Note 6 - Employee Benefit Plans

12 Months Ended

Dec. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

6. Employee Benefit Plans

Defined Contribution Retirement Plans – Cohu maintains a defined contribution 401(k) retirement savings plan covering all salaried and hourly U.S. employees. Participation is voluntary and participants’ contributions are based on their eligible compensation. Participants in the Cohu plan receive matching contributions of 50% up to 8% of salary contributed, subject to various statutory limits. In 2023, 2022 and 2021 we made matching contributions to the plan of $2.5 million, $2.4 million and $2.4 million, respectively.

Defined Benefit Retirement Plans – Some of our employees located in Europe and Asia participate in defined benefit retirement plans. Our largest defined benefit retirement plan is the Ismeca Europe Semiconductor BVG Pension Plan which covers our employees in Switzerland (“the Swiss Plan”) and the following discussion relates solely to the Swiss Plan.

Net periodic benefit cost of the Swiss Plan was as follows:

(in thousands)	2023			2022			2021
Service cost	$	551		$	954		$	1,223
Interest cost		510			56			61
Expected return on assets		(331	)		(128	)		(128	)
Settlements		(177	)		(487	)		72
Net periodic costs	$	553		$	395		$	1,228

The following table sets forth the projected benefit obligation, the fair value of plan assets, the funded status and the liability we have recorded in our consolidated balance sheets related to the Swiss Plan:

(in thousands)	2023			2022
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	(21,628	)	$	(28,765	)
Service cost		(551	)		(954	)
Interest cost		(510	)		(56	)
Actuarial gain (loss)		(1,391	)		6,043
Participant contributions		(1,153	)		(1,459	)
Benefits paid		385			378
Plan change		-			397
Settlements		2,177			2,426
Foreign currency exchange adjustment		(2,213	)		362
Benefit obligation at end of year		(24,884	)		(21,628	)
Change in plan assets:
Fair value of plan assets at beginning of year		18,411			18,919
Return on assets, net of actuarial loss		52			119
Employer contributions		860			831
Participant contributions		1,153			1,459
Benefits paid		(385	)		(378	)
Settlements		(2,177	)		(2,426	)
Foreign currency exchange adjustment		1,786			(113	)
Fair value of plan assets at end of year		19,700			18,411
Net liability at end of year	$	(5,184	)	$	(3,217	)

At December 30, 2023 and December 31, 2022, the Swiss Plan’s net liability is included in noncurrent accrued retirement benefits. Amounts recognized in accumulated other comprehensive loss net of tax related to the Swiss Plan consisted of an unrecognized net actuarial gains totaling $4.2 million and $6.8 million at December 30, 2023 and December 31, 2022, respectively.

The actuarial loss of $1.4 million and the actuarial gain of $6.0 million for the years ended December 30, 2023 and December 31, 2022, respectively, were due to assumption changes as well as plan experience.

Weighted-average actuarial assumptions used to determine the projected benefit obligation under the Swiss Plan are as follows:

	2023			2022
Discount rate		1.5	%		2.3	%
Compensation increase		2.0	%		3.0	%

Weighted-average assumptions used to determine net periodic benefit cost of the Swiss Plan are as follows:

	2023			2022			2021
Discount rate		1.5	%		2.3	%		0.2	%
Rate of return on assets		1.5	%		1.8	%		0.7	%
Compensation increase		2.0	%		3.0	%		1.1	%

During 2024 employer and employee contributions to the Swiss Plan are expected to total $0.9 million. Estimated benefit payments are expected to be as follows: 2024 - $1.2 million; 2025 - $1.1 million; 2026 - $1.2 million; 2027 - $1.4 million; 2028 - $1.3 million; and $7.3 million thereafter through 2033.

As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple employers. We have no investment authority over the assets of the plan that are held and invested by a Swiss insurance company. Investment holdings are made with respect to Swiss laws and target allocations for plan assets are 50% debt securities and cash, 24% real estate investments, 16% alternative investments and 10% equity securities. The valuation of the collective fund assets as a whole is a Level 3 measurement; however, the individual investments of the fund are generally Level 1 (equity securities), Level 2 (fixed income) and Level 3 (real estate and alternative) investments. We determine the fair value of the plan assets based on information provided by the collective fund, through review of the collective fund’s annual financial statements. See Note 5, “Financial Instruments Measured at Fair Value” for additional information on the three-tier fair value hierarchy.

We maintain other defined benefit plans for employees located outside the U.S. for which the majority of the obligations and net periodic benefit cost were determined to be immaterial for all periods 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 $0.1 million in both 2023 and 2022 and was insignificant in 2021. 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 4.7% in 2023, 4.9% in 2022 and 2.5% in 2021. The annual rates of increase of the cost of health benefits was assumed to be 7.9% and 8.7% in 2024 for pre-65 participants and post-65 participants, respectively. This rate was then assumed to decrease 0.39% per year and 0.48% per year for pre-65 participants and post-65 participants, respectively, to 4.4% in 2033 and remain level thereafter.

Contributions to the post-retirement health benefit plan are expected to total $0.1 million in 2024. Estimated benefit payments are expected to be as follows: 2024 - $0.1 million; 2025 - $0.1 million; 2026 - $0.1 million; 2027 - $0.1 million; 2028 - $0.1 million and $0.6 million thereafter through 2033.

The following table sets forth the post-retirement benefit obligation, funded status and the liability we have recorded in our consolidated balance sheets:

(in thousands)	2023			2022
Accumulated benefit obligation at beginning of year	$	(1,657	)	$	(2,097	)
Interest cost		(78	)		(51	)
Actuarial (gain) loss		(6	)		382
Benefits paid		90			109
Accumulated benefit obligation at end of year		(1,651	)		(1,657	)
Plan assets at end of year		-			-
Funded status	$	(1,651	)	$	(1,657	)

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 30, 2023, the payroll liability to participants, included in accrued compensation and benefits in the consolidated balance sheet, was approximately $0.9 million and the cash surrender value of the related life insurance policies included in other current assets was approximately $1.4 million. At December 31, 2022, the liability totaled $1.1 million and the corresponding assets were $1.4 million.

Employee Stock Purchase Plan – The Cohu, Inc. 1997 Employee Stock Purchase Plan (“the Plan”) provides for the issuance of a maximum of 3,750,000 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. During the last three years we issued shares under the Plan as follows: 2023 - 146,829; 2022 - 160,855 and 2021 - 161,351. At December 30, 2023, there were 799,669 shares available for issuance under the Plan. On May 10, 2023, our stockholders approved an amendment to the ESPP which increased the number of ESPP shares that may be issued by 600,000 and eliminated the requirement that no participant may purchase shares for any offering period with a value exceeding $12,500 divided by the share value on the first date of the offering period.

Employee Stock Benefit Plans – Our 2005 Equity Incentive Plan (“2005 Plan”) is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. Awards that may be granted under the program include, but are not limited to, non-qualified and incentive stock options, restricted stock units, and performance stock units. We settle employee stock option exercises, employee stock purchase plan purchases, and the vesting of restricted stock units, and performance stock units with newly issued common shares. At December 30, 2023, there were 3,509,023 shares available for future equity grants under the 2005 Plan. On May 10, 2023, our stockholders approved amendments to the 2005 Plan which increased the shares of stock available for issuance by 3,200,000, specified an annual limit of $750,000 on our non-employee director compensation, increased the amounts permitted for cash payouts of performance awards from current limit of $2,000,000 to $4,000,000 per each fiscal year and provided updated criteria for performance awards.

Stock Options

Under the 2005 Plan stock options may be granted to employees, consultants and outside directors to purchase a fixed number of shares of our common stock at prices not less than 100% of the fair market value at the date of grant. Options generally vest and become exercisable after one year or in four annual increments beginning one year after the grant date and expire ten years from the grant date. We have historically issued new shares of Cohu common stock upon share option exercise.

During 2023, 2022 and 2021 no stock options were granted and the activity under our share-based compensation plans was as follows:

	2022					2021
				Wt. Avg.					Wt. Avg.
(in thousands, except per share data)	Shares			Ex. Price		Shares			Ex. Price
Outstanding and exercisable, beginning of year		12		$	9.44		262		$	10.01
Exercised		(12	)	$	9.44		(250	)	$	10.03
Outstanding and exercisable, end of year		-		$	-		12		$	9.44

The aggregate intrinsic value of options exercised was $0.2 million in 2022 and $8.4 million in 2021. At December 30, 2023, we had no stock options exercisable and outstanding.

Restricted Stock Units

Under our equity incentive plans, restricted stock units (“RSUs”) may be granted to employees, consultants and outside directors. Restricted stock units vest over a one-year, two-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. New shares of our common stock will be issued on the date the restricted stock units vest net of the statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding at December 30, 2023.

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

	2023					2022					2021
				Wt. Avg.					Wt. Avg.					Wt. Avg.
(in thousands, except per share data)	Units			Fair Value		Units			Fair Value		Units			Fair Value
Outstanding, beginning of year		969		$	24.55		1,058		$	21.16		1,414		$	15.16
Granted		365		$	36.66		431		$	27.74		270		$	41.66
Released		(428	)	$	22.33		(474	)	$	19.94		(579	)	$	16.23
Cancelled		(22	)	$	28.62		(46	)	$	24.33		(47	)	$	18.96
Outstanding, end of year		884		$	30.52		969		$	24.55		1,058		$	21.16

Equity-Based Performance Stock Units

We grant performance stock units (“PSUs”) to certain senior executives as a part of our long-term equity compensation program. The number of shares of common stock that will ultimately be issued to settle PSUs granted ranges from 0% to 200% of the number granted and is determined based on certain performance criteria over a three-year measurement period. The performance criteria for the majority of PSUs are based on a combination of our annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of our TSR compared with the annualized TSR of certain peer companies for the performance period. PSUs granted vest 100% on the third anniversary of their grant, assuming achievement of the applicable performance criteria.

We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the requisite service period. New shares of our common stock will be issued on the date the PSUs vest net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.

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

	2023					2022					2021
				Wt. Avg.					Wt. Avg.					Wt. Avg.
(in thousands, except per share data)	Units			Fair Value		Units			Fair Value		Units			Fair Value
Outstanding, beginning of year		403		$	28.64		384		$	22.22		425		$	15.51
Granted		270		$	39.97		151		$	33.22		93		$	51.43
Released		(258	)	$	13.18		(55	)	$	14.11		(125	)	$	21.77
Cancelled		(7	)	$	42.52		(77	)	$	15.94		(9	)	$	14.04
Outstanding, end of year		408		$	45.65		403		$	28.64		384		$	22.22

Share-based Compensation – We estimate the fair value of our employee stock purchase plan using the Black-Scholes valuation model. The assumptions for the Black-Scholes model include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award. The estimated fair value of PSUs is determined on the grant date using the Monte Carlo simulation valuation model. The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu and the selected peer group price volatility, the correlation between Cohu and the selected index, and dividend yields. Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. Cohu’s Board of Directors authorized suspending our quarterly cash dividend indefinitely, as of May 5, 2020. All awards granted in 2023, 2022 and 2021 exclude the assumption of dividend payments and the estimated fair value awards granted in prior years, when dividends were paid, are unchanged.

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

Employee Stock Purchase Plan	2023			2022			2021
Dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		36.3	%		45.6	%		58.3	%
Risk-free interest rate		4.5	%		1.2	%		0.1	%
Expected term (years)		0.5			0.5			0.5
Weighted-average grant date fair
value per share	$	8.54		$	8.79		$	9.42

Restricted Stock Units	2023			2022			2021
Dividend yield		0.0	%		0.0	%		0.0	%

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

(in thousands)	2023			2022			2021
Cost of sales	$	845		$	646		$	828
Research and development		3,394			3,100			3,017
Selling, general and administrative		12,998			11,172			9,947
Share-based compensation of continuing operations		17,237			14,918			13,792
Income tax benefit		(1,770	)		(4,004	)		(722	)
Total share-based compensation, net of tax	$	15,467		$	10,914		$	13,070

We account for forfeitures of plan-based awards as they occur. At December 30, 2023, we had approximately $27.9 million of pre-tax unrecognized compensation cost related to unvested restricted stock units and performance stock units which is expected to be recognized over a weighted-average period of approximately 2.2 years.