COHU INC - 10-Q Quarterly Report

Back to GetFilings.com

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, 2002

[ ] 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 Incorporation or Organization)		(I.R.S. Employer Identification No.)


12367 Crosthwaite Circle, Poway, California		92064-6817

(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code 858-848-8100

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 September 30, 2002, the Registrant had 20,815,113 shares of its $1.00 par value common stock outstanding.

TABLE OF CONTENTS


	Item 1.
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures.
Part II OTHER INFORMATION
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
CERTIFICATION
EXHIBIT 99.1
EXHIBIT 99.2

COHU, INC.
INDEX
FORM 10-Q
SEPTEMBER 30, 2002

Page Number

Part I
Financial Information

Item 1.
Financial Statements:

Condensed Consolidated Balance Sheets
September 30, 2002 and December 31, 2001 3

Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001 4

Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 5

Notes to Unaudited Condensed Consolidated Financial Statements 6

Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10

Item 3.
Quantitative and Qualitative Disclosures about Market Risk 19

Item 4.
Controls and Procedures 19

Part II
Other Information

Item 5.
Other Information 20

Item 6.
Exhibits and Reports on Form 8-K 20

Signatures 21

Certifications 22

Item 1.

COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)


			September 30, 2002		December 31, 2001*

			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	60,102	$	65,510
	Short-term investments			51,583		24,457
	Accounts receivable, less allowance for doubtful accounts of $1,364 in 2002 and $1,889 in 2001			20,549		25,904
	Inventories:
		Raw materials and purchased parts		12,063		13,982
		Work in process		8,961		9,417
		Finished goods		6,139		7,005

				27,163		30,404
	Deferred income taxes			15,092		15,092
	Other current assets			1,935		5,681

		Total current assets		176,424		167,048
Note receivable				9,184		9,375
Property, plant and equipment, at cost:
	Land and land improvements			8,942		8,938
	Buildings and building improvements			24,708		24,610
	Machinery and equipment			24,289		23,440

				57,939		56,988
	Less accumulated depreciation and amortization			23,902		21,139

		Net property, plant and equipment		34,037		35,849
Goodwill				8,340		8,340
Other intangible assets, net of accumulated amortization of $208 in 2002 and $79 in 2001				652		781
Other assets				147		166

			$	228,784	$	221,559

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	6,679	$	7,845
	Accrued compensation and benefits			6,166		5,224
	Accrued warranty			2,820		2,902
	Customer advances			3,200		2,608
	Deferred profit			4,888		3,108
	Other accrued liabilities			9,452		3,932

		Total current liabilities		33,205		25,619
Accrued retiree medical benefits				1,101		1,109
Deferred income taxes				4,300		4,300
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $1 par value; 1,000 shares authorized, none issued			—		—
	Common stock, $1 par value; 60,000 shares authorized, 20,815 shares issued and outstanding in 2002 and 20,543 shares in 2001			20,815		20,543
	Paid in capital			14,335		11,776
	Retained earnings			154,588		158,012
	Accumulated other comprehensive income			440		200

		Total stockholders’ equity		190,178		190,531

			$	228,784	$	221,559

Amounts as of December 31, 2001 are derived from audited financial statements included in the Cohu 2001 Annual Report on Form 10-K.

See accompanying notes.

COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)


			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2002			2001			2002			2001

Net sales			$	36,811		$	25,430		$	106,706		$	98,429
Cost and expenses:
		Cost of sales		24,463			21,387			66,930			75,306
		Research and development		8,136			7,004			24,094			22,071
		Selling, general and administrative		6,015			6,472			18,530			19,692
		Gain on sale of facilities		—			(7,746	)		—			(7,746	)
		Acquired in-process research and development		—			2,050			—			2,050

				38,614			29,167			109,554			111,373

Loss from operations				(1,803	)		(3,737	)		(2,848	)		(12,944	)
Interest income				648			1,095			2,136			3,529

Loss before income taxes				(1,155	)		(2,642	)		(712	)		(9,415	)
Income tax benefit				(600	)		(1,200	)		(400	)		(3,800	)

Net loss			$	(555	)	$	(1,442	)	$	(312	)	$	(5,615	)

Net loss per share:
	Basic		$	(.03	)	$	(.07	)	$	(.02	)	$	(.28	)

	Diluted		$	(.03	)	$	(.07	)	$	(.02	)	$	(.28	)

Weighted average shares used in computing net loss per share:
	Basic			20,795			20,470			20,722			20,409

	Diluted			20,795			20,470			20,722			20,409

Cash dividends declared per share			$	.05		$	.05		$	.15		$	.15

See accompanying notes.

COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)


					Nine Months Ended
					September 30,

					2002			2001

Cash flows from operating activities:
	Net loss				$	(312	)	$	(5,615	)
	Adjustments to reconcile net loss to net cash provided from operating activities:
			Depreciation and amortization			3,065			3,663
			Gain on sale of facilities			—			(7,746	)
			Acquired in-process research and development			—			2,050
			Decrease in accrued retiree medical benefits			(8	)		(20	)
			Changes in assets and liabilities, net of effects from purchase of Automated Systems:
				Accounts receivable		5,355			21,166
				Note receivable		191			—
				Inventories		3,241			14,420
				Other current assets		3,746			(3,753	)
				Accounts payable		(1,166	)		(2,438	)
				Customer advances		592			1,721
				Deferred profit		1,780			(4,659	)
				Accrued compensation, warranty and other liabilities		6,260			(4,644	)

				Net cash provided from operating activities		22,744			14,145
Cash flows from investing activities:
		Purchases of short-term investments				(31,030	)		(11,119	)
		Sales and maturities of short-term investments				4,264			6,221
		Net proceeds from sale of facilities				—			2,699
		Purchases of property, plant, equipment and other assets				(1,105	)		(5,599	)
		Purchase of Automated Systems assets				—			(14,300	)

				Net cash used for investing activities		(27,871	)		(22,098	)
Cash flows from financing activities:
		Issuance of stock, net				2,831			1,913
		Cash dividends				(3,112	)		(3,064	)

				Net cash used for financing activities		(281	)		(1,151	)

Net decrease in cash and cash equivalents						(5,408	)		(9,104	)
Cash and cash equivalents at beginning of period						65,510			79,119

Cash and cash equivalents at end of period					$	60,102		$	70,015

Supplemental disclosure of cash flow information:
	Cash paid (refunded) during the period for:
			Income taxes		$	(8,968	)	$	(10	)

See accompanying notes.

COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002

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 and nine months ended September 30, 2002 are not necessarily indicative of the operating results for the entire year or any future period. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and management’s discussion and analysis of financial condition and results of operations included elsewhere herein.

2.    Income (loss) Per Share

   Income (loss) per share is computed in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 128, Earnings per Share. Basic income (loss) per share is computed using the weighted average number of common shares outstanding during each period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options. For purposes of computing diluted income (loss) per share, stock options with exercise prices that exceed the average fair market value of the Company’s common stock for the period are excluded. The impact of stock options is excluded for loss periods as they would be antidilutive. The following table reconciles the denominators used in computing basic and diluted income (loss) per share:


	Three months ended				Nine months ended
	September 30,				September 30,

	2002		2001		2002		2001

Weighted average common shares outstanding		20,795		20,470		20,722		20,409
Effect of dilutive stock options		—		—		—		—

		20,795		24,470		20,722		20,409

3.    Note Receivable

   In April 2002, the Company extended the term of the $9.4 million promissory note with TC Kearny Villa, L.P. (“TC”). The 8% non-recourse note is secured by a deed of trust on land and buildings in San Diego, California sold by Cohu to TC in April 2001. The note amendment extended the due date of the note from April 2002 to March 31, 2003 and provided for a principal payment of $191,000. Interest at 8% was to continue to be paid monthly with the remaining principal balance of $9.2 million due on March 31, 2003.

   The property is currently unoccupied and is being offered for sale or lease by TC. TC has not paid any interest on the note since May 2002 and an aggregate of $245,000 of interest is in arrears. As a result, the note is in default. If TC continues to fail to make the required interest payments Cohu will need to assess whether it is in its best interests to foreclose on the property. Cohu believes the fair value of the property is in excess of the outstanding note balance. However, while the Company believes the fair value of the property is more than $9.2 million, no assurances can be made that the net sale proceeds from the property, should Cohu dispose of the property through foreclosure, would exceed the outstanding note balance. If the sale proceeds were less than the note balance Cohu would realize a loss that would adversely impact operating results. Due to the uncertainty as to the timing of collection, the note receivable has been reclassified to a noncurrent asset at September 30, 2002. The note receivable at December 31, 2001 has been reclassified from a current to noncurrent asset for consistency of presentation.

COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002

<

4.    Deferred Tax Assets

   Cohu had deferred tax assets totaling approximately $15.1 million at September 30, 2002. No valuation allowance has been provided on such assets as the Company believes it is more likely than not that all such assets will be realized. The Company reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards. Differences between forecasted and actual future operating results could adversely impact the Company’s ability to realize these deferred tax assets.

   If Cohu continues to incur losses for an extended period of time, Cohu could be required to establish a valuation allowance against all or a significant portion of its net deferred tax assets. To the extent Cohu establishes a valuation allowance, a charge will be recorded within the provision for income taxes line in the statement of operations. The Company will continue to evaluate the realizability of deferred tax assets in 2002 by assessing the need for a valuation allowance.

5.    Goodwill and Other Intangible Assets

   Cohu purchased the assets of the Automated Systems business (“AS”) from Schlumberger Technologies, Inc. in July 2001. The results of AS’s operations, that include approximately $10.8 million of net sales in the first nine months of 2002, have been included in Cohu’s financial statements since July 2001. The purchase price was allocated in accordance with FASB Statement No. 141 with $8.3 million allocated to nonamortizable goodwill and $860,000 allocated to amortizable other intangible assets with an estimated useful life of five years. The goodwill was assigned to Cohu’s semiconductor equipment segment. Cohu evaluated the goodwill and other intangible assets resulting from the AS acquisition for impairment at December 31, 2001 as required by FASB Statement No. 121. The Company compared the carrying value of such assets to estimated undiscounted cash flows expected to result from their use and concluded there was no impairment loss at December 31, 2001.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


			Page Number

Part I	Financial Information




Item 1.	Financial Statements:




		Condensed Consolidated Balance Sheets September 30, 2002 and December 31, 2001		3




		Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2002 and 2001		4




		Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2002 and 2001		5




		Notes to Unaudited Condensed Consolidated Financial Statements		6




Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			10




Item 3.	Quantitative and Qualitative Disclosures about Market Risk			19




Item 4.	Controls and Procedures			19




Part II	Other Information




Item 5.	Other Information			20




Item 6.	Exhibits and Reports on Form 8-K			20




Signatures				21




Certifications				22

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 and nine months ended September 30, 2002 are not necessarily indicative of the operating results for the entire year or any future period. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and management’s discussion and analysis of financial condition and results of operations included elsewhere herein.

2.		Income (loss) Per Share

		Income (loss) per share is computed in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 128, Earnings per Share. Basic income (loss) per share is computed using the weighted average number of common shares outstanding during each period. Diluted income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options. For purposes of computing diluted income (loss) per share, stock options with exercise prices that exceed the average fair market value of the Company’s common stock for the period are excluded. The impact of stock options is excluded for loss periods as they would be antidilutive. The following table reconciles the denominators used in computing basic and diluted income (loss) per share:

3.		Note Receivable

		In April 2002, the Company extended the term of the $9.4 million promissory note with TC Kearny Villa, L.P. (“TC”). The 8% non-recourse note is secured by a deed of trust on land and buildings in San Diego, California sold by Cohu to TC in April 2001. The note amendment extended the due date of the note from April 2002 to March 31, 2003 and provided for a principal payment of $191,000. Interest at 8% was to continue to be paid monthly with the remaining principal balance of $9.2 million due on March 31, 2003.

		The property is currently unoccupied and is being offered for sale or lease by TC. TC has not paid any interest on the note since May 2002 and an aggregate of $245,000 of interest is in arrears. As a result, the note is in default. If TC continues to fail to make the required interest payments Cohu will need to assess whether it is in its best interests to foreclose on the property. Cohu believes the fair value of the property is in excess of the outstanding note balance. However, while the Company believes the fair value of the property is more than $9.2 million, no assurances can be made that the net sale proceeds from the property, should Cohu dispose of the property through foreclosure, would exceed the outstanding note balance. If the sale proceeds were less than the note balance Cohu would realize a loss that would adversely impact operating results. Due to the uncertainty as to the timing of collection, the note receivable has been reclassified to a noncurrent asset at September 30, 2002. The note receivable at December 31, 2001 has been reclassified from a current to noncurrent asset for consistency of presentation.

4.		Deferred Tax Assets

		Cohu had deferred tax assets totaling approximately $15.1 million at September 30, 2002. No valuation allowance has been provided on such assets as the Company believes it is more likely than not that all such assets will be realized. The Company reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards. Differences between forecasted and actual future operating results could adversely impact the Company’s ability to realize these deferred tax assets.

		If Cohu continues to incur losses for an extended period of time, Cohu could be required to establish a valuation allowance against all or a significant portion of its net deferred tax assets. To the extent Cohu establishes a valuation allowance, a charge will be recorded within the provision for income taxes line in the statement of operations. The Company will continue to evaluate the realizability of deferred tax assets in 2002 by assessing the need for a valuation allowance.

5.		Goodwill and Other Intangible Assets

		Cohu purchased the assets of the Automated Systems business (“AS”) from Schlumberger Technologies, Inc. in July 2001. The results of AS’s operations, that include approximately $10.8 million of net sales in the first nine months of 2002, have been included in Cohu’s financial statements since July 2001. The purchase price was allocated in accordance with FASB Statement No. 141 with $8.3 million allocated to nonamortizable goodwill and $860,000 allocated to amortizable other intangible assets with an estimated useful life of five years. The goodwill was assigned to Cohu’s semiconductor equipment segment. Cohu evaluated the goodwill and other intangible assets resulting from the AS acquisition for impairment at December 31, 2001 as required by FASB Statement No. 121. The Company compared the carrying value of such assets to estimated undiscounted cash flows expected to result from their use and concluded there was no impairment loss at December 31, 2001.