Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations





This Form 10-Q contains certain forward-looking statements including
expectations of market conditions, challenges and plans, within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the Safe Harbor provisions created by that statute. Such forward-looking
statements are based on management's current expectations and beliefs, including
estimates and projections about our business and include, but are not limited
to, statements concerning financial position, business strategy, our industry
environment, market growth expectations, and plans or objectives for future
operations. Forward-looking statements are not guarantees of future performance,
and are subject to certain risks, uncertainties, and assumptions that are
difficult to predict and may cause actual results to differ materially from
management's current expectations. Such risks and uncertainties include those
set forth in this Quarterly Report on Form 10-Q and our 2022 Annual Report on
Form 10-K under the heading "Item 1A. Risk Factors". The forward-looking
statements in this report speak only as of the time they are made, and do not
necessarily reflect management's outlook at any other point in time. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events, or for any other reason,
however, readers should carefully review the risk factors set forth in other
reports or documents we file from time to time with the SEC after the date of
this Quarterly Report. This Form 10-Q also contains estimates, projections and
other information concerning our industry, our business, and the markets for
certain of our products. Information that is based on estimates, forecasts,
projections, market research or similar methodologies is inherently subject to
uncertainties and actual events or circumstances may differ materially from
events and circumstances reflected in this information. Unless otherwise
expressly stated, we obtained this industry, business, market, and other data
from reports, research surveys, studies, and similar data prepared by market
research firms and other third parties, industry, and general publications,
government data, and similar sources.



OVERVIEW



Cohu is a leading supplier of semiconductor test and inspection/metrology
automation systems (handlers), micro-electromechanical system ("MEMS") test
modules, test contactors, thermal subsystems, and semiconductor automated test
equipment used by global semiconductor manufacturers and test subcontractors. We
offer a wide range of products and services and our revenue from capital
equipment products is driven by the capital expenditures and operating budgets
of our customers, who often abruptly delay or accelerate purchases in reaction
to variations in their business. The level of expenditures by these companies
depends on the current and anticipated market demand for semiconductor devices
and the products that incorporate them. Our recurring products are driven by the
number of semiconductor devices that are tested and by the continuous
introduction of new products and new technologies by our customers. As a result,
our recurring products provide a more stable recurring source of revenue and
generally do not have the same degree of cyclicality as our capital equipment
products.



In 2023, global macroeconomic and geopolitical factors are shaping the
semiconductor industry. In response to the higher cost of capital, many chip
companies are cutting costs, reducing employee headcount, and pushing out
capital expenditures for additional capacity. For the first quarter ended April
1, 2023, on a sequential, quarter-over-quarter basis, our consolidated net sales
declined 6.1% to $179.4 million due to lower demand for automotive, mobility,
and 5G-related products because of the market conditions outlined above. Over
the past twelve months, we have seen improvements in our gross margin due to
favorable product mix, and increased insourcing of contactor manufacturing.
Also, price increases offset cost increases in our supply chain. Based on the
strength of current business conditions and the results from our operations, we
have continued to take actions to reduce outstanding principal under our Term
Loan Credit Facility through voluntary prepayments, and we have also repurchased
99,682 shares of our common stock for approximately $3.5 million during the
first three months of 2023.



We continue to focus on building a well-balanced and resilient business model.
Our long-term market drivers and market strategy remain intact, and we are
encouraged by demand across our main market segments, along with customer
traction with our new products. We continue to capture new customers and remain
optimistic about the long-term prospects for our business due to the increasing
ubiquity of semiconductors, the continued rollout of 5G networks, increasing
semiconductor complexity, increasing quality demands from semiconductor
customers, increasing test intensity and continued proliferation of electronics
in a variety of products across the automotive, mobility, industrial, computing,
and consumer markets.

Application of Critical Accounting Estimates and Policies





Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience, forecasts and on
various other assumptions that are believed to be reasonable under the current
circumstances, however actual results may differ from those estimates under
different assumptions or conditions. The methods, estimates and judgments we use
in applying our accounting policies have a significant impact on the results we
report in our financial statements. Some of our accounting policies require us
to make difficult and subjective judgments, often as a result of the need to
make estimates of matters that are inherently uncertain.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



Our critical accounting estimates that we believe are the most important to an
investor's understanding of our financial results and condition and that require
complex management judgment include:

? revenue recognition, including the deferral of revenue on sales to customers,

which impacts our results of operations;

? estimation of valuation allowances and accrued liabilities, specifically

inventory reserves, which impact gross margin or operating expenses;

? the recognition and measurement of current and deferred income tax assets and

liabilities, unrecognized tax benefits, the valuation allowance on deferred

tax assets and accounting for the impact of the change to U.S. tax law as

described herein, which impact our tax provision, and

? the assessment of recoverability of long-lived and indefinite-lived assets

including goodwill and other intangible assets, which primarily impacts gross


    margin or operating expenses if we are required to record impairments of
    assets or accelerate their depreciation.




Below, we discuss these policies further, as well as the estimates and judgments
involved. We also have other policies that we consider key accounting policies;
however, these policies typically do not require us to make estimates or
judgments that are difficult or subjective.



Revenue Recognition: 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 relative standalone selling price 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. At April 1, 2023, we had $6.6 million of revenue expected to be
recognized in the future related to performance obligations that were
unsatisfied (or partially unsatisfied) for contracts with original expected
durations of over one year. As allowed under ASC 606, we have opted to not
disclose unsatisfied performance obligations for contracts with original
expected durations of less than one year. 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, 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 customer. 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 no material impairment losses on accounts receivable.
There were no material contract assets or contract liabilities recorded on the
condensed 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 the condensed consolidated balance sheet representing the
difference between the receivable recorded and the inventory shipped.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



Accounts Receivable: We maintain an allowance for credit losses for estimated
losses resulting from the inability of our customers to make required payments.
If the financial condition of our customers deteriorates, resulting in an
impairment of their ability to make payments, additional allowances may be
required. Our customers include semiconductor manufacturers and semiconductor
test subcontractors throughout many areas of the world. While we believe that
our allowance for credit losses is adequate and represents our best estimate of
future losses, we will continue to monitor customer liquidity and other economic
conditions, which may result in changes to our estimates.



Inventory: The valuation of inventory requires us to estimate obsolete or excess
inventory as well as inventory that is not of saleable quality. The
determination of obsolete or excess inventory requires us to estimate the future
demand for our products. The demand forecast is a direct input in the
development of our short-term manufacturing plans. We record valuation reserves
on our inventory for estimated excess and obsolete inventory and lower of cost
or net realizable value concerns equal to the difference between the cost of
inventory and the estimated realizable value based upon assumptions about future
product demand, market conditions and product selling prices. If future product
demand, market conditions or product selling prices are less than those
projected by management or if continued modifications to products are required
to meet specifications or other customer requirements, increases to inventory
reserves may be required which would have a negative impact on our gross margin.



Income Taxes: We estimate our liability for income taxes based on the various
jurisdictions where we conduct business. This requires us to estimate our (i)
current taxes; (ii) temporary differences that result from differing treatment
of certain items for tax and accounting purposes and (iii) unrecognized tax
benefits. Temporary differences result in deferred tax assets and liabilities
that are reflected in the condensed consolidated balance sheet. The deferred tax
assets are reduced by a valuation allowance if, based upon all available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. Establishing, reducing or increasing a valuation allowance
in an accounting period generally results in an increase or decrease in tax
expense in the statement of income. We must make significant judgments to
determine the provision for income taxes, deferred tax assets and liabilities,
unrecognized tax benefits and any valuation allowance to be recorded against
deferred tax assets. Our deferred tax assets consist primarily of reserves and
accruals that are not yet deductible for tax and tax credit and net operating
loss carryforwards.



Segment Information: We applied the provisions of 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. Under ASC 280, 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. We have determined that our
three identified operating segments are: THG, STG and ISG. 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 one segment, Semiconductor Test &
Inspection.



Goodwill and Other Intangible 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 unit.
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 fair
value of the reporting unit and its carrying value of goodwill, not to exceed
the carrying value of goodwill. We estimate the fair values of our reporting
units using a weighting of the income and market approaches. Under the income
approach, we use a discounted cash flow methodology to derive an indication of
value, which requires management to make significant estimates and assumptions
related to forecasted revenues, gross profit margins, operating income margins,
working capital cash flow, perpetual growth rates, and long-term discount rates,
among others. For the market approach, we use the guideline public company
method. Under this method we utilize information from comparable publicly traded
companies with similar operating and investment characteristics as the reporting
units, to create valuation multiples that are applied to the operating
performance metrics of the reporting unit being tested, in order to obtain an
indication of value. We then apply a 50/50 weighting to the indicated values
from the income and market approaches to derive the fair values of the reporting
units. 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. Fair value
determinations require considerable judgment and are sensitive to changes in
underlying assumptions and factors.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



We conduct our annual impairment test as of October 1st of each year and have
determined there was no impairment as of October 1, 2022, as 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.



Other intangible assets 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 other intangible 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.

During the first three months of 2023, no events or conditions occurred suggesting an impairment in our goodwill and other intangible assets.





Warranty: We provide for the estimated costs of product warranties in the period
sales are recognized. Our warranty obligation estimates are affected by
historical product shipment levels, product performance and material and labor
costs incurred in correcting product performance problems. Should product
performance, material usage or labor repair costs differ from our estimates,
revisions to the estimated warranty liability would be required.



Contingencies: We are subject to certain contingencies that arise in the
ordinary course of our businesses which require us to assess the likelihood that
future events will confirm the existence of a loss or an impairment of an asset.
If a loss or asset impairment is probable and the amount of the loss or
impairment is reasonably estimable, we accrue a charge to operations in the
period such conditions become known.



Share-based Compensation: Share-based compensation expense related to restricted
stock unit awards is calculated based on the market price of our common stock on
the grant date, reduced by the present value of dividends expected to be paid on
our common stock prior to vesting of the restricted stock unit. Share-based
compensation on performance stock units with market-based goals is calculated
using a Monte Carlo simulation model on the date of the grant. Share-based
compensation expense related to stock options is recorded based on the fair
value of the award on its grant date, which we estimate using the Black-Scholes
valuation model.

Recent Accounting Pronouncements





For a description of accounting changes and recent accounting pronouncements,
including the expected dates of adoption and estimated effects, if any, on our
consolidated financial statements, see "Recent Accounting Pronouncements", in
Note 1 located in Part I, Item 1 of this Form 10-Q.



RESULTS OF OPERATIONS

Recent Transactions Impacting Results of Operations





On January 30, 2023, we completed the acquisition of MCT and the results of its
operations have been included in our condensed consolidated financial statements
since that date.



The following table summarizes certain operating data as a percentage of net
sales:



                                                  Three Months Ended
                                              April 1,         March 26,
                                                2023             2022
Net sales                                         100.0 %           100.0 %
Cost of sales                                     (51.9 )%          (53.9 )%
Gross margin                                       48.1 %            46.1 %
Research and development                          (12.5 )%          (11.7 )%
Selling, general and administrative               (19.1 )%          (15.8

)%


Amortization of purchased intangible assets        (4.9 )%           (4.3 )%
Restructuring charges                              (0.5 )%           (0.3 )%
Income from operations                             11.1 %            14.0 %




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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023

First Quarter of Fiscal 2023 Compared to First Quarter of Fiscal 2022

Net Sales



Our consolidated net sales decreased 9.3% to $179.4 million in 2023, compared to
$197.8 million in 2022. As compared to the prior year, during the first three
months of 2023 our net sales declined due to the current macroeconomic
environment which is driving lower demand for automotive, mobility (including
5G-related products) and computing applications. Our consolidated net sales in
the first quarter of 2023 also include the net sales of MCT, which was acquired
on January 30, 2023, and totaled $4.5 million.

Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)





Gross margin consists of net sales less cost of sales. Cost of sales consists
primarily of materials, assembly and test labor, and overhead from operations.
Our gross margin can fluctuate due to several factors, including, but not
limited to, the mix and volume of products sold, product support costs,
material, labor, supplier, logistics and other operating cost changes, changes
to inventory reserves or the sale of previously reserved inventory and
utilization of manufacturing capacity. Our gross margin, as a percentage of net
sales for the first fiscal quarter, was 48.1% in 2023 and 46.1% in 2022. Our
gross margin for the first fiscal quarter of 2023 improved compared to the prior
year due to favorable product mix and increased insourcing of contactor
manufacturing.



Our gross margin can be impacted by charges to cost of sales related to excess,
obsolete and lower of cost or net realizable value inventory issues. During the
first quarter of 2023 and 2022, we recorded charges to cost of sales of
$1.9 million and $0.8 million for excess and obsolete inventory, respectively.
While we believe our reserves for excess and obsolete inventory and lower of
cost or net realizable value concerns are adequate to cover known exposures as
of April 1, 2023, reductions in customer forecasts or continued modifications to
products, as a result of our failure to meet specifications or other customer
requirements, may result in additional charges to operations that could
negatively impact our gross margin in future periods.

Research and Development Expense ("R&D Expense")





R&D expense consists primarily of salaries and related costs of employees
engaged in ongoing research, product design and development activities, costs of
engineering materials and supplies and professional consulting expenses. R&D
expense was $22.5 million in 2023 and $23.1 million in 2022 representing 12.5%
and 11.7% of net sales, respectively. R&D expense decreased during the first
fiscal quarter of 2023 due to lower spending on material costs associated with
product development during the current year. The first quarter of 2023 includes
$0.2 million of incremental R&D costs from MCT.

Selling, General and Administrative Expense ("SG&A Expense")





SG&A expense consists primarily of salaries and benefit costs of employees,
commission expense for independent sales representatives, product promotion and
costs of professional services. SG&A expense was $34.2 million or 19.1% of net
sales in 2023, compared to $31.2 million or 15.8% in 2022. SG&A expense
increased during the first fiscal quarter of 2023 because of higher costs
incurred in the current year for labor, product support, travel and professional
services. The first quarter of 2023 also includes $0.3 million of incremental
SG&A costs from the operations of MCT and $0.4 million of transaction related
costs incurred specifically related to the acquisition of MCT.

Amortization of Purchased Intangible Assets





Amortization of purchased intangibles is the process of expensing the cost of an
intangible asset acquired through a business combination over the projected life
of the asset. Amortization of acquisition-related intangible assets was
$8.8 million and $8.5 million in the first quarter of 2023 and 2022,
respectively. The increase in expense recorded during the current year was a
result of the amortization of acquired intangible assets from MCT.



Restructuring Charges



During the first quarter of 2023, we began a strategic restructuring and
integration program in connection with the acquisition of MCT. In addition,
subsequent to the acquisition of Xcerra on October 1, 2018, during the fourth
quarter of 2018, we began a strategic restructuring program designed to
reposition our organization and improve our cost structure as part of our
targeted integration plan regarding Xcerra. Restructuring charges recorded in
the first fiscal quarter of 2023 and 2022 were $0.9 million and $0.6 million,
respectively. Restructuring costs incurred in the first fiscal quarter of 2023
relate to the integration of MCT which was acquired on January 30, 2023, whereas
restructuring expense recorded during the prior year was related to the
integration of Xcerra.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023

See Note 4, "Restructuring Charges" in Part I, Item 1 of this Form 10-Q for additional information with respect to restructuring charges.





Interest Expense and Income



Interest expense was $1.1 million and $1.0 million in the first fiscal quarter
of 2023 and 2022, respectively. While we have significantly reduced the
outstanding balance of our Term Loan Credit Facility during 2023, the increase
in LIBOR during the first quarter of 2023 resulted in interest expense being
higher on a year-over-year basis.



Interest income was $2.7 million and $0.1 million in the first fiscal quarter of
2023 and 2022, respectively. The increase in interest income year-over-year is a
result of higher rates and higher investment balances maintained during the
course of the first quarter of 2023.



Income Taxes



We used the estimated annual ETR expected to be applicable for the full fiscal
year in computing our tax provision. The ETR on income for the three months
ended April 1, 2023 was 24.1%. Our first quarter 2023 ETR reflects the impact of
certain foreign earnings taxed at rates higher than the U.S. statutory rate,
offset by the impact of excess tax benefits relating to stock-based compensation
and the tax benefit of U.S research & development and foreign tax credits.



We conduct business globally and as a result, Cohu or one or more of its
subsidiaries files income tax returns in the US and various state and foreign
jurisdictions. In the normal course of business, we are subject to examinations
by taxing authorities throughout the world and are currently under examination
in Germany, Malaysia, Philippines, Singapore and Thailand. We believe our
financial statement accruals for income taxes are appropriate.



In accordance with the disclosure requirements as described in ASC 740, we have
classified unrecognized tax benefits as non-current income tax liabilities, or a
reduction in non-current deferred tax assets, unless expected to be paid within
one year. Our continuing practice is to recognize interest and/or penalties
related to income tax matters in income tax expense. There were no material
changes to our unrecognized tax benefits and interest accrued related to
unrecognized tax benefits during the three months ended April 1, 2023 and March
26, 2022.



On August 9, 2022, President Biden signed into law the CHIPS and Science Act,
and on August 19, 2022, the Inflation Reduction Act. The new legislations
provide tax incentives as well as impose a 15% minimum tax on certain
corporations' book income and a 1% excise tax on certain stock buybacks. While
we may be subject to the new excise tax on certain stock buybacks if our
repurchase exceed the $1 million threshold, the enactment of both the CHIPS and
Science Act and Inflation Reduction Act did not result in any material
adjustments to our income tax provision for the three months ended April 1,
2023.



Net Income



As a result of the factors set forth above, our net income was $15.7 million for
the three months ended April 1, 2023. For the three months ended March 26, 2022
our net income was $21.6 million.

LIQUIDITY AND CAPITAL RESOURCES





Our primary business is dependent on capital expenditures by semiconductor
manufacturers and test subcontractors that are, in turn, dependent on the
current and anticipated market demand for semiconductors. The seasonal and
volatile nature of demand for semiconductor equipment, our primary industry,
makes estimates of future revenues, results of operations and net cash flows
difficult.



Our primary historical source of liquidity and capital resources has been cash
flow generated by our operations and we manage our businesses to maximize
operating cash flows as our primary source of liquidity. We use cash to fund
growth in our operating assets and to fund new products and product enhancements
primarily through research and development. As of April 1, 2023, $176.4 million
or 77.8% of our cash and cash equivalents was held by our foreign subsidiaries.
If these funds are needed for our operations in the U.S., we may be required to
accrue and pay foreign withholding taxes if we repatriate these funds. Except
for working capital requirements in certain jurisdictions, we provide for all
withholding and other residual taxes related to unremitted earnings of our
foreign subsidiaries.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



At April 1, 2023, our total indebtedness, net of discount and deferred financing
costs, was $44.1 million, which included $31.6 million outstanding under the
Term Loan Credit Facility, $2.4 million outstanding under Kita's term loans,
$8.3 million outstanding under Cohu GmbH's construction loan and $1.9 million
outstanding under Kita's lines of credit. During the first three months of
fiscal 2023, we prepaid $34.1 million in principal of our Term Loan Credit
Facility and we repurchased 99,682 shares of our outstanding common stock, to be
held as treasury stock, for $3.5 million.



Liquidity

Working Capital: The following summarizes our cash, cash equivalents, short-term investments and working capital:





                                       April 1,       December 31,                      Percentage
(in thousands)                           2023             2022           Decrease         Change
Cash, cash equivalents and
short-term investments                $  324,295     $      385,576     $  (61,281 )          (15.9 )%
Working capital                       $  564,468     $      603,979     $  (39,511 )           (6.5 )%




Cash Flows



Operating Activities: Operating cash flows for the first three months of fiscal
2023 consisted of our net income, adjusted for non-cash expenses and changes in
operating assets and liabilities. These adjustments include depreciation expense
on property, plant and equipment, share-based compensation expense, amortization
of intangible assets, deferred income taxes, amortization of cloud-based
software implementation costs, loss on extinguishment of debt, capitalized
interest associated with cloud computing implementation, amortization of debt
discounts and issuance costs and sales of property, plant and equipment. Our net
cash provided by operating activities in the first three months of fiscal 2023
totaled $16.5 million. Excluding the impact of the acquisition of MCT, net cash
provided by operating activities was impacted by changes in current assets and
liabilities and included increases in customer advances of $6.2 million,
inventories of $5.2 million and decreases in accrued compensation, warranty and
other liabilities of $15.5 million, income taxes payable of $8.2 million,
accounts receivable of $5.4 million and deferred profit of $2.3 million. The
increase in customer advances represents cash received from customers in advance
of product shipments that are expected to occur during 2023. Purchases of
materials from suppliers made to fulfill anticipated future shipments of
products resulted in an increase in inventory. Accrued compensation, warranty
and other liabilities decreased due to payments of incentive compensation
related to the prior year that was paid during the first quarter of 2023. The
income taxes payable decrease was driven by an excess of payments over accruals,
the decrease in accounts receivable was due to the timing of cash collections on
net sales recognized in the first quarter of 2023 and the recognition of revenue
that was previously deferred in accordance with our revenue recognition policy
resulted in the decrease in deferred profit.



Investing Activities: Investing cash flows consist primarily of cash used for
capital expenditures in support of our business, purchases of investments,
proceeds from investment maturities, business divestitures and asset disposals.
Net cash provided by investing activities in the first three months of fiscal
2023 totaled $14.3 million. In the first three months of fiscal 2023 we
generated $63.0 million from sales and maturities and used $16.8 million of cash
for purchases of short-term investments. We invest our excess cash, in an
attempt to seek the highest available return while preserving capital, in
short-term investments since excess cash may be required for a business-related
purpose. During the first quarter of 2023, we also used $26.9 million of cash,
net of cash received, for the acquisition of MCT which was a strategic
transaction for our test handler group, adding strip, film-frame and laser
marking to Cohu's product portfolio, and critical technologies that will
accelerate development into the growing advanced package test market. Additions
to property, plant and equipment of $5.1 million were made to support our
operating and development activities and include amounts related to the
expansion of our Philippines factory to support our interface business.



Financing Activities: Financing cash flows consist primarily of net proceeds
from the issuance of common stock under our stock option and employee stock
purchase plans, repurchases of shares made under our share repurchase program
and repayments of debt, net of new borrowings. We issue restricted stock units
and maintain an employee stock purchase plan as components of our overall
employee compensation. In the first three months of fiscal 2023, cash used to
settle the minimum statutory tax withholding requirements on behalf of our
employees upon vesting of restricted and performance stock awards, net of
proceeds from the exercise of employee stock options, was $8.6 million. We made
payments totaling $3.5 million in the first three months of 2023 for shares of
our common stock repurchased under our share repurchase program to be held as
treasury stock. Repayments of short-term borrowings and long-term debt during
the first three months of fiscal 2023 totaled $35.3 million.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



Share Repurchase Program



On October 28, 2021, we announced that our Board of Directors authorized a
$70 million share repurchase program. On October 25, 2022, our Board of
Directors authorized an additional $70 million under the share repurchase
program. This share repurchase program was effective as of November 2, 2021, has
no expiration date, and the timing of share repurchases and the number of shares
of common stock to be repurchased will depend upon prevailing market conditions
and other factors. Repurchases under this program will be made using our
existing cash resources and may be commenced or suspended from time-to-time at
our discretion without prior notice. Repurchases may be made in the open market,
through 10b5-1 programs, or in privately negotiated transactions at prevailing
market rates in accordance with federal securities laws. For the three months
ended April 1, 2023, we repurchased 99,682 shares of our common stock for
$3.5 million to be held as treasury stock. As of April 1, 2023, $78.5 million of
shares of our common stock remained available for us to repurchase under our
share repurchase program.



Capital Resources



We have access to credit facilitates and other borrowings provided by financial
institutions to finance acquisitions, capital expenditures and our operations if
needed. A summary of our borrowings and available credit is as follows.



Credit Agreement



On October 1, 2018, we entered into a Credit Agreement providing for a
$350.0 million Term Loan Credit Facility and borrowed the full amount to finance
a portion of the Xcerra acquisition. Loans under the Term Loan Credit Facility
amortize in equal quarterly installments of 0.25% of the original principal
amount, with the balance payable at maturity. All outstanding principal and
interest in respect of the Term Loan Credit Facility must be repaid on or before
October 1, 2025. The loans under the Term Loan Credit Facility bear interest, at
Cohu's option, at a floating annual rate equal to LIBOR plus a margin of 3.00%.
At April 1, 2023, the outstanding loan balance, net of discount and deferred
financing costs, was $31.6 million and $3.4 million of the outstanding balance
is presented as current installments of long-term debt in our condensed
consolidated balance sheets. At December 31, 2022, the outstanding loan balance,
net of discount and deferred financing costs, was $66.2 million and $3.2 million
of the outstanding balance is presented as current installments of long-term
debt in our condensed consolidated balance sheets.



Under the terms of the Credit Agreement, the lender may accelerate the payment
terms upon the occurrence of certain events of default set forth therein, which
include: the failure of Cohu to make timely payments of amounts due under the
Credit Agreement, the failure of Cohu to adhere to the representations and
covenants set forth in the Credit Agreement, the failure to provide notice of
any event that causes a material adverse effect or to provide other required
notices, upon the event that related collateral agreements become ineffective,
upon the event that certain legal judgments are entered against Cohu, the
insolvency of Cohu, or upon the change of control of Cohu. As of April 1, 2023,
we believe no such events of default have occurred.



During the first three months of 2023, we prepaid $34.1 million in principal of
our Term Loan Credit Facility for $34.1 million in cash. We accounted for the
prepayment as a debt extinguishment, which resulted in a loss of $0.4 million
reflected in other expense, net, in our condensed consolidated statement of
income and a $0.4 million reduction in debt discounts and deferred financing
costs in our condensed consolidated balance sheets. During the first three
months of 2022, we repurchased $7.0 million in principal of our Term Loan Credit
Facility for $7.0 million in cash. This resulted in a loss of $0.1 million
reflected in other expense in our condensed consolidated statement of income and
a corresponding $0.1 million reduction in debt discounts and deferred financing
costs in our condensed consolidated balance sheets. Approximately $32.0 million
in principal of the Term Loan Credit Facility remained outstanding as of April
1, 2023.



Kita Term Loans



We have a series of term loans with Japanese financial institutions primarily
related to the expansion of our facility in Osaka, Japan. The loans are
collateralized by the facility and land, carry interest rates ranging from 0.05%
to 0.43%, and expire at various dates through 2034. At April 1, 2023, the
outstanding loan balance was $2.4 million and $0.2 million of the outstanding
balance is presented as current installments of long-term debt in our condensed
consolidated balance sheets. At December 31, 2022, the outstanding loan balance
was $2.5 million and $0.2 million of the outstanding balance is presented as
current installments of long-term debt in our condensed consolidated balance
sheets. The term loans are denominated in Japanese Yen and, as a result, amounts
disclosed herein will fluctuate because of changes in currency exchange rates.



Construction Loans



In July 2019 and June 2020, one of our wholly owned subsidiaries located in
Germany entered into a series of Loan Facilities with a German financial
institution initially providing it with total borrowings of up to €10.1 million.
In May 2022, one of the construction loans was amended, reducing total
borrowings provided under the loans to up to €9.5 million. The Loan Facilities
were utilized to finance the expansion of our facility in Kolbermoor, Germany
and are secured by the land and the existing building on the site. The Loan
Facilities bear interest at agreed upon rates based on the facility amounts as
discussed below.



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Cohu, Inc.
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                                 April 1, 2023



The first facility totaling €3.4 million has been fully drawn and is payable
over 10 years at a fixed annual interest rate of 0.8%. Principal and interest
payments are due each quarter over the duration of the facility ending in
September 2029. The second facility totaling €5.2 million has been fully drawn
and is payable over 15 years at an annual interest rate of 1.05%, which is fixed
until April 2027. Principal and interest payments are due each month over the
duration of the facility ending in January 2034. The third facility totaling
€0.9 million has been fully drawn and is payable over 10 years at an annual
interest rate of 1.2%. Principal and interest payments are due each month over
the duration of the facility ending in May 2030.



At April 1, 2023, total outstanding borrowings under the Loan Facilities was
$8.3 million with $1.0 million of the total outstanding balance being presented
as current installments of long-term debt in our condensed consolidated balance
sheets. At December 31, 2022, total outstanding borrowings under the Loan
Facilities was $8.4 million with $1.0 million of the total outstanding balance
being presented as current installments of long-term debt in our condensed
consolidated balance sheets. The loans are denominated in Euros and, as a
result, amounts disclosed herein will fluctuate because of changes in currency
exchange rates. The fair value of the debt approximates the carrying value at
April 1, 2023.



Lines of Credit



As a result of our acquisition of Kita, we assumed a series of revolving credit
facilities with various financial institutions in Japan. The credit facilities
renew monthly and provide access to working capital totaling up to 960 million
Japanese Yen of which 250 million Japanese Yen was drawn as of April 1, 2023. At
April 1, 2023, total borrowings outstanding under the revolving lines of credit
were $1.9 million. As these credit facility agreements renew monthly, they have
been included in short-term borrowings in our condensed consolidated balance
sheets.



The revolving lines of credit are denominated in Japanese Yen and, as a result,
amounts disclosed herein will fluctuate because of changes in currency exchange
rates.



Our wholly owned subsidiary in Switzerland has one line of credit which provides
borrowings of up to a total of 2.0 million Swiss Francs, a portion of which is
reserved for tax guarantees. The financial institution that provides the line of
credit is requiring us to provide a corporate guarantee to access the line of
credit and as of April 1, 2023 we are still in the process of executing the
required documents. Until the documents are issued and accepted by the bank no
amounts may be drawn on this line of credit. At April 1, 2023 and December 31,
2022, no amounts were outstanding under this line of credit.



We also have a letter of credit facility ("LC Facility") under which Bank of
America, N.A., has agreed to administer the issuance of letters of credit on our
behalf. The LC Facility requires us to maintain deposits of cash or other
approved investments in amounts that approximate our outstanding letters of
credit and contains customary restrictive covenants. In addition, our wholly
owned subsidiary, Xcerra, has arrangements with various financial institutions
for the issuance of letters of credit and bank guarantees. As of April 1, 2023,
$0.3 million was outstanding under standby letters of credit and bank
guarantees.

We expect that we will continue to make capital expenditures to support our business and we anticipate that present working capital will be sufficient to meet our operating requirements for at least the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements





Contractual Obligations: Our significant contractual obligations consist of
liabilities for debt, operating leases, unrecognized tax benefits, pensions,
post-retirement benefits and warranties. During the first three months of 2023,
we prepaid $34.1 million in outstanding principal of our Term Loan Credit
Facility. Aside from the repayment of outstanding principal of our Term Loan
Credit Facility, there were no material changes to these obligations outside the
ordinary course of business from those disclosed in our Annual Report on Form
10-K for the year ended December 31, 2022.



Commitments to contract manufacturers and suppliers: From time to time, we enter
into commitments with our vendors and outsourcing partners to purchase inventory
at fixed prices or in guaranteed quantities. We are not able to determine the
aggregate amount of such purchase orders that represent contractual obligations,
as purchase orders may represent authorizations to purchase rather than binding
agreements. Our purchase orders are based on our current manufacturing needs and
are fulfilled by our vendors within relatively short time horizons. We typically
do not have significant agreements for the purchase of raw materials or other
goods specifying minimum quantities or set prices that exceed our expected
requirements for the next three months.

Off-Balance Sheet Arrangements: During the ordinary course of business, we provide standby letters of credit instruments to certain parties as required. As of April 1, 2023, $0.3 million was outstanding under standby letters of credit.







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