Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans [Abstract]

Employee Benefit Plans

5. Employee Benefit Plans

Retirement Plans – We have a voluntary defined contribution retirement 401(k) plan whereby we match employee contributions. During 2009 and 2010, to control costs and preserve cash in response to the economic uncertainty caused by the global economic crisis, we suspended the matching contribution to our employee 401(k) plan. In 2011 we re-started our matching contribution at 1.5% of eligible employee compensation and made contributions to the plan of approximately $0.5 million. Certain of our foreign employees participate in defined benefit pension plans. The related expense and benefit obligation of these plans were not significant for any period presented.

Retiree Medical Benefits – We provide post-retirement health benefits to certain executives and directors under a noncontributory plan. The net periodic benefit cost was $0.4 million, $0.3 million and $0.2 million in 2011, 2010 and 2009, respectively. We fund benefits as costs are incurred and as a result there are no plan assets.

The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 4.2% in 2011, 5.4% in 2010 and 5.8% in 2009. Annual rates of increase of the cost of health benefits were assumed to be 9.5% in 2012. These rates were then assumed to decrease 0.5% per year to 5.0% in 2021 and remain level thereafter. A one percent increase (decrease) in health care cost trend rates would increase (decrease) the 2011 net periodic benefit cost by approximately $37,000 ($30,000) and the accumulated post-retirement benefit obligation as of December 31, 2011, by approximately $393,000 ($328,000).

The following table sets forth the post-retirement benefit obligation to the funded status of the plan which approximates the liability we have recorded in our consolidated balance sheets:

(in thousands)	2011			2010
Accumulated benefit obligation at beginning of year	$	3,909		$	2,839
Service cost		20			18
Interest cost		208			155
Actuarial (gain) loss		(1,137	)		1,022
Benefits paid		(91	)		(125	)
Accumulated benefit obligation at end of year		2,909			3,909
Plan assets at end of year		—			—
Funded status	$	(2,909	)	$	(3,909	)

The total unrecognized net actuarial loss that will be amortized over the future service period, excluding the effect of income taxes, was approximately $0.8 million at December 31, 2011.

Deferred Compensation – The Cohu, Inc. Deferred Compensation Plan allows certain of our officers to defer a portion of their current compensation. We have purchased life insurance policies on the participants with Cohu as the named beneficiary. Participant contributions, distributions and investment earnings and losses are accumulated in a separate account for each participant. At December 31, 2011 and December 25, 2010, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $2.0 million and $2.1 million, respectively and the cash surrender value of the related life insurance policies included in other current assets was approximately $1.6 million, for both periods presented.

Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 1,900,000 shares of our common stock. Under the Plan, eligible employees may purchase shares of common stock through payroll deductions. The price paid for the common stock is equal to 85% of the fair market value of our common stock on specified dates. In 2011, 2010, and 2009, 120,240, 112,745 and 136,228 shares, respectively, were issued under the Plan. At December 31, 2011, there were 637,354 shares reserved for issuance under the Plan.

Stock Options – Under our equity incentive plans, stock options may be granted to employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not less than 100% of the fair market value at the date of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire five to ten years from the grant date. At December 31, 2011, 1,158,160 shares were available for future equity grants under the Cohu, Inc. 2005 Equity Incentive Plan. We have historically issued new shares of Cohu common stock upon share option exercise.

Stock option activity under our share-based compensation plans was as follows:

	2011					2010					2009
(in thousands, except per share data)	Shares			Wt. Avg. Ex. Price		Shares			Wt. Avg. Ex. Price		Shares			Wt. Avg. Ex. Price
Outstanding, beginning of year		3,210		$	12.89		3,221		$	12.87		2,193		$	15.91
Granted		157		$	13.33		380		$	13.77		1,229		$	7.45
Exercised		(123	)	$	9.03		(263	)	$	10.92		—		$	—
Canceled		(132	)	$	14.24		(128	)	$	19.06		(201	)	$	12.94
Outstanding, end of year		3,112		$	13.01		3,210		$	12.89		3,221		$	12.87
Options exercisable at year end		2,112		$	14.44		1,857		$	15.26		1,766		$	16.40

The aggregate intrinsic value of options exercised during 2011 and 2010 was approximately $0.6 million, and $0.8 million, respectively. There were no options exercised during 2009. At December 31, 2011, the aggregate intrinsic value of options outstanding, vested and expected to vest were each approximately $3.9 million and the aggregate intrinsic value of options exercisable was approximately $1.6 million.

Information about stock options outstanding at December 31, 2011 is as follows (options in thousands):

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Approximate Wt. Avg. Remaining Life (Years)		Wt. Avg. Ex. Price		Number Exercisable		Wt. Avg. Ex. Price
$  7.32 -   $10.83		1,037		7.4		$    7.54		411		$    7.40
$10.84 -   $16.26		1,150		5.6		$  14.28		779		$  14.48
$16.27 -   $24.41		910		2.9		$  17.41		907		$  17.41
$24.42 -   $36.63		15		1.4		$  25.60		15		$  25.60
		3,112		5.4		$  13.01		2,112		$  14.44

Restricted Stock Units – Under our equity incentive plans, restricted stock units may be granted to employees, consultants and outside directors. Restricted stock units vest over either a one-year or a four-year period from the date of grant. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock units are not considered issued and outstanding. Shares of our common stock will be issued on the date the restricted stock units vest.

Restricted stock unit activity under our share-based compensation plans was as follows:

	2011					2010					2009
(in thousands, except per share data)	Units			Wt. Avg. Fair Value		Units			Wt. Avg. Fair Value		Units			Wt. Avg. Fair Value
Outstanding, beginning of year		373		$	13.35		155		$	14.60		253		$	15.40
Granted		75		$	13.00		323		$	12.90		11		$	9.28
Vested		(139	)	$	13.91		(101	)	$	14.68		(102	)	$	15.30
Canceled		(10	)	$	13.41		(4	)	$	15.40		(7	)	$	14.74
Outstanding, end of year		299		$	12.98		373		$	13.35		155		$	14.60

Share-based Compensation – We estimate the fair value of each share-based award on the grant date using the Black-Scholes valuation model. Option valuation models, including Black-Scholes, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date. Expected dividends are based, primarily, on historical factors related to our common stock. Expected volatility is based on historic, weekly stock price observations of our common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term. We believe that historical volatility is the best estimate of future volatility. Expected life of the award is based on historical option exercise data. Estimated forfeitures are required to be included as a part of the grant date expense estimate. We used historical data to estimate expected employee behaviors related to option exercises and forfeitures.

Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit.

The following weighted average assumptions were used to value share-based awards granted:

Employee Stock Purchase Plan	2011		2010		2009
Dividend yield		1.9%		1.8%		2.1%
Expected volatility		42.4%		48.2%		54.7%
Risk-free interest rate		0.1%		0.2%		0.8%
Expected term of options		0.5 years		0.5 years		0.5 years
Weighted-average grant date fair value per share		$3.77		$3.90		$3.57
Employee Stock Options	2011		2010		2009
Dividend yield		2.0%		1.6%		3.1%
Expected volatility		45.8%		46.6%		45.0%
Risk-free interest rate		1.9%		1.6%		1.8%
Expected term of options		6.0 years		5.9 years		5.5 years
Weighted-average grant date fair value per share		$5.06		$5.39		$2.41
Restricted Stock Units	2011		2010		2009
Dividend yield		1.8%		1.7%		2.5%

Reported share-based compensation is classified in the consolidated financial statements as follows:

(in thousands)	2011		2010		2009
Cost of sales	$	420	$	297	$	347
Research and development		1,356		1,121		1,145
Selling, general and administrative		2,511		2,125		1,886
Total share-based compensation		4,287		3,543		3,378
Income tax benefit		—		—		—
Total share-based compensation, net of tax	$	4,287	$	3,543	$	3,378

At December 31, 2011, excluding a reduction for forfeitures, we had approximately $2.9 million of pre-tax unrecognized compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of approximately 1.9 years.

At December 31, 2011, excluding a reduction for forfeitures, we had approximately $3.5 million of pre-tax unrecognized compensation cost related to unvested restricted stock units which is expected to be recognized over a weighted-average period of approximately 2.6 years.