1.	Summary of Significant Accounting Policies

Basis of Presentation

– Cohu, Inc. (“Cohu”, “we”, “our”, “us” and the “Company”), through our wholly owned subsidiaries, is a provider of semiconductor test equipment and services. Our Consolidated Financial Statements include the accounts of Cohu and our wholly owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. We evaluate the need to consolidate affiliates based on standards set forth in ASC Topic

810,

Consolidation

(“ASC

810”

The consolidated financial statements include the accounts of Cohu and a variable interest entity (“VIE”) that was acquired as part of our acquisition of Xcerra Corporation (“Xcerra”) and in which we have determined we are the primary beneficiary. The non-controlling interest in ALBS Solutions Sdn Bhd (“ALBS”) represents the

80%

equity interest that is

not

held by Cohu. ALBS is a privately held corporation which provides high-tech semiconductor automation systems to different industrial users. All significant consolidated transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Our fiscal years are based on a

- or

-week period ending on the last Saturday in

December.

Our current fiscal year, which ended on

December 29, 2018,

consisted of

weeks. Our fiscal years ended on

December 30, 2017,

and

December 31, 2016,

consisted of

weeks and

weeks, respectively.

Principles of Consolidation for Variable Interest Entities

– We follow ASC Topic

810

guidance with respect to accounting for VIEs. These entities do

not

have sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances.

As of

December 29, 2018

and

December 30, 2017,

we consolidated

one

and

zero

VIEs, respectively.

Cohu is the primary beneficiary of ALBS which qualifies as a VIE that meets the definition of a business. As such, the assets, liabilities, and noncontrolling interest of ALBS were measured at fair value in accordance with ASC

805.

The assets and liabilities and revenues and expenses of this VIE are included in the financial statements of ALBS and are further included in the consolidated financial statements. As of

December 29, 2018,

the assets and liabilities of ALBS set are immaterial to Cohu and, therefore,

not

shown separately on our Consolidated Balance Sheets. The owner’s equity and net loss of ALBS are considered attributable to non-controlling interest.

Reclassifications

– In conjunction with the acquisition of Xcerra the Company assessed the need to realign its financial statement presentation and certain income statement classifications were adjusted with prior periods reclassified to conform with current period presentation. The changes made were as follows:

●

Amortization of intangibles previously were presented in cost of sales and SG&A. These amounts are now presented as a separate line item “Amortization of purchased intangibles” within operating expenses.

●

Gains and losses associated with foreign currency translation and remeasurement were included within SG&A. These amounts are now be presented as “Foreign transaction gain (loss) and other”.

A summary of the reclassifications described above and the impact on our Consolidated Statements of Operations is as follows:

	As Presented		Amortization of Purchased Intangibles			Foreign Transaction Gains and (Losses)			As Adjusted
2017
Cost of Sales	$	211,986		(2,689	)		-		$	209,297
SG&A Expense	$	65,233		(1,519	)		(2,977	)	$	60,737

2016
Cost of Sales	$	187,256		(5,170	)		-		$	182,086
SG&A Expense	$	54,322		(1,732	)		2,622		$	55,212

Discontinued Operations

– Management has determined that the fixtures services business, that was acquired as part of Xcerra, does

not

align with Cohu’s long-term strategic plan and management is in the process of divesting this portion of the business. As a result, the assets of our fixtures business are considered “held for sale” and the operations of our fixtures business are considered “discontinued operations” as of

December 29, 2018.

See Note

12,

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

Income (Loss

) Per Share

– Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (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 years ended

December 30, 2017

and

December 31, 2016,

approximately

77,000

and

697,000

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

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

(in thousands)	2018		2017		2016
Weighted average common shares outstanding		31,776		27,836		26,659
Effect of dilutive stock options and restricted stock units		-		1,080		821
		31,776		28,916		27,480

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.

Cash, Cash Equivalents and Short-term Investments

– Highly liquid investments with insignificant interest rate risk and original maturities of

three

months or less are classified as cash and cash equivalents. Investments with maturities greater than

three

months are classified as short-term investments. All of our short-term investments are classified as available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded in the statement of comprehensive income (loss). We manage our cash equivalents and short-term investments as a single portfolio of highly marketable securities. We have the ability and intent, if necessary, to liquidate any of our investments in order to meet the liquidity needs of our current operations during the next

months. Accordingly, investments with contractual maturities greater than

one

year have been classified as current assets in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments

– The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturities of these financial instruments.

Concentration of Credit Risk

– Financial instruments that potentially subject us to significant credit risk consist principally of cash equivalents, short-term investments and trade accounts receivable. We invest in a variety of financial instruments and, by policy, limit the amount of credit exposure with any

one

issuer.

Trade accounts receivable are presented net of allowance for doubtful accounts of

$0.3

million at

December 29, 2018,

and

$0.2

million at

December 30, 2017.

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

December 29, 2018,

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

may

result in changes to our estimates regarding collectability.

Inventories

– Inventories are stated at the lower of cost, determined on a

first

-in,

first

-out basis, or net realizable value. Cost includes labor, material and overhead costs. Determining market value of inventories involves numerous estimates and judgments including projecting average selling prices and sales volumes for future periods and costs to complete and dispose of inventory. As a result of these analyses, we record a charge to cost of sales in advance of the period when the inventory is sold when estimated market values are below our costs. Charges to cost of sales for excess and obsolete inventories totaled

$10.8

million in

2018.

Included in this amount is

$9.4

million of inventory charges related to the decision to end manufacturing of certain of Xcerra’s semiconductor test handler products. In

2017

and

2016

we recorded charges of

$1.1

million in both periods.

Inventories by category were as follows

(in thousands)

	December 29,		December 30,
	2018		2017
Raw materials and purchased parts	$	60,112	$	27,918
Work in process		57,953		25,130
Finished goods		21,249		9,037
Total inventories	$	139,314	$	62,085

Property, Plant and Equipment

– Depreciation and amortization of property, plant and equipment, both owned and under capital lease, is calculated principally on the straight-line method based on estimated useful lives of

thirty

forty

years for buildings,

five

fifteen

years for building improvements,

three

ten

years for machinery, equipment and software and the lease life for capital leases. Land is

not

depreciated.

Property, plant and equipment, at cost, consisted of the following

(in thousands)

	December 29,			December 30,
	2018			2017
Land and land improvements	$	11,905		$	8,017
Buildings and building improvements (1)		37,265			13,779
Machinery and equipment		64,791			45,333
		113,961			67,129
Less accumulated depreciation and amortization		(39,629	)		(32,957	)
Property, plant and equipment, net	$	74,332		$	34,172

(

)

Includes assets under capital leases acquired with Xcerra totaling

$2.7

million as of

December 29, 2018.

Depreciation expense was

$8.8

million in

2018,

$5.0

million in

2017

and

$3.5

million in

2016.

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. Subsequent to the acquisition of Xcerra on

October 1, 2018,

we have determined that our

four

identified operating segments are: Test Handler Group (THG), Semiconductor Tester Group (STG), Interface Solutions Group (ISG) and PCB Test Group (PTG). Our THG, STG and ISG 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

two

segments, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”) and PCB Test Equipment (“PCB Test”).

Goodwill, Purchased Intangible Assets and Other Long-lived Assets

– We evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value

may

not

be recoverable. We test goodwill for impairment by

first

comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value, a

second

step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions.

We conduct our annual impairment test as of

October

1st

of each year, and determined there was

impairment as of

October

2018

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

December 29, 2018,

we do

not

believe there have been any events or circumstances that would require us to perform an interim goodwill impairment review. 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.

Product Warranty

– Product warranty costs are accrued in the period sales are recognized. Our products are generally sold with standard warranty periods, which differ by product, ranging from

- to

-months. Parts and labor are typically covered under the terms of the warranty agreement. Our warranty expense accruals are based on historical and estimated costs by product and configuration. From time-to-time we offer customers extended warranties beyond the standard warranty period. In those situations the revenue relating to the extended warranty is deferred at its estimated fair value and recognized on a straight-line basis over the contract period. Costs associated with our extended warranty contracts are expensed as incurred.

Income Taxes

– We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than-

not

that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than

percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is

not

more-likely-than-

not

that a tax benefit will be sustained,

tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized and recorded, net of federal and state tax benefits, in income tax expense.

The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on

December 22, 2017.

The accounting for the tax effects of the enactment of the Tax Act was completed in

2018.

Contingencies and Litigation

– We assess the probability of adverse judgments in connection with current and threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is probable and we can reasonably estimate the ultimate cost.

Adoption of New Revenue Accounting Standard

– We adopted ASC Topic

606,

Revenue from Contracts with Customers (“ASC

606”

)

, on

December 31, 2017,

the

first

day of our

2018

fiscal year. We elected to implement the new standard using the modified retrospective method of adoption which only applies to those contracts which were

not

completed as of

December 31, 2017.

Revenue for the year ended

December 29, 2018,

has been accounted for using ASC

606

and the prior years ended

December 30, 2017,

December 31, 2016,

have

not

been adjusted. Upon adoption of ASC

606,

we recorded a cumulative-effect adjustment to retained earnings of

$1.1

million on

December 31, 2017,

which represents the impact of ASC

606

on our deferred revenue.

Material changes recorded in connection with the cumulative-effect adjustment were as follows

(in thousands)

	Balance at		Adjustments			Balance at
	December 30,		due to adoption			December 31,
Financial Statement Line Item	2017		of ASC 606			2017
Deferred profit	$	6,608	$	(1,258	)	$	5,350
Income taxes payable	$	2,159	$	201		$	2,360
Retained earnings	$	150,726	$	1,057		$	151,783

The adoption of ASC

606

had

impact to cash used in net operating, investing or financing activities in our consolidated statements of cash flows. The following table presents the amounts by which financial statement line items included in our consolidated statements of operations for the year ended

December 29, 2018

and our consolidated balance sheet at

December 29, 2018

were materially affected due to the adoption of ASC

606

(in thousands)

	For the Twelve Months Ended December 29, 2018
				Balances
				without adoption			Effect of
Consolidated Statements of Operations	As Reported			of ASC 606			Change
Net sales	$	451,768		$	448,797		$	2,971
Income tax provision	$	631		$	92		$	539
Net loss	$	(32,424	)	$	(34,856	)	$	2,432
Income per share:
Basic:	$	(1.02	)	$	(1.10	)	$	0.08
Diluted:	$	(1.02	)	$	(1.10	)	$	0.08

			Balances
			without adoption		Effect of
Consolidated Balance Sheets*	As Reported		of ASC 606		Change
Deferred profit	$	6,896	$	11,125	$	(4,229	)
Retained earnings	$	111,670	$	108,181	$	3,489

* Balance sheet line items include the cumulative-effect adjustment recorded on

December 31, 2017.

Under ASC

606

our revenue will continue to be recognized at a point in time when the performance obligation has been satisfied and transfer of control has occurred, typically, this occurs upon shipment of products to our customers. 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 ASC

606.

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 the obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our systems, non-system products or services. In circumstances where control is

not

transferred until destination or acceptance, we defer revenue recognition until such events occur.

Revenue for established products that have previously satisfied a customer’s acceptance requirements is generally recognized upon shipment. 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 are 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 over time as we transfer control to our customer for 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 have multiple performance obligations. These arrangements involve the delivery or performance of multiple performance obligations, and transfer of control of performance obligations

may

occur at different points in time or over different periods of time. For arrangements containing multiple performance obligations, the revenue relating to the undelivered performance obligation is deferred using the relative standalone selling price method utilizing estimated sales prices until satisfaction of the deferred performance obligation.

Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. We have

$19.1

million of revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisified) as of

December 29, 2018.

Revenue recorded during the year ended

December 29, 2018,

included

$6.6

million of revenue that was deferrred as of

December 30, 2017.

We generally sell our equipment with a product warranty. The product warranty provides assurance to customers that delivered products are as specified in the contract (an “assurance-type warranty”). Therefore, we account for such product warranties under ASC

460,

Guarantees (“ASC

460”

)

, and

not

as a separate performance obligation.

The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and

may

include fixed or variable amounts. Fixed consideration primarily includes sales to customers that are known as of the end of the reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to certain customers with cumulative tier volume discounts offered. Variable consideration arrangements are rare; however, when they occur, we estimate variable consideration as the expected value to which we expect to be entitled. Included in the transaction price estimate are amounts in which it is probable that a significant reversal of cumulative revenue recognized will

not

occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration that does

not

meet revenue recognition criteria is deferred.

Our contracts are typically less than

one

year in duration and we have elected to use the practical expedient available in ASC

606

to expense cost to obtain contracts as they are incurred because they would be amortized over less than

one

year.

Accounts receivable represents our unconditional right to receive consideration from our customers. Payments terms do

not

exceed

one

year from the invoice date and therefore do

not

include a significant financing component. To date, there have been

material impairment losses on accounts receivable. There were

material contract assets or contract liabilities recorded on the consolidated balance sheet in any of the periods presented.

On shipments where sales are

not

recognized, gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances. At

December 29, 2018,

we had deferred revenue totaling approximately

$10.8

million, current deferred profit of

$6.9

million and deferred profit expected to be recognized after

one

year included in noncurrent other accrued liabilities of

$2.0

million. At

December 30, 2017,

we had deferred revenue totaling approximately

$10.4

million, current deferred profit of

$6.6

million and deferred profit expected to be recognized after

one

year included in noncurrent other accrued liabilities of

$0.8

million. Our balances at

December 29, 2018,

include a

$1.1

million beginning retained earnings adjustment as a result of our adoption of ASC

606

on the

first

day of fiscal

2018.

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. In addition, we acquired

$1.5

million in deferred profit as part of our acquisition of Xcerra on

October 1, 2018.

Net sales by type and segment are as follows

(in thousands)

	Twelve Months Ended
	December 29, 2018		December 30, 2017
Systems-Semiconductor Test & Inspection	$	249,514	$	197,454
Non-systems-Semiconductor Test & Inspection		193,737		155,250
Systems-PCB Test		6,565		-
Non-systems-PCB Test		1,952		-
Net sales	$	451,768	$	352,704

Advertising Costs

– Advertising costs are expensed as incurred and were

not

material for all periods presented.

Restructuring Costs

–

We record restructuring activities including costs for

one

-time termination benefits in accordance with ASC Topic

420

(“ASC

420”

Exit or Disposal Cost Obligations.

The timing of recognition for severance costs accounted for under ASC

420

depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to employees. Employee termination benefits covered by existing benefit arrangements are recorded in accordance with ASC Topic

712,

Nonretirement Postemployment Benefits.

These costs are recognized when management has committed to a restructuring plan and the severance costs are probable and estimable.

Debt Issuance Costs

– We capitalize costs related to the issuance of debt. Debt issuance costs directly related to our Term Loam B are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance sheets. The amortization of such costs is recognized as interest expense using the effective interest method over the term of the respective debt issue. Amortization related to deferred debt issuance costs and original discount costs was

$0.3

million for the year ended

December 29, 2018.

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.

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 years ended

December 29, 2018

and

December 31, 2016,

we recognized foreign exchange gains totaling

$1.7

million and

$2.6

million, respectively, that are included in our consolidated statement of operations. During the year ended

December 30, 2017,

we recognized approximately

$3.0

million of foreign exchange losses.

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.

Accumulated Other Comprehensive Loss

– Our accumulated other comprehensive loss totaled approximately

$25.9

million at

December 29, 2018,

and

$17.8

million at

December 30, 2017,

and was attributed to, net of income taxes where applicable: foreign currency adjustments resulting from the translation of certain accounts into U.S. Dollars, unrealized losses and gains on investments and adjustments to accumulated postretirement benefit obligations. The U.S. Dollar strengthened relative to certain foreign currencies in countries where we have operations as of

December 29, 2018,

compared to

December 30, 2017.

Consequently, our accumulated other comprehensive loss increased by

$8.9

million as a result of foreign currency translation during

2018.

In the previous year, weakening of the U.S. Dollar led to a decrease in our accumulated other comprehensive loss of

$11.3

million. Additional information related to accumulated other comprehensive loss, on an after-tax basis is included in Note

13.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

– In

August 2018,

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

2018

15,

Intangibles – Goodwill and Other – Internal-Use Software (Subtopic

350

)

, which amends ASU

No.

2015

05,

Customers Accounting for Fees in a Cloud Computing Agreement

, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The most significant change will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. Accordingly, the amendments in ASU

2018

require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic

350

to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in ASU

2018

are effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019,

although early adoption is permitted, including adoption in any interim period and the amendments can be applied either retrospectively or prospectively. Cohu adopted ASU

2018

in the

third

quarter of

2018

prospectively for all implementation costs incurred related to our global cloud computing systems and capitalized

$2.9

million as of

December 29, 2018.

These amounts are recorded as other current (

$0.3

million) and non-current (

$2.6

million) assets in our consolidated balance sheet.

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. The amendments in this guidance are to be applied retrospectively. The adoption of ASU

2017

did

not

have a material 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 combination. This guidance is effective for annual periods beginning after

December 15, 2017.

The adoption of ASU

2017

did

not

have a material impact on our 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.

The adoption of ASU

2016

did

not

have a material impact on our consolidated financial statements.

October 2016,

the FASB issued ASU

2016

16,

Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory

. ASU

2016

changes the timing of income tax recognition for an intercompany sale of assets excluding inventory. ASU

2016

requires the seller’s tax effects and the buyer’s deferred taxes to be recognized immediately upon the sale instead of deferring accounting for the income tax implications until the assets are sold to a

third

party or recovered through use. ASU

2016

is effective for fiscal years beginning after

December 15, 2017

including interim periods within the year of adoption. The adoption of ASU

2016

did

not

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. The adoption of ASU

2016

did

not

have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

– In

August 2018,

the FASB issued ASU

2018

14,

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

, which improves defined benefit disclosure requirements by removing disclosures that are

not

cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years ending after

December 15, 2020

and early adoption is permitted. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. We are currently assessing and have

not

yet determined the impact that the adoption of ASU

2018

will have on the consolidated financial statements.

August 2018,

the FASB issued ASU

2018

13,

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

, which improves fair value disclosure requirements by removing disclosures that are

not

cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted and an entity can choose to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. We are currently assessing and have

not

yet determined the impact that the adoption of ASU

2018

will have on the consolidated financial statements.

June 2018,

the FASB issued ASU

No.

2018

07,

Improvements to Nonemployee Share-Based Payment Accounting (ASU

2018

)

. ASU

2018

simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered, or the service has been rendered, and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The accounting standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Historically we have

not

issued share-based awards to nonemployees, so the adoption of ASU

2018

should

not

have any impact on our consolidated financial statements.

February 2018,

the FASB issued ASU

2018

02,

Income Statement-Reporting Comprehensive Income

, to give companies the option to reclassify the income tax effects on items within accumulated other comprehensive income resulting from U.S. tax reform to retained earnings. ASU

2018

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those years. Early adoption is permitted. We are currently assessing and have

not

yet determined the impact ASU

2018

may

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.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

)

. This ASU requires lessees to record a right of use (“ROU”) asset and a liability for virtually all leases This guidance is effective for interim and annual reporting periods beginning after

December 15, 2018.

July 2018,

the FASB issued ASU

2018

10,

Codification Improvements to Topic

842

, Leases. ASU

2018

includes certain clarifications to address potential narrow-scope implementation issues. Additionally, in

July 2018,

the FASB issued ASU

2018

11,

Targeted Improvements to Topic

842,

Leases

. ASU

2018

provides an additional optional transition method to adopt ASU

2016

02.

The

two

permitted transition methods are the modified retrospective approach, which applies the new lease requirements at the beginning of the earliest period presented, and the optional transition method, which applies the new lease requirements through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The new lease standard will be effective for us in the

first

quarter of

2019.

We will adopt the new standard effective

December 30, 2018,

which is the

first

day of our

2019

fiscal year.

We plan to adopt the new standard using the optional transition method and to elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. We will make an accounting policy election to

not

record ROU assets and lease liabilities for leases with an initial term of

months or less. We will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. We will also make an accounting policy election to use the practical expedient allowed in the standard to

not

separate lease and non-lease components when calculating the lease liability under ASU

2016

02.

Related to adoption of the new standard, we have implemented internal controls and a lease accounting technology system to track the ROU asset and lease liability balances and prepare the related footnote disclosures.

As discussed throughout this document we completed the acquisition of Xcerra on

October 1, 2018.

Prior to being acquired by Cohu, Xcerra’s fiscal year ended on

July

31st

and Topic

842

would have been effective for it beginning on

August 1, 2019.

Due to the timing of the acquisition and Xcerra’s state of preparedness in light of the change in effective date of the standard we are still in the process of completing our analysis of the impact this guidance will have on our consolidated financial statements and on our disclosures. We have determined that most of our leases fall into

one

four

categories: real estate, machinery, office equipment, and vehicles. Real estate agreements represent a majority of our rent expense and vary based on various factors negotiated by the landlord; machinery agreements are related to the use of factory machinery; and office equipment and vehicle leases typically utilize standard master leasing contracts that have similar terms. We currently expect the most significant impact will be the recognition of ROU assets and lease liabilities for operating leases with original terms of over

one

year where the company is the lessee.