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, 1997
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, 1997, the Registrant had 9,492,405 shares of its $1.00 par
value common stock outstanding.
2
COHU, INC.
INDEX
FORM 10-Q
SEPTEMBER 30, 1997
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996..................3
Condensed Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 1997 and 1996...............4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1997 and 1996.........................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
3
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 23,093 $ 24,660
Short-term investments 29,426 28,326
Accounts receivable, less allowance
for doubtful accounts 35,584 19,170
Inventories, at lower of average cost or market:
Finished goods 3,695 2,395
Work in process 11,866 6,012
Raw materials 16,726 7,175
-------- --------
32,287 15,582
Deferred income taxes 9,681 9,681
Prepaid expenses 987 1,166
-------- --------
Total current assets 131,058 98,585
Property, plant and equipment, at cost:
Land and land improvements 2,114 2,114
Buildings and building improvements 12,237 11,932
Machinery and equipment 15,704 14,069
-------- --------
30,055 28,115
Less accumulated depreciation and amortization 12,344 11,304
-------- --------
Net property, plant and equipment 17,711 16,811
Goodwill, net 2,351 2,469
Other assets 105 61
-------- --------
$151,225 $117,926
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,144 $ 4,464
Income taxes payable 4,626 1,552
Other accrued liabilities 15,437 14,566
-------- --------
Total current liabilities 34,207 20,582
Accrued retiree medical benefits 983 916
Deferred income taxes 156 156
Stockholders' equity:
Preferred stock -- --
Common stock 9,492 9,341
Paid in excess of par 6,850 5,863
Retained earnings 99,537 81,068
-------- --------
Total stockholders' equity 115,879 96,272
-------- --------
$151,225 $117,926
======== ========
See accompanying notes
3
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,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $ 52,769 $ 34,763 $132,173 $130,859
Cost and expenses:
Cost of sales 29,524 19,887 74,532 72,033
Research and development 4,744 3,340 12,269 10,691
Selling, general and administrative 5,700 3,758 15,686 16,061
-------- -------- -------- --------
Income from operations 12,801 7,778 29,686 32,074
Interest income 726 513 2,181 1,293
-------- -------- -------- --------
Income before income taxes 13,527 8,291 31,867 33,367
Provision for income taxes 5,000 3,100 11,700 12,700
-------- -------- -------- --------
Net income $ 8,527 $ 5,191 $ 20,167 $ 20,667
======== ======== ======== ========
Net income per share $ .85 $ .54 $ 2.03 $ 2.13
======== ======== ======== ========
Average common shares and equivalents 10,073 9,642 9,921 9,683
======== ======== ======== ========
See accompanying notes.
4
5
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 20,167 $ 20,667
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 1,351 1,254
Purchase consideration to be paid in stock 341 606
Increase in accrued retiree medical benefits 67 66
Changes in assets and liabilities:
Accounts receivable (16,414) 5,219
Inventories (16,705) 4,664
Prepaid expenses 179 18
Accounts payable 9,680 (4,168)
Income taxes payable 3,074 (4,145)
Other accrued liabilities 530 (2,476)
-------- --------
Net cash provided from operating activities 2,270 21,705
Cash flows from investing activities:
Purchases of short-term investments (23,779) --
Maturities of short-term investments 22,679 --
Purchases of property, plant, equipment and other assets (2,177) (4,670)
-------- --------
Net cash used for investing activities (3,277) (4,670)
Cash flows from financing activities:
Issuance of stock, net 1,138 842
Cash dividends (1,698) (1,391)
-------- --------
Net cash used for financing activities (560) (549)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,567) 16,486
Cash and cash equivalents at beginning of period 24,660 28,874
-------- --------
Cash and cash equivalents at end of period $ 23,093 $ 45,360
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 8,637 $ 16,821
See accompanying notes.
5
6
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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, 1997 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 incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2 - Net income per share as presented on the statements of income represent
primary earnings per share. Dual presentation of primary and fully diluted
earnings per share has not been made because the differences are
insignificant.
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share." At that time, the
Company will be required to change the method currently used to calculate
earnings per share and to restate all prior periods. The new requirements
will include a calculation of basic earnings per share, from which the
dilutive effect of stock options will be excluded. The basic earnings per
share are expected to reflect an increase of $.05 and $.11 per share for the
three and nine month periods ended September 30, 1997, respectively, over
the primary earnings per share reported for these periods. A calculation of
diluted earnings per share will also be required; however, this is not
expected to differ materially from the primary earnings per share reported
for the three and nine-month periods ended September 30, 1997 and 1996.
3 - On May 6, 1997 the stockholders of the Company approved the adoption of (i)
the Cohu, Inc. 1997 Employee Stock Purchase Plan providing for the issuance
of a maximum of 300,000 shares of the Company's Common Stock to employees
and (ii) the Cohu, Inc. 1996 Outside Directors Stock Option Plan providing
for the issuance of a maximum of 100,000 shares of the Company's Common
Stock to Outside Directors.
6
7
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
Net sales increased 52% to $52.8 million in the third quarter of 1997 compared
to net sales of $34.8 million in 1996. Sales of semiconductor test handling
equipment by the Company's Delta Design and Daymarc subsidiaries increased 63%
in the third quarter of 1997 as compared to the third quarter of 1996 and
accounted for 84% of consolidated net sales versus 78% in the third quarter of
1996. Sales of television cameras and other equipment increased 12% from 1996
and accounted for 16% of consolidated net sales in the third quarter of 1997
versus 22% in 1996. Gross margin as a percentage of net sales in the third
quarter of 1997 was 44.1% versus 42.8% in 1996. The increase in margin was
primarily due to the increase in margins within the semiconductor equipment
segment largely attributable to increased business volume offset by changes in
product mix and certain cost increases. Research and development expense
increased from $3.3 million to $4.7 million and as a percentage of net sales was
9% in the third quarter of 1997 compared to 9.6% in 1996 and reflected the
Company's continued investment in new product development in the semiconductor
equipment business. Selling, general and administrative expense as a percentage
of net sales was 10.8% in both the 1997 and 1996 periods. Interest income in the
third quarter increased 42% to $.7 million due to the significant increase in
average cash and short-term investment balances. The provision for income taxes
expressed as a percentage of pre-tax income was 37% in the third quarter of 1997
versus 37.6% for the year ended December 31, 1996. For the third fiscal quarter,
as a result of the factors set forth above, net income increased 64% to $8.5
million in 1997 from $5.2 million in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Net sales increased 1% to $132.2 million in the first nine months of 1997
compared to net sales of $130.9 million in 1996. Sales of semiconductor test
handling equipment by the Company's Delta Design and Daymarc subsidiaries
increased 1% in the first nine months of 1997 and accounted for 80% of
consolidated net sales versus 81% in the first nine months of 1996. Sales of
television cameras and other equipment increased 3% from 1996 and accounted for
20% of consolidated net sales in the first nine months of 1997 versus 19% in
1996. Gross margin as a percentage of net sales in the first nine months of 1997
was 43.6% versus 45% in 1996. The decrease in margin was primarily due to the
decline in margins within the semiconductor equipment segment largely
attributable to changes in product mix and certain cost increases. Research and
development expense increased from $10.7 million to $12.3 million and as a
percentage of net sales was 9.3% in the first nine months of 1997 compared to
8.2% in 1996 and reflected the Company's continued investment in new product
development in the semiconductor equipment business. Selling, general and
administrative expense as a percentage of net sales was approximately 12% in
both the 1997 and 1996 periods. Interest income in the 1997 period increased 69%
to $2.2 million due to the significant increase in average cash and short-term
investment balances. The provision for income taxes expressed as a percentage of
pre-tax income was 36.7% in the first nine months of 1997 versus 37.6% for the
year ended December 31, 1996. As a result of the factors set forth above, net
income decreased 2% to $20.2 million in the first nine months of 1997 from $20.7
million in the 1996 period.
7
8
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
nine months of 1997 totaled $2.3 million. The major components of cash flows
from operating activities were net income of $20.2 million and increases in
accounts payable of $9.7 million and income taxes payable of $3.1 million offset
by increases in accounts receivable of $16.4 million and inventories of $16.7
million. Net cash used for investing activities was $3.3 million and was used
for the purchase of short-term investments, less maturities ($1.1 million) and
property, plant and equipment. Net cash used for financing activities was $.6
million. Cash used for financing activities included $1.7 million for the
payment of dividends offset by $1.1 million received from the issuance of stock
upon the exercise of stock options. The Company had $5 million available under
its bank line of credit and working capital of $96.9 million at September 30,
1997. It is anticipated that present working capital and available borrowings
under the line of credit will be sufficient to meet the Company's operating
requirements for the next twelve months and the remaining anticipated capital
expenditures for 1997 of approximately $2 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 cycles and downturns such as that
experienced in 1996. Reductions in capital equipment investment by semiconductor
manufacturers will adversely affect the Company's results of operations.
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. The
loss of or a significant reduction in orders by these customers would adversely
impact the Company's results of operations. Furthermore, the concentration of
the Company's revenues in a limited number of large customers may cause
significant fluctuations in the Company's future annual and quarterly operating
results.
The semiconductor equipment industry is intensely competitive and the Company
faces substantial competition from numerous companies throughout the world. Some
of these competitors have substantially greater financial, engineering,
manufacturing and customer support capabilities than the Company. In addition,
there are smaller, emerging semiconductor equipment companies that provide or
may provide innovative technology incorporated in products that may compete
favorably against those of the Company. The Company expects its competitors to
continue to improve the design and performance of their current products and to
introduce new products with improved performance capabilities. 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
8
9
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
BUSINESS RISKS AND UNCERTAINTIES (cont.)
technology could result in a loss of the Company's competitive position and
reduced sales of and margins on existing products.
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 with improved performance
capabilities. 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. There can be no
assurance that future technologies, processes and product developments will not
render the Company's current product offerings obsolete or that the Company will
be able to develop and introduce new products or enhancements to its existing
products in a timely manner to satisfy customer needs or achieve market
acceptance.
Due to these and other factors, historical results may not 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 1996 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.
9
10
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
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, 1997.
10
11
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, 1997 /s/ Charles A. Schwan
------------------------ -----------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: October 30, 1997 /s/ John H. Allen
------------------------ -----------------------------------
John H. Allen
Vice President, Finance &
Chief Financial Officer
11
5
1000
9-MOS
DEC-31-1996
JAN-01-1997
SEP-30-1997
23,093
29,426
35,584
0
32,287
131,058
17,711
12,344
151,225
34,207
0
0
0
9,492
106,387
151,225
132,173
132,173
74,532
74,532
0
0
0
31,867
11,700
20,167
0
0
0
20,167
2.03
0
