Management believes the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company's operating performance. Our management uses these non-GAAP financial measures in assessing the Company's operating results, as well as when planning, forecasting and analyzing future periods and these non-GAAP measures allow investors to evaluate the Company’s financial performance using some of the same measures as management. Management views share-based compensation as an expense that is unrelated to the Company’s operational performance as it does not require cash payments and can vary in amount from period to period and the elimination of amortization charges provides better comparability of pre and post-acquisition operating results and to results of businesses utilizing internally developed intangible assets. Management initiated certain restructuring activities including employee headcount reductions and other organizational changes to align our business strategies in anticipation of the completion of the merger with Xcerra. Restructuring costs have been excluded because such expense is not used by Management to assess the core profitability of Cohu’s business operations. Manufacturing transition costs relate principally to employee severance expenses incurred as a result of moving certain manufacturing activities to Asia as part of our ongoing cost reduction efforts and employee severance are costs incurred in conjunction with the termination of certain employees to streamline our operations and reduce costs. Management has excluded these costs primarily because they are not reflective of the ongoing operating results and they are not used to assess ongoing operational performance. Acquisition costs, fair value adjustment to contingent consideration and inventory step-up costs have been excluded by management as they are unrelated to the core operating activities of the Company and the frequency and variability in the nature of the charges can vary significantly from period to period. Excluding this data provides investors with a basis to compare Cohu’s performance against the performance of other companies without this variability. However, the non-GAAP financial measures should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures. The presentation of non-GAAP financial measures above may not be comparable to similarly titled measures reported by other companies and investors should be careful when comparing our non-GAAP financial measures to those of other companies.

(a)				7.9%, 13.8% and 11.1% of net sales, respectively.
(b)				To eliminate compensation expense for employee stock options, stock units and our employee stock purchase plan.
(c)				To eliminate the amortization of acquired intangible assets.
(d)				To eliminate restructuring costs incurred during third quarter of 2018 in anticipation of the closing of the Xcerra acquisition.
(e)				To eliminate manufacturing transition costs.
(f)				To eliminate fair value adjustment to contingent consideration related to the acquisition of Kita.
(g)				To eliminate professional fees and other direct incremental expenses incurred related to acquisitions.
(h)				To eliminate the inventory step-up costs incurred related to the acquisition of Kita.
(i)				13.2%, 21.3% and 15.7% of net sales, respectively.
(j)				To adjust the provision for income taxes related to the adjustments described above based on applicable tax rates.
(k)				All periods presented were computed using the number of GAAP diluted shares outstanding.

COHU, INC.
Supplemental Reconciliation of GAAP Results to Non-GAAP Financial Measures (Unaudited) *
(in thousands, except per share amounts)
				Nine Months Ended
				September 29,					September 30,
				2018					2017
Income from operations - GAAP basis (a)				$	30,590				$	30,082
Non-GAAP adjustments:
Share-based compensation included in (b):
Cost of sales					408					327
Research and development					1,098					856
SG&A					3,991					4,153
					5,497					5,336
Amortization of intangible assets included in (c):
Cost of sales					1,959					2,015
SG&A					1,158					1,149
					3,117					3,164
Restructuring costs included in (d):
Research and development					273					-
SG&A					107					-
					380					-
Manufacturing transition and severance costs included in SG&A (e)					110					452
Adjustment to contingent consideration included in SG&A (f)					657					668
Acquisition costs included in SG&A (g)					5,178					328
Inventory step-up included in cost of sales (h)					-					1,404
Income from operations - non-GAAP basis (i)				$	45,529				$	41,434
Income from continuing operations - GAAP basis				$	24,573				$	26,226
Non-GAAP adjustments (as scheduled above)					14,939					11,352
Tax effect of non-GAAP adjustments (j)					(1,179	)				(1,316	)
Income from continuing operations - non-GAAP basis				$	38,333				$	36,262
GAAP income per share - diluted				$	0.83				$	0.92
Non-GAAP income per share - diluted (k)				$	1.29				$	1.27
Gross Profit Reconciliation
Gross profit - GAAP basis				$	115,430				$	106,295
Non-GAAP adjustments to cost of sales (as scheduled above)					2,367					3,746
Gross profit - Non-GAAP basis				$	117,797				$	110,041
Non-GAAP gross profit as a percentage of net sales					41.9	%				41.0	%
Adjusted EBITDA Reconciliation
Net income - GAAP basis				$	24,573				$	25,948
Loss from discontinued operations					-					278
Income tax provision					6,897					4,273
Interest and other, net					(880	)				(417	)
Amortizaton					3,117					3,164
Depreciation					4,159					3,567
Other non-GAAP adjustments (as scheduled above)					11,822					8,188
Adjusted EBITDA				$	49,688				$	45,001
Adjusted EBITDA as a percentage of net sales					17.7	%				16.8	%
Operating Expense Reconciliation
Operating Expense - GAAP basis				$	84,840				$	76,213
Non-GAAP adjustments to R&D and SG&A (as scheduled above)					(12,572	)				(7,606	)
Operating Expenses - Non-GAAP basis				$	72,268				$	68,607
* Excludes operating results from Xcerra acquired on October 1, 2018

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