Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

Our fiscal years are based on a

- or

-week period ending on the last Saturday in

December.

The condensed consolidated balance sheet at

December 31, 2016

has been derived from our audited financial statements at that date. The interim condensed consolidated financial statements as of

September 30, 2017 (

also referred to as “the

third

quarter of fiscal

2017”

and “the

first

nine

months of fiscal

2017”

) and

September 24, 2016 (

also referred to as “the

third

quarter of fiscal

2016”

and “the

first

nine

months of fiscal

2016”

) 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

nine

-month periods ended

September 30, 2017

were comprised of

and

weeks, respectively. The

three

- and

nine

-month periods ended

September 24, 2016

were comprised of

and

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 31, 2016,

which are included in our

2016

Annual Report on Form

-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”.

Certain prior year amounts have been restated as a result of our early adoption of Accounting Standards Update (“ASU”)

No.

2016

09,

Compensation - Stock Compensation (Topic

718

Improvements to Employee Share-Based Payment Accounting

(ASU

2016

). While the effective date of ASU

2016

was for fiscal years beginning after

December 15, 2016,

earlier adoption was permitted and we elected to adopt ASU

2016

during the

fourth

quarter of fiscal

2016.

As part of our adoption of ASU

2016

we elected to eliminate the use of an estimated forfeiture rate and recognize actual forfeitures as they occur. This amendment was adopted on a modified retrospective basis and, as a result, our share-based compensation expense for the

three

- and

nine

-month periods ended

September 24, 2016

were revised and were approximately

$0.1

million and

$15,000

higher in each period, respectively, under the new method, than what was previously reported.

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations

June 2015,

we sold our microwave communications equipment segment, Broadcast Microwave Services, Inc. (“BMS”). See Note

“Discontinued Operations” for additional information. Unless otherwise indicated, all amounts herein relate to continuing operations.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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

$0.1

million at both

September 30, 2017

and

December 31, 2016.

Our customers include semiconductor manufacturers and semiconductor test subcontractors throughout many areas of the world. While we believe that our allowance for doubtful accounts is adequate and represents our best estimate at

September 30, 2017,

we will continue to monitor customer liquidity and other economic conditions, which

may

result in changes to our estimates regarding collectability.

Segment Reporting, Policy [Policy Text Block]

Segment Information

We applied the provisions of ASC Topic

280,

Segment Reporting

, (“ASC

280”

), which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. Based on the provisions of ASC

280,

we have determined that our identified operating segments qualify for aggregation under ASC

280

due to similarities in their customers, their economic characteristics, and the nature of products and services provided. As a result, we report in

one

segment, semiconductor equipment and the financial information disclosed herein materially represents all of the financial information related to our semiconductor equipment segment.

Goodwill and Intangible Assets, Policy [Policy Text Block]

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.

We conduct our annual impairment test as of

October

1st

of each year, and have determined there was

impairment as of

October

2016

as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date. Other events and changes in circumstances

may

also require goodwill to be tested for impairment between annual measurement dates.

As of

September 30, 2017,

we do

not

believe that circumstances have occurred that indicate impairment of our goodwill is more-likely-than-

not.

In the event we determine that an interim goodwill impairment review is required in a future period, the review

may

result in an impairment charge, which would have a negative impact on our results of operations.

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might

not

be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets

may

not

be recoverable. For long-lived assets, impairment losses are only recorded if the asset

’s carrying amount is

not

recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Remeasurement and

Currency Translation

Assets and liabilities of our wholly owned foreign subsidiaries that use the U.S. Dollar as their functional currency are re-measured using exchange rates in effect at the end of the period, except for nonmonetary assets, such as inventories and property, plant and equipment, which are re-measured using historical exchange rates. Revenues and costs are re-measured using average exchange rates for the period, except for costs related to those balance sheet items that are re-measured using historical exchange rates. Gains and losses on foreign currency transactions are recognized as incurred. During

the

three

and

nine

months ended

September 30, 2017,

we recognized foreign exchange losses of

$0.2

million and

$2.7

million, respectively, in our condensed consolidated statements of income. During the

three

and

nine

months

ended

September 24, 2016,

we recognized approximately

$0.3

million and

$1.0

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

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-Based Compensation

We measure and recognize all share-based compensation under the fair value method. Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options) and related tax effects. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.

Reported share-based compensation is classified, in the condensed consolidated interim financial statements, as follows

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,			September 24,			September 30,			September 24,
	2017			2016			2017			2016
Cost of sales	$	123		$	101		$	327		$	309
Research and development		278			327			856			955
Selling, general and administrative		1,459			1,330			4,153			4,027
Total share-based compensation		1,860			1,758			5,336			5,291
Income tax benefit		(107	)		(76	)		(429	)		(189	)
Total share-based compensation, net	$	1,753		$	1,682		$	4,907		$	5,102

Earnings Per Share, Policy [Policy Text Block]

Income (Loss) Per Share

Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of outstanding restricted stock and performance stock units and issuance of stock under our employee stock purchase plan using the treasury stock method. In loss periods, potentially dilutive securities are excluded from the per share computations due to their anti-dilutive effect.

For purposes of computing diluted income (loss) 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

nine

months ended

September 30, 2017,

options to issue approximately

5,000

and

103,000

shares of common stock were excluded from the computation, respectively. For the

three

and

nine

months ended

September 24, 2016,

options to issue approximately

707,000

and

752,000

shares of common stock were excluded from the computation, respectively.

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

in thousands)

	Three Months Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Weighted average common shares		28,155		26,761		27,614		26,596
Effect of dilutive securities		950		606		1,026		786
		29,105		27,367		28,640		27,382

Cohu has utilized the “control number” concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances, which historically have been insignificant. We recognize revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to our customers upon shipment. In circumstances where either title or risk of loss pass upon destination or acceptance, we defer revenue recognition until such events occur.

Revenue for established products that have previously satisfied a customer

’s acceptance requirements and provide for full payment tied to shipment is generally recognized upon shipment and passage of title. In certain instances, customer payment terms

may

provide that a minority portion (e.g. up to

20%

) of the equipment purchase price be paid only upon customer acceptance. In those situations, the majority portion (e.g.

80%

) of revenue where the contingent payment is tied to shipment and the entire product cost of sale are recognized upon shipment and passage of title and the minority portion of the purchase price related to customer acceptance is deferred and recognized upon receipt of customer acceptance. In cases where a prior history of customer acceptance cannot be demonstrated or from sales where customer payment dates are

not

determinable and in the case of new products, revenue and cost of sales is deferred until customer acceptance has been received. Our post-shipment obligations typically include installation and standard warranties. The estimated fair value of installation related revenue is recognized in the period the installation is performed. Service revenue is recognized ratably over the period of the related contract or upon completion of the services if they are short-term in nature. Spares, contactor and kit revenue is generally recognized upon shipment.

Certain of our equipment sales are accounted for as multiple-element arrangements. A multiple-element arrangement is a transaction which

may

involve the delivery or performance of multiple products, services, or rights to use assets, and performance

may

occur at different points in time or over different periods of time.

For arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred using the relative selling price method utilizing estimated sales prices until delivery of the deferred elements. We limit the amount of revenue recognition for delivered elements to the amount that is

not

contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or adjustment.

On shipments where sales are

not

recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped.

September 30, 2017,

we had deferred revenue totaling approximately

$9.9

million and deferred profit of

$6.7

million. At

December 31, 2016,

we had deferred revenue totaling approximately

$9.3

million and deferred profit of

$6.9

million. The periodic change is primarily a result of increases and decreases in deferrals of revenue associated with product shipments made to our customers in accordance with our revenue recognition policy.

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

	Three Months Ended						Nine Months Ended
	September 30,			September 24,			September 30,			September 24,
	2017			2016			2017			2016

Customers individually accounting for more than 10% of net sales		two			three			two			two

Percentage of net sales		26.5	%		37.4	%		28.5	%		30.5	%

Comprehensive Income, Policy [Policy Text Block]

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balance totaled approximately

$18.0

million and

$27.9

million at

September 30, 2017

and

December 31, 2016,

respectively, and was attributed to all non-owner changes in stockholders’ equity and consists of, on an after-tax basis where applicable, foreign currency adjustments resulting from the translation of certain of our subsidiary accounts where the functional currency is

not

the U.S. Dollar

and adjustments related to postretirement benefits. Reclassification adjustments from accumulated other comprehensive loss

during the

three

- and

nine

-month periods ended of fiscal

2017

and

2016

were

not

significant.

Pension and Other Postretirement Plans, Policy [Policy Text Block]

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

nine

months of fiscal

2017

and

2016

was

not

significant.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

–

July 2015,

the Financial Accounting Standards Board (“FASB”) issued ASU

No.

2015

11,

Simplifying the Measurement of Inventory

. Under this guidance, inventory should be measured at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The adoption of this authoritative guidance did

not

have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

– In

March 2017,

the FASB issued ASU

No.

2017

07,

Compensation – Retirement Benefits (Topic

715

) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

, which provides additional guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement and on the components eligible for capitalization. The amendments in this guidance require that an employer report the service cost component of the net periodic benefit costs in the same income statement line item as other compensation costs arising from services rendered by employees during the period. The non-service-cost components of net periodic benefit costs are to be presented in the income statement separately from the service cost components and outside a subtotal of income from operations. The guidance also allows for the capitalization of the service cost components, when applicable (i.e., as a cost of internally manufactured inventory or a self-constructed asset). The guidance is effective for annual periods beginning after

December 15, 2017,

including interim periods within those annual periods; early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have

not

been issued or made available for issuance. The amendments in this guidance are to be applied retrospectively. We are currently assessing the impact this guidance will have on our consolidated financial statements.

January 2017,

the FASB issued ASU

No.

2017

04,

Simplifying the Test for Goodwill Impairment

. It eliminates Step

from the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value,

not

to exceed the carrying amount of goodwill. This guidance is effective for annual and any interim impairment tests in fiscal years beginning after

December 15, 2019.

We do

not

expect this guidance to have any impact on our consolidated financial statements.

January 2017,

the FASB issued ASU

No.

2017

01,

Clarifying the Definition of a Business.

It revises the definition of a business and provides a framework to evaluate when an input and a substantive process are present in an acquisition to be considered a business. This guidance is effective for annual periods beginning after

December 15, 2017.

We do

not

expect this guidance to have any impact on our consolidated financial statements.

November 2016,

the FASB issued ASU

No.

2016

18,

Restricted Cash.

It requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after

December 15, 2017.

We do

not

expect this guidance to have a material impact on our consolidated financial statements.

August 2016,

the FASB issued ASU

No.

2016

15,

Classification of Certain Cash Receipts and Cash Payments.

It provides guidance on

eight

specific cash flow issues with the objective of reducing the existing diversity in practice in how they are classified in the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after

December 15, 2017.

Early adoption is permitted, provided that all of the amendments are adopted in the same period. We do

not

expect this guidance to have a material impact on our consolidated financial statements.

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (Topic

842

)

. Under this guidance, lessees will be required to recognize a right-of-use asset and a lease liability for all operating leases defined under previous GAAP. This guidance is effective for interim and annual reporting periods beginning after

December 15, 2018.

The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. We are still completing our analysis on the impact this guidance will have on our consolidated financial statements and related disclosures, but recognizing the lease liabilities and related right-of-use assets will impact our balance sheet.

May 2014,

the FASB issued Accounting Standards Update

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

)

(ASU

2014

)

, which amends the existing accounting standards for revenue recognition. In

August 2015,

the FASB issued ASU

No.

2015

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date

, which delays the effective date of

ASU

2014

one

year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In

March 2016,

the FASB issued Accounting Standards Update

No.

2016

08,

Revenue from Contracts with Customers (Topic

606

): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU

2016

)

which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to customers. The new revenue recognition standard will be effective for us in the

first

quarter of

2018.

We will adopt the new standard effective

December 31, 2017,

which is the

first

day of our

2018

fiscal year. The new standard also permits

two

methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method)

We currently anticipate adopting the standard using the modified retrospective method. We are still in the process of completing our analysis on the impact this guidance will have on our consolidated financial statements and related disclosures. Based on our preliminary review of our customer agreements, we currently expect that our revenue will continue to be recognized at a point in time, generally upon shipment of products to customers, consistent with our current revenue recognition model. In certain instances, when customer payment terms provide that a minority portion of the equipment purchase price be paid only upon customer acceptance, recognition of revenue

may

occur sooner under the new model.

When adopting the new standard, on

December 31, 2017,

revenue that was

not

recognized in fiscal

2017,

because the equipment had

not

been accepted by the customer, will be recognized as a cumulative catch-up adjustment to the opening balance of retained earnings as opposed to being recognized as future revenue upon acceptance. As the timing of customer acceptances cannot be predicted, we do

not

know the impact on future revenues and associated operating income at this time. However, revenues, deferred profit, cost of sales, and associated operating income

may

be materially impacted depending on the timing of customer acceptance.