1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[X] 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, 1997, the Registrant had 9,439,287 shares of its $1.00 par value
common stock outstanding.
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COHU, INC.
INDEX
FORM 10-Q
JUNE 30, 1997
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996............................ 3
Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1997 and 1996.......................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1997 and 1996.................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 7
PART II OTHER INFORMATION
Item 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)
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,509 $24,660
Short-term investments 36,550 28,326
Accounts receivable, less allowance
for doubtful accounts 27,240 19,170
Inventories, at lower of average cost or market:
Finished goods 3,229 2,395
Work in process 11,803 6,012
Raw materials 10,028 7,175
------------- -----------------
25,060 15,582
Deferred income taxes 9,681 9,681
Prepaid expenses 1,107 1,166
------------- -----------------
Total current assets 117,147 98,585
Property, plant and equipment, at cost:
Land and land improvements 2,114 2,114
Buildings and building improvements 12,106 11,932
Machinery and equipment 15,521 14,069
------------- -----------------
29,741 28,115
Less accumulated depreciation and amortization 11,999 11,304
------------- -----------------
Net property, plant and equipment 17,742 16,811
Goodwill, net 2,391 2,469
Other assets 105 61
------------- -----------------
$137,385 $117,926
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,999 $4,464
Income taxes payable 3,584 1,552
Other accrued liabilities 14,172 14,566
------------- -----------------
Total current liabilities 28,755 20,582
Accrued retiree medical benefits 960 916
Deferred income taxes 156 156
Stockholders' equity:
Preferred stock -- --
Common stock 9,439 9,341
Paid in excess of par 6,496 5,863
Retained earnings 91,579 81,068
------------- -----------------
Total stockholders' equity 107,514 96,272
------------- -----------------
$137,385 $117,926
============= =================
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,
1997 1996 1997 1996
------- ------- ------- -------
Net sales $44,642 $45,864 $79,404 $96,096
Cost and expenses:
Cost of sales 25,100 24,798 45,008 52,146
Research and development 4,264 3,823 7,525 7,351
Selling, general and administrative 5,169 5,430 9,986 12,303
------- ------- ------- -------
Income from operations 10,109 11,813 16,885 24,296
Interest income 717 369 1,455 780
------- ------- ------- -------
Income before income taxes 10,826 12,182 18,340 25,076
Provision for income taxes 3,900 4,600 6,700 9,600
------- ------- ------- -------
Net income $6,926 $7,582 $11,640 $15,476
======= ======= ======= =======
Net income per share $.70 $.78 $1.18 $1.59
======= ======= ======= =======
Average common shares and equivalents 9,888 9,703 9,845 9,704
======= ======= ======= =======
See accompanying notes.
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
SIX MONTHS ENDED
JUNE 30,
1997 1996
-------- --------
Cash flows from operating activities:
Net income $11,640 $15,476
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 800 812
Purchase consideration to be paid in stock 262 662
Increase in accrued retiree medical benefits 44 44
Changes in assets and liabilities:
Accounts receivable (8,070) 848
Inventories (9,478) (444)
Prepaid expenses 59 (85)
Accounts payable 6,535 (2,027)
Income taxes payable 2,032 (5,424)
Other accrued liabilities (656) (1,148)
-------- --------
Net cash provided from operating activities 3,168 8,714
Cash flows from investing activities:
Purchases of short-term investments (18,834) --
Maturities of short-term investments 10,610 --
Purchases of property, plant, equipment and other assets (1,697) (4,285)
-------- --------
Net cash used for investing activities (9,921) (4,285)
Cash flows from financing activities:
Issuance of stock, net 731 662
Cash dividends (1,129) (925)
-------- --------
Net cash used for financing activities (398) (263)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,151) 4,166
Cash and cash equivalents at beginning of period 24,660 28,874
-------- --------
Cash and cash equivalents at end of period $17,509 $33,040
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Income taxes $4,682 $15,004
See accompanying notes.
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COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1 - The accompanying interim financial statements are unaudited but include
all adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair statement of the results for the
period. The operating results for the three and six months ended June 30,
1997 are not necessarily indicative of the operating results for the entire
year or any future period. These financial statements should be read in
conjunction with the consolidated financial statements incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2 - Net income per share as presented on the statements of income represent
primary earnings per share. Dual presentation of primary and fully diluted
earnings per share has not been made because the differences are
insignificant.
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share." At that time, the
Company will be required to change the method currently used to calculate
earnings per share and to restate all prior periods. The new requirements
will include a calculation of basic earnings per share, from which the
dilutive effect of stock options will be excluded. The basic earnings per
share are expected to reflect an increase of $.04 and $.06 per share for
the three and six month periods ended June 30, 1997, respectively, over the
primary earnings per share reported for these periods. A calculation of
diluted earnings per share will also be required; however, this is not
expected to differ materially from the primary earnings per share reported
for the three and six-month periods ended June 30, 1997 and 1996.
3 - On May 6, 1997 the stockholders of the Company approved the adoption of (i)
the Cohu, Inc. 1997 Employee Stock Purchase Plan providing for the issuance
of a maximum of 300,000 shares of the Company's Common Stock to employees
and (ii) the Cohu, Inc. 1996 Outside Directors Stock Option Plan providing
for the issuance of a maximum of 100,000 shares of the Company's Common
Stock to Outside Directors.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1997
RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Net sales decreased 3% to $44.6 million in the second quarter of 1997 compared
to net sales of $45.9 million in 1996. Sales of semiconductor test handling
equipment by the Company's Delta Design and Daymarc subsidiaries decreased 3% in
the second quarter of 1997 as compared to the second quarter of 1996 and
accounted for 80% of consolidated net sales versus 81% in the second quarter of
1996. Sales of television cameras and other equipment were virtually unchanged
from 1996 and accounted for 20% of consolidated net sales in the second quarter
of 1997 versus 19% in 1996. Gross margin as a percentage of net sales in the
second quarter of 1997 was 43.8% versus 45.9% in 1996. The decrease in margin
was primarily due to the decline in margins within the semiconductor equipment
segment largely attributable to reduced business volume, changes in product mix
and certain cost increases. Research and development expense as a percentage of
net sales was 9.6% in the second quarter of 1997 compared to 8.3% in 1996 and
reflected the Company's continued investment in new product development in the
semiconductor equipment business. Selling, general and administrative expense as
a percentage of net sales was approximately 12% in both the 1997 and 1996
periods. Interest income in the second quarter increased 94% to $.7 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 36%
in the second quarter of 1997 versus 37.6% for the year ended December 31, 1996.
For the second fiscal quarter, as a result of the factors set forth above, net
income decreased 9% to $6.9 million in 1997 from $7.6 million in 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales decreased 17% to $79.4 million in the first six months of 1997
compared to net sales of $96.1 million in 1996. Sales of semiconductor test
handling equipment by the Company's Delta Design and Daymarc subsidiaries
decreased 21% in the first six months of 1997 and accounted for 78% of
consolidated net sales versus 82% in the first six months of 1996. Sales of
television cameras and other equipment decreased 1% from 1996 and accounted for
22% of consolidated net sales in the first six months of 1997 versus 18% in
1996. Gross margin as a percentage of net sales in the first six months of 1997
was 43.3% versus 45.7% in 1996. The decrease in margin was primarily due to the
decline in margins within the semiconductor equipment segment largely
attributable to reduced business volume, changes in product mix and certain cost
increases. Research and development expense as a percentage of net sales was
9.5% in the first six months of 1997 compared to 7.6% in 1996 and reflected the
Company's continued investment in new product development in the semiconductor
equipment business. Selling, general and administrative expense as a percentage
of net sales was approximately 13% in both the 1997 and 1996 periods. Interest
income in the 1997 period increased 87% to $1.5 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 36.5% in the first
six months of 1997 versus 37.6% for the year ended December 31, 1996. As a
result of the factors set forth above, net income decreased 25% to $11.6 million
in the first six months of 1997 from $15.5 million in the 1996 period.
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
six months of 1997 totaled $3.2 million. The major components of cash flows from
operating activities were net income of $11.6 million and increases in accounts
payable of $6.5 million and income taxes payable of $2 million offset by
increases in accounts receivable of $8.1 million and inventories of $9.5
million. Net cash used for investing activities was $9.9 million and was used
for the purchase of short-term investments, less maturities ($8.2 million) and
property, plant and equipment. Net cash used for financing activities was $.4
million. Cash used for financing activities included $1.1 million for the
payment of dividends offset by $.7 million received from the issuance of stock
upon the exercise of stock options. The Company had $5 million available under
its bank line of credit and working capital of $88.4 million at June 30, 1997.
It is anticipated that present working capital and available borrowings under
the line of credit will be sufficient to meet the Company's 1997 operating
requirements and the remaining anticipated capital expenditures for 1997 of
approximately $3 million.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the semiconductor
test handling equipment business conducted through its Delta Design and Daymarc
subsidiaries. This capital equipment business is in turn highly dependent on the
overall strength of the semiconductor industry. Historically, the semiconductor
industry has been highly cyclical with recurring periods of oversupply, which
often have had a significant effect on the semiconductor industry's demand for
capital equipment, including equipment of the type manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors may also be subject to similar cycles and downturns such as that
experienced in 1996. Reductions in capital equipment investment by semiconductor
manufacturers will adversely affect the Company's results of operations.
As is common in the semiconductor equipment industry, the Company relies on a
limited number of customers for a substantial percentage of its net sales. The
loss of or a significant reduction in orders by these customers would adversely
impact the Company's results of operations. Furthermore, the concentration of
the Company's revenues in a limited number of large customers may cause
significant fluctuations in the Company's future annual and quarterly operating
results.
The semiconductor equipment industry is intensely competitive and the Company
faces substantial competition from numerous companies throughout the world. Some
of these competitors have substantially greater financial, engineering,
manufacturing and customer support capabilities than the Company. In addition,
there are smaller, emerging semiconductor equipment companies that provide or
may provide innovative technology incorporated in products that may compete
favorably against those of the Company. The Company expects its competitors to
continue to improve the design and performance of their current products and to
introduce new products with improved performance capabilities. Failure to
introduce new products in a timely manner, the introduction by competitors of
products with perceived or actual advantages or disputes over rights of the
Company or its competitors to use certain intellectual property or
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1997
BUSINESS RISKS AND UNCERTAINTIES (cont.)
technology could result in a loss of the Company's competitive position and
reduced sales of and margins on existing products.
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products with improved performance
capabilities. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully as introductions of
new products could adversely impact sales of existing products. There can be no
assurance that future technologies, processes and product developments will not
render the Company's current product offerings obsolete or that the Company will
be able to develop and introduce new products or enhancements to its existing
products in a timely manner to satisfy customer needs or achieve market
acceptance.
Due to these and other factors, historical results may not be indicative of
results of operations for any future period. In addition, certain matters
discussed above are forward-looking statements that are subject to the risks and
uncertainties noted herein and the other risks and uncertainties listed from
time to time in the Company's filings with the Securities and Exchange
Commission, including but not limited to the 1996 Annual Report on Form 10-K,
that could cause actual results to differ materially from those projected or
forecasted. The Company undertakes no obligation to update the information,
including the forward-looking statements, in this Form 10-Q.
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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 6, 1997. At the meeting, the
following directors were elected:
Number of Common Shares Voted
--------------------------------
DIRECTOR For Withhold Authority
- -------- --------- ------------------
Frank W. Davis 8,885,797 41,840
Harry L. Casari 8,887,483 40,154
The directors continuing in office until 1998 or 1999 are James W. Barnes,
William S. Ivans, Gene E. Leary and Charles A. Schwan.
In addition, the stockholders approved the following proposals:
Number of Common Shares Voted
-----------------------------------
PROPOSAL For Against Abstain
- -------- --------- --------- -------
To approve the Cohu, Inc. 1997 Employee
Stock Purchase Plan 8,273,070 608,108 67,935
To approve the Cohu, Inc. 1996
Outside Directors Stock Option Plan 7,641,876 1,235,095 103,840
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.8(a) - Amendment to Cohu, Inc. 1996 Stock Option Plan
27.1 - Financial Data Schedule
(b) Reports on Form 8-K: The Company did not file any
reports on Form 8-K during the quarter ended June 30,
1997.
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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, 1997 /s/ Charles A. Schwan
------------------------ ------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: July 30, 1997 /s/ John H. Allen
------------------------ ------------------------------
John H. Allen
Vice President, Finance & Chief Financial
Officer
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Exhibit 10.8(a)
AMENDMENT TO COHU, INC. 1996 STOCK OPTION PLAN
Pursuant to the authority granted to the Board of Directors of Cohu, Inc., a
Delaware corporation (the "Corporation"), on February 6, 1997 the Board of
Directors of the Corporation amended the Cohu, Inc. 1996 Stock Option Plan (the
"Plan") by replacing Section 2.1 of the Plan in its entirety with the following:
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 in the Plan to the term
"Committee" shall also include the Employee Option Committee, as the case
may be.
/s/ Charles A. Schwan
------------------------------
Charles A. Schwan, Director
/s/ John H. Allen
------------------------------
John H. Allen, Secretary
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1,000
6-MOS
DEC-31-1996
JAN-01-1997
JUN-30-1997
17,509
36,550
27,240
0
25,060
117,147
29,741
11,999
137,385
28,755
0
9,439
0
0
98,075
137,385
79,404
79,404
45,008
45,008
0
0
0
18,340
6,700
11,640
0
0
0
11,640
1.18
0.00
