<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, 2000
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 92123-1111
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 858-541-5194
------------------------------
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, 2000, the Registrant had 20,176,881 shares of its $1.00 par
value common stock outstanding.
<PAGE> 2
COHU, INC.
INDEX
FORM 10-Q
MARCH 31, 2000
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
- ------ -----------
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999..........................................3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 2000 and 1999....................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2000 and 1999....................................5
Notes to Unaudited Condensed Consolidated Financial Statements................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................13
PART II OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K.............................................15
Signatures.............................................................................15
</TABLE>
2
<PAGE> 3
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 2000 DECEMBER 31, 1999
--------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62,310 $ 55,954
Short-term investments 26,945 25,646
Accounts receivable, less allowance for doubtful
accounts of $1,827 in 2000 and $1,981 in 1999 48,302 52,262
Inventories:
Raw materials and purchased parts 21,772 21,257
Work in process 22,188 18,768
Finished goods 16,469 15,621
-------- --------
60,429 55,646
Deferred income taxes 11,231 11,231
Prepaid expenses 2,369 2,030
-------- --------
Total current assets 211,586 202,769
Property, plant and equipment, at cost:
Land and land improvements 2,501 2,501
Buildings and building improvements 12,503 12,507
Machinery and equipment 20,339 19,849
-------- --------
35,343 34,857
Less accumulated depreciation and amortization 18,494 17,841
-------- --------
Net property, plant and equipment 16,849 17,016
Goodwill, net of accumulated amortization
of $2,332 in 2000 and $2,260 in 1999 795 867
Other assets 81 81
-------- --------
$229,311 $220,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,068 $ 13,042
Income taxes payable 7,347 6,778
Customer advances 16,985 18,530
Other accrued liabilities 15,956 18,369
-------- --------
Total current liabilities 54,356 56,719
Accrued retiree medical benefits 977 984
Deferred income taxes 674 674
Stockholders' equity:
Preferred stock -- --
Common stock 20,177 19,938
Paid in excess of par 5,333 3,539
Retained earnings 147,794 138,879
-------- --------
Total stockholders' equity 173,304 162,356
-------- --------
$229,311 $220,733
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------- -------
<S> <C> <C>
Net sales $72,467 $29,526
Cost and expenses:
Cost of sales 44,743 19,164
Research and development 6,755 4,297
Selling, general and administrative 7,139 5,087
------- -------
58,637 28,548
------- -------
Income from operations 13,830 978
Interest income 1,293 1,113
------- -------
Income before income taxes 15,123 2,091
Provision for income taxes 5,200 700
------- -------
Net income $ 9,923 $ 1,391
======= =======
Earnings per share:
Basic $ .49 $ .07
======= =======
Diluted $ .47 $ .07
======= =======
Weighted average shares used in
computing earnings per share:
Basic 20,051 19,614
======= =======
Diluted 21,305 20,118
======= =======
</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,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,923 $ 1,391
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 759 671
Increase (decrease) in accrued retiree medical benefits (7) 6
Changes in assets and liabilities:
Accounts receivable 3,960 444
Inventories (4,783) (2,169)
Prepaid expenses (339) 52
Accounts payable 1,026 5,005
Income taxes payable 569 39
Customer advances (1,545) --
Other accrued liabilities (2,413) (4,319)
-------- --------
Net cash provided from operating activities 7,150 1,120
Cash flows from investing activities:
Purchases of short-term investments (3,985) (16,163)
Maturities of short-term investments 2,686 2,000
Purchases of property, plant, equipment and other assets (520) (260)
-------- --------
Net cash used for investing activities (1,819) (14,423)
Cash flows from financing activities:
Issuance of stock, net 2,033 315
Cash dividends (1,008) (884)
-------- --------
Net cash provided by (used for) financing activities 1,025 (569)
-------- --------
Net increase (decrease) in cash and cash equivalents 6,356 (13,872)
Cash and cash equivalents at beginning of period 55,954 74,446
-------- --------
Cash and cash equivalents at end of period $ 62,310 $ 60,574
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 4,631 $ 661
</TABLE>
See accompanying notes.
5
<PAGE> 6
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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" or "Cohu") considers necessary for a fair statement of
the results for the period. The operating results for the three months
ended March 31, 2000 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, 1999 and management's discussion
and analysis of financial condition and results of operations included
elsewhere herein.
Net sales for the quarter ended March 31, 2000 included $11.8 million of
sales from the Company's new Summit test handlers. Through March 31, 2000,
additional Summit handlers with a sales value of $24.1 million had been
shipped. Revenue on these shipments will be recognized subsequent to March
31, 2000 upon customer acceptance. Customer payments received on these
shipments totaled $17.0 million at March 31, 2000 and have been recorded
as customer advances.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition
in Financial Statements. SAB 101 was amended by SAB 101A which delayed the
implementation date of SAB 101 for calendar year end reporting companies,
including Cohu, to the quarter ending June 30, 2000. The Company is
currently evaluating SAB 101 and is uncertain as to what impact, if any,
SAB 101 will have on its revenues and results of operations for the
quarter ending June 30, 2000 and subsequent periods. The impact of SAB
101, if any, will be reported as a change in accounting principle in
accordance with FASB Statement No. 3. This may result in a significant
cumulative effect change in accounting adjustment that would be reflected
in the Company's results of operations for the six months ended June 30,
2000.
2 - EARNINGS PER SHARE
Earnings per share are computed in accordance with Financial Accounting
Standards Board ("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. For purposes of computing diluted earnings per
share, weighted average common share equivalents do not include stock
options with an exercise price that exceeds the average fair market value
of the Company's common stock for the period. For the three months ended
March 31, 1999, options to purchase approximately 222,000 shares of common
stock at an average price of $16.97 were excluded from the computation.
All share and per share amounts have been restated to reflect the
Company's two-for-one stock split effective September 1999. The following
table reconciles the denominators used in computing basic and diluted
earnings per share:
<TABLE>
<CAPTION>
2000 1999
------ ------
(in thousands)
<S> <C> <C>
Weighted average common shares outstanding 20,051 19,614
Effect of dilutive stock options 1,254 504
------ ------
21,305 20,118
====== ======
</TABLE>
6
<PAGE> 7
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
3 - SEGMENT AND RELATED INFORMATION
The following information is presented pursuant to FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information.
Intersegment sales were not significant in either period.
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Net sales:
Semiconductor equipment $ 62,796 $ 22,374
Television cameras 6,492 4,229
-------- --------
Net sales for reportable segments 69,288 26,603
All other 3,179 2,923
-------- --------
Total consolidated net sales $ 72,467 $ 29,526
======== ========
Operating profit (loss):
Semiconductor equipment $ 13,832 $ 1,458
Television cameras 406 174
-------- --------
Operating profit for reportable segments 14,238 1,632
All other 107 (262)
-------- --------
Total consolidated operating profit 14,345 1,370
Other unallocated amounts:
Corporate expenses (443) (320)
Interest income 1,293 1,113
Goodwill amortization (72) (72)
-------- --------
Income before income taxes $ 15,123 $ 2,091
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(in thousands)
<S> <C> <C>
Total assets by segment:
Semiconductor equipment $111,023 $115,671
Television cameras 11,989 11,758
-------- --------
Total assets for reportable segments 123,012 127,429
All other operating segments 5,777 5,419
Corporate 100,522 87,885
-------- --------
Total consolidated assets $229,311 $220,733
======== ========
</TABLE>
7
<PAGE> 8
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
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 and Market Risks" that could cause actual results to
differ materially from those projected.
RESULTS OF OPERATIONS FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999 Net
sales increased 145% to $72.5 million in 2000 compared to net sales of $29.5
million in 1999. Sales of semiconductor test handling equipment in 2000
increased 181% from the 1999 period and accounted for 87% of consolidated net
sales in 2000 versus 76% in 1999. Net sales for the quarter ended March 31, 2000
included $11.8 million of sales from the Company's new Summit test handlers.
Through March 31, 2000, additional Summit handlers with a sales value of $24.1
million had been shipped. Revenue on these shipments will be recognized
subsequent to March 31, 2000 upon customer acceptance. Sales of television
cameras and other equipment accounted for 9% of net sales in 2000 and increased
54% while the combined sales of metal detection and microwave equipment
increased 9%. Export sales accounted for 48% of net sales in the first quarter
of 1999 compared to 63% for the year ended December 31, 1999.
Gross margin as a percentage of net sales increased to 38.3% in 2000 from 35.1%
in 1999 primarily as a result of higher margins in the semiconductor equipment
business. Within the semiconductor equipment segment, margins increased in 2000
primarily as a result of increased business volume. Research and development
expense as a percentage of net sales was 9.3% in 2000, compared to 14.6% in
1999, increasing in absolute dollars from $4.3 million in 1999 to $6.8 million
in 2000 as a result of new product development efforts in the semiconductor
equipment business. Selling, general and administrative expense as a percentage
of net sales decreased to 9.9% in 2000 from 17.2% in 1999 primarily as a result
of the increase in business volume. Interest income increased to $1.3 million in
2000 from $1.1 million in 1999 as a result of an increase in interest rates. The
provision for income taxes expressed as a percentage of pre-tax income was 34.4%
in the first quarter of 2000. As a result of the factors set forth above, net
income increased from $1.4 million in 1999 to $9.9 million in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in the first
three months of 2000 totaled $7.2 million. The major components of cash flows
from operating activities were net income of $9.9 million and a decrease in
accounts receivable of $4.0 million offset by an increase in inventories of $4.8
million and a decrease in other accrued liabilities and customer advances
totaling $4.0 million. Net cash used for investing activities included $1.3
million for the purchase of short-term investments, less maturities, and
purchases of property, plant and equipment and other assets of $.5 million. Net
cash provided by financing activities was $1.0 million. Cash provided by
financing activities included $2.0 million received from the issuance of stock
upon the exercise of stock options offset by $1.0 million for the payment of
dividends. The Company had $10 million available under its bank line of credit
and working capital of $157.2 million at March 31, 2000. It is anticipated that
present working capital and available borrowings under the line of credit will
be sufficient to meet the Company's 2000 operating requirements.
8
<PAGE> 9
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS
THE SEMICONDUCTOR INDUSTRY WE SERVE IS HIGHLY VOLATILE AND UNPREDICTABLE.
Cohu's operating results are substantially dependent on our semiconductor
equipment business. 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 and excess capacity, 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 Cohu. We anticipate that the markets for
newer generations of semiconductors may also be subject to similar cycles and
severe downturns, such as those experienced in 1996 and 1998. Reductions in
capital equipment investment by semiconductor manufacturers will adversely
affect our business, financial position and results of operations.
ACCOUNTING RULES MAY IMPACT THE TIMING OF REVENUE RECOGNITION.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 was amended by SAB 101A which delayed the implementation
date of SAB 101 for calendar year end reporting companies, including Cohu, to
the quarter ending June 30, 2000. The Company is currently evaluating SAB 101
and is uncertain as to what impact, if any, SAB 101 will have on its revenues
and results of operations for the quarter ending June 30, 2000 and subsequent
periods. The impact of SAB 101, if any, will be reported as a change in
accounting principle in accordance with FASB Statement No. 3. This may result in
a significant cumulative effect change in accounting adjustment that would be
reflected in the Company's results of operations for the six months ended June
30, 2000.
SEMICONDUCTOR EQUIPMENT IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, PRODUCT
INTRODUCTIONS AND TRANSITIONS MAY RESULT IN INVENTORY WRITE-OFFS AND OUR NEW
PRODUCT DEVELOPMENT INVOLVES NUMEROUS RISKS AND UNCERTAINTIES.
Semiconductor equipment and processes are subject to rapid technological change.
We believe that our future success will depend in part on our ability to enhance
existing products and develop new products with improved performance
capabilities. We expect 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. In
addition, the introduction of new products, including the Company's Castle and
Summit handlers, and the concentration of our revenues in a limited number of
large customers increases the risk that our established products may become
obsolete resulting in greater excess and obsolete inventory exposure. This
increased exposure may result in increased inventory write-offs and reserve
requirements in excess of those we recorded in prior years that could have a
material adverse impact on our results of operations and financial condition.
The design, development, commercial introduction and manufacture of new
semiconductor test handling equipment is an inherently complex process that
involves a number of risks and uncertainties. These risks include potential
problems in meeting customer performance requirements, integration of
9
<PAGE> 10
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS (CONT.)
the test handler with other suppliers' equipment and the customers'
manufacturing processes, transitioning from product development to volume
manufacturing 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. The design and development of new test
handling equipment is heavily influenced by changes in integrated circuit (IC)
back-end manufacturing processes and IC package design changes. We believe that
the rate of change in such processes and IC packages is accelerating. As a
result of these changes and other factors, assessing the market potential and
commercial viability of new test handling equipment is extremely difficult and
subject to a great deal of risk. In addition, not all IC manufacturers employ
the same manufacturing processes. Differences in such processes make it
difficult to design standard semiconductor test handler products that are
capable of achieving broad market acceptance. As a result we might not
accurately assess the semiconductor industry's future test handler requirements
and design and develop products that meet such requirements and achieve market
acceptance. Failure to accurately assess customer requirements and market trends
for new semiconductor test handler products may have a materially adverse impact
on our operations, financial condition and results of operations.
The transition from product development to the manufacture of new semiconductor
equipment is a difficult process and delays in product introductions and
problems in manufacturing such equipment are common. We have in the past and may
in the future experience difficulties in manufacturing and volume production of
our new test handlers. In addition, our after sale support and warranty costs
have been significantly higher with these new test handlers than with our
established products. Future technologies, processes and product developments
may render our current or future product offerings obsolete and we might not be
able to develop, introduce and successfully manufacture new products or make
enhancements to our existing products in a timely manner to satisfy customer
requirements or achieve market acceptance. Furthermore, we might not realize
acceptable profit margins on such products.
THE SEMICONDUCTOR EQUIPMENT INDUSTRY IN GENERAL, AND THE TEST HANDLER MARKET IN
PARTICULAR, IS HIGHLY COMPETITIVE.
The semiconductor test handler industry is intensely competitive and we face
substantial competition from numerous companies throughout the world. Future
competition may include companies that do not currently supply test handlers.
While we believe we are the largest U.S. based supplier of semiconductor test
handling equipment, we face substantial competition in the U.S. and throughout
the world. The Japanese and Korean markets for test handling equipment are large
and represent a significant percentage of the worldwide market. During the last
five years we have had limited sales to Japanese and Korean customers who have
historically purchased test handling equipment from Asian suppliers. Some of our
competitors have substantially greater financial, engineering, manufacturing and
customer support capabilities and offer more extensive product offerings than
Cohu. 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 Cohu. We expect our competitors to
continue to improve the design and performance of their current products and to
introduce new products with
10
<PAGE> 11
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS (CONT.)
improved performance capabilities. Our failure to introduce new products in a
timely manner, the introduction by our competitors of products with perceived or
actual advantages or disputes over rights of Cohu or our competitors to use
certain intellectual property or technology could result in a loss of our
competitive position and reduced sales of or margins on our existing products.
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PERCENTAGE OF OUR NET
SALES.
We rely on a limited number of customers for a substantial percentage of our net
sales. In 1999, four customers of the semiconductor equipment segment accounted
for 46% (60% in 1998) of our net sales. The loss of or a significant reduction
in orders by these or other significant customers as a result of competitive
products, market conditions, outsourcing final IC test to third parties that are
not our customers or other factors, would adversely impact our financial
condition and results of operations. Furthermore, the concentration of our
revenues in a limited number of large customers may cause significant
fluctuations in our future annual and quarterly operating results.
OUR BACKLOG IS LIMITED AND MAY NOT ACCURATELY REFLECT FUTURE BUSINESS ACTIVITY.
A significant portion of our semiconductor test handling equipment backlog at
March 31, 2000 was for new products, including the Castle and Summit test
handlers. Due to the possibility of customer changes in delivery schedules,
cancellation of orders, potential delays in product shipments, difficulties in
obtaining inventory parts from suppliers and failure to satisfy customer
acceptance requirements, our backlog as of any point in time may not be
representative of actual sales in any future period. Furthermore, all orders are
subject to cancellation or rescheduling by the customer with limited penalty. A
reduction in backlog during any particular period could have a material adverse
effect on our business, financial condition and results of operations.
THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY PLACES ENORMOUS DEMANDS ON OUR
OPERATIONS AND INFRASTRUCTURE.
The semiconductor equipment industry is characterized by dramatic and sometimes
volatile changes in demand for its products. Changes in product demand result
from a number of factors including the semiconductor industry's ever changing
and unpredictable capacity requirements and changes in IC design and packaging.
Sudden changes in demand for semiconductor equipment have a significant impact
on our operations. In response to a severe industry downturn in 1998, we reduced
our total workforce by approximately 40%. During 1999, we increased our
workforce by more than 50% as business conditions in the semiconductor equipment
industry and our order backlog improved. Such radical changes in workforce
levels place enormous demands on our operations and infrastructure since newly
hired personnel rarely possess the expertise and level of experience of people
they replace. We have in the past and may in the future experience difficulties,
particularly in manufacturing, in training the large number of additions to our
workforce. In addition, competition for the employment services of certain
personnel, particularly those with technical skills, is intense. The increased
headcount and business levels, combined with the cyclical nature of the
semiconductor industry, may require that we invest substantial amounts in new
operational
11
<PAGE> 12
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS (CONT.)
and financial systems, procedures and controls and in improved and expanded
facilities. We may not be able to successfully adjust our systems, facilities
and production capacity to meet customers' changing requirements. The inability
to meet such requirements will have an adverse impact on our business, financial
position and results of operations.
WE HAVE EXPERIENCED A SIGNIFICANT DECLINE IN GRAVITY-FEED IC TEST HANDLER SALES.
Sales of gravity-feed IC test handlers used in DRAM testing represented a
significant percentage of Cohu's total semiconductor equipment related revenue
during the period 1994 through 1998. Due to changes in IC package technology,
gravity-feed handlers are no longer suitable for handling many types of DRAMs.
As a result, we have seen a significant decline in sales of our gravity-feed
test handler products. If we are unable to successfully develop and market new
products or enhancements to existing products for DRAM applications our results
of operations will be adversely impacted.
WE ARE EXPOSED TO THE RISKS OF OPERATING A GLOBAL BUSINESS.
Cohu has operations located in various parts of the world to support our sales
and services to the global semiconductor industry. Managing geographically
dispersed operations presents difficult challenges associated with, among other
things, organizational alignment and infrastructure, communications and
information technology, inventory control, customer relationship management and
cultural diversities. In addition, maintaining these geographically dispersed
locations is expensive. We may not be able to manage our multiple operations in
a cost effective and efficient manner. If we are unsuccessful in managing such
operations effectively, our business and results of operations will be adversely
affected.
FAILURE OF CRITICAL SUPPLIERS TO DELIVER SUFFICIENT QUANTITIES OF PARTS IN A
TIMELY AND COST-EFFECTIVE MANNER COULD ADVERSELY IMPACT OUR OPERATIONS.
We use numerous vendors to supply parts, components and subassemblies for the
manufacture of our products. It is not always possible to maintain multiple
qualified suppliers for all of our parts, components and subassemblies; as a
result, certain key parts may be available only from a single supplier or a
limited number of suppliers. In addition, suppliers may cease manufacturing
certain components that are difficult to replace without significant
reengineering of our products. Cohu has experienced problems in obtaining
adequate and reliable quantities of various parts and components from certain
key suppliers. Our results of operations may be materially and adversely
impacted if we do not receive sufficient parts to meet our requirements in a
timely and cost effective manner.
WE ARE EXPOSED TO THE RISK THAT THIRD PARTIES MAY VIOLATE OUR PROPRIETARY RIGHTS
OR ACCUSE US OF INFRINGING UPON THEIR PROPRIETARY RIGHTS.
Cohu relies on patent, copyright, trademark and trade secret laws to establish
and maintain proprietary rights in our technology and products. Any of our
proprietary rights may be challenged, invalidated or circumvented, and these
rights may not provide significant competitive advantages. In addition, from
12
<PAGE> 13
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS (CONT.)
time to time, we receive notices from third parties regarding patent or
copyright claims. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources and cause Cohu to incur significant expenses. In the
event of a successful claim of infringement against Cohu and our failure or
inability to license the infringed technology or to substitute similar
non-infringing technology, our financial condition and results of operations
could be adversely affected.
A MAJORITY OF OUR REVENUES ARE GENERATED FROM EXPORTS TO FOREIGN COUNTRIES,
PRIMARILY IN ASIA, THAT ARE SUBJECT TO ECONOMIC INSTABILITY AND WE COMPETE
AGAINST A NUMBER OF ASIAN TEST HANDLING EQUIPMENT SUPPLIERS.
During 1999, 63% of our total net sales were exported to foreign countries,
including 72% of the sales in the semiconductor equipment segment. The majority
of our export sales are made to destinations in Asia. Instability in global
economic markets, particularly in Asia, may adversely impact the demand for
capital equipment, including equipment of the type manufactured and marketed by
Cohu. In addition, we face intense competition from a number of Asian suppliers
that have certain advantages over U.S. suppliers, including Cohu. These
advantages include, among other things, proximity to customers, favorable
tariffs and affiliation with significantly larger organizations. In addition,
changes in the amount or price of semiconductors produced in Asia could impact
the profitability or capital equipment spending programs of our foreign and
domestic customers.
OUR NON SEMICONDUCTOR EQUIPMENT BUSINESSES HAVE EXPERIENCED LITTLE OR NO GROWTH
AND DECLINING PROFITABILITY OVER THE LAST FIVE YEARS.
We develop, manufacture and sell products used in closed circuit television,
metal detection and microwave radio applications. These products are sold in
highly competitive markets and many competitors are segments of large,
diversified companies with substantially greater financial, engineering,
marketing, manufacturing and customer support capabilities than Cohu. In
addition, there are smaller companies that provide or may provide innovative
technology incorporated in products that may compete favorably against those of
Cohu. We have seen a significant decline in the operating results of these
businesses over the last several years and the future prospects for certain of
these businesses remain uncertain. We may not be able to continue to compete
successfully in any of these businesses.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
At March 31, 2000 our investment portfolio includes fixed-income securities of
approximately $80.4 million. These securities are subject to interest rate risk
and will decline in value if interest rates increase. Due to the relatively
short duration of our investment portfolio, an immediate 10 percent increase in
interest rates would have no material impact on our financial condition or
results of operations.
13
<PAGE> 14
COHU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
BUSINESS AND MARKET RISKS (CONT.)
FOREIGN CURRENCY EXCHANGE RISK.
We generally conduct business, including sales to foreign customers, in U.S.
dollars and as a result have limited foreign currency exchange rate risk.
Monetary assets and liabilities of Cohu's foreign operations are not
significant. The effect of an immediate 10 percent change in foreign exchange
rates would not have a material impact on our financial condition or results of
operations.
WE MAY BE SUBJECT TO YEAR 2000 RISKS.
Through March 2000, we have experienced no significant disruptions in mission
critical information technology and non-information technology systems and
believe those systems successfully responded to the Year 2000 date change. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, our internal systems or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000. If significant
yet to be identified Year 2000 issues arise, we may experience significant
problems that could have a material adverse effect on our financial condition
and results of operations.
Due to all the above 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 our filings with the Securities and Exchange Commission,
including but not limited to the 1999 Annual Report on Form 10-K, that could
cause actual results to differ materially from those projected or forecasted.
Cohu undertakes no obligation to update the information, including the
forward-looking statements, in this Form 10-Q.
14
<PAGE> 15
Part II OTHER INFORMATION
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, 2000.
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 24, 2000 /s/ Charles A. Schwan
------------------------------ ----------------------------------
Charles A. Schwan
Chairman & Chief Executive Officer
Date: April 24, 2000 /s/ John H. Allen
------------------------------ ----------------------------------
John H. Allen
Vice President, Finance & Chief
Financial Officer
15
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2000
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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