
9,340
283
12,415
(7,001)
$
$
12,604
1,069
7,213
2,233
688
2,715
2,369
-
207
29,098
(22,352)
6,746
211
2,788
9,591
252
12,842
(6,096)
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 our
cumulative income or loss over the prior three-year period and future periods, to determine if a valuation
allowance was required. A significant negative factor in our assessment was Cohu's three-year cumulative U.S.
loss history at the end of the 2009 and 2010 fiscal year periods.
After a review of the four sources of taxable income described above and in view of our three-year cumulative
U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a corresponding charge to
our income tax provision, of approximately $19.6 million in the second quarter of fiscal 2009.
Notwithstanding our 36-month domestic, cumulative GAAP pretax income of approximately $5.0 million at
the end of 2012, with (i) our operating loss in 2012, (ii) weak business conditions in our primary business
segment and (iii) our significant gross deferred tax assets we were unable to conclude at December 29, 2012
that it was “more likely than not” that our DTAs would be realized and will only reverse the valuation
allowance and reinstate DTAs to the extent we accrue taxes on future income. We will evaluate the
realizability of our DTAs at the end of each quarterly reporting period in 2013 and should circumstances
change it is possible the remaining valuation allowance, or a portion thereof, will be reversed during 2013.
Our valuation allowance on DTAs at December 29, 2012 and December 31, 2011 was approximately $24.9
million and $22.4 million, respectively. The remaining gross DTAs for which a valuation allowance was not
47
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded are realizable through future reversals of existing taxable temporary differences or loss carryback. As
the realization of DTAs is determined by tax jurisdiction, the significant deferred tax liability recorded as part
of the 2008 acquisition of Rasco, a German corporation, was not a source of taxable income in assessing the
realization of our DTAs in the U.S.
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for
income taxes is as follows:
(in thousands)
2012
2011
2010
Tax provision (credit) at U.S. 35% statutory rate
State income taxes, net of federal tax benefit
Settlements, adjustments and releases from statute expirations
Change in effective tax rate for deferred balances
Federal tax credits
Stock-based compensation on which no tax benefit provided
Change in valuation allowance
Foreign income taxed at different rates
Non-deductible transaction costs
Other, net
$
$
$
(4,591)
(645)
367
346
-
177
2,614
(227)
700
385
(874)
$
6,223
(941)
(791)
-
(707)
202
(483)
(726)
-
(718)
2,059
$
10,583
95
(712)
638
(688)
55
(2,027)
(1,740)
-
(610)
5,594
$
State income taxes, net of federal benefit, have been reduced by research tax credits totaling approximately
$0.6 million in 2012, 2011 and 2010.
At December 29, 2012, we had state and foreign net operating loss carryforwards of approximately
$21.7 million and $3.7 million, respectively, that expire in various tax years through 2032 or have no
expiration date. We also have federal and state tax credit carryforwards at December 29, 2012 of
approximately $3.0 million and $11.2 million, respectively, certain of which expire in various tax years
beginning in 2014 through 2032 or have no expiration date. The federal credit carryforward and state net
operating loss and credit carryforwards are subject to annual limitations under Sections 382 and 383 of the
Internal Revenue Code and applicable state tax law.
The American Taxpayer Relief Act of 2012, which reinstated the United States federal research and
development tax credit retroactively from January 1, 2012 through December 31, 2012, was not enacted into
law until the first quarter of 2013. Therefore, the expected tax benefit, if any, resulting from such reinstatement
for fiscal 2012 will not be reflected in the Company’s income tax provision until 2013.
U.S. income taxes have not been provided on approximately $16 million of accumulated undistributed
earnings of certain foreign subsidiaries, as we currently intend to indefinitely reinvest these earnings in
operations outside the U.S. It is not practicable to estimate the amount of tax that might be payable if some or
all of such earnings were to be remitted. We have certain tax holidays or incentives with respect to our
operations in Singapore and the Philippines. These holidays or incentives require compliance with certain
conditions and expire at various dates through 2020. The impact of these holidays or incentives on net income
was not significant for fiscal years ended December 2012, 2011 and 2010.
A reconciliation of our gross unrecognized tax benefits is as follows:
(in thousands)
Balance at beginning of year
Gross additions for tax positions of current year
Gross additions (reductions) for tax positions of prior years
Reductions as a result of a lapse of the statute of limitations
Balance at end of year
2012
5,381
776
195
(272)
6,080
$
$
2011
5,069
1,455
126
(1,269)
5,381
$
$
2010
4,886
578
(23)
(372)
5,069
$
$
48
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the unrecognized tax benefits at December 29, 2012 are ultimately recognized, approximately $2.5 million
($3.1 million at December 31, 2011) would result in a reduction in our income tax expense and effective tax
rate. We are unable to estimate the range of any reasonably possible increase or decrease in our gross
unrecognized tax benefits over the next 12 months. However, we do not expect any such outcome will result
in a material change to our financial condition or results of operations.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had
approximately $0.4 million accrued for the payment of interest and penalties at December 29, 2012 and
December 31, 2011. Interest expense recognized in 2012, 2011 and 2010 was approximately $0.1 million,
$0.2 million and $0.1 million, respectively.
Our U.S. federal and state income tax returns for years after 2008 and 2007, 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 six years after the year for
which the tax is due.
7. Segment and Related Information
Our reportable segments are business units that offer different products and are managed separately because
each business requires different technology and marketing strategies. Our three segments are: semiconductor
equipment, microwave communications and video cameras.
The accounting policies of the reportable segments are the same as those described in the summary of
significant accounting policies. We allocate resources and evaluate the performance of segments based on
profit or loss from operations, excluding interest, corporate expenses and unusual gains or losses.
Intersegment sales were not significant for any period.
Financial information by industry segment is presented below:
(in thousands)
Net sales by segment:
Semiconductor equipment
Microwave communications
Video cameras
Total consolidated net sales and net sales for
reportable segments
Segment profit (loss):
Semiconductor equipment
Microwave communications
Video cameras
Profit (loss) for reportable segments
Other unallocated amounts:
Corporate expenses (1)
Interest and other income
Income (loss) from operations before
income taxes
2012
2011
2010
$
$
$
$
$
$
179,449
26,863
14,850
221,162
(5,331)
(847)
(121)
(6,299)
(7,785)
967
$
$
$
260,648
29,967
18,353
308,968
20,040
1,510
807
22,357
(5,021)
442
273,566
31,705
17,396
322,667
29,654
3,679
561
33,894
(4,217)
561
$
(13,117)
$
17,778
$
30,238
(1) Increase in corporate expense in 2012 was primarily a result of $2.3 million in Ismeca acquisition related costs.
49
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Depreciation and amortization by segment deducted
2012
2011
2010
in arriving at profit (loss):
Semiconductor equipment
Microwave communications
Video cameras
Intangible amortization
Total depreciation and amortization for
reportable segments
Capital expenditures by segment:
Semiconductor equipment
Microwave communications
Video cameras
Total consolidated capital expenditures
(in thousands)
Total assets by segment:
Semiconductor equipment
Microwave communications
Video cameras
Total assets for reportable segments
Corporate, principally cash and investments
and deferred taxes
Total consolidated assets
$
$
$
$
$
$
4,506
652
188
5,346
4,057
9,403
2,759
481
27
3,267
2012
281,173
22,635
9,424
313,232
$
$
$
$
$
4,313
893
216
5,422
4,645
10,067
991
313
109
1,413
2011
255,189
21,968
11,598
288,755
$
$
$
$
$
3,596
1,096
237
4,929
6,059
10,988
3,973
440
166
4,579
2010
255,246
27,812
11,092
294,150
21,641
334,873
$
72,853
361,608
$
71,893
366,043
Customers from the semiconductor equipment segment comprising 10% or greater of our consolidated net sales
are summarized as follows:
Intel
Texas Instruments
* Less than 10% of net sales
2012
2011
39 %
*
36 %
11 %
2010
26 %
14 %
Net sales to customers, attributed to countries based on product shipment destination, were as follows:
(in thousands)
United States
Malaysia
China
Costa Rica
Philippines
Rest of the World
Total
2012
57,193
40,326
31,973
22,934
22,507
46,229
221,162
$
$
2011
77,563
48,624
37,824
14,152
40,368
90,437
308,968
$
$
2010
64,992
52,539
50,454
6,778
51,659
96,245
322,667
$
$
50
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic location of our property, plant and equipment and other long-lived assets was as follows:
(in thousands)
Property, plant and equipment:
United States
Germany
Asia (Singapore, Taiwan and the Philippines)
Total, net
Goodwill and other intangible assets:
Germany
United States
Singapore
Total, net
8. Stockholder Rights Plan
2012
2011
22,621
8,802
4,041
35,464
53,190
17,985
6,558
77,733
$
$
$
$
24,138
8,625
4,218
36,981
56,089
17,241
6,558
79,888
$
$
$
$
In November, 1996, we adopted a Stockholder Rights Plan (“Rights Plan”) and declared a dividend
distribution of one Preferred Stock Purchase Right (“Right”) for each share of common stock, payable to
holders of record on December 3, 1996. Under the Rights Plan, each stockholder received one Right for each
share of common stock owned. Each Right entitled the holder to buy one one-hundredth (1/100) of a share of
Cohu’s Series A Preferred Stock for $90. As a result of the two-for-one stock split in September, 1999, each
share of common stock was associated with one-half of a Right entitling the holder to purchase one two-
hundredth (1/200) of a share of Series A Preferred Stock for $45. In November, 2006, we amended and
restated our existing Rights Plan to extend its term to November 9, 2016 and make certain other changes.
Pursuant to the amendment, to reflect the increase in the price of our common stock since the adoption of the
Rights Plan, the exercise price of each Right was increased to $190. Consequently, each one-half of a Right
entitles the holder to purchase one two-hundredth (1/200) of a share of Series A Preferred Stock for $95. The
Rights are not presently exercisable and will only become exercisable following the occurrence of certain
specified events. If these specified events occur, each Right will be adjusted to entitle its holder to receive,
upon exercise, common stock having a value equal to two times the exercise price of the Right, or each Right
will be adjusted to entitle its holder to receive common stock of the acquiring company having a value equal to
two times the exercise price of the Right, depending on the circumstances. The Rights expire on November 9,
2016, and we may redeem them for $0.001 per Right. The Rights do not have voting or dividend rights and,
until they become exercisable, have no dilutive effect on our earnings per share.
9. Commitments and Contingencies
We lease certain of our facilities and equipment under non-cancelable operating leases. Rental expense was
$1.1 million in both 2012 and 2011 and $1.3 million in 2010. Future minimum lease payments at December 29,
2012 are as follows:
(in thousands)
Non-cancelable
operating leases
2013
2014
2015
2016
2017
Thereafter
Total
$
993
$
596
$
72
$
-
$
-
$
-
$ 1,661
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 businesses. Although the outcome of such legal
proceedings, claims and examinations cannot be predicted with certainty, we do not believe any such matters
exist at this time that will have a material adverse effect on our financial position or results of our operations.
51
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Guarantees
Changes in accrued warranty during the three-year period ended December 29, 2012 were as follows:
(in thousands)
Beginning balance
Warranty accruals
Warranty payments
Ending balance
2012
2011
2010
$
$
6,801
4,214
(6,323)
4,692
$
$
5,016
10,987
(9,202)
6,801
$
$
3,747
6,071
(4,802)
5,016
During the ordinary course of business, we provide standby letters of credit instruments to certain parties as
required. At December 29, 2012, the maximum potential amount of future payments that we could be required
to make under these standby letters of credit was approximately $0.6 million. We have not recorded any
liability in connection with these arrangements beyond that required to appropriately account for the
underlying transaction being guaranteed. We do not believe, based on historical experience and information
currently available, that it is probable that any amounts will be required to be paid under these arrangements.
11. Related Party Transactions
James A. Donahue, Chairman, President and CEO of Cohu, and Steven J. Bilodeau, a member of the Cohu
Board of Directors, were formerly members of the Board of Directors of Standard Microsystems Corporation
(“SMSC”), a customer of our semiconductor equipment segment. SMSC was purchased by Microchip
Technology Management Co. on August 2, 2012. During 2012, 2011 and 2010, total sales to SMSC were
approximately $0.2 million, $0.5 million, and $0.4 million, respectively. William E. Bendush, a member of
the Cohu Board of Directors since December 8, 2011, is a member of the Board of Directors of Microsemi
Corporation (“MSC”), a customer of our semiconductor equipment segment. During 2012 and 2011 total sales
to MSC were approximately $1.1 million and $1.7 million, respectively.
12. Accumulated Other Comprehensive Income (Loss)
Components of accumulated other comprehensive income (loss), on an after-tax basis, were as follows:
(in thousands)
Year Ended December 25, 2010
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other Comprehensive Loss
Year Ended December 31, 2011
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other Comprehensive Income
Year Ended December 29, 2012
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other Comprehensive Income
Before Tax
amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
(7,270) $
(1,386)
(134)
(8,790) $
(1,076) $
1,267
(6)
185
$
1,689
362
(16)
2,035
$
$
$
-
(120)
51
(69) $
-
-
-
-
$
$
$
-
(240)
-
(240) $
(7,270)
(1,506)
(83)
(8,859)
(1,076)
1,267
(6)
185
1,689
122
(16)
1,795
$
$
$
$
$
$
52
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Quarterly Financial Data (Unaudited)
Quarter
(in thousands, except per share data)
First (a)
Second (a)
Third (a)
Fourth (a)
Year
Net sales:
Gross profit:
Net income (loss):
2012
2011
2012
2011
2012
2011
Net income (loss) per share (b):
Basic
Diluted
2012
2011
2012
2011
$
$
$
$
$
$
$
$
$
$
53,296 $
89,700 $
15,539 $
28,815 $
(3,224) $
6,574 $
(0.13) $
0.27 $
(0.13) $
0.27 $
59,404 $
80,896 $
17,664 $
26,547 $
(2,109) $
5,050 $
(0.09) $
0.21 $
(0.09) $
0.21 $
57,748 $
71,813 $
18,126 $
23,355 $
(1,749) $
3,376 $
(0.07) $
0.14 $
(0.07) $
0.14 $
50,714 $
66,559 $
16,649 $
21,412 $
221,162
308,968
67,978
100,129
(5,161) $
719 $
(12,243)
15,719
(0.21) $
0.03 $
(0.21) $
0.03 $
(0.50)
0.65
(0.50)
0.64
(a) All quarters presented above were comprised of 13 weeks except the fourth quarter of 2011 which was comprised of 14 weeks.
(b) The sum of the four quarters may not agree to the year total due to rounding within a quarter.
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cohu, Inc.
We have audited the accompanying consolidated balance sheets of Cohu, Inc. as of December 29, 2012 and
December 31, 2011, and the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2012. Our audits
also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Cohu, Inc. at December 29, 2012 and December 31, 2011, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 29, 2012, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Cohu, Inc.’s internal control over financial reporting as of December 29, 2012, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2013 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 28, 2013
54
Index to Exhibits
15. (b)
The following exhibits are filed as part of, or incorporated into, the 2012 Cohu, Inc. Annual Report on
Form 10-K:
Exhibit No. Description
2.1
3.1
Share Purchase and Transfer Agreement, dated December 9, 2012, by and between Delta Design
Luxembourg S.à r.l and Schweiter Technologies AG
Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to
Exhibit 3.1(a) from the Cohu, Inc. Form 10-Q for the quarterly period ended June 30, 1999
3.1(a)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cohu, Inc.
incorporated herein by reference from the Cohu, Inc. Form S-8 filed June 30, 2000, Exhibit 4.1(a)
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from
the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 12, 1996
Amended and Restated Rights Agreement dated November 10, 2006, between Cohu, Inc. and
Mellon Investor Services LLC, as Rights Agent, incorporated herein by reference from the Cohu,
Inc. Current Report on Form 8-K, filed with the Securities and Exchange Commission on November
13, 2006, Exhibit 99.1
Amended Cohu, Inc. 2005 Equity Incentive Plan 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 9, 2012 *
Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, incorporated herein by reference from
the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on
May 13, 2011, Exhibit 10.1*
Cohu, Inc. Deferred Compensation Plan (as amended and restated) incorporated herein by reference
from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 29, 2008, Exhibit 10.1*
Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005
Equity Incentive Plan incorporated herein by reference from the Cohu, Inc. Current Report on Form
8-K filed with the Securities and Exchange Commission on August 7, 2006*
Restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc.
2005 Equity Incentive Plan incorporated herein by reference from the Cohu, Inc. Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 20, 2006*
Intel Corporation Purchase Agreement Capital Equipment, Goods and Services, dated April 30,
2012, by and between Delta Design, Inc. and Intel Corporation incorporated herein by reference to
Exhibit 99.1 from the Cohu, Inc. Current Report on Form 8-K/A filed August 1, 2012
Form of Indemnity Agreement, incorporated by reference from the Cohu, Inc. Current Report on
Form 8-K filed July 28, 2008, Exhibit 10.1*
Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference from
the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 29, 2008, Exhibit 10.2*
55
10.9
10.10
21
23
31.1
31.2
32.1
32.2
Cohu, Inc. Change in Control Agreement incorporated herein by reference from the Cohu, Inc.
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29,
2008, Exhibit 10.3*
Lease agreement, dated December 14, 2012, by and between Ismeca Europe Semiconductor SA and
Nerwal SA
Subsidiaries of Cohu, Inc.
Consent of Independent Registered Public Accounting Firm
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for James A. Donahue
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 for James A. Donahue
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 for Jeffrey D. Jones
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Management contract or compensatory plan or arrangement
56
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.
Date:
February 28, 2013
COHU, INC.
By:/s/ James A. Donahue
James A. Donahue
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
/s/ James A. Donahue
James A. Donahue
President and Chief Executive Officer, Director
(Principal Executive Officer)
Date
February 28, 2013
/s/ Jeffrey D. Jones
Jeffrey D. Jones
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2013
/s/ William E. Bendush
William E, Bendush
/s/ Steven J. Bilodeau
Steven J. Bilodeau
/s/ Harry L. Casari
Harry L. Casari
/s/ Robert L. Ciardella
Robert L. Ciardella
/s/ Harold Harrigian
Harold Harrigian
Director
Director
Director
Director
Director
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
57
COHU, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at
Beginning
of Year
Additions
Not
Charged
to Expense
Additions
(Reductions)
Charged
(Credited)
to Expense
Deductions/
Write-offs
Balance
at End
of Year
Description
Allowance for doubtful accounts:
Year ended December 25, 2010
Year ended December 31, 2011
Year ended December 29, 2012
$
$
$
1,013 $
(22) (1)
556 $
463 $
(2) (1)
1 (1)
Reserve for excess and obsolete inventories:
Year ended December 25, 2010
Year ended December 31, 2011
Year ended December 29, 2012
$
$
$
25,680 $
167 (1)
23,783 $
88 (1)
25,575 $
611 (2)
$
$
$
$
$
$
(429)
(25)
(57)
1,743
5,796
8,884
$
$
$
$
$
$
6 $
66 $
99 $
556
463
308
3,807 $
23,783
4,092 $
25,575
7,008 $
28,062
(1) Changes in reserve balances resulting from foreign currency impact.
(2) Changes in reserve balances resulting from foreign currency impact and reclass from other reserves.
58
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Company profile
Cohu is a supplier of test handling, burn-in, thermal subsystems and MEMS test solutions used by the global
semiconductor industry, microwave communications and video equipment.
Financial Highlights
(in thousands, except per share data)
operations:
Orders
Net sales
Net income (loss)
Income (loss) per share:
Basic
Diluted
Balance Sheet:
Working capital
Total assets
Stockholders’ equity
Cash, cash equivalents and short-term investments
2012
$214,950
$221,162
$(12,243)
$(0.50)
$(0.50)
$110,229
$184,703
$334,873
$280,899
2011
$261,244
$308,968
$15,719
$0.65
$0.64
$105,002
$191,945
$361,608
$291,031
$350
300
250
200
150
100
50
0
$350
300
250
200
150
100
50
0
$40
30
20
10
0
-10
-20
-30
$350
300
250
200
150
100
50
0
08 09 10 11 12
08 09 10 11 12
08 09 10 11 12
oRDeRS
(In Millions)
SAleS
(In Millions)
net InCoMe (loSS)
(In Millions)
08 09 10 11 12
StoCKHolDeRS’ eQuItY
(In Millions)
Forward-looking Statements and non-GAAp Amounts
This Cohu, Inc. 2012 Annual Report contains forward-looking statements including expectations of market conditions, challenges
and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the Safe
Harbor provisions created by that statute. These forward-looking statements are based on management’s current expectations
and beliefs, including estimates and projections about our industries. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and assumptions, including but not limited to, those discussed under
the caption “1A. Risk Factors” beginning on page 9 of this Annual Report that could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of
the time they are made.
Certain amounts referred to in this Annual Report are “Non-GAAP” as contrasted with amounts prepared under generally
accepted accounting principles (GAAP). These Non-GAAP amounts adjust the Company’s actual results prepared under GAAP
to exclude charges and the related income tax effect for share-based compensation, the amortization of acquired intangible
assets, other acquisition costs and the gain on sale of a facility. These Non-GAAP amounts are not meant as a substitute for
GAAP, but are included solely for informational and comparative purposes. Cohu’s management believes that this information
can assist investors in evaluating the Company’s operational trends, financial performance and cash generating capacity and
allows investors to evaluate Cohu’s financial performance in the same manner as management. However, the non-GAAP financial
amounts should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP amounts.
CoHu, InC.
CoMpAnY InFoRMAtIon
Board of Directors
James A. Donahue
Chairman of the Board,
President and Chief Executive Officer,
Cohu, Inc.
William e. Bendush (1)(2)
Retired Senior Vice President,
and Chief Financial Officer of
Applied Micro Circuits Corporation
Steven J. Bilodeau (1)(2)(3)
Retired Chairman, President
and Chief Executive Officer,
Standard Microsystems Corporation
Harry l. Casari (1)(2)
Retired Partner,
Ernst & Young LLP
Robert l. Ciardella (1)(3)(4)
Retired President, Asymtek
Harold Harrigian (1)(3)
Retired Partner and
Director of Corporate Finance,
Crowell, Weedon & Co.
(1) Member Audit Committee
(2) Member Compensation Committee
(3) Member Nominating and Governance Committee
(4) Lead Independent Director
Corporate executive officers
James A. Donahue
Chairman of the Board,
President and Chief Executive Officer
Jeffrey D. Jones
Vice President, Finance and
Chief Financial Officer, Secretary
John H. Allen
Vice President,
Administration
Stockholder Information
Corporate Headquarters
12367 Crosthwaite Circle
Poway, CA 92064-6817
(858) 848-8100
www.cohu.com
legal Counsel
DLA Piper LLP (US)
San Diego, California
Independent Auditors
Ernst & Young LLP
San Diego, California
transfer Agent and Registrar
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
(866) 272-6728 U.S.
www.computershare.com/investor
Annual Meeting
The Annual Meeting of Stockholders will be
held on Wednesday, May 15, 2013 at 8:00 a.m.
at Cohu’s corporate headquarters.
SeC Filings
Copies of documents filed by Cohu
with the Securities and Exchange
Commission, including our Annual Report
on Form 10-K for the year ended
December 29, 2012 and other information about
Cohu are available without charge by contacting
Cohu Investor Relations at (858) 848-8106
or by accessing our web site www.cohu.com
or the SEC’s Edgar web site www.sec.gov.
Current press Releases
Cohu distributes press releases via
Business Wire. Releases can be
accessed via Cohu’s web site or through
financial wires.
Share Information
Cohu, Inc. stock is traded on the
NASDAQ Global Select Market under
the symbol “COHU”.
Cohu, Inc. 2012 Annual Report
Cohu, Inc. 2012 Annual Report
Cohu, inc.
12367 Crosthwaite Circle Poway, CA 92064-6817 858.848.8100
www.cohu.com
2012 AnnuAl RepoRt