1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1934119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (619) 277-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No___
As of September 30, 1996, the Registrant had 9,295,701 shares of its $1.00 par
value common stock outstanding.
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COHU, INC.
INDEX
FORM 10-Q
SEPTEMBER 30, 1996
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1996 and December 31, 1995....................... 3
Condensed Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 1996 and 1995........ 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1996 and 1995.................. 5
Notes to Unaudited Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 10
Signatures............................................................. 11
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3
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
ASSETS SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
Current assets:
Cash and cash equivalents $ 45,360 $ 28,874
Accounts receivable, less allowance
for doubtful accounts 22,353 27,572
Inventories, at lower of average cost or market:
Finished goods 3,652 3,466
Work in process 4,159 7,759
Raw materials and purchased parts 8,769 10,019
-------- --------
16,580 21,244
Deferred income taxes 9,413 9,413
Prepaid expenses 955 973
-------- --------
Total current assets 94,661 88,076
Property, plant and equipment, at cost:
Land and land improvements 2,114 1,150
Buildings and building improvements 11,723 10,355
Machinery and equipment 14,008 11,697
-------- --------
27,845 23,202
Less accumulated depreciation and amortization 11,140 10,031
-------- --------
Net property, plant and equipment 16,705 13,171
Goodwill, net 2,508 2,626
Other assets 61 61
-------- --------
$113,935 $103,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,285 $ 7,453
Income taxes payable 2,917 7,062
Other accrued liabilities 14,463 16,333
-------- --------
Total current liabilities 20,665 30,848
Accrued retiree medical benefits 925 859
Deferred income taxes 198 198
Stockholders' equity:
Preferred stock -- --
Common stock 9,296 9,092
Paid in excess of par 4,890 4,252
Retained earnings 77,961 58,685
-------- --------
Total stockholders' equity 92,147 72,029
-------- --------
$113,935 $103,934
======== ========
See accompanying notes.
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4
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ------------------------
1996 1995 1996 1995
------- ------- -------- ---------
Net sales $34,763 $49,035 $130,859 $ 126,429
Cost and expenses:
Cost of sales 19,887 30,130 72,033 77,975
Research and development 3,340 2,635 10,691 7,560
Selling, general and administrative 3,758 5,808 16,061 16,727
------- ------- -------- ---------
Income from operations 7,778 10,462 32,074 24,167
Interest income 513 238 1,293 365
Interest expense -- -- -- (12)
------- ------- -------- ---------
Income before income taxes 8,291 10,700 33,367 24,520
Provision for income taxes 3,100 4,200 12,700 9,600
------- ------- -------- ---------
Net income $ 5,191 $ 6,500 $ 20,667 $ 14,920
======= ======= ======== =========
Net income per share $ .54 $ .67 $ 2.13 $ 1.56
======= ======= ======== =========
Average common shares and equivalents 9,642 9,670 9,683 9,535
======= ======= ======== =========
See accompanying notes.
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 20,667 $ 14,920
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 1,254 1,457
Purchase consideration to be paid in stock 606 --
Increase in accrued retiree medical benefits 66 43
Changes in assets and liabilities:
Accounts receivable 5,219 (7,637)
Inventories 4,664 2,997
Prepaid expenses 18 16
Accounts payable (4,168) 6,448
Income taxes payable (4,145) (1,337)
Other accrued liabilities (2,476) 2,891
-------- --------
Net cash provided from operating activities 21,705 19,798
Cash flows from investing activities:
Purchases of property, plant, equipment and other assets (4,670) (770)
-------- --------
Net cash used for investing activities (4,670) (770)
Cash flows from financing activities:
Reduction in long-term borrowings -- (1,400)
Issuance of stock, net 842 699
Cash dividends (1,391) (1,032)
-------- --------
Net cash used for financing activities (549) (1,733)
-------- --------
Net increase in cash and cash equivalents 16,486 17,295
Cash and cash equivalents at beginning of period 28,874 3,096
-------- --------
Cash and cash equivalents at end of period $ 45,360 $ 20,391
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 16,821 $ 10,901
Interest -- 12
See accompanying notes.
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1 - The accompanying interim financial statements are unaudited but include
all adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair statement of the results for the
period. The operating results for the three and nine months ended September
30, 1996 are not necessarily indicative of the operating results for the
entire year or any future period. These financial statements should be read
in conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Reclassification has been made to certain prior year and period amounts to
conform to the 1996 presentation.
2 - Per share information is based on the weighted average number of shares
outstanding during each period and the dilutive effect of the assumed
exercise of stock options.
3 - In May 1996, the Company entered into a $5,000,000 unsecured bank line of
credit agreement with its primary bank. The agreement expires in May 1998
and requires compliance with certain financial covenants. No borrowings
were outstanding at September 30, 1996.
4 - In May 1996, Cohu, Inc. stockholders approved an increase in the
Company's authorized shares of common stock from 10,000,000 to 25,000,000
shares and the adoption of the Cohu, Inc. 1996 Stock Option Plan providing
for the issuance of up to 450,000 shares of common stock.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Net sales decreased 29% to $34.8 million in the third quarter of 1996 compared
to net sales of $49.0 million in the third quarter of 1995. Sales of
semiconductor test handling equipment declined 34% in the third quarter of 1996
compared to the third quarter of 1995 and accounted for 78% of consolidated net
sales in the third quarter of 1996. Sales of television cameras and equipment
decreased 6% while the combined sales of metal detection and microwave equipment
decreased 9% compared to 1995. Gross margin as a percentage of net sales
improved to 43% in the third quarter of 1996 versus 39% in 1995, primarily as a
result of improved margins in the semiconductor equipment business. Within the
semiconductor equipment segment, margins improved due to a significant reduction
in provisions for excess and obsolete inventories. Research and development
expense as a percentage of net sales was 10% in the third quarter of 1996 up
from 5% in 1995 and reflected the Company's continued investment in new product
development in the semiconductor equipment business. Selling, general and
administrative expense decreased as a percentage of net sales from 12% to 11% in
part due to a reduction in certain performance based compensation charges in the
1996 period. Interest income in the quarter increased to $.5 million due to the
significant increase in cash and cash equivalents. The provision for income
taxes expressed as a percentage of pre-tax income was 37% in the third quarter
of 1996 and 39% for the year ended December 31, 1995. For the third quarter, as
a result of the factors set forth above, net income decreased 20% to $5.2
million in 1996 from $6.5 million in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales increased 4% to $130.9 million in the first nine months of 1996
compared to net sales of $126.4 million in the first nine months of 1995.
Despite the sales decline in the third quarter, sales of semiconductor test
handling equipment increased an aggregate of 4% over sales in the first nine
months of 1995 and accounted for 81% of consolidated net sales in the first nine
months of 1996. Sales of television cameras and equipment and the combined sales
of metal detection and microwave equipment in the first nine months of 1996
increased 3% and 2%, respectively, over 1995. Gross margin as a percentage of
net sales improved to 45% in the first nine months of 1996 versus 38% in the
first nine months of 1995, primarily as a result of improved margins in the
semiconductor equipment business. Within the semiconductor equipment segment,
margins improved due to a significant reduction in provisions for excess and
obsolete inventories and, to a lesser extent, production efficiencies. Research
and development expense as a percentage of net sales increased to 8% in the
first nine months of 1996 from 6% in 1995 and reflected the Company's continued
investment in new product development in the semiconductor equipment business.
Selling, general and administrative expense decreased as a percentage of net
sales from 13% to 12% in part due to a reduction in certain performance based
compensation charges in the 1996 period. Interest income in the period increased
to $1.3 million due to the significant increase in cash and cash equivalents.
The provision for income taxes expressed as a percentage of pre-tax income was
38% in the first nine months of 1996 down from 39% for the year ended December
31, 1995. For the nine month period, as a result of the factors set forth above,
net income increased 39% to $20.7 million in 1996 from $14.9 million in 1995.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
nine months of 1996 totaled $21.7 million. The major components of cash flows
from operating activities were net income of $20.7 million and decreases in
accounts receivable of $5.2 million and inventories of $4.7 million offset by
decreases in accounts payable, income taxes payable and other accrued
liabilities totaling $10.8 million. Net cash used for investing activities was
$4.7 million and was used for the purchase of property, plant and equipment. Net
cash used for financing activities was $.5 million. Cash used for financing
activities included $1.4 million for the payment of dividends offset by $.8
million received from the issuance of stock upon the exercise of stock options.
The Company has $5 million available under its bank line of credit and working
capital of $74 million at September 30, 1996. It is anticipated that present
working capital and cash generated from operations will be sufficient to meet
the Company's 1996 operating requirements and the remaining anticipated capital
expenditures for 1996 of approximately $1 million.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the semiconductor
test handling equipment business conducted through its Delta Design and Daymarc
subsidiaries. This capital equipment business is in turn highly dependent on the
overall strength of the semiconductor industry. Historically, the semiconductor
industry has been highly cyclical with recurring periods of oversupply, which
often have had a significant effect on the semiconductor industry's demand for
capital equipment, including equipment of the type manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors may also be subject to similar fluctuations. Reductions in
capital equipment investment by semiconductor manufacturers adversely affect the
Company's results of operations.
The Company's order backlog declined to $27.3 million at September 30, 1996 from
$45.4 million at December 31, 1995. This reduction in backlog is principally
related to the Company's semiconductor equipment business. The decline in the
Company's backlog and announcements by certain semiconductor and semiconductor
equipment manufacturers indicate there has been a slowdown in demand for
semiconductor related equipment including equipment of the type manufactured and
marketed by the Company. In addition, continued DRAM price declines in recent
months have negatively impacted the profitability of DRAM manufacturers which
has impacted capital equipment purchases. These factors negatively affected the
Company's operating results in the third quarter of 1996. The recovery in the
semiconductor equipment business is not expected for some time and the reduced
level of backlog indicates that the Company's downward trend in sales and net
income will continue in the 1996 fourth quarter.
Earlier in 1996, in response to the changing environment in the semiconductor
equipment industry, the Company reduced its work force. The Company will attempt
to keep its production capacity, labor force and other aspects of its cost
structure in line with expected demand. If the slowdown in the semiconductor
equipment industry continues, it is likely that the Company will further reduce
its work force. Cost reduction programs may have a temporary negative impact on
the Company's operations and operating results. Furthermore, no assurance can be
made that such cost reduction programs will be implemented successfully.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
As is common in the semiconductor equipment industry, the Company relies on a
limited number of customers for a substantial percentage of its net sales (two
customers accounted for approximately 28% of net sales in the first nine months
of 1996 and also 35% of net sales for the year ended December 31, 1995). The
loss of or a significant reduction in orders by either of these or other
significant customers not compensated for by other customer orders would
adversely impact the Company's results of operations.
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products that enable semiconductor
manufacturers to more efficiently handle and test semiconductors. Failure to
introduce new products in a timely manner, the introduction by competitors of
products with perceived or actual advantages or disputes over rights of the
Company or its competitors to use certain intellectual property or technology
could result in a loss of competitive position and reduced sales of existing
products. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully as introductions of
new products could adversely impact sales of existing products.
Due to these and other factors, historical results may not necessarily be
indicative of results of operations for any future period. In addition, certain
matters discussed above are forward looking statements that are subject to the
risks and uncertainties noted herein and the other risks and uncertainties
listed from time to time in the Company's filings with the Securities and
Exchange Commission, including but not limited to the 1995 Annual Report on Form
10-K, that could cause actual results to differ materially from those projected
or forecasted. The Company undertakes no obligation to update the information,
including the forward looking statements, in this Form 10-Q.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
3(i) - Certificate of Amendment of Restated Certificate of
Incorporation
27.1 - Financial Data Schedule
(B) Reports on Form 8-K: The Company did not file any reports on Form
8-K during the quarter ended September 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHU, INC.
--------------------------------------
(Registrant)
Date: October 30, 1996 /s/ Charles A. Schwan
--------------------------- --------------------------------------
Charles A. Schwan
President & Chief Executive Officer
(Principal Executive Officer)
Date: October 30, 1996 /s/ John H. Allen
--------------------------- --------------------------------------
John H. Allen
Vice President, Finance & Chief
Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT 3(i)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Cohu, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Company,
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of the Company, declaring said amendment to be
advisable and calling a meeting of the stockholders of the Company for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of the
Company be amended by changing the first paragraph of Article
Fourth so that, as amended, said paragraph shall be and read as
follows:
"FOURTH: The total number of shares of all classes of stock which
the corporation shall have authority to issue is Twenty- six
Million (26,000,000) of which 1,000,000 shares shall constitute
Preferred Stock having a par value of $1.00 per share and
25,000,000 shares shall constitute Common Stock having a par value
of $1.00 per share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of the Company was duly called
and held, upon notice in accordance with Section 222 of the General Corporation
law of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Charles A. Schwan , its President, and John H. Allen , its Secretary,
this 7th day of May , 1996.
By: /s/ Charles A. Schwan
--------------------------------------
President
ATTEST: /s/ John H. Allen
----------------------------------
Secretary
5
1000
9-MOS
DEC-31-1995
JAN-01-1996
SEP-30-1996
45,360
0
22,353
0
16,580
94,661
27,845
11,140
113,935
20,665
0
0
0
9,296
82,851
113,935
130,859
130,859
72,033
72,033
0
0
0
33,367
12,700
20,667
0
0
0
20,667
2.13
2.13
