0000950123-11-072427.txt : 20110804
0000950123-11-072427.hdr.sgml : 20110804
20110803202309
ACCESSION NUMBER: 0000950123-11-072427
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20110625
FILED AS OF DATE: 20110804
DATE AS OF CHANGE: 20110803
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: COHU INC
CENTRAL INDEX KEY: 0000021535
STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825]
IRS NUMBER: 951934119
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04298
FILM NUMBER: 111008324
BUSINESS ADDRESS:
STREET 1: 12367 CROSTHWAITE CIRCLE
CITY: POWAY
STATE: CA
ZIP: 92064-6817
BUSINESS PHONE: 858-848-8100
MAIL ADDRESS:
STREET 1: 12367 CROSTHWAITE CIRCLE
CITY: POWAY
STATE: CA
ZIP: 92064-6817
FORMER COMPANY:
FORMER CONFORMED NAME: COHU ELECTRONICS INC
DATE OF NAME CHANGE: 19720809
10-Q
1
a59822e10vq.htm
FORM 10-Q
e10vq
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2011
OR
o
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
95-1934119
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
12367 Crosthwaite Circle, Poway, California
92064-6817
(Address of principal executive offices)
(Zip Code)
Registrants telephone number, including area code (858) 848-8100
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 þ No o
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
þ No o
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 the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
(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 o No þ
As of June 25, 2011 the Registrant had 24,146,456 shares of its $1.00 par value common stock
outstanding.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
1.
Summary of Significant Accounting Policies
Basis of Presentation
Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December.
The condensed consolidated balance sheet at December 25, 2010 has been derived from our
audited financial statements at that date. The interim condensed consolidated financial
statements as of June 25, 2011 (also referred to as the second quarter of fiscal 2011 and
the first six months of fiscal 2011) and June 26, 2010 (also referred to as the second
quarter of fiscal 2010 and the first six months of fiscal 2010) are unaudited. However, in
managements opinion, these financial statements reflect all adjustments (consisting only of
normal, recurring items) necessary to provide a fair presentation of our financial position,
results of operations and cash flows for the periods presented. The three and six month
periods ended June 25, 2011 and June 26, 2010 were each comprised of 13 and 26 weeks,
respectively.
Our interim results are not necessarily indicative of the results that should be expected for
the full year. For a better understanding of Cohu, Inc. and our financial statements, we
recommend reading these interim condensed consolidated financial statements in conjunction
with our audited financial statements for the year ended December 25, 2010, which are included
in our 2010 Annual Report on Form 10-K, filed with the U. S. Securities and Exchange
Commission (SEC). In the following notes to our interim condensed consolidated financial
statements, Cohu, Inc. is referred to as Cohu, we, our and us.
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 Item 1A. Risk Factors
included in this Form 10-Q. As our interim description of risks and uncertainties only
includes any material changes to our annual description, we also recommend reading the
description of the risk factors associated with our business previously disclosed in Item 1A.
of our 2010 Annual Report on Form 10-K. Understanding these risks and uncertainties is
integral to the review of our interim condensed consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant credit risk consist
principally of cash equivalents, short-term investments and trade accounts receivable. We
invest in a variety of financial instruments and, by policy, limit the amount of credit
exposure with any one issuer.
Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million
at June 25, 2011 and $0.6 million at December 25, 2010. 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 at June 25, 2011, we will continue to monitor
customer liquidity and other economic conditions, which may result in changes to our estimates
regarding collectability.
Goodwill, Other Intangible Assets and 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.
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 assets 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.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
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.
Reported share-based compensation is classified, in the condensed consolidated interim
financial statements, as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Cost of sales
$
90
$
68
$
182
$
149
Research and development
266
204
602
466
Selling, general and administrative
582
474
1,202
966
Total share-based compensation
938
746
1,986
1,581
Income tax benefit
Total share-based compensation, net of tax
$
938
$
746
$
1,986
$
1,581
Earnings Per Share
Basic earnings per common share is computed by dividing net income by the weighted-average
number of common shares outstanding during the reporting period. Diluted earnings 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 three and six months ended June 25, 2011, options to issue approximately
2,035,000 and 1,804,000 shares of common stock were excluded from the computation,
respectively. For the three and six months ended June 26, 2010, options to issue approximately
1,518,000 and 1,671,000 shares of common stock were excluded from the computation,
respectively. The following table reconciles the denominators used in computing basic and
diluted income per share (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Weighted average common shares
24,103
23,657
24,060
23,603
Effect of dilutive stock options
381
429
423
375
24,484
24,086
24,483
23,978
Revenue Recognition
Our revenue recognition policy is disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended December 25, 2010. As
more fully described in that policy, revenue from products that have not previously satisfied
customer acceptance requirements is recognized upon customer acceptance. The gross profit on
sales that are not recognized is generally recorded as deferred profit and reflected as a
current liability in our consolidated balance sheet.
At June 25, 2011, we had deferred revenue totaling approximately $19.5 million and deferred
profit of $7.7 million. At December 25, 2010, we had deferred revenue totaling approximately
$36.9 million and deferred profit of $14.8 million.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
Retiree Medical Benefits
We provide post-retirement health benefits to certain executives and directors under a
noncontributory plan. The net periodic benefit cost incurred during the first six months of
fiscal 2011 and 2010 was not significant.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements - In January 2010, the Financial Accounting
Standards Board (FASB) issued guidance to add additional disclosures about the different
classes of assets and liabilities measured at fair value, the valuation techniques and inputs
used, and the activity in Level 3 fair value measurements (as defined in Note 3 below). We
adopted this guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption
of this new guidance has not had a material impact on our financial statement disclosures.
In October 2009, the FASB amended the guidance for allocating revenue to multiple deliverables
in a contract. This new guidance is effective as of the first day of our 2011 fiscal year. In
accordance with the amendment, companies can allocate consideration in a multiple element
arrangement in a manner that better reflects the transaction economics. When vendor specific
objective evidence or third party evidence for deliverables in an arrangement cannot be
determined, companies will now be allowed to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative selling price
method. Additionally, use of the residual method has been eliminated. We adopted this
guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption of this new
guidance has not had a material impact on our consolidated financial position or results of
operations.
In October 2009, the FASB issued new accounting guidance for the accounting for certain
revenue arrangements that include software elements. The new guidance amends the scope of
pre-existing software revenue guidance by removing from the guidance non-software components
of tangible products and certain software components of tangible products. The new guidance is
effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. We adopted this guidance on December 26, 2010, the
first day of our 2011 fiscal year. Adoption of this new guidance has not had a material impact
on our consolidated financial position or results of operations.
Recently Issued Accounting Pronouncements - In June 2011, the FASB issued new
guidance on the presentation of comprehensive income. Specifically, the new guidance allows an
entity to present components of net income and other comprehensive income in one continuous
statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The new guidance eliminates the current option to report other
comprehensive income and its components in the statement of changes in equity. While the new
guidance changes the presentation of comprehensive income, there are no changes to the
components that are recognized in net income or other comprehensive income under current
accounting guidance. This new guidance is effective for fiscal years and interim periods
beginning after December 15, 2011. We do not believe our adoption of the new guidance in the
first quarter of fiscal 2012 will have an impact on our consolidated financial position,
results of operations or cash flows.
In May 2011, the FASB issued new guidance to achieve common fair value measurement and
disclosure requirements between GAAP and International Financial Reporting Standards. This new
guidance amends current fair value measurement and disclosure guidance to include increased
transparency around valuation inputs and investment categorization. This new guidance is
effective for fiscal years and interim periods beginning after December 15, 2011. We do not
believe our adoption of the new guidance in the first quarter of fiscal 2012 will have an
impact on our consolidated financial position, results of operations or cash flows.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
2.
Goodwill and Purchased Intangible Assets
Changes in the carrying value of goodwill by reportable segment during the year ended December
25, 2010 and the six-month period ended June 25, 2011 were as follows (in thousands):
Semiconductor
Microwave
Equipment
Communications
Total Goodwill
Balance, December 26, 2009
$
58,318
$
3,446
$
61,764
Impact of currency exchange
(3,038
)
(228
)
(3,266
)
Balance, December 25, 2010
55,280
3,218
58,498
Impact of currency exchange
2,663
200
2,863
Balance, June 25, 2011
$
57,943
$
3,418
$
61,361
Purchased intangible assets, subject to amortization are as follows (in thousands):
June 25, 2011
December 25, 2010
Gross Carrying
Accumulated
Gross Carrying
Accumulated
Amount
Amortization
Amount
Amortization
Rasco technology
$
34,874
$
11,171
$
32,154
$
8,290
Unigen technology
7,020
7,020
7,020
6,779
AVS technology
2,325
2,325
2,156
2,008
$
44,219
$
20,516
$
41,330
$
17,077
Amortization expense related to intangible assets was approximately $1.1 million in the second
quarter of fiscal 2011 and $2.5 million in the first six months of fiscal 2011. Amortization
expense related to intangible assets was approximately $1.5 million in the second quarter of
fiscal 2010 and $3.1 million in the first six months of fiscal 2010. The amounts included in
the table above for the periods ended June 25, 2011 and December 25, 2010 exclude
approximately $2.5 million and $2.3 million, respectively, related to the Rasco trade name
which has an indefinite life and is not being amortized. Changes in the carrying values of our
intangible assets are a result of continued amortization and the impact of fluctuations in
currency exchange rates.
3.
Cash, Cash Equivalents and Short-Term Investments
As of June 25, 2011, and December 25, 2010, our cash, cash equivalents, and short-term
investments consisted primarily of cash, corporate debt securities, government and government
agency securities, state and municipal securities, money market funds 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.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
Investments that we have classified as short-term, by security type, are as follows (in
thousands):
June 25, 2011
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses (1)
Value
U.S. Treasury securities
$
4,768
$
14
$
$
4,782
Corporate debt securities (2)
23,790
16
23,806
Municipal securities
9,560
9,560
Government-sponsored
enterprise securities
13,806
51
1
13,856
$
51,924
$
81
$
1
$
52,004
December 25, 2010
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses (1)
Value
U.S. Treasury securities
$
6,778
$
9
$
$
6,787
Corporate debt securities (2)
18,010
28
4
18,034
Municipal securities
11,102
1
11,103
Government-sponsored
enterprise securities
15,105
8
20
15,093
Bank certificates of deposit
1,000
1,000
Asset-backed securities
236
1
237
$
52,231
$
47
$
24
$
52,254
(1)
As of June 25, 2011, and December 25, 2010, the cost and fair value of
investments with loss positions was $5.9 million and $16.1 million, respectively. We
evaluated the nature of these investments, credit worthiness of the issuer and the
duration of these impairments to determine if an other-than-temporary decline in fair
value had occurred and concluded that these losses were temporary.
(2)
Corporate debt securities include investments in financial, insurance, and
corporate institutions. No single issuer represents a significant portion of the total
corporate debt securities portfolio.
Effective maturities of short-term investments at June 25, 2011 and December 25, 2010,
were as follows (in thousands):
June 25, 2011
December 25, 2010
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value
Cost
Fair Value
Due in one year or less
$
41,097
$
41,133
$
34,891
$
34,918
Due after one year through two years
10,827
10,871
17,104
17,099
Asset-backed securities not due at a
single maturity date
236
237
$
51,924
$
52,004
$
52,231
$
52,254
Our municipal securities include variable rate demand notes which can be put (sold at par)
typically on a daily basis with settlement periods ranging from the same day to one week and
have varying contractual maturities through 2037. These securities can be used for short-term
liquidity needs and are held for limited periods of time. At June 25, 2011 and December 25,
2010 these securities had amortized cost and fair value of $7.1 million and $7.5 million,
respectively, and are included in Due in one year or less in the table above.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
Accounting standards pertaining to fair value measurements establish a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions. When
available, we use quoted market prices to determine the fair value of our investments, and
they are included in Level 1. When quoted market prices are unobservable, we use quotes from
independent pricing vendors based on recent trading activity and other relevant information,
and they are included in Level 2.
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 June 25, 2011 using:
Total estimated
Level 1
Level 2
Level 3
fair value
Cash
$
18,908
$
$
$
18,908
U.S. Treasury securities
4,782
4,782
Corporate debt securities
25,304
25,304
Municipal securities
10,110
10,110
Government-sponsored
enterprise securities
13,856
13,856
Money market funds
27,432
27,432
Bank certificates of deposit
1,000
1,000
$
23,690
$
77,702
$
$
101,392
Fair value measurements at December 25, 2010 using:
Total estimated
Level 1
Level 2
Level 3
fair value
Cash
$
18,842
$
$
$
18,842
U.S. Treasury securities
6,787
6,787
Corporate debt securities
21,432
21,432
Municipal securities
11,852
11,852
Government-sponsored
enterprise securities
15,093
15,093
Money market funds
22,932
22,932
Bank certificates of deposit
1,000
1,000
Asset-backed securities
237
237
$
25,629
$
72,546
$
$
98,175
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. These investments are included in Level 2 and primarily comprise our money market
funds and our portfolio of corporate debt securities, bank certificates of deposit,
government-sponsored enterprise, municipal securities and asset-backed securities.
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
4.
Employee Stock Benefit Plans
Employee Stock Purchase Plan
The Cohu, Inc. 1997 Employee Stock Purchase Plan (the Plan) provides for the issuance of
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. On May 11, 2011 our stockholders
approved an amendment to the Plan which increased the number of shares that may be issued
under the Plan by 500,000 shares. Subsequent to this amendment a maximum of 1,900,000 shares
of our common stock can be issued under the Plan and at June 25, 2011, there were 704,132
shares available for issuance under the Plan.
Stock Options
Under our equity incentive plans, stock options may be granted to employees, consultants and
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 five to ten years from the grant date. At June 25, 2011, 1,167,399 shares were
available for future equity grants under the 2005 Equity Plan. We have historically issued new
shares of our common stock upon share option exercise.
At June 25, 2011, we had 3,168,404 stock options outstanding. These options had a
weighted-average exercise price of $13.01 per share, an aggregate intrinsic value of
approximately $5.3 million and the weighted average remaining contractual term was
approximately 5.7 years.
At June 25, 2011, we had 2,067,775 stock options outstanding that were exercisable. These
options had a weighted-average exercise price of $14.36 per share, an aggregate intrinsic
value of $2.3 million and the weighted average remaining contractual term was approximately
4.4 years.
Restricted Stock Units
We issue restricted stock units to certain employees, consultants and 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.
At June 25, 2011, we had 393,131 restricted stock units outstanding with an aggregate
intrinsic value of approximately $4.9 million and the weighted average remaining vesting
period was approximately 2.9 years.
5.
Comprehensive Income (Loss)
Comprehensive income (loss) represents all non-owner changes in stockholders equity and
consists of, on an after-tax basis where applicable, the following (in thousands):
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
Our accumulated other comprehensive income (loss) balance totaled approximately $7.4 million
and $(0.2) million at June 25, 2011, and December 25, 2010, respectively, and was attributed
to, net of income taxes where applicable, foreign currency adjustments resulting from the
translation of certain accounts into U.S. dollars where the functional currency is the Euro,
unrealized gains and losses on investments and adjustments related to postretirement benefits.
6.
Income Taxes
The income tax provision included in the condensed consolidated statements of income for the
three and six months ended June 25, 2011 and June 26, 2010, is based on the estimated annual
effective tax rate for the entire year. These estimated effective tax rates are subject to
adjustment in subsequent quarterly periods as our estimates of pretax income or loss for the
year change. The effective tax rate for the three and six months ended June 25, 2011, was
15.1% and differs from the U.S. federal statutory rate primarily due to a reduction in our
deferred tax asset valuation allowance, foreign income taxed at lower rates, state taxes and
interest on unrecognized tax benefits. The effective tax rate for the three and six months
ended June 26, 2010, was 26.1% and 29.0%, respectively, and differs from the U.S. federal
statutory rate primarily due to our inability to benefit our domestic losses, foreign income
taxed at lower rates, state taxes and interest on unrecognized tax benefits.
In the quarter ended June 27, 2009, we recorded an increase in our valuation allowance on
domestic deferred tax assets, with a corresponding charge to our income tax provision, of
approximately $19.6 million as we were unable to conclude that it was more likely than not
that such assets would be realized. Our deferred tax asset valuation allowance at June 25,
2011 was approximately $21.7 million on gross deferred tax assets of approximately $27.5
million. The remaining $5.8 million of gross deferred tax assets for which a valuation
allowance was not recorded are realizable through future reversals of existing taxable
temporary differences or loss carryback.
There was no material change to our unrecognized tax benefits and interest accrued related to
unrecognized tax benefits during the three and six months ended June 25, 2011.
7.
Industry Segments
Our reportable segments are business units that offer different products and are managed
separately because each business requires different technology and marketing strategies. Our
three segments are: semiconductor equipment, microwave communications and video cameras.
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 as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Net sales by segment:
Semiconductor equipment
$
69,628
$
65,574
$
149,071
$
121,596
Microwave communications
5,932
4,901
12,948
10,049
Video cameras
5,336
4,394
8,577
8,054
Total consolidated net sales and
net sales for reportable segments
Notes to Unaudited Condensed Consolidated Financial Statements
June 25, 2011
June 25,
December 25,
2011
2010
Total assets by segment (in thousands):
Semiconductor equipment
$
261,233
$
255,246
Microwave communications
20,452
27,812
Video cameras
11,835
11,092
Total assets for reportable segments
293,520
294,150
Corporate, principally cash and
investments and deferred taxes
78,371
71,893
Total consolidated assets
$
371,891
$
366,043
A small number of customers historically have been responsible for a significant portion of
our consolidated net sales. During the second quarter of fiscal 2011 one customer of the
semiconductor equipment segment represented more than 10% of our consolidated net sales and
accounted for 30% of our total consolidated net sales. For the first six months of fiscal
2011, two customers of the semiconductor equipment segment each represented more than 10% of
our consolidated net sales and, combined, they accounted for 45% of our total consolidated net
sales. During the second quarter and the first six months of fiscal 2010, three customers of
the semiconductor equipment segment each represented more than 10% of our consolidated net
sales and, combined, they accounted for 42% and 49% of our total consolidated net sales,
respectively.
8.
Contingencies
From time-to-time we are involved in various legal proceedings, examinations by various tax
authorities and claims that have arisen in the ordinary course of our businesses. Although
the outcome of such legal proceedings, claims and examinations cannot be predicted with
certainty, we do not believe any such matters exist at this time that will have a material
adverse effect on our financial position or results of operations.
9.
Guarantees
Our products are generally sold with warranty periods that range from 12 to 36 months
following sale or acceptance. Parts and labor are covered under the terms of the warranty
agreement. The warranty provision is based on historical and projected experience by product
and configuration.
Changes in accrued warranty were as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Balance at beginning of period
$
6,303
$
3,987
$
5,016
$
3,747
Warranty expense accruals
2,178
1,397
5,449
2,648
Warranty payments
(2,401
)
(1,105
)
(4,385
)
(2,116
)
Balance at end of period
$
6,080
$
4,279
$
6,080
$
4,279
From time-to-time, during the ordinary course of business, we provide standby letters of
credit for certain contingent liabilities under contractual arrangements, including customer
contracts. As of June 25, 2011, the maximum potential amount of future payments that Cohu
could be required to make under these standby letters of credit was approximately $0.6
million. We have not recorded any liability in connection with these guarantee 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.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
This Form 10-Q 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, and is subject to the Safe Harbor provisions created by that statute. Such
forward-looking statements are based on managements current expectations and beliefs, including
estimates and projections about our industries and include, but are not limited to, statements
concerning financial position, business strategy, and plans or objectives for future operations.
Forward-looking 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 managements current expectations. Such risks and uncertainties include
those set forth in this Quarterly Report on Form 10-Q and our 2010 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 managements outlook at any other point
in time. We undertake no obligation to publicly update 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 SEC after the date of this Quarterly Report.
OVERVIEW
Cohu operates in three business segments. Our primary business is the development, manufacture,
sale and servicing of test handling, burn-in, thermal sub-systems and
MEMS test solutions for the
global semiconductor industry through our wholly-owned subsidiaries, Delta Design, Inc. and Rasco
GmbH. This business is significantly dependent on capital expenditures by semiconductor
manufacturers and test subcontractors, which in turn is dependent on the current and anticipated
market demand for semiconductors that is subject to cyclical trends. We expect that the
semiconductor equipment industry will continue to be cyclical and volatile in part because consumer
electronics, the principal end market for integrated circuits, is a highly dynamic industry and
demand is difficult to accurately predict. Our other businesses produce mobile microwave
communications equipment (Broadcast Microwave Services, Inc.) and video cameras and accessories
(Cohu Electronics Division).
Orders for semiconductor test and assembly equipment as reported by Semiconductor Equipment and
Materials International (SEMI) decreased in June 2011 after increasing in each of the previous six
months. Industry analysts Gartner and VLSI believe that 2010 was the strongest growth year ever
for the semiconductor equipment industry and are projecting single digit growth for 2011. Strong
demand for our products, which was driven by high rates of equipment utilization in customers test
facilities, resulted in record orders and sales levels in 2010. Orders for the fourth quarter of
2010 and the first quarter of 2011 were down from the record levels of 2010 but were comparable and
in the second quarter of 2011 we saw a 13% sequential increase in orders for semiconductor
equipment, driven by demand for our high-speed pick-and-place test handlers and proprietary thermal
handling products. Long-term we are optimistic about the prospects for the semiconductor equipment
industry due to expanding applications and growing integrated circuit content in consumer,
industrial and automotive applications. Near-term business conditions are more uncertain as some
of our customers are being cautious due in part to uncertainty in the macro-economic environment
related to the debt crisis in the United States and Europe that affects consumer confidence and
spending.
Our non-semiconductor equipment businesses comprised approximately 21% of our consolidated revenues
during the three years ended December 25, 2010 (13% for the six-month period ended June 25, 2011).
Our microwave communications equipment business develops, manufactures and sells mobile microwave
communications equipment, antenna systems and associated equipment. These products are used in the
transmission of video, audio, and telemetry. Applications for these microwave data-links include
unmanned aerial vehicles (UAVs), public safety, security, surveillance, and electronic news
gathering. Customers for these products are government agencies, public safety organizations, UAV
program contractors, television broadcasters, and other commercial entities. Our microwave
communications equipment business continues to capitalize on its focus on the surveillance, UAV and
law enforcement markets.
Our video camera segment develops, manufactures and sells a wide selection of video cameras and
related products, specializing in video solutions for security, surveillance and traffic
monitoring. Customers for these products are distributed among security, surveillance, traffic
control/management, scientific imaging and machine vision. During the second quarter of fiscal
2011, sales and operating income for our video camera operation improved as a result of a large
order for its new Helios cameras. There is strong customer interest for this new family of
products which includes high definition cameras for the traffic and high end security and
surveillance markets.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
Application of Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are 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 most critical accounting estimates that we believe are the most important to an
investors understanding of our financial results and condition and require complex management
judgment include:
revenue recognition, including the deferral of revenue on sales to customers, which
impacts our results of operations;
estimation of valuation allowances and accrued liabilities, specifically product warranty,
inventory reserves and allowance for bad debts, which impact gross margin or operating
expenses;
the recognition and measurement of current and deferred income tax assets and liabilities,
unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact
our tax provision;
the assessment of recoverability of long-lived assets including goodwill and other
intangible assets, which primarily impacts gross margin or operating expenses if we are
required to record impairments of assets or accelerate their depreciation; and
the valuation and recognition of share-based compensation, which impacts gross margin,
research and development expense, and selling, general and administrative expense.
Below, we discuss these policies further, as well as the estimates and judgments involved. We also
have other policies that we consider key accounting policies; however, these policies typically do
not require us to make estimates or judgments that are difficult or subjective.
Revenue Recognition: We generally recognize revenue upon shipment and title passage for established
products (i.e., those that have previously satisfied customer acceptance requirements) that provide
for full payment tied to shipment. Revenue for products that have not previously satisfied
customer acceptance requirements or from sales where customer payment dates are not determinable is
recognized upon customer acceptance. For arrangements containing multiple elements, the revenue
relating to the undelivered elements is deferred at its estimated fair value until delivery of the
deferred elements.
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,
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
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 June 25, 2011 was approximately $27.5 million, with a
valuation allowance of approximately $21.7 million. Our deferred tax assets consist primarily of
reserves and accruals that are not yet deductible for tax and tax credit and net operating loss
carryforwards.
Goodwill, Purchased Intangible Assets and Other Long-lived Assets: We evaluate goodwill for
impairment annually and when an event occurs or circumstances change that indicate that the
carrying value may not be recoverable. We test goodwill for impairment by first comparing the book
value of net assets to the fair value of the reporting units. If the fair value is determined to
be less than the book value, a second step is performed to compute the amount of impairment as the
difference between the estimated fair value of goodwill and the carrying value. We estimated the
fair values of our reporting units primarily using the income approach valuation methodology that
includes the discounted cash flow method, taking into consideration the market approach and certain
market multiples as a validation of the values derived using the discounted cash flow methodology.
Forecasts of future cash flows are based on our best estimate of future net sales and operating
expenses, based primarily on customer forecasts, industry trade organization data and general
economic conditions. We conduct our annual impairment test as of October 1 of each year, and have
determined there is no impairment as of October 1, 2010. There were no events or circumstances from
the date of our assessment through June 25, 2011 that would impact this conclusion. In a future
period, should an event occur that leads us to determine that an interim goodwill impairment review
is required, the facts and estimates utilized at that time may differ resulting in an impairment
charge which could have a significant negative impact on our operating results.
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 assets carrying amount is not recoverable through its undiscounted, probability-weighted
future cash flows. We measure the impairment loss based on the difference between the carrying
amount and estimated fair value.
Contingencies: We are subject to certain contingencies that arise in the ordinary course of our
businesses which require us to assess the likelihood that future events will confirm the existence
of a loss or an impairment of an asset. If a loss or asset impairment is probable and the amount
of the loss or impairment is reasonably estimable, we accrue a charge to operations in the period
such conditions become known.
Share-based Compensation: Share-based compensation expense related to stock options is recorded
based on the fair value of the award on its grant date which we estimate using the Black-Scholes
valuation model. Share-based compensation expense related to restricted stock unit awards is
calculated based on the market price of our common stock on the grant date, reduced by the present
value of dividends expected to be paid on our common stock prior to vesting of the restricted stock
unit.
Recent Accounting Pronouncements
For a description of accounting changes and recent accounting pronouncements, including the
expected dates of adoption and estimated effects, if any, on our consolidated financial statements,
see Note 1, Recent Accounting Pronouncements in Part I, Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS
The following table summarizes certain operating data as a percentage of net sales:
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
Second Quarter of Fiscal 2011 Compared to Second Quarter of Fiscal 2010
Net Sales
Our consolidated net sales increased 8.1% to $80.9 million in 2011, compared to net sales of $74.9
million in 2010. Sales of semiconductor equipment in the second quarter of fiscal 2011 were $69.6
million, and increased $4.1 million or 6.2% from 2010 and represented 86.1% of consolidated net
sales in 2011 versus 87.6% in 2010. The increase in sales within our semiconductor equipment
business was driven by demand for our new high-speed pick-and-place test handlers and proprietary
thermal handling products.
Sales of mobile microwave communications equipment in the second quarter of fiscal 2011 were $5.9
million, representing 7.3% of consolidated net sales and increased $1.0 million or 21.0% when
compared to 2010. In the second quarter of 2011 our microwave communications business benefitted
from increased demand for microwave transmitters used by unmanned air vehicle program contractors
and high definition television broadcast equipment.
Sales of video cameras in the second quarter of fiscal 2011 were $5.3 million representing 6.6% of
consolidated net sales and increased $0.9 million or 21.4% when compared to the same period of
fiscal 2010. During the second quarter of fiscal 2011 our video camera business delivered a large
order of high definition traffic monitoring cameras placed by a state department of transportation
for use in a system-wide equipment upgrade.
Gross Margin
Gross margin consists of net sales less cost of sales. Cost of sales consists primarily of the
cost of materials, assembly and test labor, and overhead from operations. Our gross margin can
fluctuate due to a number of factors, including, but not limited to, the mix of products sold,
product support costs, inventory reserve adjustments, and utilization of manufacturing capacity.
Our gross margin, as a percentage of net sales, decreased to 32.8% in 2011 from 36.6% in 2010.
Gross margin in the second quarter of fiscal 2011 was in-line with our expectations and was
impacted by a large order for semiconductor test handlers that included a discount which was
offset, in part, by the implementation of a favorable price adjustment to one of our semiconductor
test handler products.
Our gross margin is also 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 the second quarter of fiscal
2011, we recorded net charges to cost of sales of approximately $1.5 million, for excess and
obsolete inventory. During the second quarter of fiscal 2010, we recorded charges to cost of sales
of approximately $0.2 million for excess and obsolete inventory offset by $0.4 million as a result
of the sale of certain inventory which had been previously reserved. While we believe our reserves
for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known
exposures at June 25, 2011, 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. R&D expense as a percentage of net sales decreased to 11.5%
in 2011 from 12.0% in 2010 as a result of the increase in business volume. R&D expense increased
in absolute dollars to $9.3 million in 2011 from $9.0 million in 2010 as a result of increases in
labor and material costs for new product development and share-based compensation costs within our
semiconductor equipment segment.
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 was 14.1% in 2011, compared to 12.7% in 2010. SG&A expense
increased to $11.4 million in 2011 from $9.5 million in 2010 due to higher labor and share-based
compensation costs and variable selling expenses and other costs resulting from increased sales
volume across all our business segments.
Interest and other, net
Interest and other, net was approximately $0.1 million in the second quarter of fiscal 2011 and
2010, respectively.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
Income Taxes
The income tax provision included in the condensed consolidated statements of income for the three
months ended June 25, 2011 and June 26, 2010, is based on the estimated annual effective tax rate
for the entire year. These estimated effective tax rates are subject to adjustment in subsequent
quarterly periods as our estimates of pretax income or loss for the year change. The effective tax
rate for the three months ended June 25, 2011, was 15.1% and differs from the U.S. federal
statutory rate primarily due to a reduction in our deferred tax asset valuation allowance, foreign
income taxed at lower rates, state taxes and interest on unrecognized tax benefits. The effective
tax rate for the three months ended June 26, 2010, was 26.1% and differs from the U.S. federal
statutory rate primarily due to our inability to benefit our domestic losses, foreign income taxed
at lower rates, state taxes and interest on unrecognized tax benefits.
In the quarter ended June 27, 2009, we recorded an increase in our valuation allowance on domestic
deferred tax assets, with a corresponding charge to our income tax provision, of approximately
$19.6 million as we were unable to conclude that it was more likely than not that such assets would
be realized. Our deferred tax asset valuation allowance at June 25, 2011 was approximately $21.7
million on gross deferred tax assets of approximately $27.5 million. The remaining $5.8 million of
gross deferred tax assets for which a valuation allowance was not recorded are realizable through
future reversals of existing taxable temporary differences.
There was no material change to our unrecognized tax benefits and interest accrued related to
unrecognized tax benefits during the first six months ended June 25, 2011.
As a result of the factors set forth above, our net income was $5.1 million in 2011, compared to
$6.7 million in 2010.
First Six Months of Fiscal 2011 Compared to First Six Months of Fiscal 2010
Net Sales
Our consolidated net sales increased 22.1% to $170.6 million in 2011, compared to net sales of
$139.7 million in 2010. Sales of semiconductor equipment in the first six months of fiscal 2011
were $149.1 million, and increased $27.5 million or 22.6% from 2010 and represented 87.4% of
consolidated net sales in 2011 versus 87.0% in 2010. The increase in sales within our
semiconductor equipment business was driven by demand for our new high-speed pick-and-place test
handlers and proprietary thermal handling products.
Sales of mobile microwave communications equipment in the first six months of fiscal 2011 were
$12.9 million, representing 7.6% of consolidated net sales, and increased $2.9 million or 28.8%
when compared to the same period of fiscal 2010. The increase in sales of our microwave
communications business during the first six months of fiscal 2011 was a result of increased demand
for microwave transmitters used by unmanned air vehicle program contractors and high definition
television broadcast equipment.
Sales of video cameras in the first six months of fiscal 2011 were $8.6 million, representing 5.0%
of consolidated net sales, and increased $0.5 million or 6.5% when compared to the same period of
fiscal 2010. The increase in sales of our video camera business was a result of increased demand
for high definition traffic monitoring products.
Gross Margin
Our gross margin, as a percentage of net sales, decreased to 32.5% in 2011 from 33.9% in 2010.
Gross margin in the first six months of fiscal 2011 was in-line with our expectations and was
impacted by a large order for semiconductor test handlers that included a discount which was
offset, in part, by the implementation of a favorable price adjustment to one of our semiconductor
test handler products.
During the first six months of fiscal 2011 we recorded net charges to cost of sales of
approximately $2.7 million for excess and obsolete inventory. During the first six months of
fiscal 2010 we recorded charges to cost of sales of approximately $0.6 million for excess and
obsolete inventory. Offsetting the charges recorded in 2010, our gross margin was favorably
impacted by $0.4 million as a result of the sale of certain inventory which had been previously
reserved.
R&D Expense
R&D expense as a percentage of net sales was 10.8% in 2011, compared to 12.6% in 2010 as a result
of the increase in business volume. R&D expense increased in absolute dollars to $18.4 million in
2011 from $17.7 million in 2010 due to higher share-based compensation expense and increased labor
and material costs related to product development within both our semiconductor equipment and
microwave communications equipment segments.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
SG&A Expense
SG&A expense as a percentage of net sales decreased to 13.8% in 2011, from 13.9% in 2010. SG&A
expense increased in absolute dollars to $23.5 million in 2011 from $19.4 million in 2010 due
primarily to variable selling expenses as a result of increased sales and higher labor and
share-based compensation costs across our business segments.
Interest and other, net
Interest and other, net was approximately $0.2 million and $0.3 million in the first six months of
fiscal 2011 and 2010, respectively.
Income Taxes
The income tax provision included in the condensed consolidated statements of income for the first
six months ended June 25, 2011 and June 26, 2010, is based on the estimated annual effective tax
rate for the entire year. These estimated effective tax rates are subject to adjustment in
subsequent quarterly periods as our estimates of pretax income or loss for the year change. The
effective tax rate for the first six months ended June 25, 2011, was 15.1% and differs from the
U.S. federal statutory rate primarily due to a reduction in our deferred tax asset valuation
allowance, foreign income taxed at lower rates, state taxes and interest on unrecognized tax
benefits. The effective tax rate for the first six months ended June 26, 2010, was 29.0% and
differs from the U.S. federal statutory rate primarily due to our inability to benefit our domestic
losses, foreign income taxed at lower rates, state taxes and interest on unrecognized tax benefits.
As a result of the factors set forth above, our net income was $11.6 million in 2011, compared to
net income of $7.6 million in 2010.
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on capital expenditures by semiconductor manufacturers and test
subcontractors that are, in turn, dependent on the current and anticipated market demand for
semiconductors. The cyclical and volatile nature of demand for semiconductor equipment, our
primary industry, makes estimates of future revenues, results of operations and net cash flows
difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by
our operations and we manage our businesses to maximize operating cash flows as our primary source
of liquidity. We use cash to fund growth in our operating assets and to fund new products and
product enhancements primarily through research and development.
Liquidity
Working Capital: The following summarizes our cash, cash equivalents, short-term investments and
working capital:
June 25,
December 25,
Percentage
(in thousands)
2011
2010
Increase
Change
Cash, cash equivalents and short-term investments
$
101,392
$
98,175
$
3,217
3.3
%
Working capital
$
186,765
$
168,683
$
18,082
10.7
%
Cash Flows
Operating Activities: Operating cash flows consist of net income, adjusted for non-cash expenses
and changes in operating assets and liabilities. Non-cash items include depreciation and
amortization, non-cash share-based compensation expense and deferred income taxes. Our net cash
provided by operating activities in the first six months of fiscal 2011 totaled $2.7 million. Cash
provided by operating activities was impacted by changes in current assets and liabilities and
included decreases in accounts receivable, deferred profit, income taxes payable and accrued
compensation and other liabilities of $13.5 million, $7.2 million, $4.9 million and $3.2 million,
respectively, and increases in inventories and accounts payable of $14.0 million and $1.1 million,
respectively. The decrease in accounts receivable was primarily driven by the timing of cash
collections within our semiconductor and microwave communications equipment segments and the
decrease in deferred profit resulted from the recognition of certain semiconductor test handlers
and microwave communications equipment sales during the first six months of fiscal 2011. The
decrease in income taxes payable was due to a large income tax payment made during the second
quarter of 2011 and the decrease in accrued compensation and other liabilities was primarily a
result of the payment of 2010 incentive compensation in the first quarter of 2011. The increases in
inventories and accounts payable were driven primarily by our semiconductor equipment operations
and resulted from inventory purchases made in connection with production requirements to meet
forecasted thermal handler orders expected to be shipped in the fourth quarter and the timing of
cash disbursements.
Managements Discussion and Analysis of Financial Condition and Results of Operations
June 25, 2011
Investing Activities: Investing cash flows consist primarily of cash used for capital expenditures
in support of our businesses, proceeds from investment maturities, asset disposals and
divestitures, and cash used for purchases of investments and business acquisitions. Our net cash
used in investing activities in the first six months of fiscal 2011 totaled $0.3 million and was
primarily the result of $33.6 million in cash used for purchases of short-term investments, offset
by $33.8 million in net proceeds from sales and maturities of short-term investments. We invest our
excess cash, in an attempt to seek the highest available return while preserving capital, in
short-term investments since excess cash is only temporarily available and may be required for a
business-related purpose. Additions to property, plant and equipment in the first six months of
fiscal 2011 were $0.4 million and were made to support the operating and development activities of
our semiconductor equipment and microwave communication businesses.
Financing Activities: Cash flows from financing activities consist primarily of net proceeds from
the issuance of common stock under our stock option and employee stock purchase plans and cash used
to pay dividends to our stockholders. We issue stock options and maintain an employee stock
purchase plan as components of our overall employee compensation. In the first six months of
fiscal 2011, we generated $1.4 million issuing common stock under our employee stock plans and we
paid dividends totaling $2.9 million, or $0.12 per common share. Future quarterly dividends are
subject to our cash liquidity, capital availability and periodic determinations by our Board of
Directors that cash dividends are in the best interests of our stockholders.
Capital Resources
We have a secured letter of credit facility (the Secured Facility) under which Bank of America,
N.A., has agreed to administer the issuance of letters of credit on behalf of Cohu and our
subsidiaries. The Secured Facility requires us to maintain deposits of cash or other approved
investments, which serve as collateral, in amounts that approximate our outstanding letters of
credit. As of June 25, 2011, we had approximately $0.6 million of standby letters of credit
outstanding.
We expect that we will continue to make capital expenditures to support our business and we
anticipate that present working capital will be sufficient to meet our operating requirements for
at least the next twelve months.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations: Our significant contractual obligations consist of operating leases that
have not changed materially from those disclosed in our Annual Report on Form 10-K for the year
ended December 25, 2010.
Purchase Commitments: From time to time, we enter into commitments with our vendors and outsourcing
partners to purchase inventory at fixed prices or in guaranteed quantities. 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. Our
purchase orders are based on our current manufacturing needs and are fulfilled by our vendors
within relatively short time horizons. 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 three 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 June 25, 2011, the maximum potential
amount of future payments that we could be required to make under these standby letters of credit
was approximately $0.6 million. No liability has been recorded in connection with these
arrangements beyond those required to appropriately account for the underlying transaction being
guaranteed. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Investment and Interest Rate Risk.
At June 25, 2011, our investment portfolio included short-term, fixed-income investment securities
with a fair value of approximately $52.0 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 June 25, 2011, we evaluated our
investments with loss positions and determined that these losses were temporary.
Foreign Currency Exchange Risk.
We conduct business on a global basis in a number of major international currencies. As such, we
are exposed to adverse as well as beneficial movements in foreign currency exchange rates. The
majority of our sales are denominated in U.S. dollars except for certain of our revenues that are
denominated in Euros. Certain expenses incurred by our non-U.S. operations, such as employee
payroll and benefits as well as some raw materials purchases and other expenses are denominated and
paid in local currency.
We considered a hypothetical ten percent adverse movement in foreign exchange rates to the
underlying exposures described above and believe that these hypothetical market movements would not
have a material effect on our consolidated financial position, results of operations or cash flows.
Item 4. Controls and Procedures.
(a) Evaluation 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 evaluated the effectiveness of our disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report.
It should be noted that any system of controls, however well designed and operated, can provide
only reasonable, and not absolute, assurance that the objectives of the system are met. In
addition, the design of any control system is based in part upon certain assumptions about the
likelihood of future events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving their objectives and our principal executive
officer and principal financial officer concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.
(b) Changes in Internal Controls. During the last fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
The information set forth above under Note 8 contained in the Notes to Unaudited
Condensed Consolidated Financial Statements of this Form 10-Q is incorporated herein by
reference.
Item 1A. Risk Factors.
The most significant risk factors applicable to Cohu are described in Part I, Item 1A
(Risk Factors) of Cohus Annual Report on Form 10-K for the fiscal year ended December
25, 2010 (our 2010 Form 10-K). There have been no material changes to the risk factors
previously disclosed in our 2010 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference
to Exhibit 3.1(a) from the Cohu, Inc. Form 10-Q for the quarterly period ended June 30, 1999
3(i).2
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cohu, Inc.
incorporated herein by reference to Exhibit 4.1(a) from the Cohu, Inc. Form S-8 filed with the
Securities and Exchange Commission on June 30, 2000
3(ii)
Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from
the Cohu, Inc. Report on Form 8-K filed with the Securities and Exchange Commission on December
12, 1996
4.1
Amended and Restated Rights Agreement dated November 10, 2006, between Cohu, Inc. and Mellon
Investor Services LLC, as Rights Agent, incorporated herein by reference to Exhibit 99.1 from the
Cohu, Inc. Report on Form 8-K filed with the Securities and Exchange Commission on November 13,
2006
31.1
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to the requirements 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.
Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference
to Exhibit 3.1(a) from the Cohu, Inc. Form 10-Q for the quarterly period ended June 30, 1999
3(i).2
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cohu, Inc.
incorporated herein by reference to Exhibit 4.1(a) from the Cohu, Inc. Form S-8 filed with the
Securities and Exchange Commission on June 30, 2000
3(ii)
Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from
the Cohu, Inc. Report on Form 8-K filed with the Securities and Exchange Commission on December
12, 1996
4.1
Amended and Restated Rights Agreement dated November 10, 2006, between Cohu, Inc. and Mellon
Investor Services LLC, as Rights Agent, incorporated herein by reference to Exhibit 99.1 from the
Cohu, Inc. Report on Form 8-K filed with the Securities and Exchange Commission on November 13,
2006
31.1
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
COHU, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, James A. Donahue, certify that:
1.
I have reviewed this Form 10-Q of Cohu, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: August 4, 2011
/s/ James A. Donahue
James A. Donahue
President & Chief Executive Officer
EX-31.2
3
a59822exv31w2.htm
EX-31.2
exv31w2
Exhibit 31.2
COHU, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, Jeffrey D. Jones, certify that:
1.
I have reviewed this Form 10-Q of Cohu, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: August 4, 2011
/s/ Jeffrey D. Jones
Jeffrey D. Jones
Vice President Finance & Chief Financial Officer
EX-32.1
4
a59822exv32w1.htm
EX-32.1
exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying Quarterly Report of Cohu, Inc. (the Company) on Form
10-Q for the fiscal quarter ended June 25, 2011 (the Report), I, James A. Donahue, President and
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: August 4, 2011
/s/ James A. Donahue
James A. Donahue,
President & Chief Executive Officer
EX-32.2
5
a59822exv32w2.htm
EX-32.2
exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying Quarterly Report of Cohu, Inc. (the Company) on Form
10-Q for the fiscal quarter ended June 25, 2011 (the Report), I, Jeffrey D. Jones, Vice President
Finance & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: August 4, 2011
/s/ Jeffrey D. Jones
Jeffrey D. Jones,
Vice President Finance & Chief Financial Officer
EX-101.INS
6
cohu-20110625.xml
EX-101 INSTANCE DOCUMENT
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left">
</div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>1.</b></td>
<td width="1%"> </td>
<td><b>Summary of Significant Accounting Policies</b></td>
</tr>
</table>
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<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Basis of Presentation</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
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<td width="1%"> </td>
<td>Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December.
The condensed consolidated balance sheet at December 25, 2010 has been derived from our
audited financial statements at that date. The interim condensed consolidated financial
statements as of June 25, 2011 (also referred to as “the second quarter of fiscal 2011” and
“the first six months of fiscal 2011”) and June 26, 2010 (also referred to as “the second
quarter of fiscal 2010” and “the first six months of fiscal 2010”) are unaudited. However, in
management’s opinion, these financial statements reflect all adjustments (consisting only of
normal, recurring items) necessary to provide a fair presentation of our financial position,
results of operations and cash flows for the periods presented. The three and six month
periods ended June 25, 2011 and June 26, 2010 were each comprised of 13 and 26 weeks,
respectively.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our interim results are not necessarily indicative of the results that should be expected for
the full year. For a better understanding of Cohu, Inc. and our financial statements, we
recommend reading these interim condensed consolidated financial statements in conjunction
with our audited financial statements for the year ended December 25, 2010, which are included
in our 2010 Annual Report on Form 10-K, filed with the U. S. Securities and Exchange
Commission (“SEC”). In the following notes to our interim condensed consolidated financial
statements, Cohu, Inc. is referred to as “Cohu”, “we”, “our” and “us”.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Risks and Uncertainties</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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 Item 1A. “Risk Factors”
included in this Form 10-Q. As our interim description of risks and uncertainties only
includes any material changes to our annual description, we also recommend reading the
description of the risk factors associated with our business previously disclosed in Item 1A.
of our 2010 Annual Report on Form 10-K. Understanding these risks and uncertainties is
integral to the review of our interim condensed consolidated financial statements.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Concentration of Credit Risk</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million
at June 25, 2011 and $0.6 million at December 25, 2010. 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 at June 25, 2011, we will continue to monitor
customer liquidity and other economic conditions, which may result in changes to our estimates
regarding collectability.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Goodwill, Other Intangible Assets and Long-lived Assets</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
</table>
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<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Share-Based Compensation</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Reported share-based compensation is classified, in the condensed consolidated interim
financial statements, as follows <i>(in thousands)</i>:</td>
</tr>
</table>
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<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cost of sales
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">90</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">68</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">182</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">149</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Research and development
</div></td>
<td> </td>
<td> </td>
<td align="right">266</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">204</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">602</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">466</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Selling, general and administrative
</div></td>
<td> </td>
<td> </td>
<td align="right">582</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">474</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,202</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">966</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total share-based compensation
</div></td>
<td> </td>
<td> </td>
<td align="right">938</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">746</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,986</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,581</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Income tax benefit
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total share-based compensation, net of tax
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">938</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">746</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,986</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,581</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Earnings Per Share</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Basic earnings per common share is computed by dividing net income by the weighted-average
number of common shares outstanding during the reporting period. Diluted earnings 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 three and six months ended June 25, 2011, options to issue approximately
2,035,000 and 1,804,000 shares of common stock were excluded from the computation,
respectively. For the three and six months ended June 26, 2010, options to issue approximately
1,518,000 and 1,671,000 shares of common stock were excluded from the computation,
respectively. The following table reconciles the denominators used in computing basic and
diluted income per share <i>(in thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares
</div></td>
<td> </td>
<td> </td>
<td align="right">24,103</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,657</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,060</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,603</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Effect of dilutive stock options
</div></td>
<td> </td>
<td> </td>
<td align="right">381</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">429</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">423</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">375</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right">24,484</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,086</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,483</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,978</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Revenue Recognition</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our revenue recognition policy is disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended December 25, 2010. As
more fully described in that policy, revenue from products that have not previously satisfied
customer acceptance requirements is recognized upon customer acceptance. The gross profit on
sales that are not recognized is generally recorded as deferred profit and reflected as a
current liability in our consolidated balance sheet.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>At June 25, 2011, we had deferred revenue totaling approximately $19.5 million and deferred
profit of $7.7 million. At December 25, 2010, we had deferred revenue totaling approximately
$36.9 million and deferred profit of $14.8 million.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Retiree Medical Benefits</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>We provide post-retirement health benefits to certain executives and directors under a
noncontributory plan. The net periodic benefit cost incurred during the first six months of
fiscal 2011 and 2010 was not significant.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Recent Accounting Pronouncements</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b><i>Recently Adopted Accounting Pronouncements </i></b><b>- </b>In January 2010, the Financial Accounting
Standards Board (“FASB”) issued guidance to add additional disclosures about the different
classes of assets and liabilities measured at fair value, the valuation techniques and inputs
used, and the activity in Level 3 fair value measurements (as defined in Note 3 below). We
adopted this guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption
of this new guidance has not had a material impact on our financial statement disclosures.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>In October 2009, the FASB amended the guidance for allocating revenue to multiple deliverables
in a contract. This new guidance is effective as of the first day of our 2011 fiscal year. In
accordance with the amendment, companies can allocate consideration in a multiple element
arrangement in a manner that better reflects the transaction economics. When vendor specific
objective evidence or third party evidence for deliverables in an arrangement cannot be
determined, companies will now be allowed to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative selling price
method. Additionally, use of the residual method has been eliminated. We adopted this
guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption of this new
guidance has not had a material impact on our consolidated financial position or results of
operations.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>In October 2009, the FASB issued new accounting guidance for the accounting for certain
revenue arrangements that include software elements. The new guidance amends the scope of
pre-existing software revenue guidance by removing from the guidance non-software components
of tangible products and certain software components of tangible products. The new guidance is
effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. We adopted this guidance on December 26, 2010, the
first day of our 2011 fiscal year. Adoption of this new guidance has not had a material impact
on our consolidated financial position or results of operations.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b><i>Recently Issued Accounting Pronouncements - </i></b>In June 2011, the FASB issued new
guidance on the presentation of comprehensive income. Specifically, the new guidance allows an
entity to present components of net income and other comprehensive income in one continuous
statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The new guidance eliminates the current option to report other
comprehensive income and its components in the statement of changes in equity. While the new
guidance changes the presentation of comprehensive income, there are no changes to the
components that are recognized in net income or other comprehensive income under current
accounting guidance. This new guidance is effective for fiscal years and interim periods
beginning after December 15, 2011. We do not believe our adoption of the new guidance in the
first quarter of fiscal 2012 will have an impact on our consolidated financial position,
results of operations or cash flows.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>In May 2011, the FASB issued new guidance to achieve common fair value measurement and
disclosure requirements between GAAP and International Financial Reporting Standards. This new
guidance amends current fair value measurement and disclosure guidance to include increased
transparency around valuation inputs and investment categorization. This new guidance is
effective for fiscal years and interim periods beginning after December 15, 2011. We do not
believe our adoption of the new guidance in the first quarter of fiscal 2012 will have an
impact on our consolidated financial position, results of operations or cash flows.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - us-gaap:GoodwillAndIntangibleAssetsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>2.</b></td>
<td width="1%"> </td>
<td><b>Goodwill and Purchased Intangible Assets</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Changes in the carrying value of goodwill by reportable segment during the year ended December
25, 2010 and the six-month period ended June 25, 2011 were as follows (<i>in thousands</i>):</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Semiconductor</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Microwave</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Equipment</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Communications</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Total Goodwill</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="10" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance, December 26, 2009
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">58,318</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,446</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">61,764</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Impact of currency exchange
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,038</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(228</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,266</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance, December 25, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">55,280</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,218</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">58,498</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Impact of currency exchange
</div></td>
<td> </td>
<td> </td>
<td align="right">2,663</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">200</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,863</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance, June 25, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">57,943</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,418</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">61,361</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Purchased intangible assets, subject to amortization are as follows (<i>in thousands</i>):</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 25, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">December 25, 2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross Carrying</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Accumulated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross Carrying</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Accumulated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amount</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortization</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amount</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortization</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="6" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td colspan="6" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Rasco technology
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">34,874</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,171</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">32,154</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,290</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unigen technology
</div></td>
<td> </td>
<td> </td>
<td align="right">7,020</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,020</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,020</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,779</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">AVS technology
</div></td>
<td> </td>
<td> </td>
<td align="right">2,325</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,325</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,156</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,008</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">44,219</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20,516</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,330</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">17,077</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Amortization expense related to intangible assets was approximately $1.1 million in the second
quarter of fiscal 2011 and $2.5 million in the first six months of fiscal 2011. Amortization
expense related to intangible assets was approximately $1.5 million in the second quarter of
fiscal 2010 and $3.1 million in the first six months of fiscal 2010. The amounts included in
the table above for the periods ended June 25, 2011 and December 25, 2010 exclude
approximately $2.5 million and $2.3 million, respectively, related to the Rasco trade name
which has an indefinite life and is not being amortized. Changes in the carrying values of our
intangible assets are a result of continued amortization and the impact of fluctuations in
currency exchange rates.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:CashAndCashEquivalentsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>3.</b></td>
<td width="1%"> </td>
<td><b>Cash, Cash Equivalents and Short-Term Investments</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>As of June 25, 2011, and December 25, 2010, our cash, cash equivalents, and short-term
investments consisted primarily of cash, corporate debt securities, government and government
agency securities, state and municipal securities, money market funds 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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Investments that we have classified as short-term, by security type, are as follows <i>(in
thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">June 25, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Cost</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gains</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Losses<sup style="font-size: 85%; vertical-align: text-top"> (1)</sup></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="14" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. Treasury securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,768</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,782</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities <sup style="font-size: 85%; vertical-align: text-top">(2)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">23,790</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">16</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,806</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">9,560</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,560</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government-sponsored
enterprise securities
</div></td>
<td> </td>
<td> </td>
<td align="right">13,806</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">51</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,856</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">51,924</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">81</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">52,004</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">December 25, 2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Cost</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gains</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Losses <sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="14" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. Treasury securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,778</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,787</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities <sup style="font-size: 85%; vertical-align: text-top">(2)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">18,010</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,034</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">11,102</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,103</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government-sponsored
enterprise securities
</div></td>
<td> </td>
<td> </td>
<td align="right">15,105</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,093</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Bank certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Asset-backed securities
</div></td>
<td> </td>
<td> </td>
<td align="right">236</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">237</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">52,231</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">47</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">52,254</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="margin-left: 6%">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<div align="center">
<table width="88%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(1)</td>
<td> </td>
<td>As of June 25, 2011, and December 25, 2010, the cost and fair value of
investments with loss positions was $5.9 million and $16.1 million, respectively. We
evaluated the nature of these investments, credit worthiness of the issuer and the
duration of these impairments to determine if an other-than-temporary decline in fair
value had occurred and concluded that these losses were temporary.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(2)</td>
<td> </td>
<td>Corporate debt securities include investments in financial, insurance, and
corporate institutions. No single issuer represents a significant portion of the total
corporate debt securities portfolio.</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Effective maturities of short-term investments at June 25, 2011 and December 25, 2010,
were as follows <i>(in thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 25, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">December 25, 2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Cost</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair Value</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Cost</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
<td colspan="8" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in one year or less
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">41,097</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,133</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,891</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,918</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after one year through two years
</div></td>
<td> </td>
<td> </td>
<td align="right">10,827</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,871</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,104</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,099</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Asset-backed securities not due at a
single maturity date
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">236</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">237</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">51,924</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">52,004</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">52,231</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">52,254</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our municipal securities include variable rate demand notes which can be put (sold at par)
typically on a daily basis with settlement periods ranging from the same day to one week and
have varying contractual maturities through 2037. These securities can be used for short-term
liquidity needs and are held for limited periods of time. At June 25, 2011 and December 25,
2010 these securities had amortized cost and fair value of $7.1 million and $7.5 million,
respectively, and are included in “Due in one year or less” in the table above.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Accounting standards pertaining to fair value measurements establish a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions. When
available, we use quoted market prices to determine the fair value of our investments, and
they are included in Level 1. When quoted market prices are unobservable, we use quotes from
independent pricing vendors based on recent trading activity and other relevant information,
and they are included in Level 2.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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 <i>(in
thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="92%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">Fair value measurements at June 25, 2011 using:</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Total estimated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 1</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 2</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 3</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">fair value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,908</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,908</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. Treasury securities
</div></td>
<td> </td>
<td> </td>
<td align="right">4,782</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,782</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,304</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,304</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,110</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,110</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Government-sponsored
enterprise securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,856</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,856</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market funds
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,432</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,432</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Bank certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">23,690</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">77,702</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">101,392</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="92%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">Fair value measurements at December 25, 2010 using:</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Total estimated</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 1</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 2</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 3</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">fair value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,842</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,842</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. Treasury securities
</div></td>
<td> </td>
<td> </td>
<td align="right">6,787</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,787</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,432</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,432</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,852</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,852</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Government-sponsored
enterprise securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,093</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,093</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market funds
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,932</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,932</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Bank certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Asset-backed securities
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">237</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">237</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">25,629</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">72,546</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">98,175</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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. These investments are included in Level 2 and primarily comprise our money market
funds and our portfolio of corporate debt securities, bank certificates of deposit,
government-sponsored enterprise, municipal securities and asset-backed securities.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>4.</b></td>
<td width="1%"> </td>
<td><b>Employee Stock Benefit Plans</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Employee Stock Purchase Plan</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of
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. On May 11, 2011 our stockholders
approved an amendment to the Plan which increased the number of shares that may be issued
under the Plan by 500,000 shares. Subsequent to this amendment a maximum of 1,900,000 shares
of our common stock can be issued under the Plan and at June 25, 2011, there were 704,132
shares available for issuance under the Plan.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Stock Options</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Under our equity incentive plans, stock options may be granted to employees, consultants and
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 five to ten years from the grant date. At June 25, 2011, 1,167,399 shares were
available for future equity grants under the 2005 Equity Plan. We have historically issued new
shares of our common stock upon share option exercise.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>At June 25, 2011, we had 3,168,404 stock options outstanding. These options had a
weighted-average exercise price of $13.01 per share, an aggregate intrinsic value of
approximately $5.3 million and the weighted average remaining contractual term was
approximately 5.7 years.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>At June 25, 2011, we had 2,067,775 stock options outstanding that were exercisable. These
options had a weighted-average exercise price of $14.36 per share, an aggregate intrinsic
value of $2.3 million and the weighted average remaining contractual term was approximately
4.4 years.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td><b>Restricted Stock Units</b></td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>We issue restricted stock units to certain employees, consultants and 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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>At June 25, 2011, we had 393,131 restricted stock units outstanding with an aggregate
intrinsic value of approximately $4.9 million and the weighted average remaining vesting
period was approximately 2.9 years.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>5.</b></td>
<td width="1%"> </td>
<td><b>Comprehensive Income (Loss)</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Comprehensive income (loss) represents all non-owner changes in stockholders’ equity and
consists of, on an after-tax basis where applicable, the following <i>(in thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,050</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,698</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,624</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,605</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment
</div></td>
<td> </td>
<td> </td>
<td align="right">602</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6,032</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">7,496</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(11,777</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Adjustments related to postretirement benefits
</div></td>
<td> </td>
<td> </td>
<td align="right">32</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Change in unrealized gain/loss on investments
</div></td>
<td> </td>
<td> </td>
<td align="right">28</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(36</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">36</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(61</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Comprehensive income (loss)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,712</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">643</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">19,174</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(4,205</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our accumulated other comprehensive income (loss) balance totaled approximately $7.4 million
and $(0.2) million at June 25, 2011, and December 25, 2010, respectively, and was attributed
to, net of income taxes where applicable, foreign currency adjustments resulting from the
translation of certain accounts into U.S. dollars where the functional currency is the Euro,
unrealized gains and losses on investments and adjustments related to postretirement benefits.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>6.</b></td>
<td width="1%"> </td>
<td><b>Income Taxes</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>The income tax provision included in the condensed consolidated statements of income for the
three and six months ended June 25, 2011 and June 26, 2010, is based on the estimated annual
effective tax rate for the entire year. These estimated effective tax rates are subject to
adjustment in subsequent quarterly periods as our estimates of pretax income or loss for the
year change. The effective tax rate for the three and six months ended June 25, 2011, was
15.1% and differs from the U.S. federal statutory rate primarily due to a reduction in our
deferred tax asset valuation allowance, foreign income taxed at lower rates, state taxes and
interest on unrecognized tax benefits. The effective tax rate for the three and six months
ended June 26, 2010, was 26.1% and 29.0%, respectively, and differs from the U.S. federal
statutory rate primarily due to our inability to benefit our domestic losses, foreign income
taxed at lower rates, state taxes and interest on unrecognized tax benefits.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>In the quarter ended June 27, 2009, we recorded an increase in our valuation allowance on
domestic deferred tax assets, with a corresponding charge to our income tax provision, of
approximately $19.6 million as we were unable to conclude that it was more likely than not
that such assets would be realized. Our deferred tax asset valuation allowance at June 25,
2011 was approximately $21.7 million on gross deferred tax assets of approximately $27.5
million. The remaining $5.8 million of gross deferred tax assets for which a valuation
allowance was not recorded are realizable through future reversals of existing taxable
temporary differences or loss carryback.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>There was no material change to our unrecognized tax benefits and interest accrued related to
unrecognized tax benefits during the three and six months ended June 25, 2011.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>7.</b></td>
<td width="1%"> </td>
<td><b>Industry Segments</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our reportable segments are business units that offer different products and are managed
separately because each business requires different technology and marketing strategies. Our
three segments are: semiconductor equipment, microwave communications and video cameras.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>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.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Financial information by industry segment is as follows <i>(in thousands)</i>:</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="16" align="left" style="border-top: 0px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><i>Net sales by segment:</i>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Semiconductor equipment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">69,628</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">65,574</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">149,071</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">121,596</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Microwave communications
</div></td>
<td> </td>
<td> </td>
<td align="right">5,932</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,901</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,948</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,049</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Video cameras
</div></td>
<td> </td>
<td> </td>
<td align="right">5,336</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,394</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,577</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,054</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Total consolidated net sales and
net sales for reportable segments
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">80,896</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">74,869</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">170,596</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">139,699</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><i>Segment profit (loss):</i>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Semiconductor equipment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,218</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,148</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">16,206</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,092</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Microwave communications
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(469</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(469</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(460</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(796</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Video cameras
</div></td>
<td> </td>
<td> </td>
<td align="right">456</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">57</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">273</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">77</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Profit (loss) for reportable segments
</div></td>
<td> </td>
<td> </td>
<td align="right">7,205</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,736</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">16,019</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,373</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><i>Other unallocated amounts:</i>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Corporate expenses
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,376</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(809</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,548</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,975</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Interest and other, net
</div></td>
<td> </td>
<td> </td>
<td align="right">116</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">138</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">226</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">312</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Income before income taxes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,945</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,065</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,697</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,710</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt">
<b>
</b>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 25,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="8" align="left" style="border-top: 0px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><i>Total assets by segment (in thousands): </i>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Semiconductor equipment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">261,233</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">255,246</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Microwave communications
</div></td>
<td> </td>
<td> </td>
<td align="right">20,452</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,812</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Video cameras
</div></td>
<td> </td>
<td> </td>
<td align="right">11,835</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,092</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Total assets for reportable segments
</div></td>
<td> </td>
<td> </td>
<td align="right">293,520</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">294,150</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Corporate, principally cash and
investments and deferred taxes
</div></td>
<td> </td>
<td> </td>
<td align="right">78,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71,893</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Total consolidated assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">371,891</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">366,043</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>A small number of customers historically have been responsible for a significant portion of
our consolidated net sales. During the second quarter of fiscal 2011 one customer of the
semiconductor equipment segment represented more than 10% of our consolidated net sales and
accounted for 30% of our total consolidated net sales. For the first six months of fiscal
2011, two customers of the semiconductor equipment segment each represented more than 10% of
our consolidated net sales and, combined, they accounted for 45% of our total consolidated net
sales. During the second quarter and the first six months of fiscal 2010, three customers of
the semiconductor equipment segment each represented more than 10% of our consolidated net
sales and, combined, they accounted for 42% and 49% of our total consolidated net sales,
respectively.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>8.</b></td>
<td width="1%"> </td>
<td><b>Contingencies</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>From time-to-time we are involved in various legal proceedings, examinations by various tax
authorities and claims that have arisen in the ordinary course of our businesses. Although
the outcome of such legal proceedings, claims and examinations cannot be predicted with
certainty, we do not believe any such matters exist at this time that will have a material
adverse effect on our financial position or results of operations.</td>
</tr>
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:GuaranteesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"><b>9.</b></td>
<td width="1%"> </td>
<td><b>Guarantees</b></td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Our products are generally sold with warranty periods that range from 12 to 36 months
following sale or acceptance. Parts and labor are covered under the terms of the warranty
agreement. The warranty provision is based on historical and projected experience by product
and configuration.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>Changes in accrued warranty were as follows (<i>in thousands</i>):</td>
</tr>
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 25,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 26,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="6" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td colspan="6" align="left" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at beginning of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,303</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,987</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,016</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,747</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warranty expense accruals
</div></td>
<td> </td>
<td> </td>
<td align="right">2,178</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,397</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,449</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,648</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Warranty payments
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,401</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,105</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,385</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,116</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at end of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,080</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,279</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,080</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,279</td>
<td> </td>
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<td>From time-to-time, during the ordinary course of business, we provide standby letters of
credit for certain contingent liabilities under contractual arrangements, including customer
contracts. As of June 25, 2011, the maximum potential amount of future payments that Cohu
could be required to make under these standby letters of credit was approximately $0.6
million. We have not recorded any liability in connection with these guarantee 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.</td>
</tr>
</table>
</div>
</div>
Derived from December 25, 2010 audited financial statements.
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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data
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Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.
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Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.
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Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
The aggregate costs related to goods produced and sold and services rendered by an entity during the reporting period. This excludes costs incurred during the reporting period related to financial services rendered and other revenue generating activities.
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The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
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Sum of operating profit and nonoperating income or expense before Income or Loss from equity method investments, income taxes, extraordinary items, and noncontrolling interest.
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Income derived from investments in debt securities and on cash and cash equivalents the earnings of which reflect the time value of money or transactions in which the payments are for the use or forbearance of money.
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The aggregate costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility, and costs allocated in accounting for a business combination to in-process projects deemed to have no alternative future use.
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Total revenue from sale of goods and services rendered during the reporting period, in the normal course of business, reduced by sales returns and allowances, and sales discounts.
The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, utilities, communication, etc.
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The average number of shares or units issued and outstanding that are used in calculating diluted EPS or earnings per unit (EPU), determined based on the timing of issuance of shares or units in the period.
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Number of [basic] shares or units, after adjustment for contingently issuable shares or units and other shares or units not deemed outstanding, determined by relating the portion of time within a reporting period that common shares or units have been outstanding to the total time in that period.
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This is focus fiscal period of the document report. For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY.
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements containing historical data, it is the date up through which that historical data is presented. If there is no historical data in the report, use the filing date. The format of the date is CCYY-MM-DD.
The type of document being provided (such as 10-K, 10-Q, N-1A, etc). The document type is limited to the same value as the supporting SEC submission type, minus any "/A" suffix. The acceptable values are as follows: S-1, S-3, S-4, S-11, F-1, F-3, F-4, F-9, F-10, 6-K, 8-K, 10, 10-K, 10-Q, 20-F, 40-F, N-1A, 485BPOS, 497, NCSR, N-CSR, N-CSRS, N-Q, 10-KT, 10-QT, 20-FT, and Other.
Indicate number of shares outstanding of each of registrant's classes of common stock, as of latest practicable date. Where multiple classes exist define each class by adding class of stock items such as Common Class A [Member], Common Class B [Member] onto the Instrument [Domain] of the Entity Listings, Instrument
Indicate "Yes" or "No" whether registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Indicate whether the registrant is one of the following: (1) Large Accelerated Filer, (2) Accelerated Filer, (3) Non-accelerated Filer, or (4) Smaller Reporting Company. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
State aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to price at which the common equity was last sold, or average bid and asked price of such common equity, as of the last business day of registrant's most recently completed second fiscal quarter. The public float should be reported on the cover page of the registrants form 10K.
Indicate "Yes" or "No" if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Is used on Form Type: 10-K, 10-Q, 8-K, 20-F, 6-K, 10-K/A, 10-Q/A, 20-F/A, 6-K/A, N-CSR, N-Q, N-1A.
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Our reportable segments are business units that offer different products and are managed
separately because each business requires different technology and marketing strategies. Our
three segments are: semiconductor equipment, microwave communications and video cameras.
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 as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Net sales by segment:
Semiconductor equipment
$
69,628
$
65,574
$
149,071
$
121,596
Microwave communications
5,932
4,901
12,948
10,049
Video cameras
5,336
4,394
8,577
8,054
Total consolidated net sales and
net sales for reportable segments
$
80,896
$
74,869
$
170,596
$
139,699
Segment profit (loss):
Semiconductor equipment
$
7,218
$
10,148
$
16,206
$
13,092
Microwave communications
(469
)
(469
)
(460
)
(796
)
Video cameras
456
57
273
77
Profit (loss) for reportable segments
7,205
9,736
16,019
12,373
Other unallocated amounts:
Corporate expenses
(1,376
)
(809
)
(2,548
)
(1,975
)
Interest and other, net
116
138
226
312
Income before income taxes
$
5,945
$
9,065
$
13,697
$
10,710
June 25,
December 25,
2011
2010
Total assets by segment (in thousands):
Semiconductor equipment
$
261,233
$
255,246
Microwave communications
20,452
27,812
Video cameras
11,835
11,092
Total assets for reportable segments
293,520
294,150
Corporate, principally cash and
investments and deferred taxes
78,371
71,893
Total consolidated assets
$
371,891
$
366,043
A small number of customers historically have been responsible for a significant portion of
our consolidated net sales. During the second quarter of fiscal 2011 one customer of the
semiconductor equipment segment represented more than 10% of our consolidated net sales and
accounted for 30% of our total consolidated net sales. For the first six months of fiscal
2011, two customers of the semiconductor equipment segment each represented more than 10% of
our consolidated net sales and, combined, they accounted for 45% of our total consolidated net
sales. During the second quarter and the first six months of fiscal 2010, three customers of
the semiconductor equipment segment each represented more than 10% of our consolidated net
sales and, combined, they accounted for 42% and 49% of our total consolidated net sales,
respectively.
The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.
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As of June 25, 2011, and December 25, 2010, our cash, cash equivalents, and short-term
investments consisted primarily of cash, corporate debt securities, government and government
agency securities, state and municipal securities, money market funds 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):
June 25, 2011
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses (1)
Value
U.S. Treasury securities
$
4,768
$
14
$
—
$
4,782
Corporate debt securities (2)
23,790
16
—
23,806
Municipal securities
9,560
—
—
9,560
Government-sponsored
enterprise securities
13,806
51
1
13,856
$
51,924
$
81
$
1
$
52,004
December 25, 2010
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses (1)
Value
U.S. Treasury securities
$
6,778
$
9
$
—
$
6,787
Corporate debt securities (2)
18,010
28
4
18,034
Municipal securities
11,102
1
—
11,103
Government-sponsored
enterprise securities
15,105
8
20
15,093
Bank certificates of deposit
1,000
—
—
1,000
Asset-backed securities
236
1
—
237
$
52,231
$
47
$
24
$
52,254
(1)
As of June 25, 2011, and December 25, 2010, the cost and fair value of
investments with loss positions was $5.9 million and $16.1 million, respectively. We
evaluated the nature of these investments, credit worthiness of the issuer and the
duration of these impairments to determine if an other-than-temporary decline in fair
value had occurred and concluded that these losses were temporary.
(2)
Corporate debt securities include investments in financial, insurance, and
corporate institutions. No single issuer represents a significant portion of the total
corporate debt securities portfolio.
Effective maturities of short-term investments at June 25, 2011 and December 25, 2010,
were as follows (in thousands):
June 25, 2011
December 25, 2010
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value
Cost
Fair Value
Due in one year or less
$
41,097
$
41,133
$
34,891
$
34,918
Due after one year through two years
10,827
10,871
17,104
17,099
Asset-backed securities not due at a
single maturity date
—
—
236
237
$
51,924
$
52,004
$
52,231
$
52,254
Our municipal securities include variable rate demand notes which can be put (sold at par)
typically on a daily basis with settlement periods ranging from the same day to one week and
have varying contractual maturities through 2037. These securities can be used for short-term
liquidity needs and are held for limited periods of time. At June 25, 2011 and December 25,
2010 these securities had amortized cost and fair value of $7.1 million and $7.5 million,
respectively, and are included in “Due in one year or less” in the table above.
Accounting standards pertaining to fair value measurements establish a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions. When
available, we use quoted market prices to determine the fair value of our investments, and
they are included in Level 1. When quoted market prices are unobservable, we use quotes from
independent pricing vendors based on recent trading activity and other relevant information,
and they are included in Level 2.
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 June 25, 2011 using:
Total estimated
Level 1
Level 2
Level 3
fair value
Cash
$
18,908
$
—
$
—
$
18,908
U.S. Treasury securities
4,782
—
—
4,782
Corporate debt securities
—
25,304
—
25,304
Municipal securities
—
10,110
—
10,110
Government-sponsored
enterprise securities
—
13,856
—
13,856
Money market funds
—
27,432
—
27,432
Bank certificates of deposit
—
1,000
—
1,000
$
23,690
$
77,702
$
—
$
101,392
Fair value measurements at December 25, 2010 using:
Total estimated
Level 1
Level 2
Level 3
fair value
Cash
$
18,842
$
—
$
—
$
18,842
U.S. Treasury securities
6,787
—
—
6,787
Corporate debt securities
—
21,432
—
21,432
Municipal securities
—
11,852
—
11,852
Government-sponsored
enterprise securities
—
15,093
—
15,093
Money market funds
—
22,932
—
22,932
Bank certificates of deposit
—
1,000
—
1,000
Asset-backed securities
—
237
—
237
$
25,629
$
72,546
$
—
$
98,175
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. These investments are included in Level 2 and primarily comprise our money market
funds and our portfolio of corporate debt securities, bank certificates of deposit,
government-sponsored enterprise, municipal securities and asset-backed securities.
The entire disclosure for cash and cash equivalent footnotes, which may include the types of deposits and money market instruments, applicable carrying amounts, restricted amounts and compensating balance arrangements. Cash and equivalents include: (1) currency on hand (2) demand deposits with banks or financial institutions (3) other kinds of accounts that have the general characteristics of demand deposits (4) short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments maturing within three months from the date of acquisition qualify.
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Our products are generally sold with warranty periods that range from 12 to 36 months
following sale or acceptance. Parts and labor are covered under the terms of the warranty
agreement. The warranty provision is based on historical and projected experience by product
and configuration.
Changes in accrued warranty were as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Balance at beginning of period
$
6,303
$
3,987
$
5,016
$
3,747
Warranty expense accruals
2,178
1,397
5,449
2,648
Warranty payments
(2,401
)
(1,105
)
(4,385
)
(2,116
)
Balance at end of period
$
6,080
$
4,279
$
6,080
$
4,279
From time-to-time, during the ordinary course of business, we provide standby letters of
credit for certain contingent liabilities under contractual arrangements, including customer
contracts. As of June 25, 2011, the maximum potential amount of future payments that Cohu
could be required to make under these standby letters of credit was approximately $0.6
million. We have not recorded any liability in connection with these guarantee 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.
The entire disclosure for each guarantee obligation, or each group of similar guarantee obligations, including (a) the nature of the guarantee, including its term, how it arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee; (c) the current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature of any recourse provisions under the guarantee, and any assets held either as collateral or by third parties, and any relevant related party disclosure. Excludes disclosures about product warranties.
From time-to-time we are involved in various legal proceedings, examinations by various tax
authorities and claims that have arisen in the ordinary course of our businesses. Although
the outcome of such legal proceedings, claims and examinations cannot be predicted with
certainty, we do not believe any such matters exist at this time that will have a material
adverse effect on our financial position or results of operations.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 14 -Paragraph 3 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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Our fiscal years are based on a 52- or 53-week period ending on the last Saturday in December.
The condensed consolidated balance sheet at December 25, 2010 has been derived from our
audited financial statements at that date. The interim condensed consolidated financial
statements as of June 25, 2011 (also referred to as “the second quarter of fiscal 2011” and
“the first six months of fiscal 2011”) and June 26, 2010 (also referred to as “the second
quarter of fiscal 2010” and “the first six months of fiscal 2010”) are unaudited. However, in
management’s opinion, these financial statements reflect all adjustments (consisting only of
normal, recurring items) necessary to provide a fair presentation of our financial position,
results of operations and cash flows for the periods presented. The three and six month
periods ended June 25, 2011 and June 26, 2010 were each comprised of 13 and 26 weeks,
respectively.
Our interim results are not necessarily indicative of the results that should be expected for
the full year. For a better understanding of Cohu, Inc. and our financial statements, we
recommend reading these interim condensed consolidated financial statements in conjunction
with our audited financial statements for the year ended December 25, 2010, which are included
in our 2010 Annual Report on Form 10-K, filed with the U. S. Securities and Exchange
Commission (“SEC”). In the following notes to our interim condensed consolidated financial
statements, Cohu, Inc. is referred to as “Cohu”, “we”, “our” and “us”.
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 Item 1A. “Risk Factors”
included in this Form 10-Q. As our interim description of risks and uncertainties only
includes any material changes to our annual description, we also recommend reading the
description of the risk factors associated with our business previously disclosed in Item 1A.
of our 2010 Annual Report on Form 10-K. Understanding these risks and uncertainties is
integral to the review of our interim condensed consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant credit risk consist
principally of cash equivalents, short-term investments and trade accounts receivable. We
invest in a variety of financial instruments and, by policy, limit the amount of credit
exposure with any one issuer.
Trade accounts receivable are presented net of allowance for doubtful accounts of $0.3 million
at June 25, 2011 and $0.6 million at December 25, 2010. 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 at June 25, 2011, we will continue to monitor
customer liquidity and other economic conditions, which may result in changes to our estimates
regarding collectability.
Goodwill, Other Intangible Assets and 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.
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.
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.
Reported share-based compensation is classified, in the condensed consolidated interim
financial statements, as follows (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Cost of sales
$
90
$
68
$
182
$
149
Research and development
266
204
602
466
Selling, general and administrative
582
474
1,202
966
Total share-based compensation
938
746
1,986
1,581
Income tax benefit
—
—
—
—
Total share-based compensation, net of tax
$
938
$
746
$
1,986
$
1,581
Earnings Per Share
Basic earnings per common share is computed by dividing net income by the weighted-average
number of common shares outstanding during the reporting period. Diluted earnings 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 three and six months ended June 25, 2011, options to issue approximately
2,035,000 and 1,804,000 shares of common stock were excluded from the computation,
respectively. For the three and six months ended June 26, 2010, options to issue approximately
1,518,000 and 1,671,000 shares of common stock were excluded from the computation,
respectively. The following table reconciles the denominators used in computing basic and
diluted income per share (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Weighted average common shares
24,103
23,657
24,060
23,603
Effect of dilutive stock options
381
429
423
375
24,484
24,086
24,483
23,978
Revenue Recognition
Our revenue recognition policy is disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended December 25, 2010. As
more fully described in that policy, revenue from products that have not previously satisfied
customer acceptance requirements is recognized upon customer acceptance. The gross profit on
sales that are not recognized is generally recorded as deferred profit and reflected as a
current liability in our consolidated balance sheet.
At June 25, 2011, we had deferred revenue totaling approximately $19.5 million and deferred
profit of $7.7 million. At December 25, 2010, we had deferred revenue totaling approximately
$36.9 million and deferred profit of $14.8 million.
Retiree Medical Benefits
We provide post-retirement health benefits to certain executives and directors under a
noncontributory plan. The net periodic benefit cost incurred during the first six months of
fiscal 2011 and 2010 was not significant.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements - In January 2010, the Financial Accounting
Standards Board (“FASB”) issued guidance to add additional disclosures about the different
classes of assets and liabilities measured at fair value, the valuation techniques and inputs
used, and the activity in Level 3 fair value measurements (as defined in Note 3 below). We
adopted this guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption
of this new guidance has not had a material impact on our financial statement disclosures.
In October 2009, the FASB amended the guidance for allocating revenue to multiple deliverables
in a contract. This new guidance is effective as of the first day of our 2011 fiscal year. In
accordance with the amendment, companies can allocate consideration in a multiple element
arrangement in a manner that better reflects the transaction economics. When vendor specific
objective evidence or third party evidence for deliverables in an arrangement cannot be
determined, companies will now be allowed to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative selling price
method. Additionally, use of the residual method has been eliminated. We adopted this
guidance on December 26, 2010, the first day of our 2011 fiscal year. Adoption of this new
guidance has not had a material impact on our consolidated financial position or results of
operations.
In October 2009, the FASB issued new accounting guidance for the accounting for certain
revenue arrangements that include software elements. The new guidance amends the scope of
pre-existing software revenue guidance by removing from the guidance non-software components
of tangible products and certain software components of tangible products. The new guidance is
effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. We adopted this guidance on December 26, 2010, the
first day of our 2011 fiscal year. Adoption of this new guidance has not had a material impact
on our consolidated financial position or results of operations.
Recently Issued Accounting Pronouncements - In June 2011, the FASB issued new
guidance on the presentation of comprehensive income. Specifically, the new guidance allows an
entity to present components of net income and other comprehensive income in one continuous
statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The new guidance eliminates the current option to report other
comprehensive income and its components in the statement of changes in equity. While the new
guidance changes the presentation of comprehensive income, there are no changes to the
components that are recognized in net income or other comprehensive income under current
accounting guidance. This new guidance is effective for fiscal years and interim periods
beginning after December 15, 2011. We do not believe our adoption of the new guidance in the
first quarter of fiscal 2012 will have an impact on our consolidated financial position,
results of operations or cash flows.
In May 2011, the FASB issued new guidance to achieve common fair value measurement and
disclosure requirements between GAAP and International Financial Reporting Standards. This new
guidance amends current fair value measurement and disclosure guidance to include increased
transparency around valuation inputs and investment categorization. This new guidance is
effective for fiscal years and interim periods beginning after December 15, 2011. We do not
believe our adoption of the new guidance in the first quarter of fiscal 2012 will have an
impact on our consolidated financial position, results of operations or cash flows.
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The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of
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. On May 11, 2011 our stockholders
approved an amendment to the Plan which increased the number of shares that may be issued
under the Plan by 500,000 shares. Subsequent to this amendment a maximum of 1,900,000 shares
of our common stock can be issued under the Plan and at June 25, 2011, there were 704,132
shares available for issuance under the Plan.
Stock Options
Under our equity incentive plans, stock options may be granted to employees, consultants and
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 five to ten years from the grant date. At June 25, 2011, 1,167,399 shares were
available for future equity grants under the 2005 Equity Plan. We have historically issued new
shares of our common stock upon share option exercise.
At June 25, 2011, we had 3,168,404 stock options outstanding. These options had a
weighted-average exercise price of $13.01 per share, an aggregate intrinsic value of
approximately $5.3 million and the weighted average remaining contractual term was
approximately 5.7 years.
At June 25, 2011, we had 2,067,775 stock options outstanding that were exercisable. These
options had a weighted-average exercise price of $14.36 per share, an aggregate intrinsic
value of $2.3 million and the weighted average remaining contractual term was approximately
4.4 years.
Restricted Stock Units
We issue restricted stock units to certain employees, consultants and 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.
At June 25, 2011, we had 393,131 restricted stock units outstanding with an aggregate
intrinsic value of approximately $4.9 million and the weighted average remaining vesting
period was approximately 2.9 years.
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
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Comprehensive income (loss) represents all non-owner changes in stockholders’ equity and
consists of, on an after-tax basis where applicable, the following (in thousands):
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2011
2010
2011
2010
Net income
$
5,050
$
6,698
$
11,624
$
7,605
Foreign currency translation adjustment
602
(6,032
)
7,496
(11,777
)
Adjustments related to postretirement benefits
32
13
18
28
Change in unrealized gain/loss on investments
28
(36
)
36
(61
)
Comprehensive income (loss)
$
5,712
$
643
$
19,174
$
(4,205
)
Our accumulated other comprehensive income (loss) balance totaled approximately $7.4 million
and $(0.2) million at June 25, 2011, and December 25, 2010, respectively, and was attributed
to, net of income taxes where applicable, foreign currency adjustments resulting from the
translation of certain accounts into U.S. dollars where the functional currency is the Euro,
unrealized gains and losses on investments and adjustments related to postretirement benefits.
The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.
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