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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1934119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (619) 277-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of June 30, 1996, the Registrant had 9,272,201 shares of its $1.00 par value
common stock outstanding.
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COHU, INC.
INDEX
FORM 10-Q
JUNE 30, 1996
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995.................... 3
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1996 and 1995................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1995............................. 5
Notes to Unaudited Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
Signatures.................................................................. 11
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COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 33,040 $ 28,874
Accounts receivable, less allowance
for doubtful accounts 26,724 27,572
Inventories, at lower of average cost or market:
Finished goods 5,829 3,466
Work in process 6,519 7,759
Raw materials and purchased parts 9,340 10,019
-------- --------
21,688 21,244
Deferred income taxes 9,413 9,413
Prepaid expenses 1,058 973
-------- --------
Total current assets 91,923 88,076
Property, plant and equipment, at cost:
Land and land improvements 2,114 1,150
Buildings and building improvements 11,661 10,355
Machinery and equipment 13,683 11,697
-------- --------
27,458 23,202
Less accumulated depreciation and amortization 10,735 10,031
-------- --------
Net property, plant and equipment 16,723 13,171
Goodwill, net 2,547 2,626
Other assets 61 61
-------- --------
$111,254 $103,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,426 $ 7,453
Income taxes payable 1,638 7,062
Other accrued liabilities 15,847 16,333
-------- --------
Total current liabilities 22,911 30,848
Accrued retiree medical benefits 903 859
Deferred income taxes 198 198
Stockholders' equity:
Preferred stock -- --
Common stock 9,272 9,092
Paid in excess of par 4,734 4,252
Retained earnings 73,236 58,685
-------- --------
Total stockholders' equity 87,242 72,029
-------- --------
$111,254 $103,934
======== ========
See accompanying notes.
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $ 45,864 $ 45,212 $ 96,096 $ 77,394
Cost and expenses:
Cost of sales 24,798 27,944 52,146 47,845
Research and development 3,823 2,690 7,351 4,925
Selling, general and administrative 5,430 6,529 12,303 10,919
-------- -------- -------- --------
Income from operations 11,813 8,049 24,296 13,705
Interest income 369 93 780 127
Interest expense -- (2) -- (12)
-------- -------- -------- --------
Income before income taxes 12,182 8,140 25,076 13,820
Provision for income taxes 4,600 3,200 9,600 5,400
-------- -------- -------- --------
Net income $ 7,582 $ 4,940 $ 15,476 $ 8,420
======== ======== ======== ========
Net income per share $ .78 $ .52 $ 1.59 $ .89
======== ======== ======== ========
Average common shares and equivalents 9,703 9,538 9,704 9,467
======== ======== ======== ========
See accompanying notes.
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 15,476 $ 8,420
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 812 870
Daymarc earnout to be paid in stock 662 --
Increase in accrued retiree medical benefits 44 29
Changes in assets and liabilities:
Accounts receivable 848 (4,472)
Inventories (444) 997
Prepaid expenses (85) 24
Accounts payable (2,027) 5,390
Income taxes payable (5,424) (942)
Other accrued liabilities (1,148) 273
-------- --------
Net cash provided from operating activities 8,714 10,589
Cash flows from investing activities:
Purchases of property, plant, equipment and other assets (4,285) (381)
-------- --------
Net cash used for investing activities (4,285) (381)
Cash flows from financing activities:
Reduction in long-term borrowings -- (1,400)
Issuance of stock, net 662 487
Cash dividends (925) (672)
-------- --------
Net cash used for financing activities (263) (1,585)
-------- --------
Net increase in cash and cash equivalents 4,166 8,623
Cash and cash equivalents at beginning of period 28,874 3,096
-------- --------
Cash and cash equivalents at end of period $ 33,040 $ 11,719
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 15,004 $ 6,312
Interest -- 12
See accompanying notes.
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1 - The accompanying interim financial statements are unaudited but include all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair statement of the results for the period. The
operating results for the three and six months ended June 30, 1996 are not
necessarily indicative of the operating results for the entire year or any
future period. These financial statements should be read in conjunction with
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. Reclassification
has been made to certain prior year and period amounts to conform to the
1996 presentation.
2 - Per share information is based on the weighted average number of shares
outstanding during each period and the dilutive effect of the assumed
exercise of stock options.
3 - In May 1996, the Company entered into a $5,000,000 unsecured bank line of
credit agreement with its primary bank. The agreement expires in May 1998
and requires compliance with certain financial covenants. No borrowings were
outstanding at June 30, 1996.
4 - In May 1996, Cohu, Inc. stockholders approved an increase in the Company's
authorized shares of common stock from 10,000,000 to 25,000,000 shares and
the adoption of the Cohu, Inc. 1996 Stock Option Plan providing for the
issuance of up to 450,000 shares of common stock.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1996
RESULTS OF OPERATIONS
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
Net sales increased 1% to $45.9 million in the second quarter of 1996 compared
to net sales of $45.2 million in the second quarter of 1995. Sales of
semiconductor test handling equipment were essentially unchanged in the second
quarter of 1996 compared to the second quarter of 1995 and accounted for 81% of
consolidated net sales in the second quarter of 1996. Sales of television
cameras and equipment increased 9% while the combined sales of metal detection
and microwave equipment increased 2% over 1995. Gross margin as a percentage of
net sales in the second quarter of 1996 was approximately 46% versus 38% in
1995, primarily as a result of improved margins in the semiconductor equipment
business. Within the semiconductor equipment segment margins improved due to
significantly reduced provisions for excess and obsolete inventories and, to a
lesser extent, production efficiencies. Research and development expense as a
percentage of net sales was 8% in the second quarter of 1996 up from 6% in 1995
and reflected the Company's continued investment in new product development in
the semiconductor equipment business. Selling, general and administrative
expense decreased as a percentage of net sales from 14% to 12% in part due to
the inclusion of charges for certain reserves in the 1995 period that were not
recurring in the 1996 period. Interest income in the quarter increased to $.4
million due to the significant increase in cash and cash equivalents. The
provision for income taxes expressed as a percentage of pre-tax income was 38%
in the second quarter of 1996 and 39% for the year ended December 31, 1995. For
the second quarter, as a result of the factors set forth above, net income
increased 53% to $7.6 million in 1996 from $4.9 million in 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales increased 24% to $96.1 million in the first six months of 1996
compared to net sales of $77.4 million in the first six months of 1995. Sales of
semiconductor test handling equipment by the Company's Delta Design and Daymarc
subsidiaries increased an aggregate of 29% over sales in the first six months of
1995 and accounted for 82% of consolidated net sales in the first six months of
1996. Sales of television cameras and equipment and the combined sales of metal
detection and microwave equipment each increased 7% over 1995. Gross margin as a
percentage of net sales in the first six months 1996 was approximately 46%
versus 38% in the first six months of 1995. The increase in margin was due to
the increased percentage of total net sales attributable to semiconductor
equipment in 1996 which has higher margins than television and other equipment.
Within the semiconductor equipment segment margins improved primarily due to
significantly reduced provisions for excess and obsolete inventories as a
percentage of net sales in 1996 and, to a lesser extent, production
efficiencies, volume material purchase discounts and price increases in certain
product lines. Research and development expense as a percentage of net sales was
7.6% in the first six months of 1996 versus 6.4% in 1995 and reflected the
Company's continued investment in new product development in the semiconductor
equipment business. Selling, general and administrative expense decreased as a
percentage of net sales from 14% to 13% in part due to the inclusion of charges
for certain reserves in the 1995 period that were not recurring in the 1996
period. Interest income in the period increased to $.8 million due to the
significant increase in cash and cash equivalents. The provision for income
taxes expressed as a percentage of pre-tax income was 38% in the first six
months of 1996 down from 39% for the year ended December 31, 1995. For the six
month period, as a result of the factors set forth above, net income increased
84% to $15.5 million in 1996 from $8.4 million in 1995.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
JUNE 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
six months of 1996 totaled $8.7 million. The major components of cash flows from
operating activities were net income of $15.5 million offset by decreases in
accounts payable, income taxes payable and other accrued liabilities totaling
$8.6 million. Net cash used for investing activities was $4.3 million and was
used for the purchase of property, plant and equipment. Net cash used for
financing activities was $.3 million. Cash used for financing activities
included $.9 million for the payment of dividends offset by $.7 million received
from the issuance of stock upon the exercise of stock options. The Company has
$5 million available under its bank line of credit and working capital of $69
million at June 30, 1996. It is anticipated that present working capital, cash
generated from operations and available borrowings under the line of credit will
be sufficient to meet the Company's 1996 operating requirements and the
remaining anticipated capital expenditures for 1996 of approximately $2 million.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the semiconductor
test handling equipment business conducted through its Delta Design and Daymarc
subsidiaries. This capital equipment business is in turn highly dependent on the
overall strength of the semiconductor industry. Historically, the semiconductor
industry has been highly cyclical with recurring periods of oversupply, which
often have had a significant effect on the semiconductor industry's demand for
capital equipment, including equipment of the type manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors may also be subject to similar fluctuations. In recent periods,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the semiconductor capital equipment industry.
There can be no assurance that such growth can be sustained. A reduction in
capital equipment investment by semiconductor manufacturers would adversely
affect the Company's results of operations.
The Company's order backlog declined to $38.1 million at June 30, 1996 from
$45.4 million at December 31, 1995. This reduction in backlog is primarily
related to the Company's semiconductor equipment business. The decline in the
Company's backlog and recent announcements by certain semiconductor and
semiconductor equipment manufacturers indicate there has been a slowdown in
demand for certain semiconductors and related equipment. In addition, continued
DRAM price declines in recent months have negatively impacted the profitability
of DRAM manufacturers which may impact future capital equipment purchases. These
factors may negatively affect the Company's operating results in the second half
of 1996.
During this period of uncertainty in the semiconductor equipment industry the
Company will attempt to keep its production capacity, labor force and other
aspects of its cost structure in line with expected demand. If the slowdown in
the semiconductor equipment industry continues, it is likely that the Company
will reduce its current work force. Cost reduction programs may have a temporary
negative impact on the Company's operations and operating results. Furthermore,
no assurance can be made that such cost reduction programs will be implemented
successfully.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont.)
JUNE 30, 1996
As is common in the industry, the Company relies on a limited number of
customers for a substantial percentage of its net sales (two customers accounted
for 32% of net sales in the first six months of 1996 and also 35% of net sales
for the year ended December 31, 1995). The loss of or a significant reduction in
orders by either of these or other significant customers not compensated for by
other customer orders could adversely impact the Company's annual and quarter to
quarter results of operations.
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products that enable semiconductor
manufacturers to more efficiently handle and test semiconductors. Failure to
introduce new products in a timely manner, the introduction by competitors of
products with perceived or actual advantages or disputes over rights of the
Company or its competitors to use certain intellectual property or technology
could result in a loss of competitive position and reduced sales of existing
products. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully as introductions of
new products could adversely impact sales of existing products.
Due to these and other factors, historical results may not necessarily be
indicative of results of operations for any future period. In addition, certain
matters discussed above are forward looking statements that are subject to the
risks and uncertainties noted herein and the other risks and uncertainties
listed from time to time in the Company's filings with the Securities and
Exchange Commission, including but not limited to the 1995 Annual Report on Form
10-K, that could cause actual results to differ materially from those projected
or forecasted.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 7, 1996. At the meeting, the
following directors were elected:
Director Number of Common Shares Voted
- -------- ------------------------------------
For Against Abstain
--------- ------- -------
Charles A. Schwan 8,322,806 2,138 389,964
Gene E. Leary 8,322,806 2,138 389,964
The directors continuing in office until 1997 or 1998 are James W. Barnes, Harry
L. Casari, Frank W. Davis, and William S. Ivans.
In addition, the stockholders approved the following proposals:
Proposal Number of Common Shares Voted
- -------- -------------------------------------
For Against Abstain
--------- --------- -------
To increase the Company's authorized
shares of Common Stock 7,036,709 1,639,286 38,912
To approve the Cohu, Inc. 1996
Stock Option Plan 7,815,780 818,327 77,500
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
10.1 - Credit Agreement between Cohu, Inc. and Bank of America
National Trust and Savings Association.
27.1 - Financial Data Schedule (Filed electronically)
(B) Reports on Form 8-K: The Company did not file any reports on Form
8-K during the quarter ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHU, INC.
------------------------------
(Registrant)
Date: July 30, 1996 /s/ Charles A. Schwan
------------- ------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: July 30, 1996 /s/ John H. Allen
------------- ------------------------------
John H. Allen
Vice President, Finance & Chief Financial Officer
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(A) Exhibits:
10.1 - Credit Agreement between Cohu, Inc. and Bank of America National
Trust and Savings Association.
27.1 - Financial Data Schedule (Filed electronically)
(B) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended June 30, 1996.