<PAGE> 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 MARCH 31, 1998
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 March 31, 1998, the Registrant had 9,704,808 shares of its $1.00 par value
common stock outstanding.
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COHU, INC.
INDEX
FORM 10-Q
MARCH 31, 1998
PART I FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Condensed Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997......................3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1998 and 1997............................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 1997............................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 2. Changes in Securities.................................................10
Item 6. Exhibits and Reports on Form 8-K......................................10
Signatures ....................................................................10
</TABLE>
2
<PAGE> 3
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
--------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 49,008 $ 39,736
Short-term investments 4,999 13,814
Accounts receivable, less allowance for doubtful
accounts of $1,754 in 1998 and $1,787 in 1997 35,466 31,934
Inventories:
Raw materials and purchased parts 22,702 21,224
Work in process 14,238 15,657
Finished goods 12,407 8,018
-------- --------
49,347 44,899
Deferred income taxes 9,669 9,669
Prepaid expenses 1,362 1,478
-------- --------
Total current assets 149,851 141,530
Property, plant and equipment, at cost:
Land and land improvements 2,501 2,501
Buildings and building improvements 12,012 11,906
Machinery and equipment 18,263 17,524
-------- --------
32,776 31,931
Less accumulated depreciation and amortization 13,505 12,982
-------- --------
Net property, plant and equipment 19,271 18,949
Goodwill, net of accumulated amortization
of $854 in 1998 and $815 in 1997 2,273 2,312
Other assets 96 101
-------- --------
$171,491 $162,892
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,263 $ 16,166
Income taxes payable 6,698 3,421
Other accrued liabilities 14,125 15,742
-------- --------
Total current liabilities 35,086 35,329
Accrued retiree medical benefits 1,027 1,004
Deferred income taxes 348 348
Stockholders' equity:
Preferred stock -- --
Common stock 9,705 9,549
Paid in excess of par 9,901 8,677
Retained earnings 115,424 107,985
-------- --------
Total stockholders' equity 135,030 126,211
-------- --------
$171,491 $162,892
======== ========
</TABLE>
See accompanying notes
3
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COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------- -------
<S> <C> <C>
Net sales $56,691 $34,762
Cost and expenses:
Cost of sales 33,367 19,908
Research and development 5,401 3,261
Selling, general and administrative 6,176 4,817
------- -------
44,944 27,986
------- -------
Income from operations 11,747 6,776
Interest income 769 738
------- -------
Income before income taxes 12,516 7,514
Provision for income taxes 4,300 2,800
------- -------
Net income $ 8,216 $ 4,714
======= =======
Earnings per share:
Basic $ .85 $ .50
======= =======
Diluted $ .82 $ .48
======= =======
Weighted average shares used in
computing earnings per share:
Basic 9,687 9,348
======= =======
Diluted 10,067 9,802
======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,216 $ 4,714
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 561 402
Purchase consideration to be paid with stock 286 58
Increase in accrued retiree medical benefits 23 21
Changes in assets and liabilities:
Accounts receivable (3,532) (6,617)
Inventories (4,448) (3,267)
Prepaid expenses 116 (73)
Accounts payable (1,903) 3,779
Income taxes payable 3,277 2,835
Other accrued liabilities (1,903) (1,654)
-------- --------
Net cash provided from operating activities 693 198
Cash flows from investing activities:
Purchases of short-term investments (4,000) (14,347)
Maturities of short-term investments 12,815 --
Purchases of property, plant, equipment and other assets (839) (630)
-------- --------
Net cash provided by (used for) investing activities 7,976 (14,977)
Cash flows from financing activities:
Issuance of stock, net 1,380 341
Cash dividends (777) (563)
-------- --------
Net cash provided by (used for) financing activities 603 (222)
-------- --------
Net increase (decrease) in cash and cash equivalents 9,272 (15,001)
Cash and cash equivalents at beginning of period 39,736 24,660
-------- --------
Cash and cash equivalents at end of period $ 49,008 $ 9,659
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 1,228 $ 2
</TABLE>
See accompanying notes.
5
<PAGE> 6
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1 - BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited but include
all adjustments (consisting of normal recurring adjustments) which Cohu,
Inc. (the "Company") considers necessary for a fair statement of the
results for the period. The operating results for the three months ended
March 31, 1998 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, 1997.
2 - 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 the three months ended March 31, 1997 have been restated
to conform to the provisions of FASB Statement No. 128. The following
table reconciles the denominators used in computing basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in thousands)
<S> <C> <C>
Weighted average common shares outstanding 9,687 9,348
Effect of dilutive stock options 380 454
------ ------
10,067 9,802
====== ======
</TABLE>
3 - STOCK OPTIONS
On January 29, 1998 the Board of Directors of the Company adopted the
Cohu, Inc. 1998 Stock Option Plan. The Plan provides for the issuance of
a maximum of 450,000 shares of the Company's Common Stock and is subject
to stockholder approval.
4 - NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 130,
Reporting Comprehensive Income, requires the disclosure of "Comprehensive
Income" in financial statements. Comprehensive Income includes items such
as unrealized gains on available-for-sale securities that are not
included in net income. FASB No. 130 is effective in 1998 and had no
material impact on the Company's results of operations or related
disclosures for the three months ended March 31, 1998. FASB No. 131,
Disclosures about Segments of an Enterprise and Related Information,
requires the disclosure of financial information on operating segments on
the basis used by management in evaluating segment performance and
deciding how to allocate resources. FASB No. 131 will first be reflected
in the Company's 1998 Annual Report.
6
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COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1998
This Form 10-Q 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 "anticipate",
"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.
RESULTS OF OPERATIONS
Net sales increased 63% to $56.7 million in 1998 compared to net sales of $34.8
million in 1997. Net sales during the first quarter of 1997 were negatively
impacted by the semiconductor industry downturn that began in 1996. Sales of
semiconductor test handling equipment in 1998 increased 82% over the 1997 period
and accounted for 84% of consolidated net sales in 1998 versus 75% in 1997.
Sales of television cameras and other equipment decreased 3% while the combined
sales of metal detection and microwave equipment increased 23%. Export sales
accounted for 46% of net sales in the first quarter of 1998 compared to 52% for
the year ended December 31, 1997.
Gross margin as a percentage of net sales declined to 41.1% in 1998 versus 42.7%
in 1997 as a result of lower margins in the semiconductor equipment business.
Within the semiconductor equipment segment, margins decreased in 1998 primarily
as a result of changes in product mix, sales price reductions and certain cost
increases. The Company expects to commence revenue shipments of new
semiconductor test handler products in the second quarter of 1998. The Company
expects gross margins realized on the initial sales of these products will be
lower than the Company's established semiconductor handler products due to
anticipated inefficiencies incurred during the early stages of manufacturing new
equipment and higher warranty costs. The reduced margins on these new products
will reduce aggregate gross margins. Research and development expense as a
percentage of net sales was 9.5% in 1998, compared to 9.4% in 1997, increasing
in absolute dollars from $3.3 million to $5.4 million reflecting 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 declined to 10.9% in 1998 from 13.9% in 1997 primarily
as a result of the increase in business volume. Interest income was $.8 million
in 1998 and $.7 million in 1997. The provision for income taxes expressed as a
percentage of pre-tax income was 34.4% in the first quarter of 1998. As a result
of the factors set forth above, net income increased from $4.7 million in 1997
to $8.2 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
three months of 1998 totaled $.7 million. The major components of cash flows
from operating activities were net income of $8.2 million and an increase in
income taxes payable of $3.3 million offset by increases in accounts receivable
of $3.5 million and inventories of $4.4 million and decreases in accounts
payable and other accrued liabilities totaling $3.8 million. Net cash provided
by investing activities was $8 million resulting from maturities of short-term
investments, less purchases, offset by purchases of property, plant and
equipment and other assets of $.8 million. Net cash provided by financing
activities was $.6 million. Cash provided by financing activities included $1.4
million received from the issuance of stock upon the exercise of stock options
offset by $.8 million for the payment of dividends. The Company had $5 million
available under
7
<PAGE> 8
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
its bank line of credit and working capital of $114.8 million at March 31, 1998.
It is anticipated that present working capital and available borrowings under
the line of credit will be sufficient to meet the Company's 1998 operating
requirements and the remaining anticipated capital expenditures for 1998 of
approximately $4 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.
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 or margins of existing products. The
design, development, manufacture and commercial introduction of new
semiconductor test handling equipment is a complex process that involves a
number of risks and uncertainties. These risks include potential problems in
meeting customer performance requirements, integration of the test handler with
other suppliers' equipment and the customers' manufacturing processes and the
ability of the equipment to satisfy the semiconductor industry's constantly
evolving needs and achieve commercial acceptance at prices that produce
satisfactory profit margins. Currently the Company is devoting significant
resources to the development, introduction and volume production of two new
semiconductor test handler products that are expected to be introduced in the
second quarter of 1998. In the past, the Company has experienced delays in the
introduction of new semiconductor test handlers and difficulties in the early
stages of manufacturing and volume production of such products. The Company
expects to incur similar delays and difficulties with the two test handlers
currently being introduced. In addition, after sale support and warranty costs
are typically greater with new test handlers than with established products.
There can be no assurance that future technologies, processes and product
developments will not render the Company's current or future 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. Furthermore, there is no assurance that the
Company will be able to convert the two test handlers currently being introduced
into production on a timely basis and realize acceptable profit margins on such
products.
The semiconductor equipment industry is intensely competitive and the Company
faces substantial competition from numerous companies throughout the world. Some
of these competitors have
8
<PAGE> 9
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1998
BUSINESS RISKS AND UNCERTAINTIES (CONT.)
substantially greater financial, engineering, manufacturing and customer support
capabilities and more extensive product offerings 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 or margins on existing products.
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.
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.
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 Form 10-Q.
9
<PAGE> 10
Part II OTHER INFORMATION
Item 2. Changes in Securities
(c) During the quarter ended March 31, 1998, the Company issued
17,698 shares of common stock to Nicholas J. Cedrone. These
shares were issued pursuant to the exemption provided by
Section 4(2) of the Securities Act of 1933, in partial
consideration for the acquisition of Daymarc Corporation in
June 1994, with the amount of shares being determined by
the operating results of Daymarc during 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 - Financial Data Schedule
(b) Reports on Form 8-K: The Company did not file any reports
on Form 8-K during the quarter ended March 31, 1998.
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: April 23, 1998 /s/ Charles A. Schwan
------------------------ -----------------------------------------
Charles A. Schwan
President & Chief Executive Officer
Date: April 23, 1998 /s/ John H. Allen
------------------------ -----------------------------------------
John H. Allen
Vice President, Finance & Chief Financial
Officer
10
<PAGE> 1
EXHIBIT 28 (c)
Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the calendar year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
TRANSCORE RETIREMENT SAVINGS PLAN
---------------------------------
(Full title of the plan)
7611 Derry Street
Harrisburg, PA 17111
Plan's telephone number, including area code (717) 561-2400
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California
92121 (Name of issuer of the securities held
pursuant to the plan and the address of its
principal executive office)
Registrant's telephone number, including area code (619) 546-6000
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustee (or other persons who administer the Plan) have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
TRANSCORE RETIREMENT SAVINGS PLAN
Date: April 23, 1998 BY:/s/ JOHN M. WORTHINGTON
--------------------------------------
John M. Worthington
Senior Vice President and
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1997 AND
1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 49,008
<SECURITIES> 4,999
<RECEIVABLES> 35,466
<ALLOWANCES> 0
<INVENTORY> 49,347
<CURRENT-ASSETS> 149,851
<PP&E> 32,776
<DEPRECIATION> 13,505
<TOTAL-ASSETS> 171,491
<CURRENT-LIABILITIES> 35,086
<BONDS> 0
0
0
<COMMON> 9,705
<OTHER-SE> 125,325
<TOTAL-LIABILITY-AND-EQUITY> 171,491
<SALES> 56,691
<TOTAL-REVENUES> 56,691
<CGS> 33,367
<TOTAL-COSTS> 33,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,516
<INCOME-TAX> 4,300
<INCOME-CONTINUING> 8,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,216
<EPS-PRIMARY> .85
<EPS-DILUTED> .82
</TABLE>
