1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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) (619) 277-6700 Registrant's telephone number, including area code 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 ----- ----- 9,004,944 (Number of shares of common stock outstanding as of September 30, 1995) 1
2 COHU, INC. INDEX Part I - ------ Financial Information: Consolidated Balance Sheets (Unaudited) September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . 3 Consolidated Statements of Income (Unaudited) Three and Nine Months Ended September 30, 1995 and 1994 . . . . . . 4 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . 5 Notes to Unaudited Consolidated Financial Statements . . . . . . . 6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 7 Part II - ------- Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2
3 COHU, INC. CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> ASSETS September 30, 1995 December 31, 1994 ------------------- ----------------- (Unaudited) <S> <C> <C> Current assets: Cash and cash equivalents $20,391 $ 3,096 Accounts receivable, less allowance for doubtful accounts 28,124 20,487 Inventories, at lower of average cost or market: Finished goods 4,589 3,920 Work in process 9,332 8,800 Material and parts 11,523 15,721 ------- ------- 25,444 28,441 Deferred income taxes 3,250 3,250 Prepaid expenses 622 638 ------- ------- Total current assets 77,831 55,912 Property, plant and equipment, at cost: Land and land improvements 150 150 Buildings and building improvements 7,815 7,721 Machinery and electronic test equipment 7,655 7,314 Office furniture and fixtures 3,553 3,251 ------- ------- 19,173 18,436 Less accumulated depreciation and amortization 10,406 9,357 ------- ------- Net property, plant and equipment 8,767 9,079 Goodwill, net 2,940 3,315 Other assets 62 62 ------- ------- $89,600 $68,368 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $12,830 $ 6,382 Income taxes payable 593 1,930 Other accrued liabilities 12,411 9,520 ------- ------- Total current liabilities 25,834 17,832 Long-term note payable to bank -- 1,400 Accrued retiree medical benefits 844 801 Deferred income taxes 964 964 Stockholders' equity: Preferred stock -- -- Common stock 9,005 8,810 Paid in excess of par 2,609 2,105 Retained earnings 50,344 36,456 ------- ------- Total stockholders' equity 61,958 47,371 ------- ------- $89,600 $68,368 ======= ======= </TABLE> See accompanying notes 3
4 COHU, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 --------- --------- --------- --------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> Net sales $ 49,035 $ 31,703 $ 126,429 $ 71,833 Cost and expenses: Cost of sales 29,527 19,905 76,203 44,367 Research and development 2,635 2,102 7,560 5,351 Selling, general and administrative 6,411 4,600 18,499 10,970 --------- --------- --------- --------- Income from operations 10,462 5,096 24,167 11,145 Interest income 238 -- 365 20 Interest expense -- (104) (12) (129) --------- --------- --------- --------- Income before income taxes 10,700 4,992 24,520 11,036 Provision for income taxes 4,200 1,960 9,600 4,200 --------- --------- --------- --------- Net income $ 6,500 $ 3,032 $ 14,920 $ 6,836 ========= ========= ========= ========= Net income per share $ .67 $ .33 $ 1.56 $ .78 ========= ========= ========= ========= </TABLE> See accompanying notes 4
5 COHU, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, 1995 1994 -------- -------- (Unaudited) <S> <C> <C> Cash flows from operating activities: Net income $ 14,920 $ 6,836 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 1,457 777 Increase in accrued retiree medical benefits 43 44 Changes in assets and liabilities, net of effects from purchase of Daymarc: Accounts receivable (7,637) (13,181) Inventories 2,997 (3,668) Prepaid expenses 16 (41) Accounts payable 6,448 6,140 Income taxes payable (1,337) 115 Other accrued liabilities 2,891 (299) -------- -------- Net cash provided by (used for) operating activities 19,798 (3,277) Cash flows from investing activities: Purchase of equipment (770) (522) Other assets -- (30) Purchase of Daymarc, net of cash acquired -- (3,590) -------- -------- Net cash used for investing activities (770) (4,142) Cash flows from financing activities: Proceeds from long-term borrowings -- 4,000 Reduction in long-term borrowings (1,400) -- Proceeds from short-term borrowings -- 700 Issuance of stock 699 194 Dividends paid (1,032) (753) -------- -------- Net cash provided by (used for) financing activities (1,733) 4,141 -------- -------- Net increase (decrease) in cash and cash equivalents 17,295 (3,278) Cash and cash equivalents at beginning of period 3,096 3,911 -------- -------- Cash and cash equivalents at end of period $ 20,391 $ 633 ======== ======== </TABLE> See accompanying notes 5
6 COHU, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1 - The accompanying financial information is unaudited but includes all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair statement of the results for the period. The operating results for the three and nine months ended September 30, 1995 are not necessarily indicative of the operating results to be expected for the entire year. 2 - Per share information is based on the weighted average common and common equivalent shares outstanding during each period. All share and per share amounts have been retroactively restated for a two-for-one stock split effective June 6, 1995. Shares used in the calculation of net income per share for the three and nine month periods ended September 30, 1995 were 9,670,000 and 9,535,000 shares, respectively. 3 - 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 Company's consolidated financial statements include the results of Daymarc from June 22, 1994 forward. Assuming that the acquisition of Daymarc had occurred on the first day of the Company's year ended December 31, 1994, pro forma condensed consolidated results of operations for 1994 would be as follows: Pro Forma Results of Operations (in thousands, except per share data) (unaudited) Nine Months Ended September 30, 1994 ------------------ Net sales $ 84,095 Net income 8,406 Net income per share .92 These results give effect to pro forma adjustments that include the amortization of goodwill, issuance of shares of Cohu common stock and interest expense on long-term debt. This pro forma information is not necessarily indicative of the actual results that would have been achieved had Daymarc been acquired the first day of the Company's year ended December 31, 1994. 4 - On October 17, 1995 the Company's wholly-owned subsidiary Daymarc, Inc. entered into an agreement to acquire land and a building near Boston, Massachusetts for approximately $4,200,000. The facility will be utilized by the Company's Daymarc subsidiary. The transaction, which is subject to normal closing conditions, will be funded with available cash and is expected to be completed in November 1995. 6
7 COHU, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's results are substantially dependent on the operations of the semiconductor test handling equipment business conducted by its wholly-owned subsidiaries, Delta Design and Daymarc. This capital equipment business is in turn highly dependent on the overall strength of the semiconductor industry. Worldwide demand for semiconductors has historically been subject to substantial cyclical swings of varying duration and magnitude, and is currently in a period of strength. The Company's favorable results in recent periods are in large part reflective of this current strength in the semiconductor industry. The Company cannot predict how long the current favorable conditions in the industry will continue. The Company's backlog can be expected to decline concurrently with or possibly in advance of the next period of relative weakness in worldwide demand for semiconductors. The Company attempts to keep its production capacity, labor force and other aspects of its cost structure in line with expected demand. THIRD QUARTER 1995 COMPARED TO THIRD QUARTER 1994 Net sales increased 55% to $49,035,000 in 1995 compared to sales of $31,703,000 in 1994. Sales of semiconductor test handling equipment increased 76% in 1995 due to increased sales of such equipment by Delta Design and Daymarc. Sales of this equipment accounted for 83% of consolidated sales. Sales of television cameras and equipment decreased 8% while the combined sales of metal detection and microwave equipment increased 8% in 1995. Gross margin as a percentage of sales increased to 40% for 1995 compared to 37% for 1994, due to a larger percentage of total sales derived from test handling equipment that has a higher gross margin than other products. Research and development expense increased from $2,102,000 to $2,635,000, however, as a percentage of net sales, decreased to 5% in 1995 from 7% in 1994. Selling, general and administrative expense decreased to 13% in 1995 from 15% in 1994 due to the fixed component of such costs being spread over increased net sales. The provision for income taxes expressed as a percentage of pre-tax income was 39% in 1995 and for the year ended December 31, 1994. Net income increased 114% to $6,500,000 in 1995 from $3,032,000 in 1994. NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994 Net sales increased 76% to $126,429,000 in 1995 compared to sales of $71,833,000 in 1994. The increase in sales was primarily attributable to increased shipments of semiconductor test handling equipment at Delta Design and the addition of Daymarc's operating results for the entire 1995 period. Sales of this equipment accounted for 80% of consolidated sales and increased 108% over the 1994 period. Sales of television cameras and equipment increased 8%, while the combined sales of metal detection and microwave equipment increased 7% in 1995. Gross margin increased to 40% of sales in 1995 from 38% of sales in 1994 due to a larger percentage of total sales derived from test handling equipment that has a higher gross margin than other products. Research and development expense increased from $5,351,000 to $7,560,000, however, as a percentage of sales, decreased to 6% in 1995 from 7% in 1994. Selling, general and administrative expense as a percentage of sales remained constant at 15%. The provision for income taxes as a percentage of pre-tax income was 39% in 1995 and for the year ended December 31, 1994. Net income increased 118% to $14,920,000 in 1995 from $6,836,000 in 1994. 7
8 COHU, INC. LIQUIDITY - The Company's net cash flows generated from operating activities totalled $19,798,000 for the nine months ended September 30, 1995. Accounts receivable increased $7,637,000 due to higher sales. Inventory decreased $2,997,000 as inventory turnover increased and accounts payable increased $6,448,000 mainly due to purchases related to inventory. Net cash used for investing activities was $770,000 for the purchase of equipment. Net cash used for financing activities was $1,733,000. Cash used by financing activities included a $1,400,000 final payment on long-term borrowings and $1,032,000 for dividends. The Company has $3,000,000 available under its current short-term line of credit and working capital of $51,997,000. It is anticipated that present working capital, profitable operations and available borrowings under the credit line will be sufficient to meet the Company's normal operating requirements and the remaining anticipated capital expenditures for 1995 of approximately $6,000,000. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: A list of exhibits is set forth in the Exhibit Index found on page 10 of this report. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the quarter ended September 30, 1995. 8
9 COHU, INC. 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: November 8, 1995 /s/ J.W. Barnes ----------------------------- ----------------------------- J. W. Barnes President & Chief Executive Officer Date: November 8, 1995 /s/ John H. Allen ----------------------------- ----------------------------- John H. Allen Vice President, Finance & Chief Financial Officer 9
10 COHU, INC. EXHIBIT INDEX Exhibit: - -------- 10.1 Purchase and Sale Agreement dated October 17, 1995 between Daymarc, Inc. and DOE Partners, L.P. 27 Financial Data Schedule 10