2014 Annual Report
12367 Crosthwaite Circle, Poway, CA 92064-6817
Cohu, inc.
Phone: 858.848.8100
www.cohu.com
COMPANY PROFILE
Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electro mechanical systems (MEMS) test
modules, test contactors and thermal sub-systems used by global semiconductor manufacturers and test subcontractors as
well as a supplier of mobile microwave communications 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
2014
$323,197
$333,323
$8,708
$0.34
$0.33
2014
$72,040
$145,264
$348,818
$247,068
2013
$261,895
$231,574
$(33,418)
$(1.34)
$(1.34)
2013
$52,868
$125,837
$345,423
$253,160
$30
20
10
0
-10
-20
-30
-40
$350
300
250
200
150
100
50
0
10 11 12 13 14
10 11 12 13 14
ORDERS*
(in Millions)
SALES*
(in Millions)
10 11 12 13 14
NET INCOME (LOSS)
(in Millions)
10 11 12 13 14
STOCKHOLDERS’ EQUITY
(in Millions)
* Excludes discontinued video camera segment sold in June 2014.
FORWARD-LOOKING STATEMENTS AND NON-GAAP AMOUNTS
This Cohu, Inc. 2014 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 8 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 financial measures 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, impairment of goodwill and other assets, manufacturing transition
costs, employee severance costs, other acquisition costs and purchase accounting inventory step-up. 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. 2014 Annual Report
12367 Crosthwaite Circle
Poway, CA 92064
Fellow Stockholders,
Cohu delivered solid results in fiscal year 2014. A strong handler market that we believe grew
17% year-on-year to $850 million, combined with our estimated 5-point plus share gain and 2%
sequential reduction in Non-GAAP operating expenses, led to Cohu’s significant improvement in
financial performance. Sales were up 44% and Non-GAAP operating income improved by
approximately $52 million from 2013.
Our Semiconductor Equipment businesses recorded a sales increase of 48%, validating our
strategy to capitalize on cross-selling synergies and gain share with new, differentiated products
in growing markets. At Broadcast Microwave Services, we consolidated operations and
reduced the break-even revenue level while returning this business to profitability in the fourth
quarter. In June, 2014 we completed the divestiture of our video camera business, Cohu
Electronics.
For the year ended December 27, 2014 Cohu achieved sales of $333.3 million, an all-time
record, Non-GAAP operating income of $31.9 million and earnings per share of $1.02. After
generating $20.0 million in operating cash flow, we ended the year with $72.0 million in cash
and investments and Cohu’s balance sheet remains strong. We returned $6.1 million to
shareholders through our quarterly cash dividends.
2014 Recap
Since the acquisition of Ismeca we have focused on opportunities to cross-sell our
semiconductor equipment to existing customers and in 2014 delivered nearly $25 million of
incremental sales. This strategy has particularly benefited sales of our turret handlers, as
Ismeca accessed the larger network of Cohu customers and a stronger global service and
support infrastructure.
Additional share gain came from a stream of new products introduced over the last 18 months:
We introduced a new generation MATRiX pick-and-place handler tailored for automotive
IC test. This system is particularly compelling as it uniquely addresses temperature
management at cold, enabling customers to optimize operational efficiencies.
At the beginning of 2014 we announced a key design win for our new Saturn gravity
handler for testing next generation QFN products. During the year we captured two
additional strategic customers for testing automotive and industrial ICs, propelling us to a
market leading position with an estimated 40% share in the gravity segment.
(i)
Cohu, Inc. 2014 Annual Report
At Semicon West in July we introduced our new strip handler focused on delicate bare
die and ceramic substrates. In the second half of the year we completed delivery of the
first system for in-process testing of multi-stacked memory devices and captured a key
design-win at a large European-based automotive IDM that placed multi-unit orders for
this new system.
In Turret, our new NY20 platform has gained widespread acceptance during its rollout
year, shipping over 170 units and benefiting from growth in testing near-field
communication devices in consumer and mobile markets. We also had several design-
wins for our NX32 turret handler, testing wafer-level CSPs, QFNs and LEDs on film-
frame media. With these products we won new business at a top tier Korean LED
manufacturer.
Last year marked the beginning of a disruptive change in thermal requirements for
testing mobile processors and we made volume shipments of our T-Core thermal sub-
system. T-Core actively manages the dynamics of power dissipation during final and
system-level test of processors used in smartphones and tablets. This is a growing
requirement as customers develop greater processor capabilities on smaller silicon
nodes.
2014 was also a year of expanding our manufacturing capability in Asia. In the first half we
began building our assembly automation module in the Philippines and ramped production of
the new turret handler in Malaysia. In the second half we focused on transferring the new
MATRiX handler manufacturing to Malaysia, a task completed in December. We are now able
to ship over 50% of our system sales from Asia, compared to about 25% a year ago.
2015 Outlook and Strategy
Entering 2015, fundamentals are strong across our major end-markets. According to IC
Insights, semiconductor unit sales grew about 8% in 2014 and continue to pick-up momentum
with a projected 11% unit growth for 2015.
Automotive and industrial represented 45% of our system sales in 2014 and are expected to
remain healthy. IC content per vehicle is increasing driven by improvements in power train,
safety and infotainment. Advanced driver assist systems are leading to the proliferation of
sensors and higher end processors in future cars. These present thermal challenges during test
similar to what we are seeing with mobile processors and are a great opportunity for Cohu.
In industrial semiconductor, we expect a slower start compared to 2014 but this market still has
momentum entering the year, with positive GDP forecasts at major economies worldwide.
Mobility, which was 30% of our system sales last year, continues to offer the greatest near-term
growth opportunity. Early in January we received a follow-on multi-unit order for T-Core thermal
subsystems testing mobile processors for a market leader. We expect additional demand for T-
Core based products during the year as next generation phones and tablets are launched.
Computing and memory were 20% of our system sales in 2014. The proliferation of mobile
devices is driving the need for additional cloud services and communications infrastructure. We
are the established leader for testing high end processors that are used at all major servers and
data centers. In memory we offer solutions to test multi-stacked memory devices.
(ii)
Cohu, Inc. 2014 Annual Report
While the solid state lighting industry awaits that inflection point that will drive rapid expansion of
LEDs for general lighting, we expect moderate growth in the market from the continued
expansion of mid and high power LEDs in cars and mobile flash applications.
Our strategy going into 2015 is centered on 4 pillars:
First, to maximize sales synergies across our product lines. We have done very well on
this goal, delivering substantial growth year-on-year. Going forward we plan to leverage
our leading handler market share position to expand sales of our recurring products,
such as test contactors.
Second, expand share in mobility and LED markets. We have much more to accomplish
in both these segments and have a strong pipeline of new products to capture additional
customers.
Third, lower our product cost structure with the transition of manufacturing to Asia. The
next step in this process is the transition of gravity handler manufacturing. We expect to
ship the first system from Asia by mid-year and ramp capacity in the second half, just
before completion of a new, consolidated facility in Melaka, Malaysia that will house
manufacturing of all our volume handlers.
Fourth, we will continue executing to a strict financial discipline, selectively developing
products that address key customer challenges in growing markets, where we can
differentiate through innovation. Acquisitions will continue to be an important part of our
strategy, and we regularly review opportunities to expand our served market.
I am confident that we have a sound strategy to deliver profitable growth and optimistic about
the mid-term prospects for the business. I want to thank our employees, customers and
shareholders for your continued support.
Sincerely,
Luis A. Müller
President and Chief Executive Officer
February 19, 2015
(iii)
Cohu, Inc. 2014 Annual Report
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(iv)
Cohu, Inc. 2014 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[(cid:165)]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 2014
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 (cid:134) No (cid:59)
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 (cid:134) No (cid:59)
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 (cid:59) No (cid:134)
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 (cid:59) No (cid:134)
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. (cid:59)
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 (cid:134) Accelerated filer (cid:59) Non-accelerated filer (cid:134) Smaller reporting company (cid:134)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:59)
The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $147,000,000 based on the closing stock
price as reported by the NASDAQ Stock Market LLC as of June 27, 2014. 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 18, 2015 the Registrant had 25,702,989 shares of its $1.00 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Cohu, Inc.’s 2015 Annual Meeting of Stockholders to be held on May 13, 2015, and to be filed pursuant to
Regulation 14A within 120 days after registrant’s fiscal year ended December 27, 2014, 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 27, 2014
TABLE OF CONTENTS
PART I
Page
Item 1. Business ................................................................................................................................................... 1
Item 1A. Risk Factors ............................................................................................................................................. 8
Item 1B. Unresolved Staff Comments ................................................................................................................. 15
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 .................................................................................... 27
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 ............................................................................................................................................................... 60
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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.
In June 2014, we completed the sale of substantially all the assets of our video camera segment, Cohu Electronics
Division (“Cohu Electronics”). Our decision to sell Cohu Electronics resulted from management’s determination
that this industry segment was no longer a strategic fit within our organization. As a result of the sale, the
operating results of Cohu Electronics have been presented as discontinued operations and all prior period
amounts have been reclassified accordingly. Unless otherwise noted all amounts presented are from continuing
operations.
Subsequent to the sale of Cohu Electronics, we have two reportable segments, semiconductor equipment and
mobile microwave communications systems. 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 handling 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, designs, manufactures
and sells turret-based test handling and “back-end” finishing equipment for integrated circuits (“IC”), light
emitting diodes (“LED”) and discrete components used by semiconductor manufacturers and test subcontractors
throughout the world in assembly and packaging of devices.
Our microwave communications systems segment is comprised of our wholly owned subsidiary Broadcast
Microwave Services, Inc. (“BMS”). BMS develops, manufactures and sells mobile microwave communications
equipment to government agencies, law enforcement and public safety organizations, unmanned aerial vehicle
program contractors, television broadcasters, entertainment companies, professional sports teams and other
commercial entities.
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
2014
95 %
5 %
100 %
2013
93 %
7 %
100 %
2012
87 %
13 %
100 %
1
Additional financial information on our reportable segments for each of the last three years is included in Note 8,
“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 and back-end finishing systems, MEMS test
modules, 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 and LED packages. Test
handlers are electromechanical systems used to automate testing of integrated circuits and LEDs in the “back-
end” of the semiconductor manufacturing process. Testing determines the quality and performance of the
semiconductor device prior to shipment to customers. Testers are designed to verify the performance of
semiconductor devices, such as microprocessors, logic, analog, memory or mixed signal devices. Handlers are
automated systems 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, test parallelism, thermal requirements and signal interface requirements normally
determines the appropriate handling approach.
Pick-and-place handling is the predominant solution for devices with leads on all four sides, such as the quad flat
pack, or with balls or pads on the bottom or top of the package, such as ball grid array packages, and quad flat no-
lead packages as well as certain low profile devices with leads on two sides, such as the thin small outline
package, and wafer-level packages. Pick-and-place handlers use robotic mechanisms to move devices from
JEDEC (Joint Electron Device Engineering Council) standard trays and place them in precision transport boats or
carriers for processing through the system. After testing, devices are sorted and reloaded into designated trays,
based on test results.
Gravity-feed handling is the predominant solution for temperature testing of high performance 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, devices 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, devices are sorted and reloaded into tubes, magazines, bulk or tape for additional process steps or
final shipment.
Turret handlers are ideally suited for high-volume and low-mix testing of smaller integrated circuit and LED
devices. In turret handlers, devices are unloaded from tubes, a bowl, trays or film frame. Turret-based handlers use
a rotating “turret” mechanism that provides very high device throughput and efficient integration of multiple back-
end finishing operations.
Test-in-strip handlers accommodate devices 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.
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-and-place, turret 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 and mobile processors, have 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.
Thermal sub-systems are used in advanced burn-in and system-level test applications to maintain and control the
temperature of integrated circuits 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
2
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. This is typically the last test operation of
complex, expensive integrated circuits prior to the final electronic integration process.
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 handlers, 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 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 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:
high throughput and test parallelism, scalability and active thermal control per test site. With an adjustable test site
configuration, customers can reuse existing load-boards, including those made for competitor equipment and
gravity handlers. The system also provides flexibility with field upgradeable options including a chamberless tri-
temperature test site and auto contactor cleaning.
The Pyramid is a high performance thermal handler for microprocessors, graphics processors and other high
power integrated circuits. The Pyramid incorporates our proprietary T-Core thermal control technology that
optimizes test yield of power dissipative integrated circuits.
The Summit series of pick-and-place thermal handlers incorporate our 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.
LinX is our platform serving assembly automation. Back-end semiconductor assembly is the major process step
prior to device testing and validation. The LinX product line offers advanced JEDEC handing automation that
efficiently links various assembly test processes.
Gravity-Feed
The SO1000 is a high throughput gravity-feed platform that provides an economical solution for testing up to 4
devices in parallel. This handler can be configured for tube-to-tube or metal magazine input and output, ambient-
hot or tri-temperature testing and is easily kit-able for a wide range of integrated circuit packages.
The SO2000 is a modular platform that offers a reliable solution for testing small integrated circuit packages up
to 4 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. This handler can be configured for
ambient-hot or tri-temperature testing.
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
The Jaguar (formerly called 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 is configured with automated vision alignment. The Jaguar is also a solution for
in-process testing of next generation multi-stacked packages.
3
Turret
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 discrete devices; and bowl feeding, tape and de-taping, alignment, laser
marking, inspection and test modules. The NX32 is capable of testing devices at ambient and hot temperature.
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 NX32 platform in a smaller footprint, higher throughput handler.
Micro-Electro-Mechanical Systems (“MEMS”)
MEMS modules generate a physical stimuli for testing of sensor integrated circuits typically used in the
automotive (e.g. tire pressure, airbag sensors) and consumer electronics (e.g. tilt, motion, microphone and light
sensors) industries. The MEMS modules are stand-alone units that can be integrated into our pick-and-place,
turret, test-in-strip, or gravity-feed handlers.
Thermal Sub-Systems
We have adapted our 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
temperature 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 device characterization applications.
Fusion HD is the next generation tri-temperature thermal sub-system leveraging our advanced T-Core
technology for testing mobile processors. The Fusion HD thermal sub-system can test greater than 450 devices
in parallel while thermally conditioning and accurately controlling each device temperature through stringent,
power dissipative test scripts.
Contactors
It is becoming increasingly important to supply an integrated solution for power semiconductor testing in
automotive, industrial and LED markets. SEG designs, manufactures, sells and supports various lines of test
contactor solutions. These are consumable, electro-mechanical assemblies that connect the device under test,
inside our test handlers, and the automated test equipment.
Spares
SEG provides consumable and non-consumable items that are used to maintain, sustain or otherwise enable
customer’s equipment to meet its performance, availability and production requirements.
Tooling (kits)
SEG designs and manufactures a wide range of device dedication kits that enable handlers to process different
semiconductor packages. Our Philippines and China operations design and manufacture the majority of our
handler kits and provide 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
Spares, tooling (kits) and service
Mobile Microwave Communications
2014
47 %
9 %
44 %
2013
40 %
8 %
52 %
2012
56 %
5 %
39 %
BMS 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 data.
Applications for these microwave data-links include unmanned aerial vehicles (UAVs), law enforcement,
security and surveillance, electronic news gathering and live broadcast communications.
4
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, a single customer from
our semiconductor equipment segment comprised 10% or greater of our consolidated net sales:
Intel
2014
15 %
2013
17 %
2012
42 %
The loss of, or a significant reduction in, orders by this 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 8, “Segment and Related Information” in Part IV, Item 15(a) of this Form 10-K.
Mobile Microwave Communications
Our customer base for microwave communications equipment is diverse and includes government agencies, law
enforcement and public safety organizations, unmanned aerial 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 2014, 2013 or 2012.
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 in Poway, California.
The Europe sales office is located in Kolbermoor, Germany. We operate in Asia with headquarters in Singapore and
branch offices in Taiwan, China, Thailand, Korea and Malaysia. Sales in Japan 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
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.
Mobile Microwave Communications Equipment
Our products in the microwave communications equipment segment 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.
5
Backlog
Our backlog of unfilled orders for products, by segment at December 27, 2014 and December 28, 2013, were as
follows:
(in millions)
Semiconductor equipment
Microwave communications
Total consolidated backlog
2014
2013
$
$
66.8 $
8.6
75.4 $
75.4
10.1
85.5
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 resulting in 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.
Manufacturing and Raw Materials
Our principal manufacturing operations are currently located in Poway, California (Delta and BMS); Laguna,
Philippines (Delta-kits); Kolbermoor, Germany (Rasco); Malacca, Malaysia (Delta and Ismeca); and Suzhou,
China (Ismeca-kits).
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 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 mobile microwave communications market, 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.
Research and Development
Research and development activities are carried on in our various subsidiaries 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 $40.6 million in 2014, $46.5 million in 2013 (both 2014 and 2013
include Ismeca, acquired on December 31, 2012), and $33.6 million in 2012.
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 are not expected to have a material effect upon our capital expenditures,
results of operations or our competitive position. However, future changes in regulations may require expenditures
6
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 18, 2015. Executive Officers serve at the discretion of the Board of Directors, until their successors are
appointed.
Name
Cohu:
James A. Donahue
Luis A. Müller
Jeffrey D. Jones
John H. Allen
Cohu wholly owned subsidiaries:
Hock W. Chiang
Peter F. Portmann
Age
Position
66
45
53
63
57
57
Executive Chairman
President and Chief Executive Officer
Vice President, Finance and Chief Financial Officer
Vice President, Administration
Vice President Global Sales & Service – SEG
Vice President Global Operations – SEG
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. Effective December 28, 2014 Mr. Donahue retired as
Cohu’s President and Chief Executive Officer and became Executive Chairman of Cohu’s Board of Directors.
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. Effective December 28, 2014 Mr. Müller was promoted to President and Chief Executive
Officer of Cohu and was appointed to Cohu’s Board of Directors.
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.
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 for 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.
7
Employees
At December 27, 2014, we had approximately 1,600 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. Our employees in the United States and most locations in Asia are not covered
by collective bargaining agreements, however, certain employees at Rasco’s facility in Kolbermoor, Germany,
are represented by a works council, 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.
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. 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
27, 2014 we had goodwill and net purchased intangible assets balances of $63.1 million and $33.1 million,
respectively. In the fourth quarter of 2014 we determined that the carrying value of our microwave
8
communications equipment segment was higher than its current fair market value and, as a result, we recorded a
non-cash, pre-tax impairment charge of $5.0 million. Additional information can be found in Note 3,
“Microwave Communications Equipment Segment Impairment and Restructuring” in Part IV, Item 15(a) of this
Form 10-K. Subsequent to this write-off we still have goodwill within our semiconductor equipment reporting
unit and we may incur additional goodwill impairment charges in the future, which will have a negative impact
on our results of operations and financial condition.
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.
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.
We are in the process of transitioning our manufacturing to Asia. Our inability to manage multiple
manufacturing sites during this transition and secure raw materials meeting our quality, cost and other
requirements, or failures by our suppliers to perform, could harm our sales, service levels and reputation.
Our reliance on overseas manufacturers exposes us to significant risks including complex management, foreign
currency, legal, tax and economic risks, which we may not be able to address quickly and adequately. In addition,
it is time consuming and costly to qualify overseas supplier relationships. Therefore, if we should fail to effectively
manage overseas manufacturing operations or if one or more of them should experience delays, disruptions or
quality control problems, or if we had to change or add additional manufacturing sites, our ability to ship products
to our customers could be delayed. Also, the addition of overseas manufacturing locations increases the demands
on our administrative and operations infrastructure and the complexity of our supply chain management. If our
overseas manufacturing locations 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.
Our suppliers are subject to the fluctuations in general economic cycles, and the global economic conditions may
impact their ability to operate their business. They may also be impacted by the increasing costs of raw materials,
labor and distribution, resulting in demands for less attractive contract terms or an inability for them to meet our
requirements or conduct their own businesses. The performance and financial condition of a supplier may cause us
to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices
generally, which could in turn adversely affect our own business and financial condition.
Our microwave communications equipment segment depends on governments for a significant portion of its
sales, creating uncertainty in the timing of and funding for projected contracts.
A significant portion of the sales of BMS are made to federal, state, local and foreign government agencies as a
prime or sub-contractor. Government spending has historically been cyclical. A decrease in government
spending or changes in spending allocation could result in one or more of the programs being reduced, delayed
or terminated. Reductions or delays in the funding process or changes in funding caused by automatic budget
cuts ("sequestration") or unforeseen world events can impact the timing of available funds or can lead to
changes in program content or termination. The loss of anticipated funding or the termination of multiple or
large programs could have an adverse effect on our future sales and earnings.
9
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 2014, 2013 and 2012,
we recorded pre-tax inventory-related charges of approximately $3.9 million, $7.8 million, and $8.6 million,
respectively, primarily as a result of changes in customer forecasts.
Due to the nature of our business, we need continued access to capital, which if not available to us or if not
available on favorable terms, could harm our ability to operate or expand our business.
Our business requires capital to finance accounts receivable and product inventory that is not financed by trade
creditors when our business is expanding. If cash from available sources is insufficient or cash is used for
unanticipated needs, we may require additional capital sooner than anticipated.
We believe that our existing sources of liquidity, including cash resources and cash provided by operating
activities will provide sufficient resources to meet our working capital and cash requirements for at least the next
twelve months. In the event we are required, or elect, to raise additional funds, we may be unable to do so on
favorable terms, or at all, and may incur expenses in raising the additional funds and future indebtedness could
adversely affect our operating results and severely limit our ability to plan for, or react to, changes in our business
or industry. We could also be limited by financial and other restrictive covenants in credit arrangements,
including limitations on our borrowing of additional funds and issuing dividends. If we choose to issue new
equity securities, existing stockholders may experience dilution, or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on
acceptable terms, we may not be able to take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. Any inability to raise additional capital when required could have an
adverse effect on our business and operating results.
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 which
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
10
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 27, 2014. 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
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
11
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.
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
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. A number of factors including the semiconductor industry’s continually changing and
unpredictable capacity requirements and changes in integrated circuit design and packaging, result in changes
in product demand. 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.
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,
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.
12
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 United States (“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.
Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our
profitability.
We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our tax liabilities are
affected by, among other things, the amounts our affiliated entities charge each other for intercompany
transactions. We may be subject to ongoing tax examinations in various jurisdictions. Tax authorities may
disagree with our intercompany charges or other matters and assess additional taxes. While we regularly assess
the likely outcomes of these examinations in order to determine the appropriateness of our tax provision, tax
audits are inherently uncertain and an unfavorable outcome could occur. An unanticipated, unfavorable outcome
in any specific period could harm our operating results for that period or future periods. The financial cost and
management attention and time devoted to defending income tax positions may divert resources from our
business operations, which could harm our business and profitability. Tax examinations may also impact the
timing and/or amount of our refund claims. In addition, our effective tax rate in the future could be adversely
affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation
of our deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course
of our tax return preparation process. In particular, the carrying value of our deferred tax assets and the
utilization of our net operating loss and credit carryforwards are dependent on our ability to generate future
taxable income in the U.S and other countries. Furthermore, these carryforwards may be subject to annual
limitations as a result of changes in Cohu’s ownership.
Compliance with regulations may impact sales to foreign customers and impose costs.
Certain products and services that we offer require compliance with U.S. 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
payments to governmental officials. Violations of these laws and regulations could result in fines, criminal
13
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.
In addition to government regulations regarding sale and export, we are subject to other regulations regarding
our products. For example, the U.S. Securities and Exchange Commission has adopted disclosure rules for
companies that use conflict minerals in their products, with substantial supply chain verification requirements
in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or
adjoining countries. These new rules and verification requirements will impose additional costs on us and on
our suppliers, and may limit the sources or increase the cost of materials used in our products. Further, if we
are unable to certify that our products are conflict free, we may face challenges with our customers that could
place us at a competitive disadvantage, and our reputation may be harmed.
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.
The occurrence of natural disasters and geopolitical instability caused by terrorist attacks and other threats
may adversely impact our operations and sales.
Our Corporate headquarters is located in San Diego, California, 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.
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.
14
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 $14.16 to $7.96. 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.
Item 2. Properties.
Certain information concerning our principal properties at December 27, 2014, identified by business segment is
set forth below:
Location
Poway, California (1) (2) (3)
Kolbermoor, Germany (1)
Malacca, Malaysia (1)
Calamba City, Laguna, Philippines (1)
La Chaux-de-Fonds, Switzerland (1)
Suzhou, China (1)
(1) Semiconductor Equipment
(2) Microwave Communications
(3) Cohu Corporate offices
Approximate
Sq. Footage
338,000
40,000
50,000
51,000
34,000
6,000
Ownership
Owned
Owned
Leased
Leased
Leased
Leased
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.
The outcome of any litigations, examinations and claims is inherently uncertain. While there can be no assurance,
we do not believe at the present time that the resolution of the matters described above will have a material
adverse effect on our assets, financial position or results of 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 2014
Fiscal 2013
High
Low
High
Low
$
First Quarter
Second Quarter $
$
Third Quarter
$
Fourth Quarter
11.36 $
11.35 $
13.08 $
12.46 $
9.26 $
9.73 $
10.12 $
9.67 $
11.49 $
12.93 $
13.40 $
11.19 $
9.13
8.63
9.82
9.01
Holders
At February 18, 2015, Cohu had 499 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 2014 and 2013 were as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Fiscal 2014
$
$
$
$
$
0.06 $
0.06 $
0.06 $
0.06 $
0.24 $
Fiscal 2013
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 27, 2014 (in thousands, except per share amounts):
Weighted average
exercise price of
Number of securities
to be issued upon
exercise of outstanding outstanding options,
warrants and rights
options, warrants and
(b) (2)
rights (a) (1)
Number of securities
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))(c) (3)
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
3,795
$
11.67
1,176
-
3,795
-
11.67
$
-
1,176
(1) Includes options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) outstanding under Cohu’s equity
incentive plans. No stock warrants or other rights were outstanding as of December 27, 2014.
(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.
(3) Includes 183,591 shares of common stock reserved for future issuance under the Cohu 1997 Employee Stock Purchase Plan.
For further details regarding Cohu’s equity compensation plans, see Note 6, “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, Custom Group Index and a NASDAQ Market
Index over the same period (assuming the investment of $100 in Cohu’s common stock, Peer Group Index,
Custom Group Index and NASDAQ Market Index on December 26, 2009 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. In the current year we also selected the
Custom Group Index that is comprised of the peer group companies associated with our performance stock units
issued under our equity incentive plan. In 2014 the Custom Group Index was comprised of Advanced Energy
Industries Inc., Advantest Corp., ASM Pacific Technology Ltd., Axcelis Technologies Inc., BE Semiconductor
Industries N.V., Brooks Automation Inc., Cabot Microelectronics Corp., Cascade Microtech Inc., Electro
Scientific Industries Inc., FormFactor Inc., Kulicke and Soffa Industries Inc., Mattson Technology Inc., MKS
Instruments Inc., Nanometrics Inc., Newport Corp., Photronics Inc., Rudolph Technologies Inc., Teradyne Inc.,
Tessera Technologies Inc., Ultra Clean Holdings Inc., Ultratech Inc., and Xcerra Corp. Historical stock price
performance is not necessarily indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Cohu Inc., the NASDAQ Composite Index,
Peer Group, and Custom Group
$250
$200
$150
$100
$50
$0
12/26/09
12/25/10
12/31/11
12/29/12
12/28/13
12/27/14
Cohu Inc.
NASDAQ Composite
Peer Group
Custom Group
Cohu, Inc.
NASDAQ Index
Peer Group
Custom Group(cid:3)
(cid:3)
2009
2010
2011
2012
2013
2014
$
$
$
$
100 $
100 $
100 $
100 $
117 $
118 $
111 $
105 $
85 $
119 $
87 $
85 $
79 $
139 $
99 $
97 $
79 $
197 $
133 $
111 $
96
224
162
130
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 June 2014, we completed the sale of Cohu
Electronics and as a result we are presenting Cohu Electronics as a discontinued operation for all periods
presented. Additional information related to the sale of Cohu Electronics is included in Note 2, “Disposal of
Video Camera Segment” in Part IV, Item 15(a) of this Form 10-K. On December 31, 2012, we purchased Ismeca
and the results of its operations have been included in our consolidated financial statements since that date.
$
$
Years Ended,
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales
Income (loss) from continuing operations
Net income (loss)
Income (loss) from continuing operations - basic
$
Income (loss) from continuing operations - diluted $
$
Net income (loss) - basic
$
Net income (loss) - diluted
Cash dividends per share, paid quarterly
Consolidated Balance Sheet Data:
(cid:3)(cid:3)Total Consolidated Assets(cid:3)
(cid:3)(cid:3)Working Capital(cid:3)
$
$
$
$
Dec. 27
2014 (1)
Dec. 28
2013
Dec. 29
2012
Dec. 31
2011 (2)
Dec. 25
2010
333,323 $
5,835 $
8,708 $
0.23 $
0.22 $
0.34 $
0.33 $
0.24 $
231,574 $
(34,260) $
(33,418) $
(1.37) $
(1.37) $
(1.34) $
(1.34) $
0.24 $
206,312 $
(12,122) $
(12,243) $
(0.50) $
(0.50) $
(0.50) $
(0.50) $
0.24 $
290,615 $
15,203 $
15,719 $
0.63 $
0.62 $
0.65 $
0.64 $
0.24 $
348,818 $
145,264 $
345,423 $
125,837 $
334,873 $
184,703 $
350,010 $
183,283 $
305,271
24,285
24,644
1.23
1.01
1.04
1.02
0.24
(cid:3)
354,951 (cid:3)
160,336 (cid:3)
(1) Income from continuing operations for the year ended December 27, 2014 includes an impairment charge of $5.0 million.
Additional information can be found in Note 3, “Microwave Communications Equipment Segment Impairment and
Restructuring” in Part IV, Item 15(a) of this Form 10-K.
(2) The year ended December 31, 2011 consists of 53 weeks. All other years are comprised of 52 weeks.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
Cohu operates in two business segments. Our primary business is the development, manufacture, sale and
servicing of test handling, 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. Our primary 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 and, as a result, our results can vary significantly year-over-year,
as well as quarter-over-quarter. 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 as it is ultimately driven by end-user
demand for electronic products.
Average orders for back-end semiconductor equipment, as reported by Semiconductor Equipment and Materials
International (SEMI), increased steadily through the first half of the year reaching a peak in June and have
decreased during the second half of 2014. Consistent with the broader market, the order momentum within our
semiconductor equipment segment that started toward the end of fiscal 2013 maintained an upward trend through
the first half of 2014 and then declined in the second half of 2014 with orders generated by our semiconductor
equipment segment decreasing approximately 32% sequentially in the fourth quarter of 2014 as customers digest
the significant capacity additions from recent quarters and a large customer order was delayed into the first
quarter of 2015. Additionally, we see a seasonal trend to the order demand for certain markets such as
automotive and industrial integrated circuits that slow down during the winter months.
Despite the drop in order activity, we continue to experience broad demand across our product lines and customer
base with our pick and place and gravity handlers benefiting in particular from continued demand from the
automotive and industrial segments. Demand for our thermal subsystems is being driven by the continuing
18
popularity of consumer products, including tablets and smartphones and the sustained improvement in the results
within our turret business are being driven largely by the consumer, mobility and solid state lighting markets. We
continue to be optimistic about the long-term prospects for the semiconductor equipment industry due to the
increasing technological functionality of mobile devices, growing integrated circuit content in automotive,
consumer and industrial applications, and the projected adoption of high brightness LEDs in general lighting.
Our microwave communications equipment segment comprised approximately 8% of our consolidated revenues
during the three-year period ended December 27, 2014 and were approximately 5% for the year ended December
27, 2014. Our microwave communications equipment segment 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 data. Applications for these microwave data-links include
unmanned aerial vehicles (“UAVs”), public safety, security, surveillance, electronic news gathering and live
broadcast television. Customers for these products are government agencies, public safety organizations, UAV
program contractors, television broadcasters and other commercial entities. During the fourth quarter of 2014, we
determined that the fair market value of our microwave communications reporting unit goodwill was lower than
its carrying value and, as a result, we recorded a non-cash, pre-tax impairment charge of $5.0 million, comprised
of $3.1 million of goodwill, and $1.9 million other assets. Additional information is included in Note 3,
“Microwave Communications Equipment Segment Impairment and Restructuring” in Part IV, Item 15(a) of this
Form 10-K.
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. 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
19
acceptance is deferred and recognized upon receipt of customer acceptance. For arrangements 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. 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.
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 27, 2014 was approximately
$44.2 million, with a valuation allowance of approximately $37.0 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 carry-
forwards.
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 goodwill impairment test as of October 1st of each year. As of October 1, 2014, we
concluded there was no impairment as the estimated fair values of our semiconductor equipment and microwave
communications reporting units exceeded their carrying values by approximately 35% and 17%, respectively.
Subsequent to our annual goodwill impairment test, in the fourth quarter of 2014, we determined an interim
analysis was required and as of December 27, 2014 concluded that the fair market value of our microwave
20
communications reporting unit goodwill was lower than its carrying value. As a result, we recorded a non-cash,
pre-tax impairment charge in the fourth quarter of 2014. Additional information is included in Note 3,
“Microwave Communications Equipment Segment Impairment and Restructuring” in Part IV, Item 15(a) of this
Form 10-K.
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. Share-based compensation on performance stock units with
market-based goals is calculated using a Monte Carlo simulation model on the date of the grant.
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
In June 2014, we sold our video camera segment, Cohu Electronics, and its operating results are being presented
as discontinued operations. All prior period amounts have been reclassified and unless otherwise indicated the
discussion below covers the comparative results from continuing operations. Additionally, on December 31,
2012, we purchased Ismeca and the results of its operations have been included in our consolidated financial
statements since that date.
The following table summarizes certain operating data as a percentage of net sales:
Net sales
Cost of sales
Gross margin
Research and development
Selling, general and administrative
Impairment of goodwill and other assets
Income (loss) from continuing operations
2014 Compared to 2013
Net Sales
2014
100.0 %
(66.3)%
33.7 %
(12.2)%
(17.3)%
(1.5)%
2.7 %
2013
100.0 %
(72.6)%
27.4 %
(20.1)%
(23.3)%
- %
(16.0)%
2012
100.0 %
(70.1)%
29.9 %
(16.3)%
(20.4)%
- %
(6.8)%
Cohu’s consolidated net sales increased 43.9% from $231.6 million in 2013 to $333.3 million in 2014. Our
semiconductor equipment segment generated sales totaling $316.6 million and increased 47.6% from 2013.
Semiconductor equipment sales represented 95.0% of consolidated net sales during 2014 versus 92.6% in the
prior year. Sales in 2014 benefitted from higher spending on test equipment which resulted in increased
shipments of our semiconductor equipment products used by automotive, mobile, consumer, discrete and
industrial semiconductor customers.
21
Sales of microwave communications equipment were $16.7 million, which represents 5.0% of consolidated net
sales in 2014 and decreased 2.2% compared to 2013.
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, increased to 33.7% in 2014
from 27.4% in 2013. Improvement in our gross margin, as compared to the prior year, was generated by our
semiconductor equipment segment and resulted from better operating leverage as a result of increased business
volume, the benefits from the transition of our supply chain and manufacturing activities to Asia, favorable
product mix and lower charges to cost of sales related to excess, obsolete and lower of cost or market inventory
adjustments. In addition, prior year gross margin was negatively impacted by $1.0 million of inventory step-up
costs recorded during the year and a one-time impact that resulted from the adoption of Cohu’s revenue
recognition policy.
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 2014 and 2013, we recorded net charges to cost of sales of
approximately $3.9 million and $7.8 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 27, 2014, 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. Our future operating results depend, to a considerable extent on our ability to maintain a
competitive advantage in the products we provide and historically we have maintained our commitment to
investing in R&D in order to be able to continue to offer new products to our customers. R&D expense in
2014 was $40.6 million or 12.2% of net sales decreasing from $46.5 million or 20.1% of net sales in 2013.
The decrease in 2014 was a result of product development programs that have concluded or are nearing
completion as planned, and cost control measures which were implemented throughout 2013 and 2014 within
both our semiconductor and microwave communications equipment segments.
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 decreased to 17.3% in 2014, from 23.3% in 2013, increasing from $54.1 million in 2013
to $57.5 million in 2014. In 2014 SG&A expense increased, in absolute dollars, as a result of increased business
volume within our semiconductor equipment segment and a $1.0 million increase in employee share based
compensation expense. In 2014, our SG&A expense also benefitted from the strengthening of the U.S. dollar and
we recorded $2.0 million in foreign currency translation gains. SG&A expense in 2014 included $2.2 million of
manufacturing transition and employee severance costs incurred in connection with the transitioning of some of
our semiconductor equipment manufacturing to Asia and the geographic consolidation of mobile microwave
communications equipment segment. SG&A expense in 2013 included $1.7 million of manufacturing transition
and severance costs and $0.4 million of acquisition related costs incurred in connection with completing the
purchase of Ismeca.
Impairment of Goodwill and Other Assets
Subsequent to the preparation of our annual impairment test as of October 1, 2014, as a result of changes to the
estimated market value of our microwave communications equipment reporting unit that occurred during the
fourth quarter, we determined it was necessary to evaluate the recoverability of the carrying value of this segment
as of December 27, 2014. For this analysis we utilized the market approach as the primary valuation method and
determined that the carrying value of our microwave communications equipment reporting unit exceeded its
current fair market value. As a result, we recorded a non-cash, pre-tax impairment charge of $5.0 million or 1.5%
of net sales. There were no similar charges recorded in any other period presented. Additional information can be
22
found in Note 3, “Microwave Communications Equipment Segment Impairment and Restructuring” in Part IV,
Item 15(a) of this Form 10-K.
Income Taxes
The income tax provision expressed as a percentage of pre-tax income in 2014 was 36.1% and income tax benefit
expressed as a percentage of pre-tax loss in 2013 was 7.6%. The income tax provision and benefit for the years
ended December 27, 2014 and December 28, 2013 differs from the U.S. federal statutory rate primarily due to tax
credits, changes in the valuation allowance on our deferred tax assets, foreign income taxed at different rates,
non-deductible goodwill impairment charge 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
allowance was required. A significant negative factor in our assessment was Cohu's three-year cumulative U.S.
loss history at the end of various fiscal periods including 2014.
As a result of our cumulative, three-year U.S. GAAP pretax loss from continuing operations of approximately
$43.2 million at the end of 2014, and our U.S. loss in 2014, we were unable to conclude at December 27, 2014
that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the realizability of our
DTAs at the end of each quarterly reporting period in 2015 and should circumstances change it is possible the
remaining valuation allowance, or a portion thereof, will be reversed in a future period.
Our valuation allowance on DTAs at December 27, 2014 and December 28, 2013 was approximately
$37.0 million and $36.1 million, respectively. The remaining gross DTAs for which a valuation allowance was
not recorded are realizable primarily through future reversals of existing taxable temporary differences. As the
realization of DTAs is determined by tax jurisdiction, the significant deferred tax liabilities recorded as part of the
2008 acquisition of Rasco, a German corporation, and the fiscal 2013 acquisition of Ismeca, a Swiss Corporation,
were 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, 2013, was not enacted into law until the first
quarter of 2013. Therefore, the tax benefit from the credits for 2012 and 2013 are reflected in our 2013 income
tax provision.
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 7, “Income Taxes”, included in Part IV, Item 15(a) of this Form 10-K,
which is incorporated herein by reference.
Income (loss) from Continuing Operations and Net Income (loss)
As a result of the factors set forth above, our income from continuing operations was $5.8 million in 2014,
compared to a loss of $34.3 million in 2013. Including the results of our discontinued video camera segment, our
net income in 2014 was $8.7 million as compared to a net loss of $33.4 million in 2013.
2013 Compared to 2012
Net Sales
Cohu’s consolidated net sales increased 12.3% from $206.3 million in 2012 to $231.6 million in 2013. Our
semiconductor equipment segment generated sales totaling $214.5 million and increased 19.5% from 2012.
Semiconductor equipment sales represented 92.6% of consolidated net sales during 2013 versus 87.0% in the
prior year. Sales recorded by our semiconductor equipment segment during 2013 include twelve months of
sales activity for Ismeca which were approximately $64.4 million. Semiconductor equipment sales in 2013
also benefitted from increased demand for gravity-feed equipment and MEMs modules which were offset by a
23
decrease in customer orders for pick-and-place test handler systems.
Sales of microwave communications equipment were $17.1 million, which represents 7.4% of consolidated net
sales in 2013 and decreased 36.5% compared to 2012. The decreased business volume within our microwave
communications equipment segment during 2013 was a result of U.S. government sequestration and budget
uncertainties which led to customer order delays and push outs for equipment to be used in security and
surveillance infrastructure projects that rely on federal funding.
Gross Margin
Our gross margin, as a percentage of net sales, decreased to 27.4% in 2013 from 29.9% in 2012. During 2013
our gross margin was negatively impacted by $0.3 million of manufacturing transition and severance costs
incurred as a result of moving certain manufacturing activities to Asia as part of our efforts to reduce costs and
streamline our operations. The acquisition of Ismeca also reduced 2013 gross margin due to $1.0 million of
inventory step-up costs recorded during the year and a one-time impact that resulted from the adoption of Cohu’s
revenue recognition policy. During 2013 and 2012, we recorded net charges to cost of sales of approximately
$7.8 million and $8.6 million, respectively, for excess and obsolete inventory.
R&D Expense
R&D expense in 2013 includes twelve months of costs for Ismeca. R&D expense in 2013 was $46.5 million or
20.1% of net sales increasing from $33.6 million or 16.3% of net sales in 2012. The increase in 2013 was a
result of $11.6 million in incremental R&D expense generated by Ismeca, as well as product development
expense incurred by our semiconductor equipment segment and $0.4 million of manufacturing transition and
severance costs incurred by our semiconductor equipment and microwave communications equipment
businesses.
SG&A Expense
SG&A expense as a percentage of net sales increased to 23.3% in 2013, from 20.4% in 2012, increasing from
$42.1 million in 2012 to $54.1 million in 2013. SG&A expense in 2013 included $12.6 million in incremental
SG&A expense generated by Ismeca and $1.7 million of manufacturing transition and severance costs. Also
included in SG&A are transaction costs totaling $0.4 million and $2.3 million in 2013 and 2012, respectively,
incurred in connection with our acquisition of Ismeca.
Income Taxes
The credit for income taxes expressed as a percentage of pre-tax loss was 7.6% in 2013 and 6.7% in 2012. The
credit for income taxes for the years ended December 28, 2013 and December 29, 2012 differs from the U.S.
federal statutory rate primarily due to tax credits, changes in the valuation allowance on our deferred tax assets,
foreign income taxed at different rates and other factors.
Our valuation allowance on DTAs at December 28, 2013 and December 29, 2012 was approximately
$36.1 million and $24.9 million, respectively.
Loss from Continuing Operations and Net Loss
As a result of the factors set forth above, our loss from continuing operations in 2013 and 2012 was $34.3 million
and $12.2 million, respectively. Including the results of our discontinued video segment, our net loss in 2013 and
2012 was $33.4 million and $12.1 million, respectively.
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 27, 2014, $47.4 million of our cash and cash equivalents
was held by our foreign subsidiaries. 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
24
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 27, 2014 and December 28, 2013:
(in thousands)
Cash, cash equivalents and short-term investments
Working capital
2014
$
72,040
$ 145,264
2013
$
52,868
$ 125,837
Increase
$
$
19,172
19,427
Percentage
Change
36 %
15 %
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 by
operating activities in 2014 totaled $19.7 million compared to $3.4 million in 2013. The increase in cash
provided by operating activities was primarily a result of our net income in the current year. Cash provided by
operating activities also was impacted by changes in current assets and liabilities and, excluding the impact of the
sale of Cohu Electronics, included increases in accounts receivable of $15.5 million; accrued compensation,
warranty and other liabilities of $6.1 million; inventories of $1.9 million; deferred profit of $1.4 million; other
current and non-current assets of $1.1 million and income taxes payable of $1.4 million. The increase in accounts
receivable resulted from a sequential increase in product shipments made by our semiconductor equipment
segment during the second half of 2014 and the timing of the resulting cash conversion cycle. Material purchases
made by our semiconductor equipment segment to fulfill orders for semiconductor equipment led to an increase
in our inventory balance and deferred profit increased due to revenue deferrals of semiconductor equipment
shipments made in accordance with our revenue recognition policy. The increases in accrued compensation,
warranty and other liabilities resulted from higher business volume, increased incentive compensation accruals,
the timing of cash payments made to our employees and the accrual of employee severance by our microwave
communication equipment segment related to its geographic consolidation plan. The increase in income taxes
payable is a result of an increase in taxable income generated in fiscal 2014.
Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures in support of our
businesses, proceeds from investment maturities, asset disposal and divestitures, and cash used for purchases of
investments and business acquisitions. Our net cash provided by investing activities in 2014 totaled $8.6 million
and was primarily the result of the sale of Cohu Electronics for $10.3 million. The decision to sell Cohu
Electronics resulted from Cohu management’s determination that this industry segment was no longer a strategic
fit within our organization. Additions to property, plant and equipment 2014 were $1.7 million and were made to
support the operating and development activities of our semiconductor equipment and microwave
communication businesses.
Financing Activities: Cash used in financing activities consisted of amounts distributed to our stockholders in
the form of cash dividends. During 2014, we paid dividends totaling $6.1 million, or $0.24 per common share.
On February 19, 2015 we announced a cash dividend of $0.06 per share on our common stock, payable on,
April 17, 2015 to stockholders of record as of March 3, 2015. 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. Offsetting cash used in the payment of dividends were the net proceeds from
the issuance of common stock under our equity incentive and employee stock purchase plans, which totaled
$1.9 million during 2014. We issue stock options and maintain an employee stock purchase plan as components
of our overall employee compensation.
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 27, 2014, we had approximately
$0.4 million of standby letters of credit outstanding. As a result of the acquisition of Ismeca, we have an
agreement with Credit Suisse (the “Ismeca Facility”) under which it administers a line of credit on behalf of
25
Ismeca. Total borrowings available under the Ismeca Facility is 0.5 million Swiss Francs and at December 27,
2014 no amounts were 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 27, 2014, 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 27, 2014. Amounts excluded include our
liability for unrecognized tax benefits that totaled approximately $10.8 million at December 27, 2014. 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 $ 1,270 $ 1,111 $
2015
2016
2017
2018
2019
Thereafter Total
958 $
676 $
385 $
1,155 $ 5,555
The table above does not include pension, post-retirement benefit and warranty obligations because it is not
certain when these liabilities will be funded. For additional information regarding our pension and post-
retirement benefits obligations see Note 6, “Employee Benefit Plans” and for more information on our
contractual obligations, see Note 11, “Guarantees” in Part IV, Item 15(a) of this Form 10-K.
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
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 27, 2014, the maximum potential amount of future
payments that we could be required to make under these standby letters of credit was approximately $0.4 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 27, 2014, our investment portfolio included short-term, fixed-income investment securities with
a fair value of approximately $1.2 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. As of December 27, 2014, we had no investments with loss positions.
26
Foreign Currency Exchange Risk.
We have operations in several foreign countries and conduct business in the local currency in these countries.
As a result, we have risk associated with currency fluctuations as the value of foreign currencies fluctuate
against the U.S. dollar, in particular the Swiss Franc, Euro, Malaysian Ringgit, Chinese Yuan and Philippine
Peso. These fluctuations can impact our reported earnings.
Fluctuations in currency exchange rates also impact the U.S. dollar amount of our net investment in foreign
operations. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange
rates in effect at the fiscal year-end balance sheet date. Income and expenses accounts are translated at an
average exchange rate during the year which approximates the rates in effect at the transaction dates. The
resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other
comprehensive income. The U.S. dollar strengthened relative to many foreign currencies as of December 27,
2014 compared to December 28, 2013 and consequently, our stockholders’ equity decreased by $14.1 million
as a result of the foreign currency translation.
Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. dollar as
compared to these currencies as of December 27, 2014 would result in an approximate $9.7 million positive
translation adjustment recorded in other comprehensive income within stockholders’ equity. Conversely, a
hypothetical 10% appreciation of the U.S. dollar as compared to these currencies as of December 27, 2014
would result in an approximate $9.7 million negative translation adjustment recorded in other comprehensive
income within stockholders’ equity.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is included in Part IV, Item 15(a).
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 27, 2014, 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
(2013 framework). Based on our evaluation under the framework in Internal Control - Integrated Framework,
our management concluded that our internal control over financial reporting was effective as of December 27,
2014.
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 27, 2014, 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 27, 2014, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). 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 27, 2014, 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 27, 2014 and December 28, 2013,
and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows
for each of the three years in the period ended December 27, 2014 of Cohu, Inc. and our report dated February
24, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 24, 2015
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 2014 that have materially affected, or
are reasonably likely to materially affect, or 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 2014.
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 2014.
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 2014.
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 2014.
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
2014.
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
Form 10-K
Page Number
Consolidated Balance Sheets at
December 27, 2014 and December 28, 2013 ......................................................................... 31
Consolidated Statements of Operations for each of the three
years in the period ended December 27, 2014 ........................................................................ 32
Consolidated Statements of Comprehensive Loss for each of the three
years in the period ended December 27, 2014 ........................................................................ 33
Consolidated Statements of Stockholders’ Equity for each of
the three years in the period ended December 27, 2014 ........................................................ 34
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 27, 2014 ........................................................................ 35
Notes to Consolidated Financial Statements ............................................................................. 36
Report of Independent Registered Public Accounting Firm ..................................................... 57
(2) Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts .................................................................... 61
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
Current assets of discontinued video camera segment (Note 2)
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
Noncurrent assets of discontinued video camera segment (Note 2)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued compensation and benefits
Accrued warranty
Deferred profit
Income taxes payable
Other accrued liabilities
Current liabilities of discontinued video camera segment (Note 2)
Total current liabilities
Accrued retirement benefits
Noncurrent income tax 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, 25,692
shares issued and outstanding in 2014 and 25,080 shares in 2013
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 27,
2014
December 28,
2013
$
$
70,885
1,155
73,646
51,668
1,200
58,164
26,734
21,738
7,073
55,545
4,406
9,180
-
214,817
11,762
31,123
42,352
85,237
(53,383)
31,854
63,132
33,087
5,928
-
348,818
25,964
19,643
6,184
7,445
3,133
7,184
-
69,553
13,815
7,321
11,061
$
$
27,668
16,941
10,800
55,409
5,516
8,619
6,272
186,848
12,285
31,731
42,105
86,121
(50,325)
35,796
71,313
45,315
5,720
431
345,423
25,292
14,271
5,155
6,066
805
7,675
1,747
61,011
10,841
7,463
12,948
$
$
-
-
25,692
97,938
134,152
(10,714)
247,068
348,818
$
25,080
89,883
131,546
6,651
253,160
345,423
$
(cid:3) COHU, INC.(cid:3)
(cid:3) CONSOLIDATED STATEMENTS OF OPERATIONS(cid:3)
(cid:3) (in thousands, except per share amounts)(cid:3)
December 27,
2014
Years ended
December 28,
2013
December 29,
2012
$
333,323
$
231,574
$
206,312
Net sales
Cost and expenses:
Cost of sales
Research and development
Selling, general and administrative
Impairment of goodwill and other assets (Note 3)
Income (loss) from operations
Interest and other from continuing operations, net
Income (loss) from continuing operations before taxes
Income tax provision (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax (Note 2)
Net income (loss)
$
221,088
40,601
57,536
5,000
324,225
9,098
30
9,128
3,293
5,835
2,873
8,708
$
168,186
46,452
54,053
-
268,691
(37,117)
54
(37,063)
(2,803)
(34,260)
842
(33,418) $
144,590
33,564
42,121
-
220,275
(13,963)
967
(12,996)
(874)
(12,122)
(121)
(12,243)
Income (loss) per share:
Basic:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Diluted:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Weighted average shares used in computing
income (loss) per share:
Basic
Diluted
$
$
$
$
0.23
0.11
0.34
$
$
(1.37) $
0.03
(1.34) $
0.22
0.11
0.33
$
$
(1.37) $
0.03
(1.34) $
(0.50)
-
(0.50)
(0.50)
-
(0.50)
25,393
26,006
24,859
24,859
24,459
24,459
The accompanying notes are an integral part of these statements.
32
(cid:3) COHU, INC.(cid:3)
(cid:3) CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(cid:3)
(cid:3) (in thousands)(cid:3)
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 loss
December 27,
2014
Years ended
December 28,
December 29,
2013
2012
$
8,708
$
(33,418)
$
(12,243)
(14,107)
(3,258)
-
(17,365)
(8,657)
$
3,270
1,604
(6)
4,868
(28,550)
$
1,689
122
(16)
1,795
(10,448)
$
The accompanying notes are an integral part of these statements.
33
(cid:3) COHU, INC.(cid:3)
(cid:3) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(cid:3)
(cid:3) (in thousands, except par value and per share amounts)(cid:3)
Balance at December 31, 2011
Net loss
Changes in cumulative translation adjustment
Adjustments related to postretirement
benefits, net of tax
Changes in unrealized gains and losses on
investments, net of tax
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
Net loss
Changes in cumulative translation adjustment
(cid:3) (cid:3)(cid:3) Adjustments related to postretirement (cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) benefits, net of tax
(cid:3) (cid:3)(cid:3) Changes in unrealized gains and losses on (cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) investments, net of tax
(cid:3) (cid:3)(cid:3) Cash dividends - $0.24 per share(cid:3)
(cid:3) (cid:3)(cid:3) Exercise of stock options(cid:3)
(cid:3) (cid:3)(cid:3) Shares issued under employee stock purchase plan(cid:3)
(cid:3) (cid:3)(cid:3) Shares issued for restricted stock units vested (cid:3)
(cid:3) (cid:3)(cid:3) Repurchase and retirement of stock(cid:3)
(cid:3) (cid:3)(cid:3) Share-based compensation expense(cid:3)
(cid:3) Balance at December 28, 2013(cid:3)
(cid:3) (cid:3)(cid:3) Net income(cid:3)
(cid:3) (cid:3)(cid:3) Changes in cumulative translation adjustment(cid:3)
(cid:3) (cid:3)(cid:3) Adjustments related to postretirement (cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) benefits, net of tax
(cid:3) (cid:3)(cid:3) Cash dividends - $0.24 per share(cid:3)
(cid:3) (cid:3)(cid:3) Exercise of stock options(cid:3)
(cid:3) (cid:3)(cid:3) Shares issued under employee stock purchase plan(cid:3)
(cid:3) (cid:3)(cid:3) Shares issued for restricted stock units vested (cid:3)
(cid:3) (cid:3)(cid:3) Repurchase and retirement of stock(cid:3)
(cid:3) (cid:3)(cid:3) Share-based compensation expense(cid:3)
(cid:3) Balance at December 27, 2014(cid:3)
$
Common
stock
$1 par value
$
24,330 $
Paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
77,658 $
-
-
-
-
-
536
1,100
(108)
(260)
4,621
83,547
-
-
189,055 $
(12,243)
-
(12) $
-
1,689
Total
291,031
(12,243)
1,689
-
122
122
-
(5,875)
-
-
-
-
-
170,937
(33,418)
-
(16)
-
-
-
-
-
-
1,783
-
3,270
(16)
(5,875)
609
1,252
-
(291)
4,621
280,899
(33,418)
3,270
-
-
-
-
-
73
152
108
(31)
-
24,632
-
-
-
-
-
1,604
1,604
-
-
117
163
249
(81)
-
25,080
-
-
-
-
237
139
353
(117)
-
25,692 $
-
-
769
1,088
(249)
(740)
5,468
89,883
-
-
-
-
1,764
1,001
(353)
(1,133)
6,776
97,938 $
-
(5,973)
-
-
-
-
-
131,546
8,708
-
-
(6,102)
-
-
-
-
-
134,152 (cid:3) $(cid:3)
(6)
-
-
-
-
-
-
6,651
-
(14,107)
(3,258)
-
-
-
-
-
-
(10,714) $
(6)
(5,973)
886
1,251
-
(821)
5,468
253,160
8,708
(14,107)
(3,258)
(6,102)
2,001
1,140
-
(1,250)
6,776
247,068
The accompanying notes are an integral part of these statements.
34
COHU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended
December 27, December 28, December 29,
2013
2014
2012
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on disposal of video camera segment
Impairment of goodwill and other assets (Note 3)
Operating cash flows of discontinued operations
Depreciation and amortization
Share-based compensation expense
Gain on sale of facility
Deferred income taxes
Accrued retiree benefits
Changes in current assets and liabilities, excluding effects from
acquisitions, divestitures and impairments:
Accounts receivable
Accrued compensation, warranty and other liabilities
Inventories
Deferred profit
Other current and non-current assets
Income taxes payable, including excess stock option exercise benefits
Accounts payable
Net cash provided by operating activities
Cash flows from investing activities, excluding effects from
acquisitions, divestitures and impairments:
Cash received from sale of video camera segment, net
Sales and maturities of short-term investments
Purchases of short-term investments
Purchases of property, plant and equipment
Payment for purchase of Ismeca, net of cash received
Payment for purchase of Duma Video, Inc.
Cash received from facility sale
Other assets
Investing cash flows of discontinued operations
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Cash dividends paid
Issuance of stock, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) 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
$
8,708 $
(33,418) $
(12,243)
(4,434)
5,000
(694)
13,528
6,585
-
(487)
659
(15,484)
6,121
(1,850)
1,379
(1,083)
1,410
320
19,678
10,258
1,045
(1,000)
(1,660)
-
-
-
-
(6)
8,637
(6,067)
1,891
(4,176)
(4,922)
19,217
51,668
70,885 $
-
-
2,316
13,328
5,346
-
(2,132)
130
(2,357)
(1,583)
11,884
3,833
(569)
156
6,483
3,417
-
6,221
-
(3,874)
(53,463)
-
-
(176)
(34)
(51,326)
(4,468)
1,316
(3,152)
(79)
(51,140)
102,808
51,668 $
-
-
1,686
9,215
4,499
(677)
581
(91)
3,215
(6,476)
19,697
(682)
945
(1,662)
(4,838)
13,169
-
84,780
(40,461)
(3,240)
-
(900)
1,080
(66)
(27)
41,166
(7,333)
1,570
(5,763)
974
49,546
53,262
102,808
971 $
1,301 $
1,539 $
(900) $
657 $
1,504 $
711
567
-
$
$
$
$
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 and microwave communications systems. 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 27, 2014, December 28, 2013 and December 29, 2012 each consisted of 52 weeks.
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.
Discontinued Operations – On June 6, 2014 we completed the sale of substantially all of the assets of our video
camera segment, Cohu Electronics, and its operating results are being presented as discontinued operations and
all prior period amounts have been reclassified accordingly. See Note 2, “Disposal of Video Camera Segment”
for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.
Income (Loss) Per Share – Basic income (loss) per common share is computed by dividing net income (loss) by
the weighted-average number of common shares outstanding during the reporting period. Diluted income 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 year ended December 27, 2014 approximately 1,771,000 shares of our common stock were excluded
from the computation.
The following table reconciles the denominators used in computing basic and diluted income (loss) per share:
(in thousands)
Weighted average common shares outstanding
Effect of dilutive stock options and restricted stock units
2014
25,393
613
26,006
2013
24,859
-
24,859
2012
24,459
-
24,459
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
27, 2014 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.
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.
36
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million at December 27,
2014 and $0.5 million at December 28, 2013. 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 27, 2014, 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 $3.9 million, $7.8 million, and
$8.6 million in 2014, 2013 and 2012, 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 goodwill impairment test as of October 1st of each year. As of October 1, 2014, we
concluded there was no impairment as the estimated fair values of our semiconductor equipment and microwave
communications reporting units exceeded their carrying values by approximately 35% and 17%, respectively.
Subsequent to our annual goodwill impairment test, in the fourth quarter of 2014, we determined an interim
analysis was required and as of December 27, 2014 concluded that the fair market value of our microwave
communications reporting unit goodwill was lower than its carrying value. As a result, we recorded a non-cash,
pre-tax impairment charge of $5.0 million, comprised of $3.1 million of goodwill, and $1.9 million other assets in
the fourth quarter of 2014. Additional information is included in Note 3, “Microwave Communications
Equipment Segment Impairment and Restructuring”.
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 assets 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.
37
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes – We assess our income tax positions and record tax benefits for all years subject to examination
based upon management’s evaluation of the facts, circumstances and information available at the reporting dates.
For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the
largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant information. For those income tax positions where
it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the
financial statements. Where applicable, associated interest and penalties have also been recognized and recorded,
net of federal and state tax benefits, in income tax expense.
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, 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.
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 27, 2014, we had total
deferred revenue of approximately $11.3 million and deferred profit of $7.4 million. At December 28, 2013, we
had total deferred revenue of approximately $7.4 million and deferred profit of $6.1 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.
38
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Certain of our foreign subsidiaries have designated the local currency as
their functional currency and, as a result, their assets and liabilities are translated at the rate of exchange at the
balance sheet date, while revenue and expenses are translated using the average exchange rate for the period.
During 2014 strengthening of the U.S. dollar, against primarily the Swiss Franc and Euro resulted in
approximately $2.0 million of gains being recognized in our consolidated statement of operations. Gains and
losses were not significant in any of the other periods presented. Cumulative translation adjustments resulting
from the translation of the financial statements are included as a separate component of stockholders’ equity.
Comprehensive Income (Loss) – Our accumulated other comprehensive loss totaled approximately
$10.7 million at December 27, 2014 and at December 28, 2013 our other comprehensive income totaled
approximately $6.7 million and was attributed to, net of income taxes where applicable; foreign currency
adjustments resulting from the translation of certain accounts into U.S. dollars, unrealized losses and gains on
investments and adjustments to accumulated postretirement benefit obligations. The U.S. dollar strengthened
relative to many foreign currencies as of December 27, 2014 compared to December 28, 2013. Consequently,
accumulated comprehensive income decreased by $14.1 million as a result of the foreign currency translation as
of December 27, 2014. Additional information related to accumulated other comprehensive income, on an
after-tax basis is included in Note 12.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements – In July 2013, the Financial Accounting Standards Board
(“FASB”) issued guidance on the presentation of an unrecognized tax benefit when a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward exists. This amendment to previous income tax
guidance clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward,
a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the
uncertain tax benefit is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a
tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or
the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for
such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and
should not be netted with the deferred tax asset. These amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments
should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective
application is permitted. The adoption of this new guidance in the first quarter of fiscal 2014 did not have a
material impact on our consolidated financial position, results of operations or cash flows.
In March 2013, the FASB issued guidance on a parent company’s accounting for the cumulative translation
adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance
requires that the parent release any related cumulative translation adjustment into net income only if the sale or
transfer results in the complete or substantially complete liquidation of the foreign entity in which the
subsidiary or group of assets had resided. The amendments will be effective for fiscal years and interim
periods starting after December 15, 2013 with early adoption permitted. The adoption of this new guidance in
the first quarter of fiscal 2014 did not have a material impact on our consolidated financial position, results of
operations or cash flows.
In April 2014, the FASB issued new guidance on reporting discontinued operations and disclosures of
disposals of components of an entity, which amends the existing definition of a discontinued operation and
requires entities to disclose additional information about disposal transactions that do not meet the
discontinued operations criteria. The guidance redefines a discontinued operation as a component or group of
components of an entity that has been disposed of by sale or other than by sale or is classified as held for sale
and represents a strategic shift that has a major effect on an entity’s operations and financial results. The
39
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
guidance is effective prospectively for disposals or components classified as held for sale in periods on or after
December 15, 2014 with early adoption permitted. Cohu elected to implement this new guidance in the second
quarter of fiscal 2014 and the adoption did not have a material impact on our consolidated financial position,
results of operations or cash flows.
Recently Issued Accounting Pronouncements – In May 2014, the FASB issued new guidance on revenue
from contracts with customers. The amended guidance outlines a single comprehensive revenue model for
entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most
current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue
model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.” Entities have the option of using either a full retrospective or modified approach to adopt the
guidance. This guidance is effective for fiscal years, and interim reporting periods within those years,
beginning after December 15, 2016. Early adoption is not permitted. We are still evaluating the impact this
new guidance might have on our consolidated financial position, results of operations or cash flows.
In August 2014, the FASB issued new guidance on going concern, which requires management to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide
related footnote disclosures in certain circumstances. This guidance is effective for annual and interim periods
beginning after December 15, 2016 with early adoption permitted. We do not believe the adoption of this
guidance will have a material impact on our consolidated financial statements.
2. Disposal of Video Camera Segment (Cohu Electronics)
On June 6, 2014, we completed the sale of substantially all the assets of our video camera segment. Our decision
to sell resulted from management’s determination that this industry segment was no longer a strategic fit within
our organization. The sales price was $9.5 million in cash and included up to $0.5 million in contingent
consideration and a working capital adjustment. In connection with the sale we incurred $0.8 million of
divestiture-related costs that would not have been incurred otherwise. These costs, which are netted against the
gain on disposal presented below consist of legal advisory services, success based compensation arrangements
and certain other items that are incremental to normal operating charges and were expensed as incurred.
Balance sheet information of our discontinued video camera segment is summarized as follows (in thousands):
Assets:
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Total assets
Liabilities:
Accounts payable
Other accrued current liabilities
Total liabilities
December 27,
2014
December 28,
2013
$
$
$
$
-
-
-
-
-
-
-
-
-
$
$
$
$
2,597
3,568
107
6,272
431
6,703
730
1,017
1,747
Operating results of our discontinued video camera segment is summarized as follows:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Net sales(cid:3)
Operating income (loss) before income taxes(cid:3)
Gain on disposal of video camera segment(cid:3)
Income tax provision (benefit)(cid:3)
Income from discontinued operations, net of taxes(cid:3) $
$
$
2014
5,460
(242)
4,434
1,319
2,873
2013
15,726
1,317
-
475
842
$
$
$
2012
14,850
(121)
-
-
(121)
$
$
$
40
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the fourth quarter of fiscal 2014 we revised the fair value contingent consideration to be earned pursuant to the
definitive agreement by $0.3 million as a result of the achievement of certain milestones. This adjustment in the
fair value of the contingent consideration has been included in the gain on disposal of video camera segment
presented above.
3. Microwave Communications Equipment Segment Impairment and Restructuring
Impairment of Goodwill and Other Assets
We are required to assess goodwill impairment using the methodology prescribed by Accounting Standards
Codification No. 350, Intangible–Goodwill and Other (“ASC 350”), which requires that we evaluate goodwill for
impairment annually. We conduct our annual impairment test as of October 1st of each year and as of October 1,
2014 we previously determined there was no impairment as the estimated fair values of our semiconductor
equipment and microwave communications reporting units exceeded their carrying values by approximately 35%
and 17%, respectively. In addition to the annual goodwill impairment test, an interim test for impairment is
required to be completed when an event occurs or circumstances change between annual tests that would more
likely than not reduce the fair value of the reporting unit below its carrying value.
ASC 350 requires a two-step impairment test to identify and measure any goodwill impairment loss. The first
step is used to identify potential impairment and compares the fair value of a reporting unit with its carrying
(book) value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is
not considered impaired and the second step of the test is not necessary. The second step of the impairment test is
used to measure the amount of the impairment loss and compares the implied fair value of reporting unit goodwill
with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Subsequent to the preparation of our annual impairment test, as a result of changes to the estimated market value
of our microwave communications equipment reporting unit that occurred during the fourth quarter, we
determined it was necessary to evaluate the recoverability of the carrying value of this segment as of December
27, 2014. For this analysis we utilized the market approach as the primary valuation method. The market
approach is one of the three methodologies (along with the income approach and asset approach) that are used to
estimate enterprise and equity value. The market approach employs analysis using comparable transactions in
determining the value of the entity. Both public and private companies, if publicly available information exists,
are considered in the market approach. Two information points commonly available – company valuation and
transaction value – are used for their respective methodologies. The three main methods utilized under the market
approach are: The Guideline Public Company Method, The Guideline Transactions Method and The Backsolve
Method.
Utilizing the results of the market approach analysis, we determined that the carrying value of our microwave
communications equipment reporting unit exceeded its current fair market value and, as a result, we recorded a
non-cash, pre-tax impairment charge of $5.0 million as of December 27, 2014. The asset impairments we
recorded were comprised of $3.1 million of goodwill and $1.9 million of other assets.
Geographic Consolidation
In 2014 BMS substantially completed a geographic consolidation restructuring plan to relocate the
manufacturing, engineering and administrative function of its German operation to its headquarters facility in
Poway, California. In 2014 BMS recorded charges to operations totaling $0.5 million for severance and one-time
termination benefits. These charges are included in cost of sales $0.1 million, research and development
$0.2 million and selling, general and administrative expense $0.2 million. We anticipate that the remaining
amounts accrued at December 27, 2014 will be settled in the first quarter of fiscal 2015.
41
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles amounts accrued and paid under the consolidation plan (in thousands):
Balance, December 28, 2013
Costs accrued
Amounts paid or charged
Impact of currency exchange
Balance, December 27, 2014
Severance and
Other Payroll
$
-
524
(249)
(44)
231
$
4. Strategic Technology Transactions, Goodwill and Purchased Intangible Assets
Acquisition of Ismeca
On December 31, 2012, we acquired all of the outstanding share capital of Ismeca Semiconductor Holding SA
(“Ismeca”). 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 integrated circuits, light emitting diodes (LEDs) and discrete components. The acquisition of
Ismeca was a strategic transaction to expand our semiconductor total available market, extend our market
leadership, expand our customer base, and broaden our product and technology offerings.(cid:3)(cid:3)
The purchase price of this acquisition was approximately $90.8 million, and was funded primarily by cash
reserves ($57.1 million) and certain liabilities assumed ($33.7 million). Total consideration was allocated to
the assets acquired and liabilities assumed based on their estimated respective fair values as of the completion
of the acquisition. Amounts allocated to intangible assets are being amortized on a straight-line basis over
their useful lives as noted below. The acquisition was nontaxable and certain of the assets acquired, including
goodwill and intangibles, will generally not be deductible for tax purposes. Goodwill associated with the
acquisition was primarily attributable to the opportunities from the addition of Ismeca’s products and was
assigned to our semiconductor equipment segment.
Changes in the carrying value of goodwill by reportable segment during the years ended December 27, 2014 and
December 28, 2013 were as follows (in thousands):
Semiconductor
Equipment
Microwave
Communications
Total
Goodwill
Balance, December 29, 2012
Additions net of adjustments
Impact of currency exchange
Balance, December 28, 2013
Impact of currency exchange
Impairment of goodwill - (See Note 3)
Balance, December 27, 2014
$
$
55,520 $
10,930
1,533
67,983
(4,851)
-
63,132 $
3,236 $
-
94
3,330
(275)
(3,055)
- $
58,756
10,930
1,627
71,313
(5,126)
(3,055)
63,132
Purchased intangible assets, subject to amortization, are as follows (in thousands):
December 27, 2014
Gross Carrying Accumulated
Amortization
Amount
December 28, 2013
Remaining Gross Carrying Accumulated
Amortization
Useful Life
Amount
Rasco technology
Ismeca technology
Duma technology
$
$
29,845 $
27,014
864
57,723 $
22,616 2.0 years $
6,879 6.0 years
864 0.0 years
$
30,359
33,689 $
29,915
864
64,468 $
21,319
3,809
408
25,536
In connection with the impairment of our microwave communications equipment reporting unit we wrote off the
remaining $0.2 million net book value of Duma technology as of December 27, 2014, this impairment is included
in the accumulated amortization in the table above. The amounts included in the table above at December 27,
42
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2014, exclude approximately $2.1 million and $3.6 million, related to the trade names of Rasco and Ismeca,
respectively, and at December 28, 2013 exclude approximately $2.4 million and $4.0 million, respectively.
These trade names have an indefinite life and are not being amortized. Changes in the carrying values of
purchased intangible assets are a result of the impact of fluctuation in currency exchange rates.
Amortization expense related to purchased intangible assets was approximately $8.1 million in both 2014 and
2013 and $4.1 million in 2012. As of December 27, 2014, we expect amortization expense in future periods to be
as follows: 2015 - $7.2 million; 2016 - $6.8 million; 2017 - $3.3 million; 2018 - $3.3 million 2019 - $3.3 million;
and thereafter $3.4 million.
5. 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):
At December 27, 2014
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Amortized
Cost
Estimated
Fair
Value
Municipal securities
Bank certificates of deposit
Municipal securities
$
$
$
155 $
1,000
1,155 $
- $
-
- $
- $
-
- $
155
1,000
1,155
At December 28, 2013
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Estimated
Fair
Value
Amortized
Cost
1,200 $
-
$
-
$
1,200
Effective maturities of short-term investments at December 27, 2014, were as follows:
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Due in one year or less(cid:3)
Amortized
Cost
$
1,155 $
Estimated
Fair Value
1,155
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 2034. These securities can be used for short-term liquidity needs and are held for limited periods of time.
At December 27, 2014 these securities had amortized cost and fair value of $0.2 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
43
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 27, 2014 using:
Level 1
Level 2
Level 3
Cash
Municipal securities
Money market funds
Bank certificates of deposit
$
$
66,467
-
-
-
66,467
$
$
-
155
4,418
1,000
5,573
$
$
Total estimated
fair value
-
-
-
-
-
$
$
66,467
155
4,418
1,000
72,040
Fair value measurements at December 28, 2013 using:
Level 1
Level 2
Level 3
Cash
Municipal securities
Money market funds
$
$
44,165
-
-
44,165
$
$
-
1,200
7,503
8,703
$
$
Total estimated
fair value
-
-
-
-
$
$
44,165
1,200
7,503
52,868
6. Employee Benefit Plans
Defined Contribution Retirement Plans – We have a voluntary defined contribution retirement 401(k) plan
whereby we match employee contributions. In 2012 and 2013 we provided a matching contribution at 1.5% and
made contributions to the plan of approximately $0.4 million in both periods. In 2014 we increased our matching
contribution to 3% and made contributions to the plan of approximately $0.8 million.
Defined Benefit Retirement Plans – We maintain defined benefit plans for employees located outside the U.S.
for which the majority of the obligations and net periodic benefit cost were determined to be immaterial at both
December 27, 2014 and December 28, 2013. As a result of the acquisition of Ismeca effective December 31,
2012, we took over the Ismeca Europe Semiconductor BVG Pension Plan in Switzerland (“the Swiss Plan”) and
the following discussion relates to the Swiss Plan for the years ended December 27, 2014 and December 28,
2013.
Net periodic benefit cost of the Swiss Plan was as follows:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Service cost(cid:3)
Interest cost(cid:3)
Expected return on assets(cid:3)
(cid:3)(cid:3) Net periodic costs(cid:3)
2014
2013
$
$
749 $
491
(343)
897 $
841
398
(267)
972
44
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the projected benefit obligation, the fair value of plan assets, the funded status and
the liability we have recorded in our consolidated balance sheet related to the Swiss Plan:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(in thousands)(cid:3)
Change in projected benefit obligation:(cid:3)
Benefit obligation at beginning of year(cid:3)
(cid:3)(cid:3) Service cost(cid:3)
(cid:3)(cid:3) Interest cost(cid:3)
(cid:3)(cid:3) Actuarial gain (loss)(cid:3)
(cid:3)(cid:3) Participant contributions(cid:3)
(cid:3)(cid:3) Benefits paid(cid:3)
(cid:3)(cid:3) Foreign currency exchange adjustment(cid:3)
Benefit obligation at end of year(cid:3)
Change in plan assets:(cid:3)
Fair value of plan assets at beginning of year(cid:3)
(cid:3)(cid:3) Return on assets, net of actuarial loss(cid:3)
(cid:3)(cid:3) Employer contributions(cid:3)
(cid:3)(cid:3) Participant contributions(cid:3)
(cid:3)(cid:3) Benefits paid(cid:3)
(cid:3)(cid:3) Foreign currency exchange adjustment(cid:3)
Fair value of plan assets at end of year(cid:3)
2014
2013
$ (23,850) $ (23,541)
(841)
(398)
1,538
(751)
704
(561)
(23,850)
(749)
(491)
(3,649)
(728)
998
2,442
(26,027)
16,083
652
728
728
(998)
(1,590)
15,603
15,236
(338)
751
751
(704)
387
16,083
Net liability at December 27, 2014(cid:3)
$ (10,424) $
(7,767)
At December 27, 2014 and December 28, 2013, the Swiss Plan was underfunded and the related net liability is
included in noncurrent accrued retirement benefits. Amounts recognized in accumulated other comprehensive
income at December 27, 2014 related to the Swiss Plan consisted of an unrecognized net actuarial loss totaling
$2.4 million compared to a net gain totaling $1.0 million at December 28, 2013.
Weighted-average actuarial assumptions used to determine the benefit obligation under the Swiss Plan are as
follows:
(cid:3)
(cid:3) Discount rate
(cid:3) Compensation increase
(cid:3)
2.3%(cid:3)
2.0%(cid:3)
(cid:3)
1.3%(cid:3)
1.8%(cid:3)
(cid:3)
Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows:
2013
2014
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Discount rate(cid:3)
Rate of return on Assets(cid:3)
Compensation increase(cid:3)
2014
2013
(cid:3)
(cid:3)
(cid:3)
2.3%(cid:3)
2.3%(cid:3)
2.0%(cid:3)
1.8%(cid:3)
1.8%(cid:3)
2.0%(cid:3)
During 2015 employer and employee respective contributions to the Swiss Plan are expected to total $0.7 million.
Estimated benefit payments are expected to be as follows: 2015 - $0.7 million; 2016 - $0.7 million; 2017 -
$0.7 million; 2018 - $0.7 million; 2019 - $0.8 million; and $5.5 million thereafter through 2024.
As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple
employers. We have no investment authority over the assets of the plan that are held and invested by a Swiss
insurance company. Investment holdings are made with respect to Swiss laws and target allocations for plan
assets are 76% debt securities, 11% real estate investments, 9% alternative investments, 3% cash and 1% equity
securities. All assets of the plan fall within Level 2 of the fair value hierarchy. See Note 5 for a description of the
levels of inputs used to determine fair value measurement.
45
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retiree Medical Benefits – We provide post-retirement health benefits to certain executives and directors under
a noncontributory plan. The net periodic benefit income was $0.1 million in 2014 compared to a net periodic
benefit cost of $0.1 million and $0.3 million in 2013 and 2012, 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
3.8% in 2014, 4.6% in 2013 and 3.7% in 2012. Annual rates of increase of the cost of health benefits were
assumed to be 8.0% in 2015. 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 2014 net periodic benefit cost by approximately $14,000 ($11,000) and the accumulated post-
retirement benefit obligation as of December 27, 2014, by approximately $363,000 ($297,000).
The following table sets forth the post-retirement benefit obligation, funded status and the liability we have
recorded in our consolidated balance sheets:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Accumulated benefit obligation at beginning of year(cid:3)
(cid:3)(cid:3) Service cost(cid:3)
(cid:3)(cid:3) Interest cost(cid:3)
(cid:3)(cid:3) Actuarial (gain) loss(cid:3)
(cid:3)(cid:3) Benefits paid(cid:3)
Accumulated benefit obligation at end of year(cid:3)
Plan assets at end of year(cid:3)
Funded status(cid:3)
2014
2013
$
$
2,021
13
91
370
(67)
2,428
-
(2,428)
$
$
2,366
15
86
(386)
(60)
2,021
-
(2,021)
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 27, 2014 and December 28, 2013, the
payroll liability to participants, included in accrued compensation and benefits in the consolidated balance
sheet, was approximately $2.6 million and $2.4 million and the cash surrender value of the related life
insurance policies included in other current assets was approximately $2.3 million and $2.1 million,
respectively.
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 2014, 2013, and 2012,
138,831, 163,120 and 151,812 shares, respectively, were issued under the Plan. At December 27, 2014, there
were 183,591 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 27, 2014, 992,666 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.
46
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity under our share-based compensation plans was as follows:
2014
2013
2012
(in thousands, except per share data)
Outstanding, beginning of year
Granted
Exercised
Cancelled
Outstanding, end of year
Shares
Wt. Avg.
Ex. Price
11.93
12.58
8.43
15.37
11.67
3,086 $
10 $
(237) $
(424) $
2,435 $
Wt. Avg.
Ex. Price
Shares
12.62
$
3,113
9.83
470
$
7.55
(117) $
16.37
(380) $
11.93
$
3,086
Shares
Wt. Avg.
Ex. Price
13.01
10.50
8.26
14.29
12.62
3,112 $
437 $
(73) $
(363) $
3,113 $
Options exercisable at year end
1,901 $
12.08
2,195
$
12.46
2,209 $
13.52
The aggregate intrinsic value of options exercised during 2014, 2013 and 2012 was approximately $0.7 million,
$0.4 million, and $0.2 million, respectively. At December 27, 2014, the aggregate intrinsic value of options
outstanding, vested and expected to vest were each approximately $4.4 million and the aggregate intrinsic value
of options exercisable was approximately $3.4 million.
Information about stock options outstanding at December 27, 2014 is as follows (options in thousands):
Options Outstanding
Approximate
Options Exercisable
Range of
Exercise Prices
7.32 - $ 10.98
10.99 - $ 16.49
16.50 - $ 24.74
24.75 - $ 37.13
$
$
$
$
Wt. Avg.
Number Remaining
Wt. Avg.
Outstanding Life (Years) Ex. Price
8.86
14.95
17.31
25.70
11.67
6.2 $
4.2 $
0.7 $
0.6 $
5.0 $
1,402
814
214
5
2,435
Number
Wt. Avg.
Exercisable Ex. Price
$
898
8.22
$ 14.98
784
$ 17.31
214
$ 25.70
5
$ 12.08
1,901
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:
2014
2013
2012
(in thousands, except per share data)
Outstanding, beginning of year
Granted
Released
Cancelled
Outstanding, end of year
Units
Wt. Avg.
Fair Value
9.46
10.07
10.16
9.41
9.54
887 $
497 $
(315) $
(43) $
1,026 $
Units
Wt. Avg.
Fair Value
10.54
8.80
10.86
9.86
9.46
615 $
531 $
(223) $
(36) $
887 $
Wt. Avg.
Units Fair Value
12.98
9.57
13.27
13.92
10.54
299 $
462 $
(108) $
(38) $
615 $
Equity-Based Performance Stock Units – In March 2012, we began granting equity-based performance units
covering shares of our common stock to certain employees. The number of shares of stock ultimately issued will
depend upon the extent to which certain financial performance goals set by our Board of Directors are met during
the one-year award measurement period. Based upon the level of achievement of performance goals the number
of shares we ultimately issue can range from 0% up to 150% of the number of shares under each grant which vest
over 3 years from the date of initial grant. On March 25, 2014, we awarded equity-based performance stock units
to senior executives with vesting that is contingent on the level of achievement of certain performance goals,
market return and continued service (“market-based PSUs”). The market-based PSUs issued in 2014 are subject
to a one-year performance period after which the number of market-based PSUs earned will be determined and
47
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
will then be subject to certain adjustments resulting from performance of Cohu’s Relative Total Shareholder
Return (“TSR”) to a selected peer group over a two year measurement period following the date of grant with the
total adjustment ranging from 75% to 125% of the target amount based on the percentage by which our TSR
exceeds or falls below the selected peer group. Market-based PSUs earned will vest at the rate of 50% on the
second and third anniversary of their grant. We estimated the fair value of market-based PSUs using a Monte
Carlo simulation model on the date of grant. Compensation expense is recognized ratably over the measurement
period. We record a provision for equity-based performance units outstanding based on our current assessment of
achievement of the performance goals. New shares of our common stock will be issued on the date the equity-
based performance units vest.
Performance based stock unit activity under our share-based compensation plans was as follows:
2014
2013
2012
(in thousands, except per share data)
Outstanding, beginning of year
Granted
Released
Cancelled
Outstanding, end of year
Units
Wt. Avg.
Fair Value
9.32
11.34
9.52
9.59
10.49
238 $
208 $
(38) $
(74) $
334 $
Units
Wt. Avg.
Fair Value
9.89
9.03
9.89
9.89
9.32
122 $
158 $
(26) $
(16) $
238 $
Wt. Avg.
Units Fair Value
-
- $
9.89
129 $
-
- $
9.89
(7) $
9.89
122 $
Share-based Compensation – We estimate the fair value of each share-based award on the grant date using
the Black-Scholes and the Monte Carlo simulation valuation models. Option valuation models require the
input of highly subjective assumptions and changes in the assumptions used can materially affect the grant date
fair value of an award. These assumptions for the Black-Scholes model include the risk-free rate of interest,
expected dividend yield, expected volatility, and the expected life of the award. The risk-free rate of interest is
based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date. Expected
dividends are based, primarily, on historical factors related to our common stock. Expected volatility is based
on historic, weekly stock price observations of our common stock during the period immediately preceding the
share-based award grant that is equal in length to the award’s expected term. We believe that historical
volatility is the best estimate of future volatility. Expected life of the award is based on historical option
exercise data. The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu
and the selected peer group price volatility, the correlation between Cohu and the selected index, and dividend
yields.
Share-based compensation expense related to restricted stock unit awards is calculated based on the market
price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid
on our common stock prior to vesting of the restricted stock unit. 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.
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
value per share
2014
2.4 %
35.3 %
0.1 %
0.5 years
2013
2.6 %
38.4 %
0.1 %
0.5 years
2012
2.4 %
43.6 %
0.1 %
0.5 years
$
2.52 $
2.32 $
2.78
48
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
value per share
Restricted Stock Units
Dividend yield
(cid:3)(cid:3)
(cid:3)
Performance Stock Units(cid:3)
Dividend yield(cid:3)
2014
2.0 %
42.5 %
1.9 %
5.9 years
2013
2.6 %
44.9 %
1.1 %
6.4 years
2012
2.1 %
46.3 %
1.2 %
6.3 years
$
4.39 $
3.37 $
3.87
2014
2.2 %
2014
2.2 %
2013
2.5 %
2013
2.5 %
2012
2.3 %
2012
2.3 %
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
2014
2013
2012
$
$
491 $
1,901
4,193
6,585
(204)
6,381 $
390 $
1,677
3,279
5,346
-
5,346 $
417
1,347
2,735
4,499
-
4,499
At December 27, 2014, excluding a reduction for forfeitures, we had approximately $1.5 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 1.0 years.
At December 27, 2014, excluding a reduction for forfeitures, we had approximately $9.6 million of pre-tax
unrecognized compensation cost related to unvested restricted stock units and performance stock units which is
expected to be recognized over a weighted-average period of approximately 1.6 years.
7. Income Taxes
Significant components of the provision (benefit) for income taxes for continuing operations are as follows:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Current:(cid:3)
(cid:3)(cid:3) U.S. Federal (cid:3)
(cid:3)(cid:3) U.S. State(cid:3)
(cid:3)(cid:3) Foreign(cid:3)
(cid:3) Total current
Deferred:(cid:3)
(cid:3)(cid:3) U.S. Federal (cid:3)
(cid:3)(cid:3) U.S. State(cid:3)
(cid:3)(cid:3) Foreign(cid:3)
(cid:3) Total deferred
(cid:3)
2014
2013
2012
$
$(cid:3)
(307) $
40
4,047
3,780
(1,538) $
42
825
(671)
(1,207)
(17)
737
(487)
3,293 $
286
26
(2,444)
(2,132)
(2,803) $
(1,898)
(388)
831
(1,455)
1,890
186
(1,495)
581
(874)
Income (loss) before income taxes from continuing operations consisted of the following:
(cid:3)(cid:3) (in thousands)(cid:3)
(cid:3)(cid:3) U.S. (cid:3)
(cid:3)(cid:3) Foreign(cid:3)
(cid:3)(cid:3) Total(cid:3)
2014
(3,898) $
13,026
9,128 $
2013
(29,219) $
(7,844)
(37,063) $
2012
(10,066)
(2,930)
(12,996)
$
$
49
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:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Deferred tax assets:(cid:3)
(cid:3)(cid:3) Inventory, receivable and warranty reserves(cid:3)
(cid:3)(cid:3) Net operating loss carryforwards(cid:3)
(cid:3)(cid:3) Tax credit carryforwards(cid:3)
(cid:3)(cid:3) Accrued employee benefits(cid:3)
(cid:3)(cid:3) Deferred profit (cid:3)
(cid:3)(cid:3) Stock-based compensation(cid:3)
(cid:3)(cid:3) Acquisition basis differences(cid:3)
(cid:3)(cid:3) Depreciation and fixed asset related(cid:3)
(cid:3)(cid:3) Other(cid:3)
(cid:3)(cid:3) Gross deferred tax assets
(cid:3)(cid:3) Less valuation allowance(cid:3)
(cid:3)(cid:3) Total deferred tax assets
Deferred tax liabilities:(cid:3)
(cid:3) Depreciation and fixed asset related
(cid:3)(cid:3) Acquisition basis differences(cid:3)
(cid:3)(cid:3) Other (cid:3)
(cid:3)(cid:3) Total deferred tax liabilities
(cid:3)(cid:3) Net deferred tax liabilities
2014
2013
$
$
9,585
8,266
11,905
5,232
1,091
4,352
2,133
1,001
608
44,173
(37,023)
7,150
2,823
10,600
643
14,066
(6,916)
$
$
13,290
9,070
11,258
3,709
839
3,972
2,105
831
121
45,195
(36,064)
9,131
2,909
13,193
461
16,563
(7,432)
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 various fiscal periods including 2014.
As a result of our cumulative, three-year U.S. GAAP pretax loss from continuing operations of approximately
$43.2 million at the end of 2014, and our U.S. loss in 2014, we were unable to conclude at December 27, 2014
that it was “more likely than not” that our U.S. DTAs would be realized. We will evaluate the realizability of
our DTAs at the end of each quarterly reporting period in 2015 and should circumstances change it is possible
the remaining valuation allowance, or a portion thereof, will be reversed in a future period.
Our valuation allowance on our DTAs at December 27, 2014 and December 28, 2013 was approximately
$37.0 million and $36.1 million, respectively. The remaining gross DTAs for which a valuation allowance
was not recorded are realizable primarily through future reversals of existing taxable temporary differences.
As the realization of DTAs is determined by tax jurisdiction, the significant deferred tax liabilities recorded as
part of the 2008 acquisition of Rasco, a German corporation, and the fiscal 2013 acquisition of Ismeca, a Swiss
Corporation, were not a source of taxable income in assessing the realization of our DTAs in the U.S.
50
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision (benefit) for
income taxes for continuing operations is as follows:
(in thousands)
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 goodwill impairment charge and transaction costs
Other, net
2014
3,194 $ (12,972) $
2013
$
119
(103)
-
(244)
160
1,072
(2,055)
1,069
80
3,292 $
(1,112)
(846)
-
(1,340)
168
11,283
1,526
-
490
(2,803) $
$
2012
(4,548)
(645)
366
346
-
177
2,572
(227)
700
385
(874)
State income taxes, net of federal benefit, have been reduced by research tax credits totaling approximately
$0.5 million, $0.7 million and $0.6 million in 2014, 2013 and 2012, respectively.
At December 27, 2014, we had federal, state and foreign net operating loss carryforwards of approximately
$15.8 million, $21.8 million and $11.8 million, respectively, that expire in various tax years beginning in 2015
through 2034 or have no expiration date. We also have federal and state tax credit carryforwards at December
27, 2014 of approximately $6.3 million and $13.2 million, respectively, some of which expire in various tax
years beginning in 2015 through 2034 or have no expiration date. The federal and state loss and credit
carryforwards are subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code and
applicable state tax law. Approximately $5.1 million of U.S. federal net operating loss carryforwards acquired
in the Ismeca acquisition are expected to expire unutilized as a result of the annual limitations imposed by
Section 382. As a result we have has reduced our deferred tax assets and valuation allowance related to these
net operating loss carryforwards.
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, 2013, was not enacted into
law until the first quarter of 2013. Therefore, the tax benefit from the credits for 2012 and 2013 are reflected in
our 2013 income tax provision.
U.S. income taxes have not been provided on approximately $32.0 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 Malaysia, Singapore and the Philippines. These holidays or incentives require compliance with
certain conditions and expire at various dates through 2023. The impact of these holidays on net income was
not significant in fiscal years 2014, 2013 and 2012.
A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Balance at beginning of year(cid:3)
Gross additions for tax positions of current year (cid:3)
Gross additions for tax positions of prior years(cid:3)
Reductions due to lapse of the statute of limitations(cid:3)
Foreign exchange rate impact(cid:3)
Balance at end of year(cid:3)
(cid:3)
$
$
2014 (cid:3)
10,483
761
365
(587)
(181)
10,841
(cid:3)
$
$
2013 (cid:3)
6,080
933
3,700
-
(230)
10,483
(cid:3)
$
$
2012 (cid:3)
5,381
776
195
(272)
-
6,080
The 2013 gross additions for tax positions of prior years are primarily composed of additions from the Ismeca
acquisition.
51
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the unrecognized tax benefits at December 27, 2014 are ultimately recognized, approximately $6.2 million
($6.2 million at December 28, 2013) 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 $1.4 million accrued for the payment of interest and penalties at December 27, 2014 and
$1.5 million at December 28, 2013. Interest expense, net of accrued interest reversed, was not significant in
2014 and in 2013 and 2012 was approximately $(0.1) million and $0.1 million, respectively.
Our U.S. federal and state income tax returns for years after 2010 and 2009, respectively, remain open to
examination, subject to the statute of limitations. Net operating loss and credit carryforwards arising prior to
these years are also open to examination if and when utilized. The statute of limitations for the assessment and
collection of income taxes related to our foreign tax returns varies by country. In the foreign countries where
we have significant operations these time periods generally range from four to ten years after the year for
which the tax return is due or the tax is assessed.
8. 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. As discussed in Note 2, in June 2014, we
sold substantially all the assets of Cohu Electronics, which comprised our video camera segment and have
presented financial information for this segment as discontinued operations. Subsequent to this transaction
Cohu’s remaining reportable segments are semiconductor and microwave communications equipment.
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:
(cid:3) reportable segments (cid:3)
(in thousands) (cid:3)
Net sales by segment: (cid:3)
(cid:3)(cid:3) Semiconductor equipment (cid:3)
(cid:3)(cid:3) Microwave communications (cid:3)
(cid:3)(cid:3) (cid:3) Total consolidated net sales and net sales for (cid:3)
(cid:3)(cid:3) (cid:3)
Segment profit (loss): (cid:3)
(cid:3)(cid:3) Semiconductor equipment (cid:3)
(cid:3)(cid:3) Microwave communications (1)(cid:3)
(cid:3) Profit (loss) for reportable segments
Other unallocated amounts: (cid:3)
(cid:3) Corporate expenses
(cid:3) Interest and other from continuing operations, net
(cid:3) Income (loss) from continuing operations before taxes
2014
2013
2012
(cid:3) (cid:3)(cid:3)
$
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
316,629 $
16,694
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
214,511 $
17,063
179,449
26,863
$
$
$
333,323 $
231,574 $
206,312
26,658 $
(10,030)
16,628
(24,998) $
(6,142)
(31,140)
(5,331)
(847)
(6,178)
(7,530)
30
9,128 $
(5,977)
54
(37,063) $
(7,785)
967
(12,996)
(1) The loss of our microwave communications equipment segment for the year ended December 27, 2014 includes a
$5.0 million impairment charge for goodwill and other assets see Note 3 for additional information.
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
52
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3) (cid:3)
(cid:3)(cid:3) (cid:3)
(in thousands)(cid:3)
Depreciation and amortization by segment deducted (cid:3)
(cid:3)(cid:3) in arriving at profit (loss):(cid:3)
(cid:3)(cid:3) Semiconductor equipment(cid:3)
(cid:3)(cid:3) Microwave communications(cid:3)
(cid:3)(cid:3) (cid:3)
(cid:3)(cid:3) Intangible amortization(cid:3)
(cid:3)(cid:3) (cid:3) Total depreciation and amortization for (cid:3)
(cid:3)(cid:3) (cid:3)
Capital expenditures by segment:(cid:3)
(cid:3)(cid:3) Semiconductor equipment(cid:3)
(cid:3)(cid:3) Microwave communications(cid:3)
(cid:3)(cid:3) (cid:3) Total consolidated capital expenditures(cid:3)
(cid:3) reportable segments(cid:3)
(in thousands)(cid:3)
Total assets by segment:(cid:3)
(cid:3)(cid:3) Semiconductor equipment(cid:3)
(cid:3)(cid:3) Microwave communications(cid:3)
(cid:3) Total assets for reportable segments(cid:3)
(cid:3)(cid:3) (cid:3)
(cid:3)(cid:3) Corporate, principally cash and investments (cid:3)
(cid:3)(cid:3) (cid:3) and deferred taxes(cid:3)
(cid:3)(cid:3) (cid:3) Discontinued operations(cid:3)
(cid:3)(cid:3) (cid:3)
(cid:3) Total consolidated assets(cid:3)
(cid:3)(cid:3)
$
$
$
$
$
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2014
2013
2012
4,805 $
633
5,438
8,090
4,723 $
523
5,246
8,082
4,506
652
5,158
4,057
13,528 $
13,328 $
9,215
1,457 $
203
1,660 $
3,607 $
267
3,874 $
2,759
481
3,240
2014
2013
2012
320,102 $
12,935
333,037
297,175 $
22,156
319,331
281,173
22,635
303,808
15,781
-
$
348,818 $
19,389
6,703
345,423 $
23,203
7,862
334,873
The customer from the semiconductor equipment segment comprising 10% or greater of our consolidated net
sales is summarized as follows:
Intel
2014
15 %
2013
17 %
2012
42 %
Net sales to customers, attributed to countries based on product shipment destination, were as follows:
(in thousands)(cid:3)
United States(cid:3)
Malaysia(cid:3)
China(cid:3)
Philippines(cid:3)
Costa Rica(cid:3)
Rest of the World(cid:3)
Total(cid:3)
2014
2013
$
$
78,243 $
73,861
51,410
28,670
9,714
91,425
333,323 $
45,773 $
51,652
37,621
26,563
5,127
64,838
231,574 $
2012
45,749
40,326
31,970
22,507
22,934
42,826
206,312
Geographic location of our property, plant and equipment and other long-lived assets was as follows:
(in thousands)(cid:3)
Property, plant and equipment:(cid:3)
United States(cid:3)
Germany(cid:3)
Philippines(cid:3)
Rest of the World(cid:3)
Total, net(cid:3)
2014
2013
$
$
18,986
7,484
2,721
2,663
31,854
$
$
21,464
8,973
3,278
2,081
35,796
53
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(in thousands)(cid:3)
Goodwill and other intangible assets:(cid:3)
Germany(cid:3)
Switzerland(cid:3)
United States(cid:3)
Malaysia(cid:3)
Singapore(cid:3)
Rest of the World(cid:3)
Total, net(cid:3)
9. Stockholder Rights Plan
2014
2013
$
(cid:3)
(cid:3)
(cid:3)
$
38,527
25,921
17,241
6,988 (cid:3)
6,558 (cid:3)
984 (cid:3)
96,219
$
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
$
51,032
32,513
17,698
7,738
6,558
1,089
116,628
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.
10. Commitments and Contingencies
We lease certain of our facilities and equipment under non-cancelable operating leases. Rental expense was
$1.9 million in 2014, $1.7 million in 2013 and $1.1 million 2012. Future minimum lease payments at December
27, 2014 are as follows:
(in thousands)
Non-cancelable
operating leases $ 1,270 $ 1,111 $
2015
2016
2017
2018
2019
Thereafter Total
958 $
676 $
385 $
1,155 $ 5,555
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. The outcome of any litigation is inherently
uncertain. While there can be no assurance, we do not believe at the present time that the resolution of the
matters described above will have a material adverse effect on our assets, financial position or results of
operations.
54
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Guarantees
Changes in accrued warranty during the three-year period ended December 27, 2014 were as follows:
(in thousands)
Beginning balance
Warranty accruals
Warranty payments
Warranty liability assumed
Ending balance
2014
2013
$
$
5,155 $
6,513
(5,484)
-
6,184 $
4,602 $
5,403
(6,683)
1,833
5,155 $
2012
6,704
4,162
(6,264)
-
4,602
During the ordinary course of business, we provide standby letters of credit instruments to certain parties as
required. At December 27, 2014, the maximum potential amount of future payments that we could be required
to make under these standby letters of credit was approximately $0.4 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.
12. Accumulated Other Comprehensive Income (Loss)
Components of other comprehensive income (loss), on an after-tax basis, were as follows:
(in thousands)
Year Ended December 29, 2012
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other comprehensive income
Year Ended December 28, 2013
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Change in unrealized gain/loss on investments
Other comprehensive income
Year Ended December 27, 2014
Foreign currency translation adjustments
Adjustments related to postretirement benefits
Other comprehensive income
Before Tax
amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
$
$
$
$
$
$
1,689 $
362
(16)
2,035 $
3,270 $
1,889
(14)
5,145 $
- $
(240)
-
(240) $
- $
(285)
8
(277) $
1,689
122
(16)
1,795
3,270
1,604
(6)
4,868
(14,107) $
(3,809)
(17,916) $
- $
551
551 $
(14,107)
(3,258)
(17,365)
Components of accumulated other comprehensive income (loss), net of tax, at the end of each period are as
follows:
(in thousands)
Accumulated net currency translation adjustments
Accumulated net adjustments related to postretirement benefits
Total accumulated other comprehensive income
$
$
2014
2013
(8,327) $
(2,387)
(10,714) $
5,780
871
6,651
13. Related Party Transactions
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 2014, 2013 and 2012, total sales to MSC were approximately $1.1 million, $1.8 million and $1.1
million, respectively.
55
COHU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Quarterly Financial Data (Unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
First (a)
Second (a) Third (a)
Fourth (a)
Year
Quarter(cid:3)
(in thousands, except per share data)(cid:3)
(cid:3)
Net sales:(cid:3)
(cid:3)
2014 $
2013 $
Gross profit:(cid:3)
(cid:3)
2014 $
2013 $
22,200 $
13,942 $
25,484
19,515
64,864 $
52,227 $
77,850
62,235
$
$
$
$
94,441 $
55,977 $
96,168 $
61,135 $
333,323
231,574
33,176 $
12,684 $
31,375 $
17,247 $
112,235
63,388
Income (loss) from(cid:3)
(cid:3) continuing operations
2014 $
2013 $
(3,354) $
(12,235) $
931
$
(4,334) $
6,921 $
(11,113) $
1,337 $
(6,578) $
5,835
(34,260)
Net income (loss) (cid:3)
(cid:3)
2014 $
2013 $
(3,348) $
(12,103) $
4,163
$
(4,045) $
7,519 $
(10,820) $
374 $
(6,450) $
8,708
(33,418)
Income (loss) per share (b):(cid:3)
(cid:3) Basic:
(cid:3) Income (loss) from
2014 $
(cid:3) continuing operations 2013 $
(cid:3) Net income (loss)
(cid:3)
2014 $
2013 $
(cid:3) Diluted:
(cid:3) Income (loss) from
2014 $
(cid:3) continuing operations 2013 $
(cid:3) Net income (loss)
(cid:3)
2014 $
2013 $
(0.13) $
(0.50) $
(0.13) $
(0.49) $
(0.13) $
(0.50) $
(0.13) $
(0.49) $
$
0.04
(0.17) $
$
0.16
(0.16) $
$
0.04
(0.17) $
0.16
$
(0.16) $
0.28 $
(0.44) $
0.30 $
(0.43) $
0.27 $
(0.44) $
0.29 $
(0.43) $
0.05 $
(0.27) $
0.01 $
(0.26) $
0.05 $
(0.27) $
0.01 $
(0.26) $
0.23
(1.37)
0.34
(1.34)
0.22
(1.37)
0.33
(1.34)
(a) All quarters presented above were comprised of 13 weeks.
(b) The sum of the four quarters may not agree to the year total due to rounding within a quarter and the inclusion or exclusion of
common stock equivalents.
56
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 27, 2014 and
December 28, 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity,
and cash flows for each of the three years in the period ended December 27, 2014. 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 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 27, 2014 and December 28, 2013, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 27, 2014, 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 27, 2014, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 24, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Diego, California
February 24, 2015
57
Index to Exhibits
15. (b)(cid:3)
The following exhibits are filed as part of, or incorporated into, the 2014 Cohu, Inc. Annual Report on
Form 10-K:
(cid:3)
Exhibit No.(cid:3) Description
3.1 (cid:3)
3.1(a) (cid:3)
3.2 (cid:3)
4.1 (cid:3)
10.1 (cid:3)
10.2 (cid:3)
10.3 (cid:3)
10.4 (cid:3)
10.5 (cid:3)
10.6 (cid:3)
10.7 (cid:3)
10.8 (cid:3)
10.9 (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
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
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)
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 1, 2013*
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*
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*
58
10.10(cid:3)
(cid:3)
(cid:3) 21 (cid:3)
(cid:3) 23 (cid:3)
31.1
(cid:3)
31.2
(cid:3)
32.1 (cid:3)
32.2 (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Executive Employment Agreement, dated October 7, 2014, by and between Cohu, Inc. and Luis A.
Müller, incorporated herein by reference from the Cohu, Inc. Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 8, 2014, Exhibit 10.1 *
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 Luis A. Müller
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 Luis A. Müller
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
(cid:3) 101.INS XBRL Instance Document
(cid:3) 101.SCH XBRL Taxonomy Extension Schema Document
(cid:3) 101.CAL(cid:3) XBRL Taxonomy Extension Calculation Linkbase Document
(cid:3) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document
(cid:3)(cid:3) 101.LAB(cid:3) XBRL Taxonomy Extension Label Linkbase Document
(cid:3) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(cid:3) (cid:3)
(cid:3) (cid:3)
* Management contract or compensatory plan or arrangement
59
(cid:3)
(cid:3)(cid:3)
SIGNATURES
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
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.(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
Date: (cid:3) February 24, 2015
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) COHU, INC.(cid:3)
(cid:3)(cid:3)
By: /s/ Luis A. Müller
(cid:3)(cid:3) Luis A. Müller(cid:3)
(cid:3)(cid:3) President and Chief Executive Officer(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
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.(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
Signature (cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3) Title (cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
/s/ James A. Donahue (cid:3) (cid:3) Executive Chairman(cid:3)
James A. Donahue
/s/ Luis A. Müller
Luis A. Müller
/s/ Jeffrey D. Jones
Jeffrey D. Jones
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3) President and Chief Executive Officer, Director (cid:3)
(cid:3)
(cid:3)
(cid:3) Vice President, Finance and Chief Financial Officer(cid:3)(cid:3) February 24, 2015(cid:3)
(cid:3)
(cid:3)
(Principal Financial and Accounting Officer)(cid:3)
(cid:3)
(Principal Executive Officer)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
/s/ William E. Bendush (cid:3) Director(cid:3)
William E. Bendush
(cid:3)
/s/ Steven J. Bilodeau
Steven J. Bilodeau
(cid:3)
(cid:3)(cid:3)
/s/ Andrew M. Caggia
Andrew M. Caggia
/s/ Harry L. Casari
Harry L. Casari
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
Director
(cid:3)
(cid:3)
Director
(cid:3)
(cid:3)
Director
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
/s/ Robert L. Ciardella Director
Robert L. Ciardella
/s/ Harold Harrigian Director
Harold Harrigian
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
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(cid:3) February 24, 2015(cid:3)
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(cid:3) February 24, 2015(cid:3)
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COHU, INC.
SCHEDULE II(cid:3)
VALUATION AND QUALIFYING ACCOUNTS(cid:3)(cid:3)
(in thousands)(cid:3)
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(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
Description
Additions
Not
Balance at
Beginning Charged
of Year
to Expense
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
Additions
(Reductions)
Charged
(Credited)
to Expense
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Deductions/
Write-offs
Balance
at End
of Year
Allowance for doubtful accounts:
Year ended December 29, 2012
Year ended December 28, 2013
Year ended December 27, 2014
$
$
$
463 $
288 $
543 $
1 (1) $
354 (2) $
(5)(1) $
(82) $
94 $
134 $
233 $
(228) $
27 $
288
543
283
Reserve for excess and obsolete inventories:
Year ended December 29, 2012
Year ended December 28, 2013
Year ended December 27, 2014
$
$
$
24,552 $
27,155 $
37,795 $
610 (1) $
7,422 (3) $
(821)(1) $
8,621 $
6,628 $
27,155
7,760 $
4,542 $
37,795
3,876 $
11,005 $
29,845
In June 2014, we sold our video camera segment, Cohu Electronics and all amounts presented above have been restated to
exclude the impact of this segment as it is being presented as discontinued operations.
(1) Changes in reserve balances resulting from foreign currency impact.
(2) Includes $0.4 million resulting from Ismeca Acquisition on December 31, 2012 and foreign currency impact.
(3) Includes $6.8 million resulting from Ismeca Acquisition on December 31, 2012, foreign currency impact and
reclass from other reserves.
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COHU, INC.
COMPANY INFORMATION
BOARD OF DIRECTORS
James A. Donahue
Executive Chairman of the Board, Retired President and Chief Executive Officer,
Cohu, Inc.
William E. Bendush (1)(2)
Steven J. Bilodeau (1)(2)(3)
Andrew M. Caggia (1)
Harry L. Casari (1)(2)
Robert L. Ciardella (1)(3)(4)
Karl H. Funke (1)
Harold Harrigian (1)(3)
Luis A. Müller
Retired Senior Vice President and Chief Financial Officer,
Applied Micro Circuits Corporation
Retired Non-Executive Chairman, President and Chief Executive Officer,
Standard Microsystems Corporation
Retired Senior Vice President and Chief Financial Officer,
Standard Microsystems Corporation
Retired Partner,
Ernst & Young LLP
Retired Founder and President,
Asymtek
Retired Chief Executive Officer,
Multitest GmbH
Retired Partner & Director of Corporate Finance,
Crowell, Weedon & Co.
President and Chief Executive Officer,
Cohu, Inc.
(1) Member Audit Committee (2) Member Compensation Committee (3) Member Nominating and Governance Committee (4) Lead Independent Director
CORPORATE EXECUTIVE OFFICERS
James A. Donahue
Executive Chairman of the Board, Retired President and Chief Executive Officer
Luis A. Müller
Jeffrey D. Jones
John H. Allen
President and Chief Executive Officer
Vice President, Finance and Chief Financial Officer, Secretary
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, CA
Independent Auditors
Ernst & Young LLP, San Diego, CA
Transfer Agent and Registrar
Computershare
PO Box 30170, College Station, TX 77842
(866) 272-6726 U.S. / (201) 680-6578 Foreign
TDD for Hearing Impaired (800) 952-9245
www.computershare.com/investor
Annual Meeting
The Annual Meeting of Stockholders will be held on
Tuesday, May 12, 2015 at 8:00 am PT 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 27, 2014 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 Nasdaq Stock Market under the
the symbol “COHU”.
Cohu, Inc. 2014 Annual Report
Cohu, inc.
12367 Crosthwaite Circle, Poway, CA 92064-6817
Phone: 858.848.8100
www.cohu.com