UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2003
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-4298
COHU, INC.
| Delaware | 95-1934119 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| Incorporation or Organization) |
| 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[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No[ ]
As of September 30, 2003 the Registrant had 21,282,767 shares of its $1.00 par value common stock outstanding.
COHU, INC.
INDEX
FORM 10-Q
SEPTEMBER 30, 2003
| Page Number | ||||||||
Part I |
Financial Information | |||||||
Item 1. |
Financial Statements: | |||||||
| Condensed Consolidated Balance Sheets (unaudited) September 30, 2003 and December 31, 2002 | 3 | |||||||
| Condensed Consolidated Statements of Operations (unaudited) Three and Nine Months Ended September 30, 2003 and 2002 | 4 | |||||||
| Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2003 and 2002 | 5 | |||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |||||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 24 | ||||||
Item 4. |
Controls and Procedures | 24 | ||||||
Part II |
Other Information | |||||||
Item 1. |
Legal Proceedings | 25 | ||||||
Item 6. |
Exhibits and Reports on Form 8-K | 26 | ||||||
Signatures |
26 | |||||||
Item 1.
COHU, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)
| September 30, 2003 | December 31, 2002 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 6,098 | $ | 32,696 | ||||||
Short-term investments |
101,491 | 74,488 | ||||||||
Accounts receivable, less allowance for doubtful
accounts of $1,286 in 2003 and $1,264 in 2002 |
25,399 | 18,267 | ||||||||
Inventories: |
||||||||||
Raw materials and purchased parts |
13,534 | 13,414 | ||||||||
Work in process |
8,279 | 6,018 | ||||||||
Finished goods |
8,027 | 4,885 | ||||||||
| 29,840 | 24,317 | |||||||||
Deferred income taxes |
10,956 | 10,956 | ||||||||
Other current assets |
5,093 | 5,574 | ||||||||
Total current assets |
178,877 | 166,298 | ||||||||
Note receivable |
8,978 | 9,184 | ||||||||
Property, plant and equipment, at cost: |
||||||||||
Land and land improvements |
7,978 | 8,942 | ||||||||
Buildings and building improvements |
25,002 | 24,906 | ||||||||
Machinery and equipment |
23,936 | 24,316 | ||||||||
| 56,916 | 58,164 | |||||||||
Less accumulated depreciation and amortization |
(25,872 | ) | (24,394 | ) | ||||||
Net property, plant and equipment |
31,044 | 33,770 | ||||||||
Goodwill |
8,340 | 8,340 | ||||||||
Other intangible assets, net of accumulated amortization
of $504 in 2003 and $92 in 2002 |
1,146 | 1,558 | ||||||||
Other assets |
151 | 2,653 | ||||||||
| $ | 228,536 | $ | 221,803 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 7,284 | $ | 6,387 | ||||||
Accrued compensation and benefits |
6,902 | 4,667 | ||||||||
Accrued warranty |
2,790 | 2,878 | ||||||||
Customer advances |
726 | 3,218 | ||||||||
Deferred profit |
7,845 | 5,231 | ||||||||
Other accrued liabilities |
3,409 | 3,378 | ||||||||
Total current liabilities |
28,956 | 25,759 | ||||||||
Accrued retiree medical benefits |
1,224 | 1,139 | ||||||||
Deferred income taxes |
4,811 | 4,811 | ||||||||
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, 21,283
shares issued and outstanding in 2003 and 20,864 shares in 2002 |
21,283 | 20,864 | ||||||||
Paid in capital |
20,255 | 15,922 | ||||||||
Retained earnings |
151,927 | 152,978 | ||||||||
Accumulated other comprehensive income |
80 | 330 | ||||||||
Total stockholders’ equity |
193,545 | 190,094 | ||||||||
| $ | 228,536 | $ | 221,803 | |||||||
See accompanying notes.
3
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net sales |
$ | 34,512 | $ | 36,811 | $ | 97,675 | $ | 106,706 | |||||||||
Cost and expenses: |
|||||||||||||||||
Cost of sales |
23,986 | 24,463 | 65,791 | 66,930 | |||||||||||||
Research and development |
5,577 | 8,136 | 18,071 | 24,094 | |||||||||||||
Selling, general and administrative |
6,347 | 6,015 | 18,290 | 18,530 | |||||||||||||
| 35,910 | 38,614 | 102,152 | 109,554 | ||||||||||||||
Loss from operations |
(1,398 | ) | (1,803 | ) | (4,477 | ) | (2,848 | ) | |||||||||
Gain from sale of land |
— | — | 7,873 | — | |||||||||||||
Investment impairment writedown |
— | — | (2,500 | ) | — | ||||||||||||
Interest income |
683 | 648 | 1,825 | 2,136 | |||||||||||||
Income (loss) before income taxes |
(715 | ) | (1,155 | ) | 2,721 | (712 | ) | ||||||||||
Income tax provision (benefit) |
(100 | ) | (600 | ) | 600 | (400 | ) | ||||||||||
Net income (loss) |
$ | (615 | ) | $ | (555 | ) | $ | 2,121 | $ | (312 | ) | ||||||
Income (loss) per share: |
|||||||||||||||||
Basic |
$ | (.03 | ) | $ | (.03 | ) | $ | .10 | $ | (.02 | ) | ||||||
Diluted |
$ | (.03 | ) | $ | (.03 | ) | $ | .10 | $ | (.02 | ) | ||||||
Weighted average shares used in
computing income (loss) per share: |
|||||||||||||||||
Basic |
21,255 | 20,795 | 21,088 | 20,722 | |||||||||||||
Diluted |
21,255 | 20,795 | 21,619 | 20,722 | |||||||||||||
Cash dividends declared per share |
$ | .05 | $ | .05 | $ | .15 | $ | .15 | |||||||||
See accompanying notes.
4
COHU, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except per share amounts)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | 2,121 | $ | (312 | ) | |||||||
Adjustments to reconcile net income (loss) to net
cash provided from operating activities: |
||||||||||||
Depreciation and amortization |
3,103 | 3,065 | ||||||||||
Gain from sale of land |
(7,873 | ) | — | |||||||||
Loss on equipment disposals |
195 | — | ||||||||||
Investment impairment writedown |
2,500 | — | ||||||||||
Increase (decrease) in accrued retiree medical benefits |
85 | (8 | ) | |||||||||
Changes in current assets and liabilities: |
||||||||||||
Accounts receivable |
(7,132 | ) | 5,355 | |||||||||
Note receivable |
— | 191 | ||||||||||
Inventories |
(5,523 | ) | 3,241 | |||||||||
Other current assets |
481 | 3,746 | ||||||||||
Accounts payable |
897 | (1,166 | ) | |||||||||
Customer advances |
(2,492 | ) | 592 | |||||||||
Deferred profit |
2,614 | 1,780 | ||||||||||
Accrued compensation, warranty and other liabilities |
2,313 | 6,260 | ||||||||||
Net cash provided from (used for) operating activities |
(8,711 | ) | 22,744 | |||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of short-term investments |
(112,776 | ) | (31,030 | ) | ||||||||
Sales and maturities of short-term investments |
85,388 | 4,264 | ||||||||||
Net proceeds from sale of land |
8,837 | — | ||||||||||
Purchases of property, plant and equipment |
(1,124 | ) | (1,124 | ) | ||||||||
Payments on note receivable |
206 | — | ||||||||||
Other assets |
2 | 19 | ||||||||||
Net cash used for investing activities |
(19,467 | ) | (27,871 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Issuance of stock, net |
4,752 | 2,831 | ||||||||||
Cash dividends |
(3,172 | ) | (3,112 | ) | ||||||||
Net cash provided from (used for) financing activities |
1,580 | (281 | ) | |||||||||
Net decrease in cash and cash equivalents |
(26,598 | ) | (5,408 | ) | ||||||||
Cash and cash equivalents at beginning of period |
32,696 | 65,510 | ||||||||||
Cash and cash equivalents at end of period |
$ | 6,098 | $ | 60,102 | ||||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid (received) during the period for: |
||||||||||||
Income taxes, net of refunds |
$ | (32 | ) | $ | (8,968 | ) | ||||||
See accompanying notes.
5
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
| 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, 2003, 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, 2002 and management’s discussion and analysis of financial condition and results of operations included elsewhere herein. | ||
| Revenue Recognition | ||
| Cohu’s revenue recognition policy is disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. As more fully described in that policy, revenue from products that have not previously satisfied customer acceptance is recognized upon customer acceptance. The gross profit on sales that are not recognized is generally recorded as deferred profit and reflected as a current liability in the consolidated balance sheet. | ||
| The Company has an $8.5 million contract to provide microwave communications equipment for a command center and infrastructure system. The contract, which utilizes the Company’s most advanced microwave communications technology that has not been installed in an application of this size and complexity, requires that 40% of the total contract price be paid after the system has been fully accepted by the customer. As a result of these factors and the inability to make reasonably dependable estimates of progress toward completion and acceptance, the Company will recognize all revenue and related costs under this contract in the period the system is accepted by the customer. Through September 30, 2003, the Company has deferred approximately $2.2 million of revenue under the contract. | ||
| At September 30, 2003, the Company had deferred revenue totaling approximately $16.5 million and deferred profit of $7.8 million. At December 31, 2002, the Company had deferred revenue totaling approximately $9.8 million and deferred profit of $5.2 million. The increase in deferred revenue and profit is primarily related to the deferral of revenue on certain semiconductor test handler upgrades and new test handlers and microwave communications equipment that have been shipped and installed and are awaiting customer acceptance. | ||
| Stock-Based Compensation | ||
| Cohu has several stock-based compensation plans that are described more fully in Note 10 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Cohu accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in the consolidated statements of operations, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and net income (loss) per share if Cohu had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. |
6
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
| Three months ended | Nine months ended | ||||||||||||||||
| (in thousands, except per share amounts) | 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income (loss), as reported |
$ | (615 | ) | $ | (555 | ) | $ | 2,121 | $ | (312 | ) | ||||||
| Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect | (822 | ) | (750 | ) | (2,296 | ) | (2,617 | ) | |||||||||
Pro forma net loss |
$ | (1,437 | ) | $ | (1,305 | ) | $ | (175 | ) | $ | (2,929 | ) | |||||
Net income (loss) per share: |
|||||||||||||||||
Basic-as reported |
$ | (.03 | ) | $ | (.03 | ) | $ | .10 | $ | (.02 | ) | ||||||
Basic-pro forma |
$ | (.07 | ) | $ | (.06 | ) | $ | (.01 | ) | $ | (.14 | ) | |||||
Diluted-as reported |
$ | (.03 | ) | $ | (.03 | ) | $ | .10 | $ | (.02 | ) | ||||||
Diluted-pro forma |
$ | (.07 | ) | $ | (.06 | ) | $ | (.01 | ) | $ | (.14 | ) | |||||
| Recent Accounting Pronouncements | ||
| In June, 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3. The adoption of Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, including Cohu’s recent Columbus, Ohio and Littleton, Massachusetts’s facilities consolidations. | ||
| In November, 2002, the FASB Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material effect on our results of operations and financial condition. | ||
| In January, 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. FIN 46 provides guidance on: 1) the identification of entities for which control is achieved through means other than through voting rights, known as “variable interest entities” (“VIEs”); and 2) which business enterprise is the primary beneficiary and when it should consolidate the VIE. This new model for consolidation applies to entities: 1) where the equity investors (if any) do not have a controlling financial interest; or 2) whose equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied no later than the end of periods ending after December 15, 2003. Certain disclosures are effective immediately. The adoption of FIN 46 is not expected to effect our results of operations or financial condition. | ||
| In April, 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement provides clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. The adoption of No. 149, which is be effective for contracts entered into or modified after June 30, 2003, had no material effect on our financial condition or results of operations. |
7
COHU, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
| In May, 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards on the classification and measurement of financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003. The implementation of this pronouncement had no material effect on Cohu’s financial condition or results of operations. | ||
| 2. | Income (Loss) Per Share | |
| &nb |