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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
Incorporation or Organization) Identification No.)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 277-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $395,261,000 as of February 17, 1998. Shares of
common stock held by each officer and director and by each person or group who
owns 5% or more of the outstanding common stock have been excluded in that such
persons or groups may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 17, 1998, the Registrant had 9,697,308 shares of its $1.00
par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part II incorporate certain information by reference from the
Annual Report to Stockholders for the year ended December 31, 1997. Part III
incorporates certain information by reference from the Proxy Statement for the
1998 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains certain forward-looking statements
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.
The words "plan", "forecast", "expect", "believe" and similar expressions are
intended to identify such statements. Such statements are subject to certain
risks and uncertainties, including but not limited to those discussed herein
and, in particular, under the caption "Business Risks and Uncertainties" that
could cause actual results to differ materially from those projected.
A predecessor of Cohu, Inc. (the "Company" or "Cohu") was incorporated under the
laws of California in 1947 as Kalbfell Lab., Inc. and commenced active
operations in the same year. Its name was changed to Kay Lab in 1954. In 1957
the Company was reincorporated under the laws of the State of Delaware as Cohu
Electronics, Inc. and in 1972 its name was changed to Cohu, Inc.
The Company operates in two industry segments. Semiconductor test handling
equipment used in the final test of integrated circuits is designed,
manufactured and sold by the Company's Delta Design and Daymarc subsidiaries to
semiconductor manufacturers throughout the world and accounted for approximately
81% of consolidated net sales in 1997. The television and other equipment
segment includes electronic products used in electronic imaging, surveillance,
detection and microwave communication that are manufactured and sold to
government agencies, original equipment manufacturers, contractors, distributors
and consumers throughout the world. The Company conducts operations in these two
segments through one division and four subsidiaries
On June 22, 1994, the Company acquired Daymarc Corporation, a privately-held
manufacturer of gravity-feed semiconductor test handling equipment that
complements the pick-and-place test handling equipment manufactured by Delta
Design. The semiconductor test handling equipment segment includes the results
of Delta Design and Daymarc.
The television and other equipment segment includes the results of the
Electronics Division, Fisher Research Laboratory, Inc. ("FRL") and Broadcast
Microwave Services, Inc. ("BMS").
FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND EXPORT SALES
Financial information on industry segments and export sales for each of the last
three years is included on pages 3 (Selected Financial Data) and 12 (Note 7) in
the 1997 Annual Report to Stockholders and is incorporated herein by reference.
SEMICONDUCTOR TEST HANDLING EQUIPMENT
Through its Delta Design and Daymarc subsidiaries, Cohu is the largest U. S.
based and one of the world's largest suppliers of semiconductor test handling
equipment. Test handlers are electromechanical systems designed to automatically
handle, temperature condition, contact and sort integrated circuits (ICs) during
the IC test process. Testers are specialized, computer controlled electronic
systems that perform electronic evaluation of ICs, including proper
functionality, voltage/current characteristics and critical timing parameters.
Testing is used to determine the quality and performance of the packaged IC
prior to shipment to customers. Testers are designed to test specific IC types,
such as microprocessor, logic, DRAM or mixed signal, without regard to the
package used to house the IC. On the other hand, the package, rather than the
circuit type, is critical to the test handler, which is connected to the tester
and automates the flow of ICs through the test process.
The Company designs, manufactures, markets and services IC test handling
equipment from facilities in San Diego, California (Delta Design) and Littleton,
Massachusetts (Daymarc). Sales, service and technical personnel are located
throughout the U. S., Asia and Europe. Most test handlers use one of two
handling technologies to transport ICs: gravity-feed or pick-and-place.
Gravity-feed test handling typically uses tubes as the input media and ICs slide
down tracks by the force of gravity as they move through the test handler.
Pick-and-place test handling uses trays as the common input media. ICs are
picked up, moved and placed electromechanically throughout the test handler.
Generally, the preferred handling approach is dictated by the IC package type.
ICs with leads on only two sides, such as dual-in-line and Small Outline (SOIC),
are usually
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handled in gravity-feed equipment. ICs with leads on all four sides, such as the
Quad Flat Pack and certain ICs with leads on two sides, such as the TSOP, are
typically run in pick-and-place systems. Historically, Delta Design's systems
utilize pick-and-place handling approaches while Daymarc's equipment employs
gravity-feed techniques.
As a significant portion of IC test is performed at hot and/or cold
temperatures, many of the Company's test handlers are designed to provide a
controlled test environment over the range of -60 degrees C to +160 degrees C.
Both Delta Design and Daymarc are recognized throughout the industry for their
expertise in hot/cold test handling. In addition to temperature capability,
other key factors in the design of test handlers are equipment speed,
flexibility, parallel test capability and size. Handlers are complex,
electromechanical systems which are used continuously in high production
environments, and many are in service twenty-four hours per day, seven days a
week. Handler "uptime" is a critically important issue to customers and the
availability of trained technical support personnel is a key competitive factor
in the marketplace. For these reasons, the Company employs direct sales and
service engineers wherever possible, including in Asia where over 50% of IC
testing takes place.
DELTA DESIGN
Through the use of IC package dedication kits, Delta Design's pick-and-place
test handlers are capable of accommodating virtually any semiconductor package
type. This flexibility is a key requirement of semiconductor manufacturers, who
must continuously produce new IC package types to meet the needs of their
customers and the requirements of IC design engineers.
Historically, most pick-and-place handlers have been used in logic test
applications, where the transition in packaging technology first occurred.
Because of the relatively short test times of logic devices, handler index time,
or the idle time between test cycles, is critical. Two of Delta's pick-and-place
handlers are believed to have index times among the fastest in the industry.
Increasingly, the shift in packaging is taking place in memory packages, as
well. Due to the longer test times associated with memory testing, simultaneous
testing of multiple devices (parallel testing) is required. Delta has
successfully adapted several of its handlers to test up to eight devices in
parallel and is developing systems capable of testing 16 or more devices in
parallel.
The Delta Turbo Flex(TM), available in three models with various levels of
automation, provides hot/cold test capability and versatility in IC package and
media (tray or tube) handling. The "Flex" is considered an industry workhorse,
and more Flexes have been sold than any other logic pick-and-place test handler.
Through Delta's continuous product improvement process, the Flex has been
successfully adapted to meet the evolving needs of IC manufacturers.
The Model 2040, or RFS(TM), is a fast-index time pick-and-place handler,
designed for high production applications. The handler's large environmental
storage capacity enables uninterrupted operation in short test applications and
parallel testing of up to four devices. The RFS(TM) utilizes a patented
contactor indexing mechanism to achieve an index time of approximately 500
milliseconds.
The Model 1688 is an ambient pick-and-place handler, which uses the same fast
contactor indexing mechanism as the RFS(TM). The small size footprint of only
eleven square feet, combined with the high speed and dependable operation of
this handler, make it a highly-cost effective solution for test applications
where environmental capability is not required.
Delta's newest handler, Castle, is offered in both memory and logic
configurations. Castle Mx32 provides parallel testing of up to thirty-two
devices and represents Delta's entry into the DRAM segment of the test handling
market. Castle Logic, offers the same benchmark small footprint as the Mx32 and
a fast index time to maximize test system utilization.
DAYMARC
Daymarc, acquired by Cohu in June 1994, was established in 1959. It was the
first company to introduce fully automatic, gravity-feed test handlers.
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Daymarc test handlers are designed for high throughput, maximum operator
productivity and small footprint. Each model achieves superior semiconductor
product yield through the use of proprietary, high performance contacting
technology.
Daymarc manufactures four lines of test handlers; the 717 Series, 3000 Series
and 4000 Series of gravity handlers and the newly introduced Enterprise
test-in-tray handler line. The 717 Series test handlers are designed
specifically for SOIC packages. The small dimensions and high-speed applications
of the SOIC package require a handler with minimal transition distance, high
performance contacting and automation features to reduce the need for operator
intervention. The 717 ambient and tri-temperature handlers feature index times
as low as 350 and 500 milliseconds, respectively. Changeover for a different
device package requires less than 30 minutes.
The 3000 Series, the most popular of Daymarc's models, is available in single,
dual/quad and thirty-two site configurations. These handlers can be reconfigured
with device dedication kits to accommodate a wide range of package types at
throughput rates up to 4,200 units per hour (UPH). The 3000 Series handlers
provide tri-temperature operation and input/output automation for increased
productivity.
The 4000 Series handlers combine high speed SOIC handling with multi-site
capability. The 4100 operates at speeds up to 18,000 UPH in dual or quad site
configurations. The 4100 is a fully automated, PC-based, ambient only machine.
The 4188 model, introduced in 1997, has added tri-temperature capability to the
features of the 4000 Series.
The Enterprise is the first tray-based handler from Daymarc. It incorporates a
new handling approach that improves efficiency by handling a device as a group
rather than individually. By eliminating the transfer of individual devices
within the handler, fewer interruptions occur. This increases the performance of
the test cell and provides semiconductor manufacturers with higher utilization
of capital equipment used in testing components.
In 1997 the semiconductor test handling equipment segment accounted for 81% of
consolidated net sales and 93% of consolidated operating profit. In 1996 this
segment accounted for 79% of consolidated net sales and 92% of consolidated
operating profit. In 1995 the segment accounted for 82% of consolidated net
sales and 95% of consolidated operating profit.
TELEVISION AND OTHER EQUIPMENT
The Electronics Division of the Company has been a designer, manufacturer and
seller of closed circuit television (CCTV) cameras and systems for over 40
years. The customer base is broadly distributed between machine vision,
scientific imaging and security/surveillance markets. The current product line
represents a comprehensive array of indoor and outdoor CCTV cameras as well as
camera control equipment. To support its camera lines, the Electronics Division
offers a wide selection of accessories including monitors, lenses and camera
test equipment.
FRL designs, manufactures and sells metal detectors and related underground
detection devices for consumer and industrial markets. All products are sold
under the Fisher M-Scope label. Industrial products include pipe and cable
locators, water leak detectors, property marker locators and instruments for
locating reinforcing bars in concrete. Fisher's XLT-20 water leak detector can
detect the sound of escaping water and pinpoint small leaks in buried pipes to a
depth of six feet.
BMS manufactures microwave radio equipment, antenna systems and associated
equipment. These products are used in the transmission of telemetry, data, video
and audio signals. Customers include government test ranges, law enforcement
agencies, unmanned air vehicle programs and television broadcasters.
In 1997 the television and other equipment segment accounted for 19% of
consolidated net sales and 7% of consolidated operating profit. In 1996
television and other equipment accounted for 21% of consolidated net sales and
8% of consolidated operating profit. In 1995 television and other equipment
accounted for 18% of consolidated net sales and 5% of consolidated operating
profit.
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CUSTOMERS
SEMICONDUCTOR TEST HANDLING EQUIPMENT
The Company's customer base includes companies that manufacture semiconductor
devices primarily for internal use and companies that manufacture devices for
sale to others. Repeat sales to existing customers represent a significant
portion of the Company's sales in this business segment. The Company believes
that its installed customer base represents a significant competitive advantage.
The Company relies on a limited number of customers for a substantial percentage
of its net sales. In 1997 Motorola, Intel and Micron Technology accounted for
17%, 14% and 11%, respectively, of the Company's net sales. In 1996 Micron
Technology and Motorola represented 14% and 12%, respectively, of the Company's
net sales. In 1995 Motorola and Micron Technology each accounted for 17% of the
Company's net sales. The loss of or a significant reduction in orders by these
or other significant customers not compensated for by other customer orders,
including reductions due to market, economic or competitive conditions in the
semiconductor industry, would adversely affect the Company's business and
results of operations.
TELEVISION AND OTHER EQUIPMENT
The Company's customer base in this industry segment is diverse and includes
government agencies, original equipment manufacturers, contractors, distributors
and consumers throughout the world. No single customer of this segment accounted
for 10% or more of the Company's consolidated net sales in 1997, 1996 or 1995.
Contracts, including subcontract work, with U. S. Government agencies accounted
for net sales of $5.3 million, $4.8 million and $4.5 million in 1997, 1996 and
1995, respectively. Such contracts are frequently subject to termination
provisions at the convenience of the Government.
MARKETING
The Company markets its products worldwide through a combination of direct sales
force and independent sales representatives. In a geographic area where the
Company believes there is sufficient sales potential, the Company maintains
sales offices staffed with its own sales personnel. The Company maintains U. S.
sales offices for the semiconductor equipment business in Santa Clara,
California and Austin, Texas. In 1993, a foreign subsidiary was formed in
Singapore to handle the sales and service requirements of semiconductor
manufacturers located in Southeast Asia. In 1995 a branch of the Singapore sales
and service subsidiary was opened in Taipei, Taiwan. The sales in Europe are
derived primarily through sales representatives.
COMPETITION
The semiconductor equipment industry is intensely competitive and is
characterized by rapid technological change and demanding worldwide service
requirements. Significant competitive factors include product performance, price
and reliability, customer support and installed base of products. While the
Company believes it is the largest U. S. based supplier of semiconductor test
handling equipment, it faces substantial competition in the U. S. and throughout
the world. The Japanese market for this equipment is large and represents a
significant percentage of the worldwide market. During the last five years the
Company has had limited sales to Japanese customers who have historically
purchased test handling equipment from Japanese suppliers or their affiliates.
Some of the Company's competitors have substantially greater financial,
engineering, manufacturing and customer support capabilities than the Company.
To remain competitive the Company believes it will require significant financial
resources to offer a broad range of products, maintain customer support and
service centers worldwide and to invest in research and development of new
products. Failure to introduce new products in a timely manner or the
introduction by competitors of products with perceived or actual advantages
could result in a loss of competitive position and reduced sales of existing
products. No assurance can be given that the Company will continue to compete
successfully in the U. S. or throughout the world.
The Company's products in the Television and Other Equipment Segment are sold in
highly competitive markets throughout the world, where competition is on the
basis of price, product integration with customer
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requirements, service and product quality and reliability. Many of the Company's
competitors are divisions or segments of large, diversified companies with
substantially greater financial, engineering, marketing, manufacturing and
customer support capabilities than the Company. No assurance can be given that
the Company will continue to compete successfully in this business segment.
BACKLOG
The dollar amount of order backlog of the Company as of December 31, 1997 was
$55.5 million as compared to $33.9 million at December 31, 1996. Of these
amounts, $44.5 million ($23.1 million in 1996) was in semiconductor test
handling equipment and $11 million ($10.8 million in 1996) was in television and
other equipment. Virtually all backlog is expected to be shipped within the next
twelve months. Due to the possibility of customer changes in delivery schedules,
cancellation of orders and potential delays in product shipments, the Company's
backlog as of any point in time may not be representative of actual sales in any
future period. All orders are subject to cancellation or rescheduling by the
customer with limited penalty. There is no significant seasonal aspect to the
business of the Company.
MANUFACTURING AND RAW MATERIALS
The Company's manufacturing activities take place in San Diego, California (BMS,
Delta Design and the Electronics Division), Littleton, Massachusetts (Daymarc)
and Los Banos, California (FRL). Many of the components and subassemblies are
standard products, although certain items are made to Company specifications.
Certain components are obtained or are available from a limited number of
suppliers. The Company seeks to reduce its dependence on sole and limited source
suppliers, however in some cases the complete or partial loss of certain of
these sources could have at least a temporary negative effect on the Company's
operations while it attempted to locate and qualify replacement suppliers.
PATENTS AND TRADEMARKS
The Company protects its proprietary technology through various intellectual
property laws. However, the Company believes that, due to the rapid pace of
technological change in the semiconductor equipment industry, the successful
manufacture and sales of its products generally depend upon its experience,
technological know-how, manufacturing and marketing skills and speed of response
to sales opportunities, rather than on the legal protection afforded to any one
or more items of intellectual property, such as patents, trademarks, copyrights
and trade secrets. In the absence of patent protection the Company may be
vulnerable to competitors who attempt to copy or imitate the Company's products
or processes. Although the Company believes its intellectual property has value
(and includes trademark rights and trade names other than Cohu), and the Company
has in the past and will in the future take actions it deems appropriate to
protect such property from misappropriation, there can be no assurance such
actions will provide meaningful protection from competition. Protecting the
Company's intellectual property rights or defending against claims brought by
other holders of such rights, either directly against the Company or against
customers the Company has agreed to indemnify, would likely be expensive and
time consuming and could have a material adverse effect on the Company and its
operations.
RESEARCH AND DEVELOPMENT
Certain of the markets served by the Company, particularly the semiconductor
equipment industry, are characterized by rapid technological change. Research
and development activities are carried on in the various subsidiaries and
division of the Company and are directed toward development of new products and
equipment, as well as enhancements to existing products and equipment. Total
research and development expenses were $17.5 million in 1997, $14 million in
1996 and $10.2 million in 1995. Total dollar expenditures increased primarily
due to increased spending for R & D on semiconductor test handling equipment.
There was no significant customer-sponsored product development during these
years.
The Company works closely with its key customers to make improvements on its
existing products and in the development of new 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
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adversely impact sales of existing products.
ENVIRONMENTAL LAWS
Compliance with Federal, State and local laws which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment has not had a material effect and is not
expected to have a material effect upon the capital expenditures, results of
operations or competitive position of the Company.
EMPLOYEES
At December 31, 1997 the Company had approximately 1,100 employees. None of
these employees is covered by a labor union. The Company believes that a great
part of its future success will depend on its continued ability to attract and
retain qualified employees. Competition for the services of certain personnel,
particularly those with technical skills, is increasing. The Company considers
its relations with its employees to be good.
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.
In 1997, 52% of the Company's total net sales were exported to foreign
countries, including 60% of the sales in the semiconductor equipment segment.
The majority of the Company's export sales are made to destinations in Asia.
Currency fluctuations and instability in global financial markets, particularly
in Asia, may adversely impact the demand for capital equipment, including
equipment of the type manufactured and marketed by the Company. In addition,
changes in the amount or price of semiconductors produced in Asia could impact
the profitability or capital equipment spending programs of the Company's
customers.
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. In
1997, three customers of the semiconductor equipment business accounted for 42%
of the Company's net sales. The loss of or a significant reduction in orders by
these or other significant 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 technology
could result in a loss of the Company's competitive position and reduced sales
of 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 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
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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.
The Company has commenced a "Year 2000 Computer Problem" analysis to address the
necessary changes that will need to be made to the Company's information
systems. The Year 2000 Computer Problem creates risk to the Company for
unforeseen problems in its own computer systems and from third parties
throughout the world with whom the Company conducts business. Failures in the
Company's and/or third parties' computer systems could have a material impact on
the Company's ability to conduct its business, particularly as it relates to the
electronic transfer of funds. Management has not yet estimated the Year 2000
Computer Problem compliance expense and related potential impact on the
Company's earnings.
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 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 Annual Report on
Form 10-K.
ITEM 2. PROPERTIES
Certain information concerning the Company's principal properties at December
31, 1997 identified by business segment is set forth below:
APPROXIMATE
LOCATION SQ. FOOTAGE OWNERSHIP
- -------- ----------- ---------
Littleton, MA.(1) 102,000 Owned
San Diego, CA.(1) 52,000 Owned
San Diego, CA.(1) 52,000 Owned
San Diego, CA.(2) 52,000 Owned
San Diego, CA.(2) 15,000 Leased
Los Banos, CA.(2) 23,000 Owned
(1) Semiconductor test handling equipment
(2) Television and other equipment
In addition to the locations listed above the Company leases other properties
for sales and service offices in various locations including Austin, Texas,
Santa Clara, California, Singapore and Taipei, Taiwan. The Company believes its
facilities are suitable for their respective uses and are adequate for the
Company's present needs.
In May 1996 the Company acquired approximately 12 acres of land in Poway,
California. The land is being held for future expansion needs although no such
expansion is currently contemplated.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material legal proceedings, other
than ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following sets forth the names and ages of and the positions and offices
held by all executive officers and significant employees of the Company as of
March 12, 1998. Executive Officers serve at the discretion of the Board of
Directors, until their successors are appointed.
NAME AGE POSITION
- ---- --- --------
EXECUTIVE OFFICERS:
Charles A. Schwan 58 President & Chief Executive Officer, Director
John H. Allen 46 Vice President, Finance & Chief Financial
Officer, Secretary
SIGNIFICANT EMPLOYEES:
Melvyn W. Bosch 59 President, Daymarc
James M. Brown 60 President, Cohu Electronics Division
Graham Bunney 42 President, BMS
James A. Donahue 49 President, Delta Design
James C. Lewellen 58 President, FRL
Mr. Schwan has been employed by the Company since 1971 and became President &
Chief Executive Officer on March 1, 1996. Mr. Schwan had been Treasurer since
1972, Vice President, Finance since 1983 and Executive Vice President & Chief
Operating Officer since September 1995. Mr. Schwan has been a member of the
Board of Directors since 1990 and served as Secretary from 1988 until September
1995.
Mr. Allen has been employed by the Company since June 1995. He was Director of
Finance until September 1995, became Vice President, Finance and Secretary in
September 1995 and was appointed Chief Financial Officer in October 1995. Prior
to joining the Company, Mr. Allen held various positions with Ernst & Young LLP
from 1976 until June 1995 and had been a partner with that firm since 1987.
Mr. Bosch has been employed by Daymarc since 1986 and has been President of
Daymarc since 1989.
Mr. Brown has been employed by the Cohu Electronics Division since 1980 and has
been President of that division since 1983.
Mr. Bunney has been employed by BMS since 1985. Mr. Bunney was a project manager
until June 1994, manufacturing manager from June 1994 until January 1996 and was
promoted to President of BMS in January 1996.
Mr. Donahue has been employed by Delta Design since 1978 and has been President
of Delta Design since 1983.
Mr. Lewellen has been employed by FRL since 1974 and has been President of FRL
since 1979.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information regarding the market prices of the Company's stock, markets for that
stock, the number of stockholders and dividend information is contained on the
inside back cover of the 1997 Annual Report to
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Stockholders under "Cohu Stock Information". Such information is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" on page 3 of the 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 15 and 16 of the 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the report
thereon of Ernst & Young LLP, on pages 8 - 14 and the unaudited Quarterly
Financial Data on page 3 of the 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under "Election Of
Directors" in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders ("the Proxy Statement"), which information is incorporated herein
by reference. Information concerning the executive officers of the Company is
included in Part I, on page 9. Information in the Proxy Statement under "Section
16(a) Beneficial Ownership Reporting Compliance" is also incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company's compensation of its executive officers and
directors and certain other information is set forth in the Proxy Statement
under "Board of Directors and Committees", "Compensation of Executive Officers
and Other Information" and "Compensation Committee Interlocks and Insider
Participation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under "Security Ownership Of
Certain Beneficial Owners and Management" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth in the Proxy Statement under "Certain Relationships and Related
Transactions" and is incorporated herein by reference.
10
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index
to financial statements and financial statement schedules
are incorporated herein by reference as part of this
Annual Report on Form 10-K.
2. Financial Statement Schedules
The financial statement schedule listed in the
accompanying index to financial statements and financial
statement schedules is filed as part of this Annual Report
on Form 10-K.
3. Exhibits
The exhibits listed in the accompanying index to exhibits
are filed or incorporated herein by reference as part of
this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
11
12
COHU, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Pages incorporated
from Annual Report
(a) 1. Financial Statements to Stockholders
- --------------------------- ---------------
Consolidated balance sheets at
December 31, 1997 and 1996 8
Consolidated statements of income for
each of the three years in the
period ended December 31, 1997 9
Consolidated statements of cash flows
for each of the three years in
the period ended December 31, 1997 10
Consolidated statements of stockholders'
equity for each of the three years
in the period ended December 31, 1997 10
Notes to consolidated financial
statements 11 - 14
(a) 2. Financial Statement Schedule 10-K Page
- -------------------------------------- ---------
Schedule II - Valuation and Qualifying Accounts 16
All other schedules are omitted because they are not required, are not
applicable, or because the information required is included in the consolidated
financial statements and the notes thereto.
The consolidated financial statements listed in the above index which are
included in the Annual Report to Stockholders of Cohu, Inc. for the year ended
December 31, 1997 are incorporated herein by reference. With the exception of
the pages listed in the above index and the Items referred to in Items 1, 5, 6,
7 and 8, the 1997 Annual Report to Stockholders is not to be deemed filed as
part of this report.
12
13
COHU, INC.
INDEX TO EXHIBITS
(Item 14(a) 3)
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation of Cohu, Inc. incorporated herein
by reference from the 1981 Form 10-K, Exhibit 1
3.1(a) Certificate of Amendment of Restated Certificate of Incorporation of
Cohu, Inc., incorporated herein by reference from the Company's 1996
Form 10-K, Exhibit 3.1(a)
3.2 Amended and Restated Bylaws, of Cohu, Inc. incorporated herein by
reference from the Company's Form 8-K, filed December 12, 1996, Exhibit
3.2
4.1 Rights Agreement dated November 15, 1996, between Cohu, Inc. and
ChaseMellon Shareholder Services, L.L.C, as Rights Agent, incorporated
herein by reference from the Company's Form 8-K, filed December 12,
1996, Exhibit 4.1
10.1 Cohu, Inc. 1988 Employee Stock Option Plan, incorporated herein by
reference from the Company's Proxy Statement for its 1988 Annual Meeting
of Stockholders*
10.2 Description of Cohu, Inc. Executive Incentive Bonus Plan, incorporated
herein by reference from the Company's 1990 Form 10-K, Exhibit 10.3*
10.3 Termination Agreement between Cohu, Inc. and Charles A. Schwan,
incorporated herein by reference from the Company's 1990 Form 10-K,
Exhibit 10.5*
10.4 The Cohu, Inc. 1992 Stock Option Plan, incorporated herein by reference
from the Company's Proxy Statement for its 1992 Annual Meeting of
Stockholders*
10.5 The Cohu, Inc. 1994 Stock Option Plan, incorporated herein by reference
from the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders*
10.6 Agreement of Purchase and Plan of Merger by and among Cohu, Inc.,
Daymarc Corporation, Cohu Acquisition Corporation, N.J. Cedrone and
Melvyn Bosch as of June 16, 1994, incorporated herein by reference from
the Company's June 22, 1994 Form 8-K, Exhibit 2.1
10.7 The Cohu, Inc. 1996 Stock Option Plan, incorporated herein by reference
from the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders*
10.8 Employment Agreement between Cohu, Inc. and James W. Barnes,
incorporated herein by reference from the Company's 1995 Form 10-K,
Exhibit 10.9*
10.9 Business Loan Agreement between Bank of America National Trust and
Savings Association and the Company, as amended May 15, 1996,
incorporated herein by reference from the Company's Form 10-Q for the
quarter ended June 30, 1996, Exhibit 10.1
10.10 Termination Agreement between Cohu, Inc. and John H. Allen, incorporated
herein by reference from the Company's 1996 Form 10-K, Exhibit 10.11*
10.11 The Cohu, Inc 1996 Outside Directors Stock Option Plan, incorporated
herein by reference from the Company's 1996 Form 10-K, Exhibit 10.12*
13
14
COHU, INC.
INDEX TO EXHIBITS
(Item 14(a) 3)
EXHIBIT DESCRIPTION
- ------- -----------
10.12 The Cohu, Inc. 1997 Employee Stock Purchase Plan, incorporated herein by
reference from the Company's 1996 Form 10-K, Exhibit 10.13*
10.13 The Cohu, Inc. Key Executive Long Term Incentive Plan*
10.14 The Cohu, Inc. 1998 Stock Option Plan*
13 1997 Annual Report to Stockholders (Provided for information only except
as specifically incorporated by reference)
21 Cohu, Inc. has the following wholly owned subsidiaries:
Delta Design, Inc., a Delaware corporation
Fisher Research Laboratory, Inc., a Delaware corporation
Broadcast Microwave Services, Inc., a Delaware corporation
Daymarc, Inc., a Delaware corporation
Cohu Foreign Sales Ltd., a Barbados corporation
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- ------------
* Management contract or compensatory plan or arrangement
14
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 12, 1998 By /s/ Charles A. Schwan
--------------------------------------
Charles A. Schwan
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ William S. Ivans Chairman of the Board March 12, 1998
- ----------------------------
William S. Ivans
/s/ Charles A. Schwan President & Chief Executive Officer, March 12, 1998
- ---------------------------- Director (Principal Executive Officer)
Charles A. Schwan
/s/ John H. Allen Vice President, Finance & Chief March 12, 1998
- ---------------------------- Financial Officer, Secretary (Principal
John H. Allen Financial & Accounting Officer)
/s/ James W. Barnes Director March 12, 1998
- ----------------------------
James W. Barnes
/s/ Harry L. Casari Director March 12, 1998
- ----------------------------
Harry L. Casari
/s/ Frank W. Davis Director March 12, 1998
- ----------------------------
Frank W. Davis
/s/ Gene E. Leary Director March 12, 1998
- ----------------------------
Gene E. Leary
15
16
COHU, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description Balance at Additions Balance at
----------- Beginning Charged Deductions End of
of Year to Expense (Write-offs) Year
------- ---------- ------------ ----
Allowance for doubtful
accounts:
Year ended December 31, 1995 $ 424 $ 1,265 $ 124 $ 1,565
Year ended December 31, 1996 $ 1,565 $ 498 $ 236 $ 1,827
Year ended December 31, 1997 $ 1,827 $ 148 $ 187 $ 1,788
Reserve for excess and
obsolete inventory:
Year ended December 31, 1995 $ 3,461 $12,939 $ 1,472 $14,928
Year ended December 31, 1996 $14,928 $ 1,988 $ 1,226 $15,690
Year ended December 31, 1997 $15,690 $ 1,471 $ 2,067 $15,094
16
1
EXHIBIT 10.13
COHU, INC.
KEY EXECUTIVE LONG TERM INCENTIVE PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was approved by the Board of Directors of COHU, INC.
("the Company") on February 23, 1994. The Plan is intended to provide the
opportunity for additional retirement benefits for the Executives. It is
expected that the Plan will assist the Company in attracting and retaining
Executives of outstanding achievement and ability. This Plan is intended as an
unfunded plan for a select group of highly compensated or management employees
within the meaning of ERISA.
SECTION 2. DEFINITIONS.
(a) "Affiliated Group" means a group of one or more chains of
corporations or other entities connected through stock or other ownership with
the Company, if:
(i) Stock or other control possessing more than 50% of the
total voting power or more than 50% of the total value of all ownership
of each entity is owned by one or more of the other entities; and
(ii) The Company owns stock or other ownership possessing
more than 50% of the total voting power or more than 50% of the total
value of all ownership of at least one of the other entities excluding,
in computing such voting power or value, stock or other ownership owned
directly by such other entities.
An entity shall be considered a member of the Affiliated Group only with respect
to periods during which the relationship described in subSections (i) and (ii)
above exists.
(b) "Beneficiary" means the person, persons, trust or trusts
designated to receive death benefits under the Plan for an Executive. A
Beneficiary designation form shall include such form only (a) as provided by any
applicable carrier, or (b) as prescribed by the Committee.
(c) "Board" means the Board of Directors of the Company, as
constituted from time to
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time.
(d) "Change In Control" occurs when:
(i) there is a change in the composition of the Company's
Board as a result of which fewer than one-half of the incumbent directors are
directors who either: (A) had been directors of the Company 24 months prior to
such change; or (B) were elected, or nominated for election, to the Board with
the affirmative vote of a majority of the directors who had been directors of
the Company 24 months prior to such change and who were still in office at the
time of the election or nomination;
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934), other than any member of the
Affiliated Group, becomes the beneficial owner, directly or indirectly, of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities ordinarily (and apart from
rights accruing under special circumstances) having the right to vote at
elections of directors (the "Base Capital Stock"), provided, however, that any
change in the relative beneficial ownership of securities of any person
resulting solely from a reduction in the aggregate number of outstanding shares
of Base Capital Stock, and any decrease thereafter in such person's ownership of
securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the Compensation Committee of the Board.
(g) "Company" means COHU, Inc., a Delaware corporation.
(h) "Compensation" means the base salary or wages paid to the
Executive by the Company or a member of the Affiliated Group for personal
services performed while an employee, including (i) base salary or wages
contributed at the Executive's election to a plan described in Sections 125 or
401(k) of the Code, and (ii) base salary and wages that the Executive has
elected to defer under any nonqualified deferred compensation plans sponsored by
the Company but excluding overtime pay, bonuses, commissions, expatriate
premiums, any other forms of additional compensation and contributions by the
Company or a member of the Affiliated Group under any benefit plan, all as
determined by the Company.
(i) "Death Benefit" means the benefit payable to a Beneficiary
under Section 5(a).
(j) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2
3
(k) "Executive" means such individuals designated as Executives
under the Plan by the Committee.
(l) "Grantor Trust" means the trust established pursuant to
Section 6(b) of the Plan for the benefit of an Executive.
(m) "Insurer" means an insurance company licensed to do business
in the applicable jurisdiction that issues a Policy to the Company pursuant to
the Plan.
(n) "Normal Retirement Age" means age 65.
(o) "Plan" means the COHU, Inc. Key Executive Long Term Incentive
Plan, as set forth herein.
(p) "Plan Year" means calendar year.
(q) "Policy" means an insurance contract purchased on behalf of
Executive, and payable to the Company or the Grantor Trust pursuant to the Plan.
(r) "Termination Benefit" means the benefit payable to an
Executive under Section 5(b).
SECTION 3. PARTICIPATION.
Any individual who holds a key position in the Company and who is
selected by the Committee is eligible to participate in the Plan. In order to
participate in the Plan, Executive must satisfy such conditions for eligibility
as are set forth by the Committee. If insurance Policies are held by any Grantor
Trust, Executive must comply with such application and other procedures as are
required by the applicable carrier.
SECTION 4. PLAN ALLOCATIONS.
(a) Executive Deferrals. The Executive may agree to defer a
portion of his or her compensation under the Plan. The election shall be made
prior to the time such compensation is payable. If the election applies to wages
and salary, it may be made in a dollar or percentage amount and shall be made
prior to the year in which the Executive performs the services to which the
salary or wages pertain (with the exception of 1994, the year of adoption of the
Plan). If the election to defer applies to a bonus, it shall be made prior to
the time the bonus is approved by the Committee.
The election shall be made on a form approved by the Committee.
3
4
(b) Company Allocations. To the extent the Executive's
Compensation exceeds the limit in Code Section401(a)(17), the Company will
allocate 4% of such excess Compensation under the Plan on behalf of the
Executive.
SECTION 5. PLAN BENEFITS.
(a) Death Benefit. If Executive dies, whether or not employed at
death, his or her Beneficiary shall be paid in one lump sum an amount equal to
the death benefits, if any, under any Policy in the Grantor Trust purchased on
behalf of the Executive; (1) less the present value of the amount of any
hypothetical federal and state tax reduction attributable to the tax deduction
that the Company would have been entitled to had all premium payments for such
policy been made directly to the Executive as compensation; (2) plus an amount
which shall be equal to the cumulative federal and state tax savings otherwise
available to the Company as a result of the Company's deduction from income of
its net death benefit (after adjustment for (1) payable under this Plan)
including this tax "gross-up" payment. For purposes of (1) above, the present
value discount rate shall be the average annual 90 day Treasury rate determined
as of December 31 of each year. This payment is not intended to produce a tax
neutral effect for the deceased Executive, but is intended to provide that the
tax effects for the Company as a result of payment of the net death benefit only
(i.e., the death benefit after reduction by (1)), will be neutral.
(b) Termination Benefit. The Executive shall be paid an amount
calculated as of the time benefits commence to both (1) if the Company has
purchased a Policy with respect to the Executive, provide a death benefit which,
as of the end of the Executive's life expectancy (determined as of the date
benefits commence) is equal to the amount described in Section 5(a)(1) with
respect to the Executive, and (2) exhaust in accordance with the payment
schedule in (d) the remaining investments to which Executive's allocations under
Section 4 have been invested.
To the extent the Policy does provide for a death benefit sufficient to
cover the amount in Section 5(a)(1), each termination benefit under this 5(b)
shall be increased by an amount which, after taking into account the tax value
to the Company for the deduction of each termination benefit, will cause the
Company to have no net positive or negative cash flow effect from the "grossed
up" termination benefit payment. A sample calculation is attached to this Plan
as Exhibit A.
4
5
If the Company and the Executive do not agree on the assumptions to be
used in calculating the amount of benefits payable to the Executive, the
calculation shall be made by an independent third person mutually agreeable to
Company and Executive. The cost of retaining such independent third person shall
be borne by the Company.
(c) Commencement of Payments. Payments shall commence within 60
days of the Executive's termination of employment (whether before or after
Normal Retirement Age) with the Company.
(d) Form of Payment. Benefits shall be paid in equal annual
installments over a 15 year period or in such forms as are permissible under the
applicable Policy and as are approved by the Company. If there is no applicable
Policy, benefits should be paid as approved by the Company.
(e) Hardship. A hardship withdrawal shall be payable to an
Executive from the Grantor Trust if (i) the Executive incurs a Hardship after
five Years of Participation in the Plan, (ii) the Executive files a written
request for the hardship withdrawal with the Company, describing the Hardship
and specifying the amount required to address the Hardship, and (iii) the
Company approves all or part of the request. If a hardship withdrawal is payable
under this subsection (e), the trustee of the Grantor Trust for the Executive
shall transfer to the Executive such portion of the assets held in the Grantor
Trust as is necessary to address the Hardship, as determined in the Company's
sole discretion. For purposes of this subsection (e), "Hardship" shall mean an
unanticipated emergency that is caused by an event beyond the control of the
Executive and that would result in severe financial hardship to the Executive if
an early withdrawal were not permitted.
(f) Change in Control of the Company. Notwithstanding any other
provision contained herein, upon a Change in Control of the Company, the Company
shall immediately prepay to the Grantor Trust an amount sufficient to fund all
allocations under Section 4. Any payments under this Section shall be limited in
accordance with the limits of Code Section 280G as determined by a professional
satisfactory to both Executive and Company. The costs of retaining such
professional shall be borne solely by the Company.
5
6
SECTION 6. INSURANCE.
(a) Purchase of Insurance. The Company may use amounts allocated
pursuant to Section 4 for the purchase of insurance from the Insurer for the
applicable Executive. All such insurance shall be subject to the terms and
conditions of the Plan. The Company shall take all necessary action to cause the
Insurer to issue a Policy, and shall take any further action which may be
necessary to cause the Policy to conform to the provisions of the Plan.
(b) Grantor Trust. The Company shall establish a Grantor Trust
with respect to Executives for which Danielson Trust will act as trustee. The
Grantor Trust shall hold such contributions or Policies as the Company
contributes to it.
(c) Ownership of the Trust Assets and Policies. The trustee of
the Grantor Trust shall be the sole and absolute owner of any Policies purchased
under the Plan and other assets and may exercise all ownership rights granted to
the owner thereof by the terms of the Policy, subject to such limits as are set
forth in the Grantor Trust. The Trustee shall return to the Company any amount
remaining in the Policy after payment of the benefits set forth in Section 5.
SECTION 7. THE OBLIGATIONS OF THE INSURER.
The Insurer shall be fully discharged from its obligations under
a Policy by payment of the Policy benefit, including cash surrender value and
other incidental investments, to the Company, subject to the terms and
conditions of the Policy. The Insurer shall not be considered a party to the
Plan or to any agreements made between or among the Company, an Executive or a
Beneficiary. No provision of the Plan, or any modification or amendment of the
Plan, shall affect the obligations of the Insurer as expressly provided in the
Policy, except insofar as the provisions of the Plan are made a part of the
Policy by agreement between the Company and the Insurer.
SECTION 8. ASSIGNMENTS.
(a) Assignment by the Trustee of the Policy. Except as otherwise
provided in the Plan, the trustee of a Grantor Trust shall not sell, assign,
transfer, surrender or cancel a Policy.
(b) Restriction on Assignment. The rights of any persons to
payments or benefits under the
6
7
Plan or under any Policies held pursuant to the Plan shall not be subject to
option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any act in violation of this Section
7 shall be void.
SECTION 9. ADMINISTRATION OF THE PLAN.
(a) Plan Administration. The Company is the "named fiduciary"
that has the discretionary authority to control and manage the operation and
administration of the Plan in accordance with its terms, and the Company is the
"administrator" and "plan sponsor" of the Plan (as such terms are used in
ERISA). The Company in its sole discretion shall make such rules,
interpretations and computations and shall take such other actions to administer
the Plan as it may deem appropriate. Any decision of the Company with respect to
the Plan shall be conclusive and binding on all persons. While this Plan is not
subject to the rules of Part 4, Title I of ERISA, in administering the Plan, the
Company shall at all times discharge its duties in accordance with the standards
set forth in Section 404(a)(1) of ERISA.
(b) Employment of Advisers. The Company may retain such
attorneys, actuaries, accountants, consultants or other persons to render advice
or to perform services with regard to its responsibilities under the Plan as it
shall determine to be necessary or desirable. The Company may designate by
written instrument (signed by both parties) one or more persons to carry out,
where appropriate, fiduciary responsibilities under the Plan. The Company's
duties and responsibilities under the Plan which have not been delegated to
other fiduciaries pursuant to the preceding sentence shall be carried out by its
directors, officers and employees, acting on behalf and in the name of the
Company in their capacities as directors, officers and employees, and not as
individual fiduciaries.
(c) Service in Several Fiduciary Capacities. Nothing herein shall
prohibit any person or group of persons from serving in more than one fiduciary
capacity with respect to the Plan.
7
8
SECTION 10. CLAIMS AND INQUIRIES.
(a) Application for Benefits. Applications for benefits and
inquiries concerning the Plan (or concerning present of future rights to
benefits under the Plan) shall be submitted to the Company in writing and
addressed as follows: "Chairman of the Compensation Committee of the Board of
Directors of COHU, Inc., Plan Administrator under the COHU, Inc. Key Executive
Long Term Incentive Plan, 5755 Kearny Villa Road, San Diego, California 92123."
An application for benefits shall be submitted and signed by the Executive or,
after his or her death, by his or her Beneficiary.
(b) Denial of Claims. In the event that any claim for benefits is
denied in whole or in part, the Chairman of the Committee shall notify the
applicant in writing of such denial and shall advise the applicant of the right
to a review thereof. Such written notice shall set forth, in a manner calculated
to be understood by the applicant, specific reasons for the denial, specific
references to the Plan provisions on which the denial is based, a description of
any information or material necessary for the applicant to perfect the
application, an explanation of why such material is necessary and an explanation
of the Plan's review procedure. Such written notice shall be given to the
applicant within 90 days after the Chairman of the Committee received the claim
in proper form, except that such 90-day period may be extended for an additional
90 days if special circumstances exist. The Chairman of the Committee shall
advise the applicant of such circumstances in writing within the first 90-day
period. If the Chairman of the Committee does not provide the applicant with
written notice of its decision within the applicable time period, the
applicant's claim shall be deemed to have been denied as of the last day of the
applicable time period.
SECTION 11. REVIEW PROCEDURE.
(a) Appointment of Review Panel. The Committee shall serve as the
"Review Panel" under the Plan. The Review Panel shall be the named fiduciary
which has the authority to act with respect to appeals from denials of claims
under the Plan.
(b) Right to Appeal. An applicant whose claim for benefits was
denied in whole or in part (or such applicant's authorized representative) may
appeal from the denial by submitting to the Review Panel a written request for a
review of the claim within three months after receiving written notice of the
denial, or within three months after the date when a claim may be deemed to have
been denied. The Chairman of the Committee
8
9
shall give the applicant (or the applicant's authorized representative) an
opportunity to review pertinent materials, other than legally privileged
documents, in preparing such request for review.
(c) Form of Request for Review. The request for review shall be
made in writing and shall be addressed as follows: "Review Panel under the COHU,
Inc. Key Executive Long Term Incentive Plan, 5755 Kearny Villa Road, San Diego,
California 92123." The request for review shall set forth all of the grounds on
which it is based, all facts in support thereof and any other matters which the
applicant deems pertinent. The Review Panel may require the applicant to submit
additional facts, documents or other material as the Review Panel may deem
necessary or appropriate in making its review.
(d) Time for Review Panel Action. The Review Panel shall act upon
each request for review within 60 days after receipt thereof, unless special
circumstances require further time for processing and the applicant is advised
of the extension. In no event shall the decision on review be rendered more than
120 days after the Review Panel received the request for review in proper form.
(e) Review Panel Decisions. The Review Panel shall give prompt
written notice of its decisions to the applicant and to the Company. In the
event that the Review Panel confirms the denial of the claim for benefits in
whole or in part, such notice shall be set forth, in a manner calculated to be
understood by the applicant, the specific reasons for such denial and specific
references to the Plan provisions on which the decision is based. In the event
that the Review Panel determines that the claim for benefits should not have
been denied in whole or in part, the Company shall take appropriate remedial
action as soon as reasonably practicable after receiving notice of the Review
Panel's decision.
(f) Rules and Procedures. The Review Panel shall establish rules,
procedures and interpretations, consistent with the Plan and ERISA, as it may
deem necessary or appropriate in carrying out its responsibilities under this
Section 11.
(g) Exhaustion of Remedies Required. No legal or equitable action
for benefits under the Plan shall be brought unless and until the applicant (a)
has submitted a written claim for benefits in accordance with Section 10, (b)
has been notified that the claim is denied, (c) has filed a written request for
a review of the claim in accordance with this Section 11 and (d) has been
notified in writing that the Review Panel has affirmed the denial of the claim;
provided, however, that such an action may be brought after the Chairman of the
Committee or the Review Panel has failed to act on the claim within the time
prescribed in Sections 10(b) and
9
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11(d), respectively.
(h) Arbitration. Except as otherwise provided herein, any
controversy or claim arising out of or relating to the Plan or Grantor Trust, or
the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
(i) Legal and Other Costs. The cost of an arbitration and any
additional proceedings, actions or litigation, including legal and other
professional fees, shall be borne by the party which does not prevail.
SECTION 12. AMENDMENT AND TERMINATION OF PLAN.
The Company may amend the Plan so long as no amendment reduces
any accrued benefit of an Executive or impairs the security, if any, of any such
accrued benefit, without the express written consent of the Executive affected.
SECTION 13. MISCELLANEOUS.
(a) No Trust or Secured Interest. The Policies or other assets of
the Company shall not be held under any trust for the benefit of Executives,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of the Company under
this Plan. This provision notwithstanding, the Company may transfer assets to
the Grantor Trust described in Section 6(b). The Grantor Trust, and any assets
held by the Grantor Trust to assist it in meeting its obligations under the
Plan, shall conform to the terms of the model trust described in Revenue
Procedure 92-64 of the Internal Revenue Service. The Executives shall have the
status of general unsecured creditors of the Company, and the Plan shall
constitute a mere promise by the Company to make benefit payments in the future.
It is the Company's intention that the Plan be deemed unfunded for tax purposes
and for purposes of Title I of ERISA.
(b) Tax Liability and Withholding. Executives and Beneficiaries
shall make appropriate arrangements with the Company for the satisfaction of any
federal, state or local income tax withholding requirements and Social Security
or other employment tax requirements applicable to the provision of benefits
under this Plan.
(c) No Employment Rights. Nothing contained in the Plan shall
give any person a right to
10
11
remain in the employ of the Company or of any member of the Affiliated Group, or
shall affect the right of the Company and members of the Affiliated Group to
terminate such person's employment with or without cause.
(d) Mutual Cooperation. Each Executive or Beneficiary shall
cooperate with the Company by furnishing any and all information requested by
the Company in order to facilitate the payment of benefits hereunder, including
taking such other relevant action as may be requested by the Company. If an
Executive or Beneficiary refuses to cooperate, the Company shall have no further
obligation to the Executive or Beneficiary under the Plan.
(e) Validity. Any provision of this Plan that is determined to be
invalid, void or unenforceable shall be ineffective without invalidating the
remaining provisions of this Plan.
(f) Notice. Any notice or filing required or permitted to be
given to the Company under the Plan shall be sufficient if in writing and
delivered or mailed to the principal office of the Company, directed to the
attention of the Chairman of the Compensation Committee of the Company. Any
notice required or permitted to be given to an Executive or Beneficiary shall be
sufficient if in writing and delivered or mailed to that person's last known
address. Notices shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark.
(g) Notice to Insurer. The Trustee of each Grantor Trust shall be
responsible for notifying the Insurer or Insurers of any changes in the
ownership rights and interests of an Executive and the Company of any changes in
the Beneficiaries to receive death benefits under the Plan, and the Insurer
shall be entitled to rely upon any such notification received from the Trustee.
(h) Waiver of Breach. The waiver by the Company of any provision
of this Plan shall not operate or be construed as a waiver of any subsequent
breach by an Executive, assignee or Beneficiary.
(i) Successors and Assigns. The rights and obligations under this
Plan shall inure to the benefit of, and shall be binding upon, the successors
and assigns of the Company and upon the heirs, legatees and assigns of the
Executive.
SECTION 14. CHOICE OF LAW.
This Plan shall be governed and construed in accordance with
ERISA and, to the extent that they are not preempted, the laws of the State of
California.
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SECTION 15. EXECUTION.
To record the adoption of this Plan, the Company has caused its
duly authorized officer to affix the corporate name hereto.
COHU, INC.
By /s/ Charles A. Schwan
------------------------
Its Vice President Finance
------------------------
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EXHIBIT 10.14
COHU, INC.
1998 STOCK OPTION PLAN
The Cohu, Inc. 1998 Stock Option Plan, is hereby adopted for the benefit of
officers, directors, service providers and key employees of Cohu, Inc., a
Delaware corporation and its parent or subsidiaries, if any.
1. Purpose. The purpose of the Plan is to advance the growth and prosperity of
the Corporation and its stockholders by providing to officers, directors,
service providers and key employees of the Corporation an incentive to serve the
Corporation. By encouraging and enabling such persons to become owners of
capital stock of the Corporation, the Corporation seeks to attract and retain
persons of training, experience and ability and to furnish additional incentives
to those persons upon whose judgment, initiative and efforts the successful
conduct of the Corporation's business depends. It is the intention of the
Corporation that this objective will be accomplished through the granting of
incentive stock options and nonqualified stock options to certain officers,
directors, service providers and key employees of the Corporation.
2. Definitions. As used herein, the following terms shall have the
corresponding meanings.
2.1. "Committee" shall mean the Cohu, Inc. Compensation Committee, appointed
by the Board of Directors of the Corporation. If no such Committee is appointed,
the entire Board of Directors of the Corporation shall be deemed to constitute
the Committee. The Board of Directors of the Corporation may also appoint an
Employee Option Committee, consisting of one or more directors, which is
authorized to grant options to employees (other than executive officers of the
Corporation) subject to such limitations as may be established by the Board of
Directors from time to time. If an Employee Option Committee is established,
references to the term "Committee" shall also include the Employee Option
Committee, as the case may be.
2.2. "Corporation" shall mean Cohu, Inc. and any successor corporation
thereto and/or its parent or subsidiaries, if any, as the context requires. The
terms "parent" and "subsidiary" shall mean any existing or future corporation
which would be a parent or subsidiary corporation of the Corporation, as those
terms are defined in Section 424 of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder (the "Code").
2.3. "Date of Grant" shall mean the date of grant of a Stock Option granted
hereunder as set forth in the Stock Option Agreement. In the event of a grant
conditioned, among other things, upon stockholder ratification of this Plan, the
date of such conditional grant shall be the Date of Grant for purposes of this
Plan.
2.4. "Employee" shall mean any common-law employee of the Corporation. The
determination of whether or not a person is an Employee of the Corporation with
respect to the grant or exercise of an Incentive Stock Option shall be made in
accordance with the rule of Income Tax Regulation Section 1.421-7(h) (or
successor regulation).
2.5. "Fair Market Value" shall mean, with respect to the exercise of an
option under the Plan, (a) if the Common Stock is listed on a national
securities exchange or the NASDAQ National Market System, the closing price of
the Common Stock for the business day immediately preceding the day for which
the determination is being made, or (b) if the Common Stock is not then listed
on an exchange, the average of the closing bid and asked prices per share for
the Common Stock in the over-the-counter market as quoted on NASDAQ for the
business day immediately preceding the day for which the determination is being
made, or (c) if the Common Stock is not then listed on any exchange or quoted on
NASDAQ, an amount determined in good faith by the Board of Directors to be the
fair market value of the Common Stock, after consideration of all relevant
factors.
2.6. "Holder" shall mean any person entitled to exercise a Stock Option
pursuant to the terms of the Plan.
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2.7. "Incentive Stock Option" shall mean a Stock Option which is intended to
qualify for tax treatment as an incentive stock option under Section 422 of the
Code. An Incentive Stock Option may only be granted to an Employee.
2.8. "Nonqualified Stock Option" shall mean a Stock Option which is not
intended to qualify for tax treatment as an Incentive Stock Option under Section
422 of the Code.
2.9. "Plan" shall mean the Cohu, Inc. 1998 Stock Option Plan, as herein
adopted and as may be amended from time to time.
2.10. "Purchase Price" shall mean the price paid for Shares upon the
exercise of a Stock Option granted hereunder.
2.11. "Shares" shall mean those shares of Common Stock of the Corporation
which are available for issuance pursuant to the terms of the Plan.
2.12. "Stock Option" shall mean a stock option giving a Holder the right to
purchase Shares. A Stock Option may be an Incentive Stock Option or a
Nonqualified Stock Option.
3. Term. All Stock Options shall be granted, if at all, within ten (10) years
from the earlier of the date the Plan is adopted by the Board of Directors of
the Corporation and the date the Plan is duly approved by the stockholders of
the Corporation.
4. Eligibility. Stock Options may be granted only to employees (including
officers and directors who are also employees) of the Corporation or its parent
or subsidiaries or to individuals who are rendering services as directors,
consultants, advisors, or other independent contractors to the Corporation or
its parent or subsidiaries. For purposes of the foregoing sentence, "employees"
shall include prospective employees to whom Stock Options are granted in
connection with written offers of employment with the Corporation or its parent
or subsidiaries and "consultants" or "advisors" shall include prospective
consultants or advisors to whom Stock Options are granted in connection with
written consulting or advising offers with the Corporation or its parent or
subsidiaries. The Committee shall, in the Committee's sole discretion, determine
which persons shall be granted Stock Options. An individual who is rendering
services as a director (and who is not an employee), consultant, advisor, or
other independent contractor or who is a prospective employee, consultant or
advisor shall be eligible to be granted only a Nonqualified Stock Option. A
Holder may, if otherwise eligible, be granted more than one Stock Option. In no
event may a Stock Option be granted to an individual where such grant, together
with all other Stock Options granted during that calendar year, would entitle
the holder of the Stock Option to purchase more than 100,000 Shares.
5. Shares of Stock Subject to the Plan. Subject to the adjustments set forth
in the Plan, the Shares which may be issued pursuant to the Plan shall not
exceed in the aggregate 450,000 shares of the Corporation's Common Stock, $1.00
par value. Such Shares shall be authorized and unissued shares. Any Shares
subject to a Stock Option granted under this Plan which for any reason expires
or is terminated unexercised and/or Shares subject to repurchase which are
repurchased by the Corporation shall again be subject to and be available for
issuance pursuant to the terms of this Plan. Notwithstanding the foregoing, any
such shares shall be made subject to a new Stock Option only if the grant of
such new Stock Option and the issuance of such shares pursuant to such new Stock
Option would not cause the Plan or any Stock Option granted under the Plan to
contravene Rule 16b-3, as promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and as amended from time to time or any
successor rule or regulation ("Rule 16b-3").
6. Administration of the Plan. Within the limitations described herein, the
Committee shall administer the Plan, select the officers, directors, service
providers and Employees of the Corporation to whom Stock Options shall be
granted, determine the number of Shares to be subject to each grant, determine
the method of payment upon exercise of each Stock Option, determine all other
terms of Stock Options granted hereunder and interpret, construe and implement
the provisions of the Plan. By the adoption of this Plan, the Board of Directors
of the Corporation is delegating to the Committee plenary authority to
administer the Plan. All questions of interpretation of the Plan
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or any Stock Option granted under the Plan shall be determined by the Committee,
and such decisions shall be binding upon all persons having an interest in the
Plan and/or any Stock Option.
With respect to the participation of eligible participants who are subject
to Section 16(b) of the Exchange Act, the Plan shall be administered in
compliance with the requirements of Rule 16b-3. In the case of officers or other
Employees or persons who are not directors of the Corporation, grants may be
approved by the Committee or by a majority of the members of the Board of
Directors. Notwithstanding the above, the Committee, in its sole discretion, may
delegate its powers hereunder to grant Stock Options to persons who are not
subject to Section 16(b) of the Exchange Act, to certain officers of the
Corporation. Any such delegation shall be in writing and shall clearly describe
any limitations to which such delegation of authority is subject.
In the event the Corporation is a "publicly held corporation" as defined in
paragraph (2) of section 162(m) of the Code, as amended by the Revenue
Reconciliation Act of 1993 (P.L. 103-66), and the regulations promulgated
thereunder ("Section 162(m)"), the Corporation shall establish a committee of
outside directors meeting the requirements of Section 162(m) to approve the
grant of Stock Options which might reasonably be anticipated to result in the
payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes pursuant to Section
162(m).
7. Indemnification. In addition to such other rights of indemnification as
they may have as directors or as members of the Committee, members of the Board
of Directors of the Corporation, members of the Committee and any officers to
whom authority to act for the Committee is delegated shall be indemnified by the
Corporation against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence or misconduct in
duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Corporation, in
writing, the opportunity at its own expense to handle and defend the same.
8. Stock Options. The granting of a Stock Option shall be evidenced by a stock
option agreement ("Stock Option Agreement"), in such form and not inconsistent
with this Plan, as the Committee shall approve from time to time. The Committee
shall determine for each Stock Option (which need not be identical), the
exercise price of the Stock Option, the timing and terms of exercisability and
vesting of the Stock Option, the time of expiration of the Stock Option, the
effect of the Holder's termination of employment or service, whether the Stock
Option is to be treated as an Incentive Stock Option or as a Nonqualified Stock
Option, the method for satisfaction of any tax withholding obligation arising in
connection with the Stock Option, including by the withholding or delivery of
shares of Common Stock, and all other terms and conditions of the Stock Option
not inconsistent with the Plan. Each Stock Option Agreement shall contain in
substance the following terms and conditions:
8.1. Price. The Stock Option Agreement shall specify the Purchase Price per
Share. The Purchase Price per Share deliverable upon the exercise of an
Incentive Stock Option shall not be less than the Fair Market Value of a Share
on the Date of Grant of the Incentive Stock Option. In the case of a grant of an
Incentive Stock Option to an Employee who, at the time the Incentive Stock
Option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation, or of
any parent or subsidiary corporation, the Purchase Price per Share deliverable
upon the exercise of the Incentive Stock Option shall not be less than one
hundred ten percent (110%) of the Fair Market Value of such Share on the Date of
Grant of the Incentive Stock Option. Notwithstanding the foregoing, an Incentive
Stock Option may be granted with a Purchase Price lower than the minimum price
set forth above if such Stock Option is granted pursuant to an assumption or
substitution for another Stock Option in a manner qualifying with the provisions
of Section 424(a) of the Code. The Purchase Price per Share deliverable upon
exercise of a Nonqualified Stock Option shall be not less than the Fair Market
Value of a Share on the Date of Grant of the Nonqualified Stock Option except
that the
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purchase price for no more than 5% of the shares under the plan can be
determined by the Committee in its sole discretion.
8.2. Number of Shares. The Stock Option Agreement shall specify the number
of Shares subject to the Stock Option.
8.3. Exercisability of Stock Options. A Stock Option may be exercisable, in
part or in full, at any time and from time to time during an exercise period,
and subject to such performance criteria, conditions and restrictions as
determined by the Committee on a case-by-case basis for each Stock Option, and
as set forth in the Stock Option Agreement; provided, however, that a Stock
Option granted to a prospective employee, prospective consultant or prospective
advisor shall not be exercisable prior to the date on which the person commences
employment or service. In no event shall the exercise period of any Incentive
Stock Option granted hereunder exceed ten (10) years from the Date of Grant of
such Option; provided, however, that in the case of a grant of an Incentive
Stock Option to an Employee, who, at the time the Incentive Stock Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting stock of the Corporation or of any parent or subsidiary corporation, such
Incentive Stock Option shall not be exercisable after the expiration of five (5)
years from its Date of Grant.
In the event that the aggregate Fair Market Value (determined as of the
Date of Grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year (under
all stock option plans of the Corporation and its parent or subsidiary
corporations) exceeds $100,000, the excess shall be treated as a Nonqualified
Stock Option. This paragraph shall be applied by taking Incentive Stock Options
into account in the order in which they were granted.
8.4. Payment of Purchase Price.
(a) Forms of Payment Authorized. Payment of the Purchase Price for the
number of Shares being purchased pursuant to any Stock Option shall be made (1)
in cash, by check, or cash equivalent, (2) by tender to the Corporation of
shares of the Corporation's Common Stock owned by the Holder having a value, as
determined by the Committee (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Corporation), not less
than the option price, (3) if specifically permitted by the Committee and set
forth in the Holder's Stock Option Agreement, by the Holder's recourse
promissory note, (4) by the assignment of the proceeds of a sale of some or all
of the shares being acquired upon the exercise of a Stock Option or the proceeds
of a loan with respect to the shares acquired upon the exercise of a Stock
Option (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), or (5) by any combination thereof. The
Committee may at any time or from time to time, grant Stock Options which do not
permit all of the foregoing forms of consideration to be used in payment of the
option price and/or which otherwise restrict one (1) or more forms of
consideration.
(b) Tender of Corporation Stock. Notwithstanding the foregoing, a Stock
Option may not be exercised by tender to the Corporation of shares of the
Corporation's Common Stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Corporation's stock or result in the recognition of
compensation expense to the Corporation under generally accepted accounting
principles. Unless otherwise provided by the Committee, a Stock Option may not
be exercised by tender to the Corporation of shares of the Corporation's Common
Stock unless such shares of the Corporation's common stock either have been
owned by the Holder for more than six (6) months or were not acquired, directly
or indirectly, from the Corporation.
(c) Promissory Notes. No promissory note shall be permitted if an
exercise using a promissory note would be a violation of any law. Any permitted
promissory note shall be due and payable not more than five (5) years after the
Stock Option is exercised, and interest shall be payable at least annually and
be at least equal to the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. The Committee shall
have the authority to permit or require the Holder to secure any promissory note
used to exercise a Stock Option with the Shares acquired on exercise of the
Stock Option and/or with other collateral acceptable to the Corporation. Unless
otherwise provided by the Committee, in the event the Corporation at any
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time becomes subject to the regulations promulgated by the Board of Governors of
the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Corporation's securities, any
promissory note shall comply with such applicable regulations, and the Holder
shall pay the unpaid principal and accrued interest, if any, to the extent
necessary to comply with such applicable regulations.
(d) Assignment of Proceeds of Sale. The Corporation reserves, at any and
all times, the right, in the Corporation's sole and absolute discretion, to
establish, decline to approve and/or terminate any program and/or procedures for
the exercise of Stock Options by means of an assignment of the proceeds of a
sale of some or all of the Shares to be acquired upon such exercise, or the
assignment of the proceeds of a loan with respect to the Shares to be acquired
upon such exercise.
9. Recapitalization. Appropriate adjustments shall be made in the number and
class of Shares subject to the Plan, to the annual limit on Stock Options that
may be granted to any individual, and to any outstanding Stock Options and in
the Purchase Price per Share of any outstanding Stock Options in the event of a
stock dividend, stock split, reverse stock split, combination, reclassification,
or like change in the capital structure of the Corporation.
10. Reorganization. A "Reorganization" shall be deemed to have occurred in the
event any of the following occurs with respect to the Corporation: (a) the
direct or indirect sale or exchange by the stockholders of the Corporation of
all or substantially all of the stock of the Corporation where the stockholders
of the Corporation before such sale or exchange do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Corporation after such sale or exchange; (b) a merger or consolidation in
which the Corporation is not the surviving corporation; (c) a merger or
consolidation in which the Corporation is the surviving corporation where the
stockholders of the Corporation before such merger or consolidation do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Corporation after such merger or consolidation; (d)
the sale, exchange, or transfer of all or substantially all of the assets of the
Corporation (other than a sale, exchange, or transfer to one (1) or more
subsidiary corporations (as defined in paragraph 2.2 above) of the Corporation);
or (e) a liquidation or dissolution of the Corporation.
In the event of a Reorganization, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may assume the Corporation's rights and obligations
under outstanding Stock Options or substitute options for the Acquiring
Corporation's stock for such outstanding Stock Options. In the event the
Acquiring Corporation elects not to assume or substitute for such outstanding
Stock Options in connection with the Reorganization, any unexercisable and/or
unvested portion of the outstanding Stock Options shall be immediately
exercisable and vested as of the date thirty (30) days prior to the date of the
Reorganization. The exercise and/or vesting of any Stock Option that was
permissible solely by reason of this paragraph 10 shall be conditioned upon the
consummation of the Reorganization. Any Stock Options which are neither assumed
or substituted for by the Acquiring Corporation in connection with the
Reorganization nor exercised as of the date of the Reorganization shall
terminate and cease to be outstanding effective as of the date of the
Reorganization.
11. Investment Representations. The Committee may require a Holder to whom a
Stock Option is granted, as a condition of receipt and/or exercise of the Stock
Option, to give written assurances in substance and form satisfactory to the
Committee to the effect that the Holder is acquiring the Stock Option granted
hereunder or the Shares issuable upon exercise thereof for the Holder's own
account and not with any present intention of selling or otherwise distributing
the same, and to such other effects as the Committee deems necessary or
appropriate in order to comply with federal and applicable state securities
laws. Appropriate legends may be placed on any Shares issued under the Plan
evidencing such representations.
12. Compliance With Securities Laws. Each Stock Option granted hereunder shall
be subject to the requirement that, if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the Shares subject to such Stock Option upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Stock Option granted hereunder or the issue of
Shares, such Stock Option may not be granted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee. Nothing in
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the Plan or related Stock Option Agreements shall be deemed to require the
Corporation to apply for or obtain such listing, registration or qualification.
13. Rights as a Stockholder. A Holder shall have no rights as a stockholder of
the Corporation with respect to any Shares covered by a Stock Option granted
hereunder until said Holder tenders an effective and unconditional notice of
exercise of the Stock Option to the Corporation, complies with all other terms
and conditions of exercise and, if applicable, pays the Purchase Price. Except
as otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on
which the Holder tenders notice of exercise, complies with all other terms and
conditions of exercise, and pays any applicable Purchase Price. The Committee
shall use its best efforts to secure prompt issuance of stock certificates
following full performance of exercise by any Holder.
14. Non-Assignability of Options. No Incentive Stock Option shall be assignable
or transferable by the Holder except by will or by the laws of descent and
distribution. During the life of the Holder, an Incentive Stock Option shall be
exercisable only by the Holder or by the duly appointed legal representative of
an incompetent Holder. A Nonqualified Stock Option may be assignable or
transferable to the extent set forth in the Stock Option Agreement governing
such Stock Option.
15. Withholding Taxes. The Corporation shall have the right to deduct from
amounts otherwise due Holder under a Stock Option granted hereunder or from any
wages or other compensation to be paid to Holder any sums required by federal,
state and local tax law to be withheld with respect to the exercise of any Stock
Option or with respect to the disposition of Shares issued hereunder or, in the
alternative, to require the Holder to pay such sums to the Corporation. The
Corporation may also retain any certificate representing Shares issuable upon
exercise of Stock Options until all such tax withholding requirements are
satisfied. The Corporation may, in its discretion and upon request by Holder,
withhold from the Shares to be issued to Holder under this Plan a number of
Shares (based on the Fair Market Value of the Shares on the date of exercise of
the Stock Option) necessary to satisfy any tax withholding requirements.
16. Termination or Amendment of the Plan and Stock Options. The Committee may
terminate or amend the Plan or any Stock Option at any time; except that,
without stockholder approval, the Committee may not increase the number of
Shares which may be issued under the Plan (except by operation of paragraph 9)
or modify the requirements as to eligibility to receive Incentive Stock Options
under the Plan. In addition, the approval of the Corporation's stockholders
shall be sought for any amendment to the Plan or a Stock Option for which the
Committee deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Stock Option or any unexercised portion thereof, without the consent of the
Holder, unless such amendment is required to enable a Stock Option designated as
an Incentive Stock Option to qualify as an Incentive Stock Option.
17. No Special Employment Rights. Nothing contained in this Plan or in any
Stock Option granted hereunder shall confer upon any Holder any right with
respect to continued employment or engagement with the Corporation or interfere
in any way with the right of the Corporation, subject to the terms of any
separate agreement with the Holder to the contrary, at any time to terminate
such employment or engagement or to increase or decrease the compensation or
other benefits paid to the Holder.
18. Governing Law. This Plan and any Stock Options issued hereunder shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the undersigned Secretary of the Corporation certifies
that the foregoing Cohu, Inc. 1998 Stock Option Plan was duly adopted by the
Board of Directors of the Corporation on January 29, 1998.
/s/ John H. Allen
-----------------------------
John H. Allen
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EXHIBIT 13
================================================================================
COMPANY PROFILE
Cohu, Inc. is the largest U.S. based and one of the world's largest suppliers of
test handling equipment used by semiconductor manufacturers in final test
operations. The Company, with sales and service facilities worldwide, also
manufactures closed circuit television, metal detection and microwave equipment.
FINANCIAL HIGHLIGHTS
(in thousands, except per share data)
OPERATIONS: 1997 1996
ORDERS $209,334 $147,857
NET SALES 187,756 159,353
NET INCOME 29,187 24,239
EARNINGS PER SHARE:
BASIC 3.09 2.62
DILUTED 2.93 2.50
BALANCE SHEET:
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 53,550 52,986
WORKING CAPITAL 106,201 78,003
TOTAL ASSETS 162,892 117,926
STOCKHOLDERS' EQUITY 126,211 96,272
YEAR ORDERS NET SALES NET INCOME STOCKHOLDERS' EQUITY
(in millions)
1993 $ 77.9 $ 75.3 $ 6.8 $ 33.6
1994 106.8 102.7 10.1 47.4
1995 189.4 178.8 23.6 72.0
1996 147.9 159.4 24.2 96.3
1997 209.3 187.8 29.2 126.2
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements 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. The words "plan",
"forecast", "expect", "believe" and similar expressions are intended to identify
such statements that are subject to certain risks and uncertainties, including
but not limited to those discussed under the caption "Business Risks and
Uncertainties" on page 16 of this Annual Report, that could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
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LETTER TO STOCKHOLDERS:
================================================================================
Sales for 1997 increased 18% to a record $187.8 million from $159.4
million in 1996. Net income for 1997 increased 20% to a record $29.2 million
from $24.2 million in 1996. Diluted earnings per share increased to $2.93 per
share in 1997 from $2.50 per share in 1996.
Orders for 1997 increased 42% to a record $209.3 million from $147.9
million in 1996. Backlog at the end of 1997 was $55.5 million compared to year
end 1996 backlog of $33.9 million.
Sales of test handling equipment increased 21% and accounted for 81% of
1997 total sales. Sales of television cameras and related equipment accounted
for 13% of 1997 sales and metal detection and microwave equipment contributed 6%
of sales.
The new records were due to increased orders and sales of test handling
equipment used by the worldwide semiconductor industry. Our commitment to the
growth opportunities in this dynamic industry is evidenced by our investment in
R & D which represented a record 9.3% of sales in 1997. This R & D spending
included development work on two new semiconductor handler platforms discussed
later in this Report.
Geographic distribution of 1997 sales of semiconductor handling
equipment was Asia Pacific, 53%; North America, 42%; Japan and Korea, 4%; and
Europe 1%. A significant percentage of the Asia Pacific sales were made to
off-shore operations of large U.S. based semiconductor manufacturers. The
largest segment of international sales is supported by our subsidiary located in
Singapore with additional service personnel located throughout Asia.
In addition to our excellent financial results, 1997 was a year of
significant accomplishments for Cohu. Our Delta Design subsidiary received the
"Supplier Excellence Award" from Texas Instruments (TI) that honors
organizations whose dedication to quality and service meets TI's high standards.
Delta Design also received ISO 9001 certification joining the
(Photo)
Cohu Electronics Division as the second Cohu company to meet the rigorous
requirements of this important international quality standard.
We believe our global market presence, record operating results and
strong balance sheet place the Company in a position to benefit from the
positive long-term outlook of the semiconductor industry.
Dividends of $2.3 million or $.24 per share were paid in 1997, the 19th
consecutive year of cash dividend payments and the 11th year in a row in which
dividends were increased.
We thank our customers and stockholders for their confidence and our
employees and suppliers for their support and loyalty.
Sincerely,
Charles A. Schwan
President and Chief Executive Officer
January 29, 1998
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SELECTED FINANCIAL DATA
================================================================================
(in thousands, except per share data)
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
FOR THE YEARS ENDED DECEMBER 31
Net sales:
Semiconductor test handling equipment $ 152,668 $ 126,236 $ 146,093 $ 72,502 $ 47,827
Television and other equipment 35,088 33,117 32,666 30,224 27,451
--------- --------- --------- --------- ---------
$ 187,756 $ 159,353 $ 178,759 $ 102,726 $ 75,278
========= ========= ========= ========= =========
Operating profit:
Semiconductor test handling equipment $ 40,339 $ 34,460 $ 36,490 $ 15,063 $ 9,261
Television and other equipment 3,065 2,826 1,964 1,829 1,821
--------- --------- --------- --------- ---------
43,404 37,286 38,454 16,892 11,082
Other:
Corporate administrative expense (516) (407) (224) (128) (99)
Interest income 2,999 1,960 704 60 31
Interest expense -- -- (12) (206) (4)
--------- --------- --------- --------- ---------
Income before income taxes 45,887 38,839 38,922 16,618 11,010
Provision for income taxes 16,700 14,600 15,300 6,500 4,200
--------- --------- --------- --------- ---------
Net income $ 29,187 $ 24,239 $ 23,622 $ 10,118 $ 6,810
========= ========= ========= ========= =========
Earnings per share:
Basic $ 3.09 $ 2.62 $ 2.63 $ 1.19 $ 0.84
Diluted 2.93 2.50 2.46 1.15 0.81
Cash dividends per share, paid quarterly 0.24 0.20 0.16 0.12 0.10
Depreciation and amortization deducted in arriving at
operating profit:
Semiconductor test handling equipment $ 1,478 $ 990 $ 1,051 $ 498 $ 260
Television and other equipment 670 663 833 683 692
--------- --------- --------- --------- ---------
$ 2,148 $ 1,653 $ 1,884 $ 1,181 $ 952
========= ========= ========= ========= =========
Capital expenditures:
Semiconductor test handling equipment $ 3,513 $ 3,586 $ 4,932 $ 649 $ 409
Television and other equipment 616 1,550 355 371 328
--------- --------- --------- --------- ---------
$ 4,129 $ 5,136 $ 5,287 $ 1,020 $ 737
========= ========= ========= ========= =========
AT DECEMBER 31
Total assets by industry segment:
Semiconductor test handling equipment $ 79,978 $ 39,981 $ 48,708 $ 45,316 $ 19,733
Television and other equipment 19,003 18,022 19,126 18,730 18,313
Corporate 63,911 59,923 36,100 3,922 4,789
--------- --------- --------- --------- ---------
$ 162,892 $ 117,926 $ 103,934 $ 67,968 $ 42,835
========= ========= ========= ========= =========
Working capital $ 106,201 $ 78,003 $ 57,228 $ 37,680 $ 26,352
Long-term debt -- -- -- 1,400 --
Stockholders' equity 126,211 96,272 72,029 47,371 33,591
QUARTERLY FINANCIAL DATA (UNAUDITED) FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------ ----- ------ ----- ------ ----
Net sales: 1997 $ 34,762 $ 44,642 $ 52,769 $ 55,583 $187,756
1996 50,232 45,864 34,763 28,494 159,353
Gross profit: 1997 14,854 19,542 23,245 24,124 81,765
1996 22,884 21,066 14,876 11,949 70,775
Net income: 1997 4,714 6,926 8,527 9,020 29,187
1996 7,894 7,582 5,191 3,572 24,239
Earnings per share:
Basic 1997 0.50 0.74 0.90 0.95 3.09
1996 0.86 0.82 0.56 0.38 2.62
Diluted 1997 0.48 0.70 0.85 0.90 2.93
1996 0.81 0.78 0.54 0.37 2.50
3
4
SEMICONDUCTOR TEST HANDLING EQUIPMENT
================================================================================
Through its Delta Design and Daymarc subsidiaries, Cohu is the
largest U.S. based and one of the world's largest suppliers of semiconductor
test handling equipment. Test handlers are electromechanical systems designed to
automatically handle, temperature condition, contact and sort integrated
circuits (ICs) during the IC test process. Testers are specialized, computer
controlled electronic systems that perform electronic evaluation of ICs,
including proper functionality, voltage/current characteristics and critical
timing parameters. Testing is used to determine the quality and performance of
the packaged IC prior to shipment to customers. Testers are designed to test
specific IC types, such as microprocessor, logic, DRAM or mixed signal, without
regard to the package used to house the IC. On the other hand, the package,
rather than the circuit type, is critical to the test handler, which is
connected to the tester and automates the flow of ICs through the test process.
The Company designs, manufactures, markets and services IC test
handling equipment from facilities in San Diego, California (Delta Design) and
Littleton, Massachusetts (Daymarc). Sales, service and technical personnel are
located throughout the U.S., Asia and Europe. Most test handlers use one of two
handling technologies to transport ICs: gravity-feed or pick-and-place.
Generally, the preferred handling approach is dictated by the IC package type.
ICs with leads on only two sides, such as dual-in-line and Small Outline (SOIC),
are usually handled in gravity-feed equipment. ICs with leads on all four sides,
such as the Quad Flat Pack and certain ICs with leads on two sides, such as the
TSOP, are typically run in pick-and-place systems. Historically, Delta Design's
systems utilize pick-and-place handling approaches while Daymarc's equipment
mainly employs gravity-feed techniques.
As a significant portion of IC test is performed at hot and/or cold
temperatures, many of the Company's test handlers are designed to provide a
controlled test environment over the range of -60 degrees C to +160 degrees C.
Both Delta Design and Daymarc are recognized throughout the industry for their
expertise in hot/cold test handling. In addition to temperature capability,
other key factors in the design of test handlers are equipment speed,
flexibility, parallel test capability and size.
Handlers are complex, electromechanical systems which are used
continuously in high production environments and many are in service twenty-four
hours per day, seven days a week. Handler "uptime" is a critically important
issue to customers and the availability of trained technical support personnel
is a key competitive factor in the marketplace. For these reasons, the Company
employs direct sales and service engineers in most areas, including Asia, where
over 50% of IC testing takes place.
The Company believes that the long-term prospects for the
semiconductor industry are excellent. Dataquest forecasts that the semiconductor
market will reach $300 billion in 2001 up from an estimated $150 billion in
1997. Equipment suppliers, like Delta Design and Daymarc, must be prepared for
the volatility that characterizes the semiconductor business but should continue
to have exciting business opportunities in a dynamic growth industry.
DELTA DESIGN
Through the use of IC package dedication kits, Delta Design's
pick-and-place test handlers are capable of accommodating virtually any
semiconductor package type. This flexibility is a key requirement of
semiconductor manufacturers, who must continously produce new IC package types
to meet the needs of their customers and the requirements of IC design
engineers.
Delta has one of the largest installed base of pick-and-place test
handlers, with more than 1,800 systems installed at over 125 locations
worldwide.
Historically, most pick-and-place handlers have been used in logic
test applications, where the transition in packaging technology first occurred.
Because of the relatively short test times of logic devices, handler index time,
or the idle time between test cycles, is critical. Two of Delta's pick-and-place
handlers are believed to have index times among the fastest in the industry.
4
5
================================================================================
Increasingly, the shift in packaging is taking place in memory
packages, as well. Due to the longer test times associated with memory testing,
simultaneous testing of multiple devices (parallel testing) is required. Delta
has successfully adapted several of its handlers to test up to eight devices in
parallel and is developing systems capable of testing 16 or more devices in
parallel.
The Delta Turbo Flex(TM), available in three models with various
levels of automation, provides hot/cold test capability and unmatched
versatility in IC package and media (tray or tube) handling. The "Flex" is
considered an industry workhorse and more Flexes have been sold than any other
logic pick-and-place test handler. Through Delta's continuous product
improvement process, the Flex has been successfully adapted to meet the evolving
needs of IC manufacturers.
The Model 2040, or RFS(TM), is a fast-index time pick-and-place
handler, designed for high production applications. The handler's large
environmental storage capacity enables uninterrupted operation in short test
applications and parallel testing of up to four devices. The RFS(TM) utilizes a
patented contactor indexing mechanism to achieve an index time of approximately
500 milliseconds.
The Model 1688 is an ambient pick-and-place handler, which uses the
same fast contactor indexing mechanism as the RFS(TM). The small size footprint
of only eleven square feet, combined with the high speed and dependable
operation of this handler, make it a highly-cost effective solution for test
applications where environmental capability is not required.
Delta's newest handler, Castle, is offered in both memory and logic
configurations. Castle Mx32 provides parallel testing of up to thirty-two
devices and represents Delta's entry into the DRAM segment of the test handling
market. Castle Logic, offers the same benchmark small footprint as the Mx32 and
a fast index time to maximize test system utilization.
[PHOTO]
DELTA CASTLE MX32 TEST HANDLER
DAYMARC
Daymarc, acquired by Cohu in June 1994, was established in 1959. It
was the first company to introduce fully automatic, gravity-feed test handlers.
Daymarc test handlers are designed for high throughput, maximum
operator productivity and small footprint. Each model achieves superior
semiconductor product yield through the use of proprietary, high performance
contacting technology.
Daymarc manufactures four lines of test handlers; the 717 Series,
3000 Series and 4000 Series of gravity handlers and the newly introduced
Enterprise test-in-tray handler line. The 717 Series test handlers are designed
specifically for SOIC packages. The small dimensions and high-speed applications
of the SOIC package require a handler with minimal transition distance, high
performance contacting and automation features to reduce the need for operator
intervention. The 717 ambient and tri-temperature handlers feature index times
as low as 350 and 500 milliseconds, respectively. Changeover for a different
device package requires less than 30 minutes.
5
6
================================================================================
The 3000 Series, the most popular of Daymarc's models, is available
in single, dual/quad and thirty-two site configurations. These handlers can be
reconfigured with device dedication kits to accommodate a wide range of package
types at throughput rates up to 4,200 units per hour (UPH). The 3000 Series
handlers provide tri-temperature operation and input/output automation for
increased productivity.
The 4000 Series handlers combine high speed SOIC handling with
multi-site capability. The 4100 operates at speeds up to 18,000 UPH in dual or
quad site configurations. The 4100 is a fully automated, PC-based, ambient only
machine. The 4188 model, introduced in 1997, has added tri-temperature
capability to the features of the 4000 Series.
The Enterprise is the first tray-based handler from Daymarc. It
incorporates a new handling approach that improves efficiency by handling a
device as a group rather than individually. By eliminating the transfer of
individual devices within the handler, fewer interruptions occur. This increases
the performance of the test cell and provides semiconductor manufacturers with
higher utilization of capital equipment used in testing components.
[PHOTO]
DAYMARC ENTERPRISE TEST HANDLER
TELEVISION AND OTHER EQUIPMENT:
ELECTRONICS DIVISION
The Cohu Electronics Division (the "Division") has been a leading
American designer and manufacturer of closed circuit television (CCTV) cameras
and systems for more than 40 years. The customer base is broadly distributed
between machine vision, scientific imaging and security/surveillance markets.
Sales reached new records for the fourth consecutive year, with gains
in both original equipment manufacturing (OEM) and traffic surveillance
products. Cohu's reputation of quality products, manufacturing capability and
industry knowledge has made it an excellent choice in highway system
surveillance cameras throughout the United States. The Division also designs and
builds CCTV cameras and systems for custom security and operations monitoring
applications.
The Division manufactures video cameras for a number of OEM companies
that integrate Cohu cameras into their products. Other distribution channels for
television products include direct sales to end users, contractors and
value-added resellers. The Division is most readily differentiated from the
competition by its willingness and ability to create quality products that solve
a customer's unique requirements. Cohu's long established role in advanced CCTV
technology is based on a continuing commitment to quality, product performance
and competitiveness. The current product line represents a comprehensive array
of indoor and outdoor CCTV cameras as well as camera control equipment.
Cohu cameras are well suited for assembly, test and measurement
applications. Opportunities for Cohu cameras also exist in scientific industries
using video technology. The Division manufactures cameras that are integrated
into systems for fluorescing gel analysis, medical research and image
cataloging.
6
7
================================================================================
Cohu is among the leaders in video systems for traffic management in
the U.S. and is an OEM provider to a key manufacturer of wide area detection
products for intersection control. Cohu was selected by the State of Utah to
supply cameras and camera controls to monitor the Interstate 15 corridor leading
to popular ski resorts. These resorts will become venues for skiing competition
in the 2002 Winter Olympics. In addition to sales of standard cameras to state
and federal highway departments, the Division has successfully begun selling
video systems into the emerging local municipality marketplace.
The Division continues to pursue opportunities in the international
market through distributors, contractors and OEM accounts. Process monitoring,
security and advanced imaging applications provide the majority of international
sales.
The Division has been involved with a number of large-scale
construction projects where specialized design expertise is provided to major
engineering firms. Typical installations include process monitoring for waste
handling, water works, hazardous material and facility security.
The Division is registered compliant to ISO-9001 standards, the most
rigid of five levels of standards in the ISO 9000 series. ISO registration is a
competitive advantage in market areas where ISO 9000 is heavily supported, such
as Europe and the Middle East.
In 1998 key markets for Cohu CCTV products will include applications
for transportation, machine vision, microscopy and surveillance.
FRL
Fisher Research Laboratory (FRL) designs, manufactures and sells
metal detectors and other underground detection devices for industrial and
consumer markets.
Industrial products include pipe and cable locators, water leak
detectors, property marker locators and instruments for locating reinforcing
bars in concrete. Fisher's XLT-20 water leak detector can detect the sound of
escaping water and pinpoint small leaks in buried pipes to a depth of six feet.
Consumer metal detectors include models for prospectors, relic
hunters, sport divers and weekend treasure hunters. As with the industrial line,
Fisher's consumer products have a well earned reputation for quality,
performance and durability. As a result, several of the models designed for
hobby use are also used by law enforcement agencies, archaeologists and
professional treasure salvors.
Fisher products are sold worldwide with major markets in the U.S.,
Western Europe, Canada and the Pacific Rim. Emerging markets include such
countries as Russia, China and Mexico. Export sales were nearly 30% of sales in
1997.
BMS
Broadcast Microwave Services, Inc. (BMS) manufactures high quality
microwave radio equipment, antenna systems and related support items. These
products are used in the transmission of telemetry, data, video and audio
signals. Customers include government test ranges, law enforcement agencies,
unmanned air vehicle programs and television broadcasters.
BMS has seen an increase in business related to unmanned air vehicles
and this trend may continue as government related projects consider switching
from large development programs to available standard equipment. This
application requires transmitters, receivers, airborne antennas and automatic
tracking antenna and control systems. Similar products are also being sold for
coastal surveillance applications.
We believe opportunities in the broadcast television market may exist
as older point-to-point microwave links and electronic news gathering equipment
is replaced. New product development has been directed at these markets.
Additional growth opportunities may be created in the future as television
stations add the capability to transmit high definition television signals.
7
8
CONSOLIDATED BALANCE SHEETS
================================================================================
(in thousands, except par value)
December 31,
ASSETS 1997 1996
-------- --------
Current assets:
Cash and cash equivalents $ 39,736 $ 24,660
Short-term investments 13,814 28,326
Accounts receivable less allowance for doubtful accounts
of $1,787 in 1997 and $1,827 in 1996 31,934 19,170
Inventories:
Raw materials and purchased parts 21,224 7,175
Work in process 15,657 6,012
Finished goods 8,018 2,395
-------- --------
44,899 15,582
Deferred income taxes 9,669 9,681
Prepaid expenses 1,478 1,166
-------- --------
Total current assets 141,530 98,585
Property, plant and equipment, at cost:
Land and land improvements 2,114 2,114
Buildings and building improvements 12,293 11,932
Machinery and equipment 17,524 14,069
-------- --------
31,931 28,115
Less accumulated depreciation and amortization 12,982 11,304
-------- --------
Net property, plant and equipment 18,949 16,811
Goodwill, net of accumulated amortization of $815 in 1997 and $658 in 1996 2,312 2,469
Other assets 101 61
-------- --------
$162,892 $117,926
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,166 $ 4,464
Commissions payable 1,663 1,565
Income taxes payable 3,421 1,552
Accrued compensation and benefits 7,574 6,291
Accrued warranty 3,157 2,726
Other accrued liabilities 3,348 3,984
-------- --------
Total current liabilities 35,329 20,582
Accrued retiree medical benefits 1,004 916
Deferred income taxes 348 156
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares authorized, none issued -- --
Common stock, $1 par value; 25,000 shares authorized, 9,549 shares issued
and outstanding in 1997 and 9,341 shares in 1996 9,549 9,341
Paid in excess of par 8,677 5,863
Retained earnings 107,985 81,068
-------- --------
Total stockholders' equity 126,211 96,272
-------- --------
$162,892 $117,926
======== ========
See accompanying notes
8
9
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
(in thousands, except per share amounts)
Years ended December 31,
1997 1996 1995
--------- --------- ---------
Net sales $ 187,756 $ 159,353 $ 178,759
Cost and expenses:
Cost of sales 105,991 88,578 107,714
Research and development 17,513 13,968 10,192
Selling, general and administrative 21,364 19,928 22,623
--------- --------- ---------
144,868 122,474 140,529
--------- --------- ---------
Income from operations 42,888 36,879 38,230
Interest income 2,999 1,960 704
Interest expense -- -- (12)
--------- --------- ---------
Income before income taxes 45,887 38,839 38,922
Provision for income taxes 16,700 14,600 15,300
--------- --------- ---------
Net income $ 29,187 $ 24,239 $ 23,622
========= ========= =========
Earnings per share:
Basic $ 3.09 $ 2.62 $ 2.63
========= ========= =========
Diluted $ 2.93 $ 2.50 $ 2.46
========= ========= =========
Weighted average shares used in computing earnings per share:
Basic 9,437 9,268 8,969
========= ========= =========
Diluted 9,950 9,677 9,584
========= ========= =========
See accompanying notes.
9
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
(in thousands)
Years ended December 31,
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net income $ 29,187 $ 24,239 $ 23,622
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 2,148 1,653 1,884
Purchase consideration paid with stock 551 589 1,593
Deferred income taxes 204 (310) (6,929)
Increase in accrued retiree medical benefits 88 57 58
Changes in assets and liabilities:
Accounts receivable (12,764) 8,402 (7,085)
Inventories (29,317) 5,662 7,197
Prepaid expenses (312) (193) (335)
Accounts payable 11,702 (2,989) 1,071
Commissions payable 98 (170) (482)
Income taxes payable 2,669 (5,200) 5,132
Accrued compensation, warranty and other liabilities 1,078 (1,597) 7,295
-------- -------- --------
Net cash provided from operating activities 5,332 30,143 33,021
Cash flows from investing activities:
Purchases of short-term investments (23,779) (28,326) --
Maturities of short-term investments 38,291 -- --
Purchases of property, plant and equipment (4,129) (5,136) (5,287)
Other assets (40) -- 1
-------- -------- --------
Net cash provided from (used for) investing activities 10,343 (33,462) (5,286)
Cash flows from financing activities:
Reduction in line of credit and long-term borrowings -- -- (1,400)
Issuance of stock, net 1,671 961 836
Dividends paid (2,270) (1,856) (1,393)
-------- -------- --------
Net cash used for financing activities (599) (895) (1,957)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 15,076 (4,214) 25,778
Cash and cash equivalents at beginning of year 24,660 28,874 3,096
-------- -------- --------
Cash and cash equivalents at end of year $ 39,736 $ 24,660 $ 28,874
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 13,827 $ 20,110 $ 17,097
Interest -- -- 12
10
11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
(in thousands, except par value and per share amounts)
Years ended December 31, 1997, 1996 and 1995
------------------------------------------------------------------
Common Stock Paid in Retained
$1 par value excess of par earnings Total
------------ ------------ ------------ ------------
Balance at December 31, 1994 $ 4,405 $ 6,510 $ 36,456 $ 47,371
Two-for-one stock split 4,405 (4,405) -- --
Cash dividends - $.16 per share -- -- (1,393) (1,393)
Daymarc acquisition 62 1,531 -- 1,593
Repurchase and retirement of stock (6) (114) -- (120)
Exercise of stock options 226 730 -- 956
Net income -- -- 23,622 23,622
------------ ------------ ------------ ------------
Balance at December 31, 1995 9,092 4,252 58,685 72,029
Cash dividends - $.20 per share -- -- (1,856) (1,856)
Daymarc acquisition 29 560 -- 589
Repurchase and retirement of stock (1) (30) -- (31)
Exercise of stock options 221 771 -- 992
Tax benefit from stock options -- 310 -- 310
Net income -- -- 24,239 24,239
------------ ------------ ------------ ------------
Balance at December 31, 1996 9,341 5,863 81,068 96,272
Cash dividends - $.24 per share -- -- (2,270) (2,270)
Daymarc acquisition 18 533 -- 551
Repurchase and retirement of stock (3) (67) -- (70)
Exercise of stock options 185 1,350 -- 1,535
Shares issued under employee stock purchase plan 8 198 -- 206
Tax benefit from stock options -- 800 -- 800
Net income -- -- 29,187 29,187
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 9,549 $ 8,677 $ 107,985 $ 126,211
============ ============ ============ ============
See accompanying notes.
10
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. Summary of Significant Accounting Policies
PRESENTATION - The consolidated financial statements include the accounts
of Cohu, Inc. (the "Company") and its wholly-owned subsidiaries. All significant
intercompany accounts and balances have been eliminated in consolidation.
INVESTMENTS - Highly liquid investments with insignificant interest rate
risk and original maturities of three months or less are classified as cash and
cash equivalents. Investments with maturities greater than three months are
classified as short-term investments. All of the Company's investments are
classified as available-for-sale and are reported at fair value with unrealized
gains and losses, net of tax, recorded in stockholders' equity. Gross unrealized
gains and losses were not significant at December 31, 1997 and 1996. The Company
manages its cash equivalents and short-term investments as a single portfolio of
highly marketable securities, all of which are intended to be available for the
Company's current operations.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to significant credit risk consist principally of cash
equivalents, short-term investments and trade accounts receivable. The Company
invests in a variety of financial instruments and by policy limits the amount of
credit exposure with any one issuer. The Company's customers include
semiconductor manufacturers and others located throughout the world. The Company
performs ongoing credit evaluations of its customers and generally requires no
collateral.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of property,
plant and equipment is calculated principally on the straight-line method based
on estimated useful lives of five to forty years for buildings and building
improvements and three to ten years for machinery and equipment. Goodwill is
being amortized on the straight-line method over twenty years.
EARNINGS PER SHARE - Earnings per share are computed in accordance with FASB
Statement No. 128, Earnings per Share. Basic earnings per share are computed
using the weighted average number of common shares outstanding during each
period. Diluted earnings per share include the dilutive effect of common shares
potentially issuable upon the exercise of stock options. Earnings per share data
for prior periods have been restated to conform to the provisions of FASB
Statement 128. The following table reconciles the denominators used in computing
basic and diluted earnings per share:
(in thousands) 1997 1996 1995
---- ---- ----
Weighted average common
shares outstanding.... 9,437 9,268 8,969
Effect of dilutive
stock options 513 409 615
---- ---- ----
9,950 9,677 9,584
===== ===== =====
INVENTORIES - Inventories are stated at the lower of cost, determined on a
current average or first-in, first-out basis, or market.
REVENUE RECOGNITION - Revenue is generally recognized upon shipment or, in
instances where products are required to meet certain customer requirements,
upon successful completion of such requirements. Product warranty costs are
accrued in the period sales are recognized.
STOCK BASED COMPENSATION - The Company applies APB Opinion No. 25 and
related interpretations in accounting for its stock option and employee stock
purchase plans and, accordingly, does not recognize compensation expense.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions about the future that effect the amounts reported in
the consolidated financial statements. These estimates include assessing the
collectibility of accounts receivable, the usage and recoverability of inventory
and long-lived assets and the incurrence of warranty costs. Actual results could
differ from those estimates.
2. ACQUISITION OF DAYMARC
In 1994 the Company acquired Daymarc Corporation. Pursuant to the
merger, the Company is obligated to pay the former owners of Daymarc
consideration and compensation based on Daymarc's financial results through June
1998. In 1997, 1996 and 1995 $1,376,000, $1,472,000 and $3,982,000,
respectively, was earned and charged to operations. The Company paid a former
owner of Daymarc $134,000, $363,000 and $363,000 in 1997, 1996 and 1995,
respectively, under a facilities lease agreement that was terminated in
September 1996.
3. INVESTMENTS
Investments at December 31, 1997 and 1996, all with maturities of one year
or less, were as follows:
(in thousands) 1997 1996
---- ----
U.S. Treasuries and
obligations of U.S.
Government Agencies $ 1,000 $ 9,880
Corporate debt securities 48,852 26,322
Bankers Acceptances -- 5,847
-------- --------
Total investments 49,852 42,049
Less amounts classified
as cash equivalents (36,038) (13,723)
-------- --------
Short-term investments $ 13,814 $ 28,326
======== ========
At December 31, 1997 and 1996 the estimated fair value of the Company's
investments approximated amortized cost.
11
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
4. LINE OF CREDIT
The Company maintains a $5,000,000 unsecured bank line-of-credit
facility bearing interest at the bank's prime reference rate. The facility
requires compliance with certain financial covenants and expires in May 1998. No
borrowings were outstanding at December 31, 1997 or 1996.
5. INCOME TAXES
Significant components of the provision for income taxes
are as follows:
(in thousands) 1997 1996 1995
-------- -------- --------
Current:
Federal $ 14,131 $ 12,283 $ 18,154
State 2,365 2,627 4,075
-------- -------- --------
Total current 16,496 14,910 22,229
Deferred:
Federal 189 (256) (5,627)
State 15 (54) (1,302)
-------- -------- --------
Total deferred 204 (310) (6,929)
-------- -------- --------
$ 16,700 $ 14,600 $ 15,300
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting and tax purposes. Significant components of the Company's deferred tax
assets and liabilities are as follows:
(in thousands) December 31,
Deferred tax assets: 1997 1996
------- -------
Reserves and accrued warranty
not currently deductible $ 8,236 $ 8,634
Accrued state taxes 662 584
Accrued employee benefits 1,157 966
Other 608 421
------- -------
Total deferred tax assets 10,663 10,605
------- -------
Deferred tax liabilities:
Tax over book depreciation 1,342 1,080
------- -------
Net deferred tax assets $ 9,321 $ 9,525
======= =======
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to the provision for income taxes is as follows:
(in thousands) 1997 1996 1995
-------- -------- --------
Tax at U.S. statutory rates $ 16,060 $ 13,594 $ 13,623
State income taxes, net of
federal tax benefit 1,547 1,672 1,827
FSC benefit (1,477) (1,100) (1,278)
Nondeductible goodwill and
performance-based
consideration expense 248 261 799
Other - net 322 173 329
-------- -------- --------
$ 16,700 $ 14,600 $ 15,300
======== ======== ========
6. STOCKHOLDER RIGHTS PLAN
In November 1996 the Company adopted a Stockholder Rights Plan and
declared a dividend distribution of one Right for each share of Common Stock,
payable to holders of record on December 3, 1996. Under certain conditions, each
Right may be exercised to purchase 1/100 of a share of Series A Preferred Stock
at a purchase price of $90, subject to adjustment. The Rights are not presently
exercisable and will only become exercisable following the occurrence of certain
specified events. If these specified events occur, each Right will be adjusted
to entitle its holder to receive upon exercise Common Stock having a value equal
to two times the exercise price of the Right or each Right will be adjusted to
entitle its holder to receive common stock of the acquiring company having a
value equal to two times the exercise price of the Right, depending on the
circumstances. The Rights expire on November 14, 2006 and may be redeemed by the
Company for $0.001 per Right. The Rights do not have voting or dividend rights
and, until they become exercisable, have no dilutive effect on the earnings per
share of the Company.
7. INFORMATION ON INDUSTRY SEGMENTS
The Company operates in two industry segments. Semiconductor test
handling equipment is designed, manufactured and sold to semiconductor
manufacturers throughout the world and accounted for 81% of 1997 consolidated
net sales. The television and other equipment segment includes electronic
products used in electronic imaging, surveillance, detection and microwave
communication that are manufactured and sold to government agencies, original
equipment manufacturers, contractors, distributors and consumers throughout the
world. Export sales, mainly to Asia, were approximately $96,900,000,
$71,700,000, and $72,000,000 in 1997, 1996 and 1995, respectively. One customer
of the test handling equipment segment accounted for 17%, 12% and 17% of net
sales in 1997, 1996 and 1995, respectively. Another customer of the same segment
accounted for 11%, 14%, and 17% of net sales in 1997, 1996 and 1995,
respectively. A third customer of this segment accounted for 14% of net sales in
1997. Information regarding industry segments for 1997, 1996 and 1995 contained
in the Selected Financial Data on page 3 is an integral part of these financial
statements.
8. EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN - The Company has voluntary defined contribution
retirement 401(k) plans whereby it will match contributions up to 4% of employee
compensation. Company contributions to the plans were $991,000 in 1997, $841,000
in 1996 and $737,000 in 1995.
RETIREE MEDICAL BENEFITS - The Company provides post-retirement health
benefits under a noncontributory
12
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
plan to certain executives and directors. The net periodic benefit cost was
$95,000, $78,000 and $68,000 in 1997, 1996 and 1995, respectively. The
accumulated post-retirement benefit obligation at December 31, 1997 consisted of
$450,000 attributable to retired employees, $304,000 to active eligible
employees and $250,000 attributable to other active employees. The weighted
average discount rate used in determining the accumulated post-retirement
benefit obligation was 7.5%. Annual rates of increase of the cost of health
benefits were assumed to be approximately 9% in 1997. These rates were then
assumed to decrease 0.25% per year to 6% in 2009 and remain level thereafter. A
1% increase in the rate would increase the net periodic benefit cost by
approximately $15,000 and the accumulated post-retirement benefit obligation as
of December 31, 1997 by approximately $170,000.
EMPLOYEE STOCK PURCHASE PLAN - In May 1997 the Company adopted 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. Under the Plan, eligible
employees may purchase shares of common stock through payroll deductions. The
price paid for the common stock is equal to 85% of the fair market value of the
Company's Common Stock on specified dates. In 1997, 7,890 shares were issued
under the Plan.
The estimated weighted average fair value of purchase rights granted
in 1997 was $10.51. The fair value of the purchase rights was estimated using
the Black-Scholes option-pricing model with the following assumptions for 1997;
risk-free interest rate of 5.3%; dividend yield of 1%; expected life of 6 months
and volatility of 54%.
STOCK OPTIONS - Under the Company's stock option plans, options may be
granted to key employees and outside directors to purchase a fixed number of
shares of the Company's Common Stock at prices not less than 100% of the fair
market value at the date of grant. The Cohu, Inc. 1996 Outside Directors Stock
Option Plan was approved by the Company's stockholders in May 1997. All options
become exercisable from one-third to one-fourth annually beginning one year
after the grant date and expire 5 to 10 years from the grant date. In November
1996 options to purchase a total of 239,750 shares were granted to employees in
exchange for an equal number of canceled options pursuant to an exchange plan
approved by the Board of Directors. The newly granted options have exercise
prices equal to the fair market value on the date of grant and become
exercisable over the four year period ended November 2000. At December 31, 1997
124,950 and 70,000 shares were available for future grants under the employee
and outside director plans, respectively.
The estimated weighted average fair value of options granted during
1997, 1996 and 1995 was $15.60, $9.24 and $11.48, respectively. The fair value
of each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following assumptions for 1997, 1996 and 1995:
risk-free interest rates ranging from 5.5% to 6.8%; dividend yield of 1%;
expected life of 5 years and volatility of 48% to 54%.
Had compensation cost for the Company's 1995, 1996 and 1997 stock
option and purchase plan grants been determined based on the fair value at the
date of grant accounting consistent with FASB Statement No. 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income and earnings per
share would have been as follows:
(in thousands,
except per share) 1997 1996 1995
---- ---- ----
Pro forma net income $ 28,035 $ 24,178 $ 23,500
Pro forma earnings per share:
Basic 2.97 2.61 2.62
Diluted 2.85 2.51 2.45
Stock option activity under all option plans was as follows:
(in thousands, except per share data) 1997 1996 1995
-------------------------- -------------------------- --------------------------
Wt. Avg. Wt. Avg. Wt. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
---------- ---------- ---------- ---------- ---------- ----------
Outstanding, beginning of year 839 $ 11.28 878 $ 9.11 1,022 $ 6.20
Granted 234 31.28 471 20.17 114 24.97
Exercised (185) 8.29 (221) 4.48 (226) 4.23
Canceled (31) 18.71 (289) 24.41 (32) 6.86
---------- ---------- ----------
Outstanding, end of year 857 17.13 839 11.28 878 9.11
========== ========== ==========
Options exercisable at year end 341 9.53 378 7.74 399 5.80
13
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Information about stock options outstanding at December 31, 1997 is as follows:
(options in thousands)
Options Outstanding Options Exercisable
---------------------------------------------- --------------------------
Number Approximate Wt. Avg. Number
Range of Outstanding Remaining Wt. Avg. Exercisable Wt. Avg.
Exercise Prices at 12/31/97 Life Ex. Price at 12/31/97 Ex. Price
- --------------- ----------- ---- --------- ----------- ---------
$ 1.65 8 1 year $ 1.65 8 $ 1.65
7.60 to 9.69 343 5 years 7.96 268 7.91
17.00 to 27.00 392 9 years 20.06 65 17.26
30.75 to 37.44 114 9.5 years 35.87 -- --
---- ----
857 341
==== ====
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cohu, Inc.
We have audited the accompanying consolidated balance sheets of Cohu,
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cohu,
Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
January 29, 1998
14
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales increased 18% to $187.8 million in 1997 compared to net sales
of $159.4 million in 1996. Sales of semiconductor test handling equipment
increased 21% and accounted for 81% of consolidated net sales in 1997 versus 79%
in 1996. Sales of television cameras and other equipment increased 6%. Export
sales accounted for 52% of net sales in 1997 compared to 45% in 1996.
Gross margin as a percentage of net sales was 43.5% in 1997 versus
44.4% in 1996 as a result of lower margins in the semiconductor equipment
business. Within the semiconductor equipment segment, margins decreased in 1997
as a result of changes in product mix and certain cost increases. Research and
development expense as a percentage of net sales was 9.3% in 1997 up from 8.8%
in 1996 and reflected the Company's increased investment in new product
development, particularly in the semiconductor equipment business. Selling,
general and administrative expense ("SG & A") as a percentage of net sales
declined to 11.4% in 1997 from 12.5% in 1996 as the percentage increase in net
sales exceeded the percentage increase in SG & A. Interest income in 1997
increased 53% to $3 million due to the significant increase in average cash
equivalents and short-term investments during 1997.
The provision for income taxes expressed as a percentage of pre-tax
income was 36.4% in 1997 vs. 37.6% in 1996. The decrease in the effective tax
rate was largely attributable to a decline in state income taxes.
1996 COMPARED TO 1995
Net sales decreased 11% to $159.4 million in 1996 compared to net sales
of $178.8 million in 1995. Sales of semiconductor test handling equipment
declined 14% in 1996 and accounted for 79% of consolidated net sales in 1996
versus 82% in 1995. The decline in semiconductor equipment sales reflected the
semiconductor industry downturn experienced in 1996. Sales of television cameras
and other equipment increased 1%. Export sales accounted for 45% of net sales in
1996 compared to 40% in 1995.
Gross margin as a percentage of net sales was 44.4% in 1996 versus
39.7% in 1995 as a result of increased margins in the semiconductor equipment
business. Within the semiconductor equipment segment, margins increased in 1996
as a result of a significant reduction in provisions for excess and obsolete
inventories and warranty from 1995 levels. These provisions were recorded due to
the risks and uncertainties in the semiconductor equipment industry (see
"Business Risks and Uncertainties"). The gross margin in 1995 would have been
higher than the 1996 margin absent such provisions. Research and development
expense as a percentage of net sales was 8.8% in 1996 up from 5.7% in 1995 and
reflected the Company's increased investment in new product development,
particularly in the semiconductor equipment business. Selling, general and
administrative expense as a percentage of net sales was 12.5% in 1996 versus
12.7% in 1995 as a reduction in certain performance based compensation charges
was offset by an increase in other selling and administrative expenses in the
1996 period. Interest income in 1996 increased 178% to $2 million due to the
significant increase in cash equivalents and short-term investments.
The provision for income taxes expressed as a percentage of pre-tax
income was 37.6% in 1996 and 39.3% in 1995. The decrease in the effective tax
rate was largely attributable to a decline in nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in
1997 totaled $5.3 million. The major components of cash flows from operating
activities were net income of $29.2 million and increases in accounts payable of
$11.7 million and other liabilities of $3.8 million offset by increases in
accounts receivable of $12.8 million and inventories of $29.3 million. The
increases in accounts payable, accounts receivable and inventories were
attributable to the increase in sales volume between December 1996 and 1997. Net
cash provided from investing activities was $10.3 million in 1997. Cash provided
by investing activities included a decrease in short-term investments of $14.5
million offset by purchases of property, plant and equipment totaling $4.1
million. Net cash used for financing activities was $.6 million. Cash used for
financing activities included $2.3 million for the payment of dividends offset
by $1.7 million received from the issuance of stock under the Company's stock
option and purchase plans. The Company had $5 million available under its bank
line of credit and working capital of $106.2 million at December 31, 1997. The
Company believes that present working capital and cash generated from operations
will be sufficient to meet the Company's 1998 operating requirements including
estimated capital expenditures during 1998 of approximately $6 million.
15
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
================================================================================
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.
In 1997, 52% of the Company's total net sales were exported to
foreign countries, including 60% of the sales in the semiconductor equipment
segment. The majority of the Company's export sales are made to destinations in
Asia. Currency fluctuations and instability in global financial markets,
particularly in Asia, may adversely impact the demand for capital equipment,
including equipment of the type manufactured and marketed by the Company. In
addition, changes in the amount or price of semiconductors produced in Asia
could impact the profitability or capital equipment spending programs of the
Company's customers.
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. In 1997, three customers of the semiconductor equipment business
accounted for 42% of the Company's net sales. The loss of or a significant
reduction in orders by these or other significant 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
technology could result in a loss of the Company's competitive position and
reduced sales of 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 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.
The Company has commenced a "Year 2000 Computer Problem" analysis to
address the necessary changes that will need to be made to the Company's
information systems. The Year 2000 Computer Problem creates risk to the Company
for unforeseen problems in its own computer systems and from third parties
throughout the world with whom the Company conducts business. Failures in the
Company's and/or third parties computer systems could have a material impact on
the Company's ability to conduct its business, particularly as it relates to the
electronic transfer of funds. Management has not yet estimated the Year 2000
Computer Problem compliance expense and related potential impact on the
Company's earnings.
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 1997 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 Annual Report.
16
18
BOARD OF DIRECTORS CORPORATE OFFICERS
WILLIAM S. IVANS CHARLES A. SCHWAN
Chairman of the Board President and Chief Executive Officer
JOHN H. ALLEN
JAMES W. BARNES Vice President, Finance and Chief Financial Officer, Secretary
Retired President and Chief
Executive Officer
of the Company
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
HARRY L. CASARI Overpeck Centre
Retired Partner 85 Challenger Road
Ernst & Young LLP Ridgefield Park, NJ 07660
(800) 356-2017
FRANK W. DAVIS
Retired President of Convair INDEPENDENT AUDITORS
Aerospace Division of Ernst & Young LLP
General Dynamics San Diego, California
GENE E. LEARY LEGAL COUNSEL
Retired Executive at Gray Cary Ware & Freidenrich LLP
Honeywell, Inc. and San Diego, California
Control Data Corporation
COHU STOCK INFORMATION
Cohu, Inc. stock is traded on the NASDAQ National Market System
CHARLES A. SCHWAN under the symbol "COHU." Cohu declared cash dividends at the rate of
President and Chief Executive $0.06 per share per quarter in 1997 and $0.05 per share per quarter in
Officer of the Company 1996.
The following table sets forth the high and low sales prices as reported on the
NASDAQ National Market System during the last two years.
1997 1996
-------------------- ---------------------
High Low High Low
---- ---- ---- ----
First Quarter $28.50 $22.25 $36.25 $20.75
Second Quarter 36.38 21.50 26.75 17.75
Third Quarter 57.50 30.75 21.00 14.75
Fourth Quarter 57.75 29.00 24.13 14.75
At December 31, 1997 the Company had approximately 10,000 total stockholders
including 1,460 holders of record.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR 1997 AND OTHER INFORMATION ABOUT COHU IS AVAILABLE
WITHOUT CHARGE BY CONTACTING:
Investor Relations
Cohu, Inc.
5755 Kearny Villa Road
San Diego, CA 92123-1111
(619) 514-6203
or visit our website at www.cohu.com
ANNUAL MEETING
The annual meeting of stockholders will be held at 2:00 p.m. on Tuesday, May 12,
1998 at the Company's corporate headquarters.
1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cohu, Inc. of our report dated January 29, 1998, included in the 1997 Annual
Report to Stockholders of Cohu, Inc.
Our audit also included the financial statement schedule of Cohu, Inc. listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8) and in the related Prospectuses pertaining to the Cohu, Inc. 1988,
1992, 1994 and 1996 Stock Option Plans, 1996 Outside Directors Stock Option Plan
and 1997 Employee Stock Purchase Plan of our report dated January 29, 1998, with
respect to the consolidated financial statements of Cohu, Inc., incorporated
herein by reference and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of Cohu, Inc.
/s/ ERNST & YOUNG LLP
San Diego, California
March 13, 1998
5
1,000
YEAR
DEC-31-1997
JAN-01-1997
DEC-31-1997
39,736
13,814
31,934
0
44,899
141,530
31,931
12,982
162,892
35,329
0
9,549
0
0
116,662
162,892
187,756
187,756
105,991
105,991
0
0
0
45,887
16,700
29,187
0
0
0
29,187
3.09
2.93
